Annamalai University

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ANNAMALAI UNIVERSITY
DIRECTORATE OF DISTANCE EDUCATION
Master of Business Administration (M.B.A)

M.B.A. E-Business
M.B.A. Human Resource Management
M.B.A. Marketing Management
M.B.A. Financial Management
M.B.A. Hospital Management
First Semester
MARKETING MANAGEMENT
LESSONS: 1 – 24
Copyright Reserved
(For Private Circulation Only)
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MASTER OF BUSINESS ADMINISTRATION (M.B.A)

M.B.A. E-BUSINESS
M.B.A.INTERNATIONAL BUSINESS
M.B.A.HUMAN RESOURCE MANAGEMENT
M.B.A.MARKETING MANAGEMENT
M.B.A.FINANCIAL MANAGEMENT
M.B.A. HOSPITAL MANAGEMENT
FIRST SEMESTER
Editorial Board
Chairman
Dr. N. Ramagopal
Dean
Faculty of Arts
Annamalai University
Members
Dr. R. Singaravel Dr. P. Vijayan
Director Director
D.D.E. Academic Affairs
Annamalai University Annamalai University
Dr. G. Udayasuriyan Dr. S. Arulkumar
Professor and Head Associate Professor and Dy. Coordinator
Department of Business Administration Management Wing, DDE
Internals
Dr. S. Partheeban Dr. G. Natarajan
Assistant Professor Assistant Professor
Management Wing, DDE Management Wing, DDE
Externals
Dr. S. Sriram Dr. S. Gangadaran
Principal & Director Director of Management Studies
Agri School of Management Adhi Parasakthi engineering College
Dindigul Melmaruvathur
Lesson Writers
Units: I – III Units: IV – VI
Dr. R. Sritharan Dr. J. Jayakrishnan
Associate Professor Professor
Management Wing, DDE Department of Business Administration
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M.B.A. E-BUSINESS
M.B.A.INTERNATIONAL BUSINESS
FIRST SEMESTER
Learning Objectives
The objectives of this course are:
LO1: To familiarize with the various concepts in marketing;
LO2: To acclimatize the candidates about the marketing environment;
LO3: To understand consumer behavior;
LO4: To analyse the factors influencing consumer decision and
LO5: To develop the ability to design best marketing strategy.
Course Outcomes
Upon completion of the course, the candidates will:
CO1: Demonstrate a clear understanding of marketing concepts;
CO2: Describe the major factors that influence consumer purchasing decisions;
CO3: Understand how price affects the value of the organization’s products or
services;
CO4: Evaluate how marketing strategies align with corporate strategies and
CO5: Present a marketing plan
Teaching Methods
Case Study, Role Play, Seminar, Group Discussion, Audio Video, Inbasket
exercise
Unit–I Introduction
Marketing – Definition – Importance – Concepts in Marketing, Marketing Tasks
(Conventional & Stimulational Marketing, Maintenance Marketing, Synchro
Marketing) Marketing Concepts – Traditional and Modern Concepts – Marketing
Environment, Marketing Strategies – Kinds of Marketing Strategies – Marketing Mix
Concept – Marketing Research and Information – Objectives and Process.
Unit–II Consumer Behaviour
Market Segmentation – Bases for Segmenting Consumer and Industrial Market
– Market Targeting and Product Positioning - Consumer Behaviour – Factors
Influencing Consumer Behaviour - Sales Forecasting – Techniques.
Unit–III Product
Product – Meaning – Classification of Goods – Product Planning - Product Life
Cycle – New Product Development – New Product Adoption Process - Innovation –
Product Obsolescence – Elimination – Product Related Strategies – Branding, Labeling,
Trade Mark – Packaging – New Trends in Packaging - Copy Right - Patents.
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Unit–IV Pricing and Distribution

Pricing - Meaning and Objectives - Pricing Policies and Strategies Pricing Methods
- Distribution – Selection of Channel of Distribution – Wholesalers and Retailers –
Functions and Importance – Transport – Role and Importance in Distribution Network
- Warehousing Decisions - Management of Physical Distribution.
Unit–V Promotion
Promotion – Promotion Mix – Purpose of Promotion - Promotion Strategy –
Sales Promotion – Advertising – Uses of Advertising – Kinds of Advertising Budget-
Sales Management - Salesmanship Qualities – Effectiveness in Selling – Sales
Process – Publicity – Types - Purpose.
Unit–VI Consumerism
Consumerism – Problems of Consumer Protection – Developments in
Consumer Protection in India - Government and Marketing – ISI, AGMARK, Public
Distribution of Essential Commodities – Neo Marketing Trends – e-Marketing – Tele-
marketing – Green Marketing – Event Marketing – Viral Marketing – Direct
Marketing- Ethics in Marketing - Recent Trends in Marketing (for discussion alone).
Text Books
1. Gupta, G.B., Rajan Nair, N., Marketing Management, Sultan Chand & Sons,
New Delhi, 2016.
2. Philip Kotler, and Kavin Lane Keller, Framework for Marketing Management,
6th Edition, Pearson Education, New Delhi, 2016
Supplementary Readings
1. Karen Webb, Consumer Behaviour, 2nd Edition, Tata McGraw Hill, New
Delhi, 2011.
2. Philip Kotler, Kevin Keller, Abraham Koshy and Jha, Marketing
Management, 14th Edition, Pearson Education, New Delhi, 2012.
3. Ramasamy Namakumari, Marketing Management, Asian Perspective,
Mcmillan, New Delhi, 2016.
4. Russel S. Winer, Marketing Management, Tata McGraw Hill, New Delhi,
2012.
5. Warren J. Keegan, Global Marketing Management, 8th Edition, Pearson
Education, Newdelhi, 2014.
Journals and Magazines
1. Journal of Marketing Management
2. Global Journal of Marketing Management and Research.
3. Journal of Marketing and Management
4. International Journal of Management and Marketing
5. Asia Pacific Journal of Financial Management and Marketing Research.
Web Resources
1. wps.pearsoned.co.uk/ema_uk_he_kotler_euromm_1
2. www.marketingtoday.com
3. www.tandfonline.com/toc/rjmm20
4. www.pearsonhighered.com/kotler
5. www.marketingeye.com.au/marketing.../marketing/top-20-marketing-
websites
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M.B.A. E-BUSINESS
FIRST SEMESTER
CONTENTS
LESSON PAGE
LESSON NAME
NO. NO.
1. Marketing: Definition and Importance 1
2. Concepts of Marketing 7
3. Marketing Management Tasks 13
4. Marketing Environment 19
5. Marketing Strategies 29
Market Segmentation, Market Targeting and Product
6 37
Positioning
7 Buyer (Consumer) Behaviour 48
8 Sales Forecasting 59
9 Marketing Mix 68
10 Product 73
11 Product Planning and Development 80
12 New Product Development 87
13 Product Related Strategies: Branding 96
14 Product Related Strategies: Packaging and Labeling 104
15 Pricing 115
16 Promotion 134
17 Advertising and Advertising Budget 156
18 Sales Management 176
19 Distribution Channels 189
20 Physical Distribution 205
21 Marketing Research 215
22 Consumerism 228
23 Government and Marketing 245
24 The Indian Marketing Environment 250
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1
LESSON – 1
MARKETING: DEFINITION AND IMPORTANCE
1.1. INTRODUCTION
The term “market” in its common usage is used to refer the place where actual
buying and selling take place. But, for a student of marketing, the term “market”
does not mean any particular market place in which things are bought and sold,
but the whole of any region in which buyers and sellers are in free interaction with
one another that the prices of the same goods tend to be equalized easily and
quickly. In its general interpretation it means “any body of persons who are in
intimate business relations and carry on extensive transaction in any commodity”.
Thus the market is the sum total of the situation of environment which the
resources, activities and attitudes of buyers and sellers affect the demand of
products in a given area. It should be clearly understood that the term market is
used to mean not any particular geographical meeting place of the buyers and
sellers by as the getting together of buyers and sellers in person, by mail,
telephone, telegraph, cable or any other means of communication.
“Marketing” makes goods useful to the society by getting them where they are
wanted, when they are wanted and by transferring them to those people who want
them. It is in this sense that marketing has been defined as “all the activities
involved in the creation of place, time and possession utilities”. Marketing is thus
concerned with “handling and transportation of goods from the point of production
to the point consumption”. In this journey of goods from the manufacturer’s
warehouse of producer’s granary or miner’s yard to the ultimate consumers, several
difficulties has to be removed. Firstly good are to be removed from the place of their
origin to the place or places where their need is felt. This is creation of place utility.
Secondly, goods are to be made available at a time when they are needed. It
means that they must be stored and protected against fire, rain, pests, thieves etc.,
till that time. This is creation of time utility. Finally, the ownership and ultimately
the possession of these goods are to be transferred from the producer or the
manufacturer to the ultimate consumer. This has been referred to as the creation of
possession-utility. To emphasize all these aspects of marketing. Clark and Clark
wrote that “marketing consists of those efforts which effect transfer in ownership of
goods and care for their physical distribution”.
To facilitate proper discussion on the subject, we shall consider a few
definitions of marketing. A cursory glance through them would reveal that there are
varying perception sand view-points on the meaning are content of marketing.
1.2. OBJECTIVES
 To study the meaning and importance of Market & Marketing
 To understand the terms Marketing, Selling and Merchandising
1.3. CONTENTS
1.3.1 Selected Definitions of Marketing
1.3.2 Marketing, Selling and Merchandising
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1.3.3 Importance of Marketing

1.3.3.1 Importance of Marketing to the Society
1.3.3.2 Benefits or Importance of Marketing to Individual Business Firms
1.3.1 SELECTED DEFINITIONS OF MARKETING
1. Much of marketing is concerned with the problem of profitably disposing of
what is produced.
2. Marketing is a phenomenon brought about by the pressures of mass
production and increased spending power.
3. Marketing is the performance of business activities that direct the flow of
goods and services from the producer to the consumer.
4. Marketing is the economic process by means of which good and services are
exchanged between the maker and the user their values determined in them
of money prices.
5. Marketing is designed to bring about desired exchanges with target
audiences for the purpose of mutual gain.
6. Marketing activities are concerned with the demand-stimulating and
demand –fulfilling efforts of the enterprise.
7. Marketing is the function that adjusts the organisation’s offering to the
changing needs of market place.
8. Marketing is a total system of interacting business activities designed to
plan, promote and distribute need-satisfying products and services to
existing and potential consumers.
9. Marketing starts with the identification of a specific need on the part of the
consumer and ends with the satisfaction of that need. The consumer if
found both at the beginning and the end of the marketing process.
10. Marketing originates with the recognition of a need on the part of a
consumer and terminates with the satisfaction of that need by the delivery of
a usable product at the right time, at the right place and at an acceptable
price.
11. Marketing is so basic that it cannot be considered a separate function. It is
really the whole business seen from the point of view of the final result, i.e.,
from the point of view of the customer.
12. Marketing is a viewpoint which looks at the entire business process as a
highly integrated effort to discover, create, arouse and satisfy consumer
needs.
13. Marketing is the delivery of a standard of living.
Distinction between Market and Marketing
Market is an arrangement to provide an opportunity to exchange goods. In the
market the forces of demand and supply operate directly or by means of
communication and fix prices. Whereas marketing is the sum-total of all those
activities that are related to the free flow of goods from the point of production to
the point of consumption. Physical movement of goods is the point of consumption.
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Physical movement of goods is the hallmark of marketing. That is, once the price
fixation is done, the journey is to start from sellers to buyers.
1.3.2 MARKETING, SELLING AND MERCHANDISING
Sometimes the terms ‘Marketing’, ‘Selling’ and ‘Merchandising’ are used inter-
changeably. But that is not correct. Some difference exists in their meaning.
Marketing is a comprehensive term, while the others are only one part of the
marketing system. Merchandising may be defined as “product planning”. It includes
the “internal planning need to get the right product or service to the market at the
right time, at the right place, and in proper colours, quantities, and sizes”. Selling is
“one method of promotion,” and promotion is only a part of the total marketing
programme.
The studying of marketing aims at:
i. Developing an intelligent appreciation of modern marking practices and
the influences in marketing situations.
ii. Developing a broader framework for thinking about marketing.
iii. Providing guiding policies regarding marketing procedures and their
implementations.
iv. Intensifying one’s felling of participation in marketing.
v. Creating an open-minded, hopeful attitude towards the efforts of those
scholars in marketing who are trying to develop it into a science.
vi. Indicating the sources from which further information can be obtained
concerning marketing problems or situations.
vii. Supplying the factual background and analytical judgement necessary for
dealing with marketing problems.
viii. Helping oneself to decide whether his career shall be marketing.
1.3.3 IMPORTANCE OF MARKETING
The importance of marketing has been so beautifully expressed by Peter
Drucker : “Marketing is the distinguishing, the unique function of business. A
business is set apart from all other human organizations by the fact that it markets
a product or a service. Neither Church, nor Army, nor State does that. Any
organisation that fulfills itself through marketing a product or a service is a
business. Any organisation in which marketing is either absent or incidental is not
a business and should never be run as if it where one”.
The importance of marketing in business planning and decision making can be
understood from a following quotation: “In this existing age of change, marketing is
the beating heart of many operations”.
It must be considered a principal reason for corporate existence. The modern
concept of marketing recognizes its role as a direct contributor to profits, as well as
sales volume. “No longer can a company just figure out how many gadgets it can
produce and then go ahead and turn them out. To endure in this highly competitive
change infested market, a company must first determine what it can sell, how
much it can sell and what approaches must be used to entice the wary customer.
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The president cannot plan; the production manager cannot produce, the
purchasing agent cannot purchase; the chief financial officer cannot budget, and
the engineer and designer cannot design until the basic market determinations
have been made”.
Marketing has even greater importance and significance for the society as a
whole than for any of the individual beneficiaries of the marketing process, and can
be expressed as follows:
1.3.3.1. Importance of Marketing to the Society
1. Marketing helps to achieve, maintain and raise the standard of living of the
society : Despite the differences in the level of living, every member of the society
requires certain commodities and services to enjoy, making his living decent and
gracious. There for everything and anything, everybody has to depend completely
on this gigantic system i.e. marketing. Thus the shirts and pants you wear, the hair
oil and toothpastes that you apply, the face powder and now that you use in make-
up, the medicines you consume, the cycle you ride on, the cars and scooters that
you drive, the food you eat, the drinks cold or hot you drink –all are made available
by marketing. Marketing is the means through which production and purchasing
power are converted into consumption. Hence Paul Mazur states that marketing is
the delivery of standard of living. Prof. Malcolm Nair improved Mazur’s statement
and has said that “Marketing is the creation and delivery of standard of living to the
society”.
Marketing process brings new variety of useful and quality goods to consumers.
This raises the standard of living. Better marketing gives room for mass production.
Under mass production, cost of production will be low and hence price of the article
will be low. Since price is low people can buy more goods for their money. This will
result in a higher standard of living.
2. Marketing increases employment opportunities : Marketing process increases
employment opportunities. Just as every industry provides employment
opportunities to thousands of skilled and unskilled labour in various capacities,
marketing also provides employment to millions of people. Marketing is a complex
mechanism involving number of functions and sub-functions which call for
different specialized persons for employment. The major marketing functions are
buying and selling, transport, warehousing, financing, risk bearing, market
information and standardization. In each such function, different activities are to be
performed by a large number of individuals or institutions. It is said that roughly
30 to 40% of the population depend directly or indirectly on marketing.
3. Marketing helps to increase national income: The narion’s income is
composed of goods and services which money can buy. Efficient system of
marketing reduces the cost to the minimum, this in turn lowers the prices and the
consumers’ purchasing power increases this will increases the national income.
4. Marketing helps to maintain economic stability and development: Economic
stability is the sign of any efficient and dynamic economy. Economic stability is
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maintained only when there is a balance of supply and demand. If production is

more than demand, the excess goods cannot be sold at acceptable prices. Then the
stocks of goods would be piled up and there would be glut in the market, resulting
in fall in price. Similarly, if production is less than demand, prices shoot up
resulting in inflation. In such a situation, marketing maintains the economic
stability by balancing production and consumption.
5. Marketing is connecting link between the consumer and the producer:
Marketing process brings new and new to retail shops from where the consumer
can have them.
6. Marketing removes the imbalances of supply by transferring the surplus to
deficit areas, through better transport facilities.
7. Marketing helps in creation of utilities: Marketing as an economic activity
creates possession, place, time, and information utilities. Exchange creates
ownership and possession utilities. Transport creates place utility. Storage creates
time utility. Promotional activities create information utility.
1.3.3.2. Benefits or Importance of Marketing to Individual Business Firms
1. Marketing generates revenue to firms: Profit is the core on which the whole
super structure of business is built. Marketing alone generates revenue or income
to an enterprise. Functions of marketing development and widen the markets.
When markets are widened sales increases and thus profit to the firm increases.
2. Marketing as a basis for making decisions: The problems of the entrepreneur
are what, how, when, how much and for whom to produce. In the past, the
producer was in direct contact with consumers. Hence the problems were tackled
very easily. However, to-day the producer does not have any direct contact with a
consumer. Therefore, the problem of the procedure become very acute and
complicated.
Now days, these problems are solved by the marketing departments. The
marketing department collects all information regarding what, how when, how
much and the whom to produce and these informations are passed on to the top
management. The top management uses all these informations for decision making.
3. Marketing helps the top management to manage innovations and changes:
Marketing and innovation are the two basic functions of any business. We are living
in a dynamic world. There is nothing permanent except change. Change is the
essence of life and change means progress. To-day the minds of the consumers are
not firm, but fluctuating or changing. Hence, in order to run a business
successfully a business man should adapt himself to the changing preferences,
changing styles, changing fashions etc. and innovate new customers, new product,
new markets, new methods and procedures. Marketing helps to adopt change and
innovate. Retailers communicate to the wholesalers about consumers demand.
Wholesalers, in turn, communicate to manufacturers about market demand.
Market research also acts as a source of marketing information on consumer
behaviour and market trends. Salesmen of a market oriented concern are its ears
and eyes for information feedback.
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Marketing, in sum, tries to find out the right type of production that the firm
should manufacture, the right place where it is to be made available for use; and
the right price at which it is to be made available, and the right channel, through
which it is to be brought to the notice of the consumers.
Marketing is, thus, the father of innovation and product development, prompter
of entrepreneurial talent, developer of economy, stimulator of consumption and
higher standard of living and guardian of price system.
If the functions of marketing are not performed properly the economic system
may get out of balance resulting in piling of goods with retailers, wholesalers and
manufacturers, closure of factories and retrenchment of workers. Marketing
secures a closer balance between output and consumption. In this age of mass
production, modern marketing has enabled a smooth system of mass distribution.
Hence, marketing plays a review role in the economic stability of country.
1.4. REVISION POINTS
Merchandising – About Seller
Sales – About buyer
Marketing – Direct contributor to profits / sales volume
1.5. INTEXT QUESTIONS
1. Define Marketing and discuss the importance of marketing.
2. Differentiate the term Marketing from Sales and Merchandising.
1.6. SUMMARY
Marketing - meaning – all activities in the chain of transfer of ownership – sales
and merchandising under marketing – existing age marketing is beating heart of all
operations – father of innovation and product development
1.7. TERMINAL EXERCISES
Your company has decided to introduce the modern marketing concept into its
business activities. The firm is in the line of manufacturing quartz watches. Give a
write up as to how you could make the company really “consumer –oriented”?
1.8. SUPPLEMENTARY MATERIALS
1. Journals- Indian Management, New Delhi
2. Websites- WWW.Bookboon.com
1.9. ASSIGNMENT
How would you judge, whether a firm is really consumer oriented or not?
1.10. SUGGESTED READING /REFERENCE BOOKS/ SET BOOKS
Marketing Management – Philip Kotler
1.11. LEARNING ACTIVITIES
Outline the marketing problem associated with rapid industrial development
and how can these be controlled to an extent.
1.12. KEYWORDS
Marketing ,Merchandising

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LESSON – 2
CONCEPTS OF MARKETING
2.1. INTRODUCTION
Studies reveal that different organisations have different perceptions of
marketing. And these differing perceptions have led to the formation of different
concepts of marketing. It is found that at least five distinct concepts of marketing
have guided and are still guiding business firms. They are:
• the exchange concept
• the production concept
• the product concept
• the sales concept and
• the marketing concept
We shall now discuss each of the five distinct concepts of marketing.
2.2. OBJECTIVES
 To study different concepts of marketing
 To stud features and importance of marketing concept
2.3. CONTENTS
2.3.1 Traditional Marketing Concept
2.3.1.1The Exchange Concept
2.3.1.2 The Production Concept
2.3.1.3 The Product Concept
2.3.1.4 The Sales Concept
2.3.2 The Marketing Concept
2.3.3 Features of the Marketing Concept
2.3.4 Benefits of Marketing Concept
2.3.5 Modern Marketing Concept
2.3.1 TRADITIONAL MARKETING CONCEPT
2.3.1.1 The Exchange Concept
The Exchange Concept of marketing, as the very name indicates, holds that the
exchange of a product between the seller and the buyer is the central idea of
marketing. While exchange does form a significant part of marketing to view
marketing as a mere exchange process would amount to a gross undermining of the
essence of marketing. A proper scrutiny of the marketing process would readily
reveal that marketing is very much broader than exchange. Exchange, at best,
covers the distribution aspect and the price mechanism involved in marketing. The
other review aspects of marketing, such as concern for the customer, the
generation of value satisfactions, the creative selling and integrated action for
serving the customer get completely overshadowed in the Exchange Concept of
marketing.
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2.3.1.2 The Production Concept
According to the Production Concept, marketing is a mere appendage to
production. Production and technology dominate the thinking process of the key
people in the business. They believe that marketing can be managed by managing
production. The concept holds that consumers would, as a rule, support those
products that are produced in great volume at a low unit cost.
Organisations voting for this concept are influenced by a drive to produce all
that they can. They do achieve high production efficiency and a substantial
reduction in the unity cost of production; and in quite a few cases they also do well
with the distribution takes and make the products widely available, get, they often
do not get customers as they expected. Customers, after all, are motivated by a
variety of considerations in their purchases. Easy availability and low cost are not
the only parameters governing the customer’s buying action. And the production
concept thus fails to serve as the right marketing philosophy for the enterprise.
2.3.1.3 The Product Concept
The product Concept is somewhat different from the Production Concept.
Whereas the Production Concept seeks to win markets and profits via high volume
of production and low unit costs of production, the Product Concept seeks to
achieve the same results via production excellence, improved products, new
products and ideally designed and engineered products. It also places emphasis on
quality assurance. In general, it tries to take care of the marketing task through the
product attributes.
Organisations that subscribe to the Product Concept of marketing believe that
the consumers would automatically vote for products of high quality. They
concentrate on achieving product excellence. In addition, research and development
and bring in a variety of new products. Yet, in many cases, these organisations fail
in the market. They do not bother to study the market and the consumer in depth.
They get totally engrossed with the product and almost forget the consumer for
whom the product is actually meant; they fail to find out what the consumers
actually need and they would gladly accept.
2.3.1.4 The Sales Concept
The Sales Concept become the dominant idea guiding marketing as more and
more markets became buyers markets and as the entrepreneurial problem became
one of solving the shortage of customers rather than the shortage of goods. The
sales concept maintains that a company cannot expect its products to get picked
up automatically by the customers. The company has to consciously promote and
push its products. Heavy advertising high-power personal selling, large-scale sales
promotion, heavy price discounts and strong publicity and public relations are the
normal tools used by the orgnaisation that rely on this concept.
Evidently, the Sales Concept too generates marketing myopia just as the
Exchange Concept, the Production Concept, and the Product Concept do. But only
a few marketing executives realise this problem. Overwhelming attention to the
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production or product aspects or the selling aspects at the cost of the customer and
his actual needs creates this myopia. It leads to a wrong or inadequate
understanding of the market and consequently a total failure in the market-place.
The majority fee that the Sales Concept is a flawless idea. They think selling is
synonymous with marketing. The general public too perceive marketing from the
standpoint of the Sales Concept as the majority of business firms practice only
selling. But in reality, there is a great deal of difference between selling and
marketing. And that explains the evolution of the Marketing Concept as a totally
distinct idea from the Sales Concept. It may be relevant and useful to analyse the
difference between ‘Marketing’ and ‘Selling’ before we discuss the Marketing
Concept.
Marketing is much wider than selling, the much more dynamic. There is a
fundamental between the two in approach as well as in the very philosophy on
which the two processes rest. Selling revolves around the needs and interests of the
seller; marketing revolves around the needs interests of the buyer. Selling starts
with the existing products of the corporation and views business as a task of
somehow promoting these products. Marketing, the other hand, starts with the
customers of the corporation-present and potential-and views business as a task of
meeting the needs of the customers by producing and supplying those products
and services that would exactly meet the needs of the customers. Selling seeks
profits by pushing the products on the buyers. Marketing seeks profits not through
the aggressive pushing of the products but by meeting the needs of the customers
and by creating value satisfactions for them. In other words, marketing calls upon
the corporation to choose products, prices and methods of distribution and
promotion that would meet the needs of customers. It dose not unwisely limit its
role to persuading the customers to accept what the corporation already has or
what it can offer readily.
2.3.2 THE MARKETING CONCEPT
While the foregoing discussion on the difference between selling and marketing
make it clear that marketing is a more fully evolved idea compared with selling, one
has to delve a little deeper for obtaining a full understanding of the marketing
concept as such.
The Marketing Concept was born out of the awareness that marketing starts
with the determination of consumer wants and ends with the satisfaction of those
wants. The concept puts the consumer at both the beginning and end of the
business. It stipulates that the company should be organized totally around the
marketing function, anticipating, stimulating and meeting customers requirements.
The customer, not the corporation, has to be the centre of the business universe.
The concept rests on the realization that a business cannot success by
supplying to the customer products and services that are not properly designed to
serve their needs. It proclaims that “the entire business has to be seen from the
point of view of the customer”. In a company operating on this concept all
departments will recognize that their actions have a profound impact on the
company’s ability to create a retain a customer. Marketing concept represents
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essentially a change in orientation on the part of managements towards business.

The change is:
From production orientation – to marketing orientation;
From product orientation – to customer orientation;
From supply orientation – to demand orientation;
From volume orientation – to profit orientation;
From sales orientation – to satisfaction orientation;
From internal orientation – to external orientation;
It is obvious that only the Marketing Concept is capable of keeping the
organisations free from ‘Marketing Myopia’. All other ideas guiding marketing, viz.,
the Exchange Concept, the Production Concept, the Product Concept and the Sales
Concept give rise to marketing myopia of one from or the other.
The marketing concept is a customer orientation backed by integrated
marketing aimed at generating customer satisfaction as the key to satisfying
organisational goals.
2.3.3. FEATURES OF THE MARKETING CONCEPT
1. Consumer orientation: An overwhelming emphasis on the consumer and his
need is the first distinguishing feature of the Marketing Concept. The concept
enabled the industrial and business firms to understand the nature and the
mission of their business from the point of view of the consumer. And it meant a
revolution, as till then, the business was seen and defined from the point of view of
the producers of those who owned the business.
2. Integrated management action: The second major distinguishing feature of
the Marketing Concept is integrated management action. Integrated management
action simply means that all the different management functions in the business
must be tightly integrated with one another, keeping marketing as the pivot. This is
essential for the success of the business because every activity in every function of
management has a vital bearing on marketing consumer. All these activities should
lead to a favourable impact on the consumer. And for this to happen all functional
areas of the business has to be properly aligned with marketing.
3. Consumer satisfaction: Integrated management action explained above, is
again only a means, not an end in itself. It is the means for fulfilling the needs of
the consumer. And this leads us to the third major distinguishing features of the
Marketing Concept, namely, consumer satisfaction. The Marketing Concept believes
that it is not enough if a firm has consumer orientation. It is essential that such
orientation leads to consumer satisfaction. The concept believes that it is not
enough if a firm markets its products successfully in the short run; it must keep
growing, keeping consumer satisfaction as the foundation of it growth. It believes
that not firm can afford to ignore the its dose so at its peril. The concept effectively
counteracts the temptations of short-sighted management attitudes, by its
emphasis on consumer satisfaction.
4. Realising organizational goals including profits: Consumer satisfaction, which
is a major theme of the Marketing Concept, is again not an end in itself. The
concept does not preach that a firm must generate consumer satisfaction and forget
11
all the other goals of the organisation. Instead, it treats consumer satisfaction as
the pathway to all the goals of the organisation. The underlying approach is: if a
firm that the firm has given a quality product, has offered competitive price and
prompt services and has succeeded in creating a good product and company image.
It is quite obvious that for achieving these results, the firm would have tried its
maximum to control costs and simultaneously ensure quality, optimize productivity
and maintain a good organisational supporting one another, will a product with all
the attendant features organisational goals including profits is unreview to the firm.
The concept is against profiteering, but not against profits. It appreciates that
reasonable returns or surpluses are essential for the survival and as a natural
corollary of the business sequence consumer orientation and integrated
management action leading to consumer satisfaction, and the latter leading in turn
to organisational profits.
2.3.4 BENEFITS OF MARKETING CONCEPT
A business enterprise adopting the marketing concept can enjoy the following
advantages:
1. Long –term success is assured to an enterprise only if it recognize that the
needs of the market are paramount.
2. It enables the firm to move more quickly to capitalise on market
opportunities. Marketing risks can be reduced only by knowing and
understanding the market.
3. Customer needs, wants and desires receive top consideration in all business
activities.
4. Greater attention is given to the product planing and development so that
merchandising can become more effective.
5. Demand side of the equation of exchange is honoured more and supply is
adjusted to changing demand. Hence, more emphasis is given to research
and innovation.
6. Marketing system based on the marketing concept assures integrated view of
business operations and indicates interdependence of different departments
of a business organisation.
7. Interests of the enterprise and society can be harmonised as profit through
service emphasized.
8. Marketing research is now an integral part of the marketing process and it is
a managerial tool in decision –making in the field of marketing.
Thus Marketing Concept brings benefits to the organisation that practices the
concept, the consumer and the society. Hence a clear understanding of this concept
is fundamental to the study of marketing.
2.3.5 MODERN MARKETING CONCEPTS
 Marketing Concept: This is the modern concept of marketing or marketing
philosophy. This concept holds that the primary task of a business firm is to
study the needs, desires and the preferences of the potential consumers and
produce goods which are actually needed by the consumers. When an
12
organisation practices the marketing concept, all it’s activities are directed to
satisfy the consumer.
 Social Concepts: According to this concept, the task of management is to
identify and satisfy consumer wants, in conformity with social interests. Firms
should not only consider consumer wants and profits but also society
interests while making their marketing decision.
 Holistic Marketing Concept: Holistic marketing concept is a new marketing
concept. Holistic marketing recognizes that “everything matters” with
marketing- and that a broad, integrated perspective is often necessary. There
are four components of holistic marketing concept. They are…
• Relationship marketing
• Integrated marketing
• Internal marketing
• Social responsibility marketing
2.4. REVISION POINT
Marketing concepts, benefits of marketing concept innovation
1. Explain clearly the modern concepts of marketing
2. Write short notes on
a. Consumer Orientation b. Consumer Satisfaction
2.6. SUMMARY
All the fine concepts of marketing the exchange, the production, the product,
the sales, the marketing gets importance study of marketing.
Identify an Indian company which sailed through the different concepts of
marketing. Evaluate the reactions from the consumers.
2.9. ASSIGNMENT
All organizations need marketing- Do you agree to this statement? If so give
reasons in support of your answer.
Examine the marketing concepts in the modern context and what strategic
planning could play its role in it?
2.12. KEY WORDS
Marketing concept – aimed at customer satisfaction to satisfy organisational
goals.

13
LESSON – 3
MARKETING MANAGEMENT TASKS
3.1. INTRODUCTION
Marketing management represents marketing concept in action. It may be
defined as the process of management of marketing programmes for accomplishing
organisational goals and objectives. The process of management is the set of
managerial functions known as planning, implementation and control of
programmes to achieve predetermined objects. Marketing management involves
planning, implementation and control of marketing programmes.
Marketing management represents an review functional area of business
management efforts for the flow of goods and services from the producers to the
consumers. It looks after the marketing system of the enterprise. Marketing
management performs all managerial functions in the field of marketing. It has to
plan and develop the production on the basis of known consumer demand. It has to
build up appropriate marketing plan or marketing mix to fulfill the set goals of the
business. It has to formulate sound marketing policies and programmes. It looks
after their implementation and control.
Marketing management has to fulfill the following responsibilities in particular:
1. Sales and market analysis.
2. Determination of marketing goals
3. Sales forecasting and marketing budget.
4. Formulation of marketing strategies, policies and procedures.
5. Evolving an appropriate marketing – mix or programme.
6. Organizing all marketing activities and instruments included in the
marketing-mix. Marketing activities may be organized product-wise,
area-wise or customers-wise according to specific requirements.
7. Assembling of necessary resources, such as marketing personnel,
finance, and physical facilities etc., to execute marketing campaign.
8. Active participation in the product planning and development to
establish best correlation between the product attributes and customer
demands.
9. Management of distribution channels and physical distribution.
10. Effective communication, proper control and co-ordination of all
marketing functions.
11. Post-sales servicing during the warranty period.
3.2. OBJECTIVES
 To study in detail the various marketing management tasks
3.3. CONTENTS
3.3.1 Marketing – Management Tasks
3.3.2 Conversional Marketing
3.3.3 Stimulational Marketing
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3.3.4 Developmental Marketing

3.3.5 Remarketing
3.3.6 Synchro marketing
3.3.7 Maintenance Marketing
3.3.7 Demarketing
3.3.8 Counter marketing
3.3.1 MARKETING –MANAGEMENT TASKS
The popular image of the marketing manager is that of someone whose task is
primarily to stimulate demand for the company’s products. However, this is too
limited a view of the range of marketing tasks carried out by marketing managers.
Marketing management is a task of regulating the level, timing, and characters of
demand in a way that will help the organisation achieve its objectives. Simply put,
marketing management is demand management.
The organisation forms an idea of a desired level of transactions with a market.
At any point in time, the actual demand level may be below, equal to, or above the
desired demand level. This leads to the eight distinguishable demand states listed
in Table 3.1. The marketing task and the formal name of each task is shown next to
each demand state.
Table 3.1
The basic marketing tasks
Demand State Marketing Task Formal Name
I Negative demand Disabuse demand Conversional marketing
II No demand Create demand Stimulational marketing
III Latent demand Develop demand Developmental marketing
IV Faltering demand Revitalize demand Remarketing
V Irregular demand Synchronize demand Synchromarketing
VI Full demand Maintain demand Maintenance marketing
VII Overfull demand Reduce demand Demarketing
VIII Unwholesome demand Destroy demand Countermarketing
3.3.2 CONVERSIONAL MARKETING
Conversional marketing grows out of the state of negative demand. Negative
demand is a state in which all or most of the review segments of the potential
market dislike the product or service and in fact might conceivably pay a price to
avoid it.
Negative demand, far from being a rare condition, applies to many products
and services. Vegetarians feel negative demand for meats of the kinds. People have
a negative demand for vaccinations, dental work, vasectomies, and gall bladder
operations. Many travelers has a negative demand for air travel; others have a
negative demand for rail travel. Places such as the North Pole and the desert
15
wastelands are in negative demand by tourists. Atheism, exconvicts, military

service, and even work are in negative demand by certain groups.
The challenge of negative demand to marketing management especially in the
face of a positive supply, is to develop a plan that will cause demand to rise from
negative to positive and eventually equal the positive supply level. We call this
marketing task conversional marketing.
3.3.3 STIMULATIONAL MARKETING
There is a whole range of products and services for which there is no demand.
Instead of people having negative or positive feeling toward the offering, they are
indifferent or uninterested. No demand is a state in which all or review segments of
a potential market are uninterested in or indifferent to a particular offering.
Three different categories of offering are characterized by no demand. First,
there are those familiar objects that are perceived as having no value. Examples
would be urban junk such as disposable coke bottles, old barbed wire, and political
buttons right after an election. Second, there are those familiar objects that are
recognized to have value but not in the particular market. Examples would include
boats in areas not near any water, snowmobile in areas where it never snows, and
burglar alarms in areas where there is not crime. Third, there are those unfamiliar
objects that are innovated and face a situation of no demand because the relevant
market has no knowledge of the object. Examples would include trinkers of all
kinds that people might buy if exposed to but would not normally think about or
desire.
The task of converting no demand into positive demand is called stimulational
marketing. Stimulational marketing is a tough task because the marketer does not
even start with a semblance of latent demand for the offering. He can proceed in
three ways. The first is to try to connect the product or service with some existing
need in the marketplace. Thus antique dealers can attempt to stimulate interest in
old barbed wire on the part of those who have a general need to collect things. The
second is to alter the environment so that the offering becomes valued in that
environment. Thus sellers of motorboats can attempt to stimulate interest in boast
in a lakeless community by building an artificial lake. The third is not distribute
information or the object itself in more places in the hope that people’s lack of
demand is really only a lack of exposure.
3.3.4 DEVELOPMENTAL MARKETING
Developmental marketing is associated with a state known as latent demand. A
state of latent demand exists when a substantial number of people share a strong
need for something that dose not exist in the form of an actual product or service.
The latent demand represents an opportunity for the marketing innovator to
develop the product or service that people has been wanting.
Examples of products and services in latent demand abound. Many cigarette
smokers would like a good-tasting cigarette that dose not yield nicotine and tars
damaging to health. Such a product break-through would be an instant success,
16
just as the first filter-tip ciragette won a sizable share of the market. Many people
would like a car that promised substantially more safety and substantially less
pollution than existing cars. There is a strong latent demand for fast city roads,
efficient trains, uncrowded national parks, unpolluted major cities, safe streets, a
good television programmes.
The process of effectively converting latent demand is that of development
marketing. The marketer must be an expert in identifying those prospectus who
have the strongest latent demand and in coordinating all the marketing functions
to develop the market in an orderly way.
3.3.5. REMARKETING
All kinds of products, services, places, organisations, and ideas eventually
experience declining or faltering demand. Faltering demand is a state in which the
demand for a product or service is less than its former level and where further
decline is expected in the absences of remedial efforts to revise the target market,
offering and /or marketing effort.
For example, railway travel has been a service in steady decline for a number of
years, and it is badly in need of imaginative remarketing. Many churches have seen
their membership thin our in the face of competition from secular recreations and
activities. The downtown areas of many, large cities are in need of remarketing.
Many popular entertainers and political candidates lose their following and badly
need remarketing.
The challenge of faltering demand is revitalization, and the marketing task
involved is remarketing. Remarketing is based on the premise that is possible in
many cases to start a new life cycle for a declining product or service. Remarketing
is the search for new marketing propositions for relating the offering to its potential
market.
3.3.6 SYNCHRO MARKETING
Very often an orgnization might be satisfied with the average level of demand
but quite dissatisfied with its temporal pattern. Some seasons are marked by
demand surging far beyond the supply capacity of the organisation, and other
seasons are marked by a wasteful underutilization of the organisation’s supply
capacity. Irregular demand is defined as a state in which the current timing pattern
of demand is marked by seasonal or volatile fluctuations that depart from the
timing pattern of supply.
Many examples of irregular demand can be cited. In mass transit, much of the
equipment is idle during the off-hours and in insufficient supply during the peak
hours. Hotels in Miami Beach are insufficiently booked during the summer and
overbooked in the winter. Hospital operating facilities are overbooked at the
beginning of the week and underutilized toward the end of the week to meet
physician preferences.
The marketing task of trying to resolve irregular demand is called synchro
marketing because the effort is to bring the movements of demand and supply into
17
better synchronization. Many marketing steps can be taken to alter the pattern of
demand. For example, a museum that is undervisited on weekdays and over visited
on weekends could (a) shift most of the optional events to weekdays instead of
weekends (b) advertise only its weekday programmes (c) change a higher admission
price during the week ends. In some cases a pattern of demand can be readily
reshaped through simple switches in incentives or promotion; in other case the
reshaping may be achieved only after years of patient effort to alter habits and
desires.
3.3.7 MAINTENANCE MARKETING
The most desirable situation that a seller daces is that of full demand. Full
demand is a state in which the current level an timing of demand is equal to the
desired level and timing of demand. Various products and services achieve this
state from time to time. However, it is not a time for resting on one’s laurels and
doing perfunctory marketing market demand is subject to two erosive forces. One
force is changing needs and taste in the market place. The demand for barber
services as well as the demand for mass magazines and college, education, had
undergone and unexpected decline because of changing market preferences. The
other force is active competition. When a product is doing well, competitors quickly
move in a attempt to attract away some of the demand.
The task of the marketer facing full demand is maintenance marketing.
Maintenance marketing calls for maintaining efficiency in the carrying out of day-
to-day marketing activities and eternal vigilance in spotting new process that
threaten to erode demand. The maintenance marketer is primarily concerned with
tactical issues such as keeping the price right, keeping the sales force and dealers
motivated, and keeping tight control over costs.
3.3.7 DEMARKETING
Sometimes the demand for a product or service may outpace the supply.
Known as overfull demand, it is defined as a state in which demand exceeds the
level at which the marketer feels above to motivated to supply it.
The problem may be due to temporary shortages, as when producers suddenly
find themselves facing an unexpected surge in demand or unexpected interruptions
of supply. Or the problem may be due to chronic over popularity. For example, the
state of Oregon felt that too many people were moving to Oregon and spoiling its
natural environment; and the city of San Francisco felt that too many motorists
were using the Golden Gate bridge and weakening its structure.
The task of reducing overfull demand is called demarketing. Demarketing deals
with attempts to discourages customers in general or a certain class of customers
in particular on either a temporary or a permanent basis. Demarketing largely calls
of marketing in reverse. Instead of encouraging customers, it calls for the art of
discouraging convenience may be reduced. The demarketer must have a thick skin
because he is not going to be popular with certain groups.
3.3.8 COUNTER MARKETING
There are many products or services for which the demand may be judged
unwholesome from the viewpoint of the consumer’s welfare, the public’s welfare, or
the supplier’s welfare. Unwholesome demand is a state in which any demand is felt
18
to be excessive because of undesirable qualities associated with the offering. Classic

examples of unselling efforts have revolved around the so-called products; alcohol,
cigarettes, and hard drugs.
The task of trying to destory the demand for something is called counter
marketing, or unselling. Whereas demarketing tries to reduce the demand without
impugning the product itself, countermarketing is an attempt to designate the
product as intrinsically unwholesome. The offering may be the organisation’s own
product which it wishes to phase out, a competitor’s product, or a third party’s
product which is regarded as socially undesirable.
3.4. REVISION POINTS
Conversional marketing, Stimulational Marketing, Remarketing, Synchro
Marketing, Demarketing, Counter Marketing.
1. What is Marketing Management?
2. Critically examine Marketing Management tasks.
3.6. SUMMARY
1. Marketing management concept is a comprehensive term consists of many
tasks.
In the face of fuel shortage, many petroleum companies have sought to reduce
their customers using oil. Propose a demarketing plan that will bring down the level
of demand for oil.
3.9. ASSIGNMENT
“Marketing orientation goes beyond selling”. Examine this statement and
highlights the major differences between marketing orientation and selling
orientation.
“Competitor’s analysis essential in today’s turbulent environment” – comment.
How far is it possible to predict competitor’s response to marketing action?
3.12. KEY WORDS
1. Marketing management in the task of regulating the level, timing and
character of demand
2. Marketing management – Demand management, Synchro marketing,
Demarketing, counter marketing.

19
LESSON – 4
MARKETING ENVIRONMENT
4.1. INTRODUCTION
Marketing Environment comprises of external factors over which the
organisation and management has little control. The relatively uncontrollable
external forces like demography, economic environment, social & cultural
environment, political & legal forces, science & technology, competition, advertising
scenario an ecology.
4.2. OBJECTIVES
 To study the uncontrollable external factors influencing an organisation.
4.3. CONTENT
4.3.1 Uncontrollable external forces
4.3.1 UNCONTROLLABLE EXTERNAL FORCES
1. Demography
Market means people with money and with a will to spend their money to
satisfy their wants. Hence, marketing management is directly interested in
demography, i.e., scientific study of human population and its distribution
structure. Growing population indicates growing market particularly for baby
products. But when we have reduction in the birth rate and the lower rate of
growth of population, many companies specializing in baby products will have to
adjust their marketing programme accordingly. Population forecasts during the
next decade can be arrived at with considerable accuracy and on the basis of such
forecasts marketing management can adjust marketing plans and policies to
establish favourable relationship with demographic changes. Demographic analysis
deals with quantitative elements such as age, sex, education, occupation, income,
geographic concentration and dispersion, urban and rural population, etc. Thus,
demography (study of population) offers consumer profile which is very necessary in
market segmentation and determination of target markets. Quantitative aspects of
consumer demand are provided by demography, e.g. census of population, whereas
qualitative aspects of consumer demand such as personality, attitudes, motivation,
perception, etc., are several factors such as population rate of growth, motivation,
perception, etc., are provided by behavioural analysis. Good demographic analysis
combines several factors such as personality, attitudes, motivation, perception,
etc., are provided by behavioural analysis. Good demographic analysis combines
economic power, life cycle analysis of consumer, occupation, education and
geographic segmentation. Both demographic and behavioural analysis enable
marketing executives to understand the basis of market segmentation and to
determine marketing reaction to a new product or consumer reaction to an
advertising campaign.
India is the second largest market in the world. By the turn of the century,
India’s population likely to reach the 100 crore mark. The life expectancy of the
20
people in the country has gone upto 56 year by 1984. About 40 percent of the total
population is below 14 years of age.
The people of India are widely scattered over the length and breadth of the vast
country which covers an area of 3.3 million sq.km. The average density of
population in the country is 260 per sq.km (mid-1998 estimate). The density,
however, varies widely from state to state from 655 per sq.km in Kerala to 45 per
sq.km in Sikkim and 8 per sq.km in Arunachal Pradesh. Similarly, the density also
varies widely between the urban and rural areas of the country. There are 4000
towns and more than five lakh inhabited villages in the country. Nearly a quarter of
the total population of the country lives in urban areas and the remaining three
quarters in semi-rural and rural areas.
The people of India profess diverse religions and speck different languages. As
many as seven different religious groups – Hindus, Muslims, Sikhs, Christians,
Zoroastrians, Buddhists and Jains – form part of Indian society. The lanuages
specified in the Consitution as national languages and hundreds of dialects spoken
by substantial segments.
2. Economic Environment
People constitute only one element of a market. The second essential element of
a market is purchasing power and willingness to spend. Then only we have effective
demand. Hence, economic conditions play a significant role in the marketing
system. High economic growth assures higher level of employment and income, and
this leads to marketing boom in many industries.
Marketing plans and programmes are also influenced by many other economic
items such as interest rates, money suppy, price level, consumer credit, etc. Higher
interest rates adversely influence real estate market and markets of consumer
durables sold on instalment basis. Exchange fluctuations, currency devaluation,
change in political and legal set-up influence international marketing. The level of
take –home pay determines disposable personal income and it influences marketing
programmes directly. Economic conditions leading to recession can influence
product planning, price fixing, and promotion policies of a business enterprise.
Marketing mix must be formulated on the basis of review economic indices.
Since 1974, i.e., after the energy (oil) crisis all over the world, we have
inflationary trends and general level of prices in continuously rising. Inflation
coupled with scarcity conditions can radically change consumer buying habits.
Many purchases may be postponded or even eliminated. Higher petrol prices
created a tread in favour of small cars and public transport. Inflationary conditions
affect adversely the market for consumer durables. Economic forces can have
positive or negative effects upon the promotion efforts of business units. State of
trade and business booms and slumps constitute the economic aspects of
marketing environment.
Over the years, the Private Final Consumption has also shifted in a welcome
manner from ‘food and other basic items’ to ‘products and services with high
21
marketing significance’. Between 1960-61 and 1983-84, the food component came
down to 24 percent from 28 percent; household equipment went up from 2.6
percent to 4.3 percent; transport and communication went up from 4.7 percent to
9.9 percent. In addition to the marked downtrend in the share of food in final
consumption, ‘within the food group, there was a marked spurt in the share of
protective foods-fats, pulses, sugar, vegetable, meat, fruits, eggs and fish. Similarly,
with the non-food consumer goods, the share of durables increased substantially.
India’s per capita income, continuous to be appallingly low. Fortunately in
recent years, an environment for faster economic growth and higher per capita
income is sought to be created through a new set of economic and industrial
policies. There are indications that India is emerging as a growth economy. While
throughout the seventies, India was among the slow growth countries in the
developing world and her unspectacular average annual growth of 3 to 3.5 percent
was dubbed the ‘Hindu rate of growth’, in the eighties, India’s economic growth has
averaged five percent per annum. And this spurt from the historical rate of 3.5
percent has review implications for future standards of living. If fact, it is now
accepted that a growth rate of 7.5 percent or more in GDP is achievable on a stable
basis by the turn of the country, provided the technological aspects of the nation’s
economy is appropriately stepped up.
The growth of the corporate sector is an review indicator of the sophistication
and growth of an economy. During the last two decades 96.144 joint stock
companies in India, government and non-government put together. Of these,
94,264 companies which were limited by shares has a paid up capital of Rs. 21,
929crore. In 1951, the number of joint stock companies was only 28,532 with a
paid-up capital of just Rs.775crore. The growth of the corporate sector is
adequately reflected in the growth of the stock markets. The country’s stock-
markets have grown enormously in the last two decades. The growth in the eighties
has been particularly striking. The corporate sector which was till then depending
more on external borrowings and dependence during the decade and started
mobilizing larger funds for investment through the capital market.
Agriculture is a prominent sector of the economy of India. In fact it has been
the backbone of the national economy all these years. Nearly three-fourths of the
total population of the country depend directly or indirectly on agriculture for their
livelihood and more than forty percent of the national income is contributed by
agriculture. Industries in cotton, jute, sugar, rubber, etc., as well as the food
processing industry, depend totally on agricultural commodities. A substantial
portion of the country’s exports in also provided by the agricultural sector-mostly
by agricultural commodities like tea, coffee, tobacco, jute, spices and marine
products. In this backdrop, it is needless to say that the future growth of several
consumer goods industries in the country will increasingly depend on rural
prosperity, which, in effect, means agricultural prosperity. To the marketing man,
this has a special significance. It means that agricultural growth would be a main
indicator of the level of buoyancy of the nation’s markets.
22
A survey of the industrial scene of India would reveal that industrial production
increased at an average compound rate of six percent per annum. The industrial
output today is nearly six times of what it was in 1950.
The industrial sector now contributes nearly 30 percent of India’s GNP. The
growth has been particularly striking in sectors like petroleum products, chemicals
and chemical products, metal products, electronics, electrical machinery, transport
equipment and power generation. There also been some fundamental structural
changes for the better. The output of basic and capital goods industries now have a
share of 55 percent in the index of industrial production whereas it had only a
share of 20 percent in1950. India’s engineering industry can today supply the
entire requirements of the country in respect of power generation equipments,
equipments for railways, road transport, communications etc.
Indian industry has in recent years also undergone a qualitative change in
addition to the quantitative expansion. It has embraced the concepts of optimum
scales of production, state-of-the-art technology, internationally comparable cost-
effectiveness and levels of productivity. Though it has still a long way to go in this
respect, a good beginning has already been made and it augurs well for the future.
3. Social and Cultural Environment
Changes in our life-style and social values, e.g., changing role of women,
emphasis of quality of goods instead of quantity of goods, greater preference to
recreational activities, etc.
1. Major social problems, e.g., concern for pollution of our environment,
socially responsible marketing policies, need for safety in occupations and
products etc.
2. Consumerism is becoming increasingly review to marketing decision
process. Societal marketing concept, demanding not only consumer welfare
but also citizen welfare is very much emphasized. Marketer’s are now called
upon not only to deliver life i.e. environment free from pollution.
From the marketing point of view, the emergency of a large middle class is
perhaps the most significant of all developments that have taken place in India
since independence. Many economists now place India’s middle class at over 100
million. Occupation statistics form the basis for such estimates. In India, around
25 million people are at present employed in the government and organized sector,
private and public. Around 18 million are estimated to be employed in the
unorganized sector. These two groups add up to 43 million people. It could safely be
reckoned that one half of this falls under the middle class. In addition, in the rural
areas too, there is a sizable middle class today. It has actually two segments-the
well-to-do among the farming class and the relatively better off among the non-
farmers, employed of self-employed, pursuing varied vocations. The middle class
households in all these categories together could, on a conservative basis, be
reckoned as 25 million. If on an average we have four members in each household,
23
the total size of the middle class in the country can be reckoned at 100 million at
the minimum.
The industrial development over the years gave birth to a well-to-do working
class and a sizable chunk of engineers, managers and supervisors. In the social
services sector, a sizable population of school and college teachers, doctors and
other supporting staff emerged. The continuous expansion of the government
machinery at the Centre and the states swelled up the strength of government
servants of different categories. The trader class also expanded considerably. While
these developments were taking place largely in the urban areas, rural India was
also undergoing some change. The landed gentry become a vanishing tribe, but a
sizable new agricultural group emerged. This group reaped the benefits of the green
revolution, the land reforms and the new farming technology.
All these groups constitute the ‘middle class’ of the country. This class has not
only swelled continuously in numbers, but has also grown in prosperity; its
disposable and discretionary income has gone up; and the upper strata within this
group has become the consumption community of the country. As this class is also
relatively better educated and better exposed to the life styles of the rich, its
aspirations have been constantly changing. The class has often spent more than
what it has earned at any given point in time to cope with its new social image. Its
expenditure on non-food items has increased. Soft drinks, cosmetics, synthetic
fabrics, ready made garments, furniture, fans, transistors, stereo systems, TVs,
electric mixers and grinders pressure cookers, gas stoves and other household
appliances have also become items of demand for this class.
In addition to the economic factors, socio-structural and life style factor have
also contributed to the rise of the middle class. The growth of urbanisation is the
first among these factors. The breaking down of the joint family system and the
parallel rise of the nuclear family is the next. More and more women taking to
employment is the third factor. These and other similar factors acting the concert,
have brought about a new lifestyle among the middle class. They now require
several time-saving conveniences. For example, the increased income coming from
both husband and employed wife has made it possible for the family to buy a
variety of such conveniences.
As cumulative effect of the quantitative expansion of the class, the increase in
its income levels and the change in its lifestyle, the consumption potential of the
class has gone up considerably in recent years. Today, the market potential of this
segment of India can be placed almost on par with the total potential of major
European countries like U.K. France or West Germany.
4. Political and Legal Forces
Political and legal forces are gaining considerable importance in marketing
activities of business enterprises. Marketing systems are affected by government’s
monetary and fiscal policies, import-export policies, customs duties. Legislation
controlling physical environment, e.g., anti-pollution laws also influence marketing
24
plans and policies. Consumer legislation tries to protect consumer interests.

Marketing management cannot ignore the legislation regulating competition and
pretecting consumers. Business enterprises may not be allowed to resort to price
discrimination, false and misleading advertising exclusive distributorships and
trying agreements, deceptive sales promotion devices, division of markets, exclusion
of new competitors and such other unfair trade practices.
The economic and industrial environment of India has undergone a significant
change as a result of the new economic policies and liberalization measures
introduced by the government in recent years. The new policies touch practically
each and every aspect of economic affairs. Fiscal policies, industrial licensing
policies, trade policies and policies relating to technology have all been changed. On
the procedural side too there has been simplification of rationalisation. Basically,
all these steps have been aimed at a restructuring of the instruments of control-
removing some, revamping others-with the ultimate objective of accelerating the
pace of industrial development in the country.
From the marketing point of view, the new policy measure have resulted in two
significant developments: (i) a high degree of encouragement has become available
to consumer goods industries and (ii) a perceptible change has occurred in the
competitive character of India’s markets.
In the earlier years, the government laid greater emphasis on basic and heavy
industries; it was also unduly concerned with mopping up savings and curbing
consumption. These approaches dampened India’s marketing climate considerably.
Now, both these approaches have undergone a change. Consumer goods have been
accorded their due importance and consumption is encouraged along with savings.
The markets of India have become enormously more competitive as a sequel to
the new policies and measures. While the new policies and measures were primary
aimed at accelerating the country’s economic development, as a fall-out effect, the
competitive profile of the nation’s markets has changed in a significant manner.
The provision of a free atmosphere to the industrial and business enterprise and
the consequent entry of a number of new enterprises into different businesses with
relative ease have been mainly responsible for the change in the competitive
structure of a wide variety of businesses in the country.
The legal framework prevailing in a country has a direct impact on the
marketing environment of the country. India is no exception to this reality. Over the
years, the government has been bringing in a number of legislative measures with a
view to regulating the marketing and distribution of several products in India.
Aspects like the final consumer price, product quality, the physical movement of
the product, channel arrangements and stipulations and resale prices are the ones
that have been frequently touched by one law or the other.
5. Science and Technology
Unprecedented development of science and technology since 1940 has created
a phenomenal impact on our lives. We have witnessed in one generation radical
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change in our life-styles, in our consumption pattern as well as in our economic

welfare.
A new package of policies relating to technology has also been introduced. The
nation is now attaching a great degree of importance to technological upgradation
of practically all segments of industry. Better incentives have been built into the
basic policies and systems so that technologically advanced nations find it
attractive to collaborate with India in different sectors of industry and transfer the
latest technologies in the respective fields. In particular, India is making rapid and
significant advances in field like energy, electronics, micro electronics, and
communication and information technologies. There is an all-round accent on
securing high – technology on par with the developed nations and on becoming
technologically competitive on the international scene.
Technology is the way things are done; the methods, materials and techniques
used to achieve commercial and industrial objectives. New technologies offer a main
source of economic growth. Many businesses are earning handsome profits from
products which did not exist 35 years ago. Electronic industry is the best example
of exploiting new marketing opportunities. Computers and airplanes are entirely
new industries. Digital watches are killing the marketing prospects of traditional
watches. Artificial fibre cloth has almost killed the pure cotton textile industries in
many countries. Television has adversely affected radio and cinema industries.
Seventy percent of food products now available to a housewife in highly
industrialized countries were simply non-existent thirty years ago.
Marketing management with the help of technology can create and deliver
standards and style of life in many counties. It has the responsibility of relating
changing life-style patterns, values and changing technology to market
opportunities for profitable sales to particular market segments.
6. Competition
Although price competition is still present particularly in the retail market,
non-price competition is of paramount importance for the manufacturer. No
marketing decision of major importance can be made without assessing competition
in a free market economy. The marketing manager has little or no control over the
actions of competitors. He can merely anticipate competitive actions and be
prepared to deal with them. Competitors considerably influence the company’s
choise of marketing strategies particularly in relation to selection of target markets,
suppliers, marketing channels as well as in relation to its product mix, price mix
and promotion mix.
7. The Distribution Environment
The distribution environment is an review part of the marketing environment.
The distribution environment in India has been undergoing significant changes in
the past few years. And to present, the pace of change is getting further accelerated.
In the first place, as a rule, the distribution channels have been getting shorter.
The gap between the producer and the consumer is becoming narrower. Secondly,
26
the parasitic middlemen of yore are disappearing from the Indian distribution
scene. Thirdly, as the channel is getting shorter, the retail dealer in the distributive
trade is getting a better deal; his margins are more respectable now than before; he
is able to give better service to the consumers; and his profitability had improved
despite the hike in various cost elements. In fact, in quite a few sectors, retailing
has grown into a prestigious activity.
The distribution trade has also been growing in size recent years more and
more people are being employed in the distribution business. Another significant
development is that the manufacturers in many industries have departed from the
traditional method and channels of distribution. The are now developing their own
channels, depots and showrooms. Finally, the emergence of a large public
distribution system is another major development in India’s distribution scenario.
Many factors have been responsible for these changes in the distribution
environment. Increased competition and inflation and rising costs of marketing and
distribution are the most significant among these factors. Redundant market
intermediaries have been withdrawn by manufacturers for containing the escalating
costs of marketing and distribution. The government has taken several measures
by which the distribution environment has been affected in a significant way.
Increasing consumer awareness and the spread of consumerism has also had its
share of influence on the distribution environment.
8. The advertising Scenario
According to marketing experts, the nature, substance and volume of
advertising in a country is a pointer to the status of the economy of the country, the
nature of its country. Advertising in India has grown in a spectacular manner
throughout the last two decades and has scaled new peaks during the last five
years in terms in size, range and quality. Over the years there has also been a
substantial expansion in the media. All the major media-the press, radio, TV and
cinema have expanded sizably and are being used extensively by advertisers for
reaching their target customers. Over the years, the number of advertising agencies
in the country has also increased rapidly. Qualitatively too, the ad business of India
has grown considerably. There was a time when Indian ads were mere imitations of
British and American ads. But now, the situation has vastly changed. The ad-men
of India have succeed in giving a distinctiveness to Indian advertising. New
approaches and new styles to suit the Indian audience have emerged. Creative ads
have multiplied, making advertising in the country an interesting and professionally
rewarding field of activity.
9. The Rural Marketing scenario
The marketing environment governing the rural markets too has been
undergoing vast changes in the last two decades. For example, tape recorders or
‘two-in-ones’ have become a common sight in the rural areas. The spread of
bicycles had been almost in the nature of a revolution. Today, India is the world’s
second largest producer of bicycles with an output of six million unites per annum
and a major part of this is absorbed by rural India. Two-wheelers have also become
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a common sight in the villages. In clothing, their has been a sea change.
Preferences have shifted to blended fabrics, knitted apparels, and ready-made
garments. Earthenware pots have yielded place to a variety of new kitchenever.
Plastic products and stainless steel goods have become common consumer items.
Evidently, there are two sides to India’s rural markets, both equally powerful
while the market provides immense opportunities it also displays intimidating
challenges. It does not lend itself to an automatic transfer of the tools and
techniques, and temp and style of marketing which proved a success in the urbon
marketing context. The rural market happens to be a totally new market, involving
a new customer and a new marketing situation.
10. The exports scene
India’s exports too have been growing over the years. There has also been a
welcome change in the pattern and range of India’s exports. More than 4,000
different items are exported by the country today, as compared to hardly 60 items
at the time of independence. Manufactured products and products of a highly
technical nature now find a prominent place in the items exported by India. The
directional pattern of the foreign trade of India has also changed for the better.
Indian exports are now reaching a large number of countries all over the globe.
The sectors in which significant gains have been made in the export effort in
recent years include farm products, marine products, textiles and ready-made
garments, leather and leather manufatures, gems and jewellery, chemicals,
engineering goods and iron ore. The country has also made notable progress in the
export of projects, technology and consultancy services.
11. Ecology
In the wider concept of marketing, ecological environment has assumed a
unique importance. Environmental experts are vigorously advocating the
preservation and survival of our entire ecological systems. It is said that pollution is
an inevitable by-product of high-consumption economic systems prevalent in the
advanced countries. The marketing system of an enterprise has now to satisfy not
only the buyers of its products (consumers/users) but also societal wants which
may be adversely affected by its activities and then only it is entitled to achieve its
profit objective. In future, marketing executives will have to pay due attention to the
quality of our life and our environment. They are expected to take measures to
conserve and allocate our scarce resources properly. Above all, they must show
active interest in the welfare of community life. Prevention of all types of pollution
and efficient use of our scarce resources can restore to balance in our ecological
environment. Economic use of energy and natural resource are the essential
ingredients of marketing strategies.
The detailed analysis presented in the foregoing page in this lesson reveals that
the marketing environment of India has undergone a major change in the last three
decades. The change has been particularly significant in the past few years. All
these developments has made a profound impact on the size and structure of
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India’s markets the traditional marketing scene has been significantly altered by
these developments. New markets for several consumer –products have been
created in the country-in-urban as well as rural areas. Competition has become an
integral part of the marketing environment of the country. It is resonable to expect
that in the coming years, the change already witnessed in the social scenario too is
like to get accelerated further in the coming years. In short, the marketing
environment of the country provides a great opportunity for the marketing man to
work on.
4.4. REVISION POINT
Demographic Environment, Economic Environment, Social and Cultural
Environment.
1. What is the composition of marketing environment?
2. Brief the Indian Marketing environment.
4.6. SUMMARY
Marketing environment – various external factors like demography – political
climate – ethical – science and technology influence marketing
“A marketer has to be more aware of changes in the external environment than
any other department in the organization” – Do you agree.
Journals- Indian Management, New Delhi
Websites- WWW.Bookboon.com
4.9. ASSIGNMENT
“A firm is an open, adaptive system living in its own environment and strives to
accomplish within objective through integration and co-ordination”- Explain.
Write on various marketing environment like economic, technological, socio-
cultural, demographic, political, legal and competitive.
4.12. KEYWORDS
Uncontrollable external factors, rural marketing, distribution channels,
Deceptive sales promotion, Unfair trade practices.
29
LESSON – 5
MARKETING STRATEGIES
5.1. INTRODUCTION
There are many steps involved in formulating marketing strategies the order of
beginning is still a debate and we will move into the steps and discuss the kinds of
strategies and by organisation.
5.2. OBJECTIVES
 To study and discussing the formulation of marketing strategies
 To study kinds of strategy
5.3. CONTENT
5.3.1 Analysing Opportunities
5.3.2 Setting Company Objectives
5.3.3 Developing Marketing Strategy
5.3.4 Formulating the Marketing Strategy
5.3.5 Kinds of Strategies
5.3.1 ANALYSING OPPORTUNITIES
There is an unresolved debate in the management literature as to whether the
first step in the strategic marketing process is to identify opportunities or to set
objectives. Those who argue in favour of looking at opportunities offer the following
reasons:
1. Many organisations get their start because they recognize an review
opportunity. They echo Sir Edmund Hillary’s reason for climbing Mount
Everest: “Because it is there”.
2. Many organisations do not have well-stated objectives. It is difficult for
them to state what they really want. But they do recognize good
opportunities.
3. Many organisations change their objectives as their opportunities
change. Thus the March of Dimes was set up to raise money to conquer
the dreaded disease of polio. The development of the Salk vaccine in the
early 1950s left the organisation without a cause. It looked for new
opportunities and recommitted its resources to the problem of birth
defects.
On the other hand, there are those who argue that objectives should precede
opportunity analysis:
1. Many organisations start with an overriding objective, such as to make
high profits, and look for the opportunities that will achieve the
objective.
2. A company cannot simply look for opportunities without a set of
objectives. The world is too full of opportunities.
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3. Many organisations make conscious change in their objectives; and

when they do, the new objectives lead them to search for a different set
of opportunities.
We have to conclude that both sides have merit. It is possible to start the
strategic marketing process by looking either at opportunities or at objectives. The
arguments show that there is a dynamic tension between them, and both must be
considered simultaneously. We might even add that the company’s resources often
provide still a third starting point.
There are countless environmental opportunities available in any economy as
long as there are unsatisfied needs. Currently there are great opportunities to
develop new sources of energy, new food products, improved agricultural methods,
improved forms of transportation, new forms of leisure, and improved teaching
technology. There are opportunities in refuse disposal, lower – cost legal services,
containerization, prefab housing, water purification, day-care centers and bio-
chemical instruments. But none of these necessarily represent opportunities for
any specific company.
Alternative growth opportunities can be generated for a company by mapping
its core marketing system and then moving to three levels of analysis. The first level
of analysis discerns those opportunities present in the current product-market
activity of the company; we call these intensive growth opportunities. The second
level discerns those opportunities present in other parts of the core marketing
system; we call these diversification growth opportunities.
Intensive growth: Intensive growth makes sense for a company if it has not fully
exploited the opportunities latent in its present products and markets.
The three major types of intensive growth opportunities are described below:
1. Market Penetration: Market penetration consists of the company’s
seeking increased sales for its present products in its present markets
through more aggressive marketing effort.
2. Market development: Market development consists of the company’s
seeking increased sales by taking its present products into new markets.
3. Product development: Product development consists of the company’s
seeking increased sales by developing improved products for its present
markets.
Integrative Growth: Integrative growth makes sense for a company if (a) the
basic industry has a strong growth future and /or (b) the company can increase it
profitability, efficiency, or control by moving backward, forward, or horizontal
within the industry.
The three integrative growth possibilities are discussed below:
1. Backward integration: Backward integration consists of a company’s
seeking ownership or increased control of its supply systems.
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Forward integration: Forward integration of a company’s seeking ownership or

increased control of its distribution systems.
Horizontal integration: Horizontal integration consists of a company’s seeking
ownership or increased control of some of its competitors.
Diversification Growth: Diversification growth makes sense for a company (a) if
the core marketing system does not show much additional opportunity for growth
or profit, or (b) if the opportunities outside of the present core marketing system are
superior. Diversification does not mean that the company will take up any
opportunity however unrelated to its present distinctive competences or needs. On
the contrary, the company would attempt to identify fields that make use of its
distinctive competencies or help it overcome a particular problem. There are three
broad types of diversification moves:
2. Concentric diversification: Concentric diversification consists of the
company’s seeking to add new products that have technological and/or
marketing synergies with the existing product like; these products will
normally appeal to new classes of customers.
Horizontal diversification: Horizontal diversification consists of the company’s
seeking to add new products that could appeal to its present customers though
technologically unrelated to its present product line.
Conglomerate diversification: Conglomerate diversification consists of the
company’s seeking to add new perfects for new classes of customers because this
(a) promises of offset some deficiency or(b) represents a great environment
opportunity; in either case, these products have no relationship to the company’s
current technology, products, or markets.
5.3.2 SETTING COMPANY OBJECTIVES
A company cannot go after all of its opportunities first, because some of them
are inconsistent with each other; second, because it never has enough resources to
pursue all of its opportunities; and third, because all the opportunities are not
equally attractive. We can imagine the company eliminating those opportunities for
which it lacks sufficient resources or synergistic possibilities.
Once a company arrives at a strong sense of corporate mission, it finds it easier
to scan the environment for opportunities and easier to evaluate the contribution of
different opportunities to corporate purpose. At the same time, corporate purpose
itself is subject to revision as new opportunities arise and old solutions no longer
work.
The company’s basic purpose and mission must be translated into specific
objectives to guide the organisation to what it should try to accomplish with various
activities in the external environment. Company objectives must have certain
qualities if they are to serve the purposes. If particular, they should be hierarchical,
quantitative, realistic, and consistent.
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A company may pursue a large number of objectives, not all equally important.
When possible, major objectives should be arranged in a hierarchical fashion
showing which are the most important, which are derived, and how they are
derived.
To the extent possible, objectives should be stated in quantitative or
operational terms. The objective “increase the return on investment” is not very
satisfactory. The objective “increase the return on investment to 7.5 percent” is an
improved statement. The objective “increase the return to investment to 7.5 percent
by the end of the second year” is a still better statement. The more specifically the
objective is stated in terms of magnitudes, time and place, the more useful it I for
developing plans and implementing controls.
The company is likely to pursue at any time a number of review objectives
rather than one. For example, a company states that it seeks to provide a quality
product that will maximize customer satisfaction, provide an adequate return, and
increase the company’s total market share. These are admirable objectives but raise
the question of whether they are all consistent. Sometimes the objectives are clearly
inconsistent as when management says that it wants “to maximize sales and
profits”, or wants “to achieve the greatest sales at the least cost”, or wants “to
design the best possible products in the shortest possible time”. It must be
recognised that these objectives are in a trade-off relationship. It is not possible to
maximize simultaneously sales and profits. One can increase sales by lowering
price, improving product quality, and increasing marketing effort, although these
steps, beyond and point, are likely to reduce profit. A statement involving two basic
objectives in a trade – or relationship is of no help as a management guide without
further specification.
5.3.3 DEVELOPING MARKETING STRATEGY
Objectives are a statement of where a company wants to go; strategy is a grand
design for getting there. Strategy is a battle plan fused out of marketing, financial,
and manufacturing elements.
Marketing strategy of a firm is the complete and unbeatable plan or instrument
designed specifically for attaining the marketing objectives of the firm. The
marketing objectives will toll us where the firm wants to go; the marketing strategy
will provide the design for getting there.
According to Michael E. Porter, “Marketing strategy has mainly one air-to cope
with competition. There are five major and vital forces that decide the nature and
intensity of competition – the treat of new entrants, bargaining power of customers,
bargaining power of suppliers, threat of substitute products and the jockeying
among the existing contestants. The collect strength of these forces determines the
ultimate profit potential of an industry. And the strategist’s goal is to find a position
in the industry where his company can best defend itself against these forces or
can influence them in his company’s favour. Strategy can be viewed as building
defenses against the competitive forces”.
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5.3.4 FORMULATING THE MARKETING STRATEGY
Formulation of marketing strategy consists of five main steps.
1. Market segmentation: Market segmentation is the basic recognition the every
market is made up of distinguishable segments consisting of buyers with different
needs, buying styles, and responses of offer variations. No one approach to the
market will satisfy all buyers. Each segment of the market represents somewhat
different parts of the market before taking a position. There is no unique way to
segment a market. The fortunate firm is often the one that has found a creative new
way to segment the market.
2. Market positioning: The second principal of marketing strategy is to select a
specific pattern of market concentration that will afford the maximum opportunity to
the company to achieve its leadership objective. The company cannot to everywhere.
It must go after viable positions. It mush follow the principle of target marketing.
Market segmentation throws up not one but several market segments with
varying degrees of potential, profitability and risks. The firm may not be interested
in all these segments. There may be segments assuring immediate profits; there
may be segments demanding heavy investment by way of market development;
some other segment may show very great potential but may display tough barriers
to entry. As such, the question which segment/segments the firm should select as
its target market, assumes crucial importance. The firm may analyse the risks,.
Analyse the profitability and size and the competition in the different segments.
Still, it may not be possible for it to readily pick up the target segments.
Quantitative techniques may take the firm thus far, but not to be concluding point.
Judgment along can take the firm to the concluding point or final decision on the
decision on the target market. This decision is essentially a decision in the realm of
strategy. It is not just a number game.
What makes any part of the market an attractive one for a particular company
to go after? A maximally attractive market segment would have four characteristics:
1. The market segment is of sufficient size.
2. The market segment has the potential for further growth.
3. The market segment is not “owned” or over occupied by existing
competition.
4. The market segment has some relative unsatisfied needs that the particular
company can serve well.
1. Market entry strategy: The third element of marketing strategy is to
determine how to enter a target market segment. The company can proceed
through acquisition, internal development, or collaboration with other companies.
Acquisition of an existing product or company is the easiest and quickest way
to enter a new market. Acquisition obviates the costly and time-consuming process
of attempting to build up internally the knowledge, resources, and reputation
necessary to become an effective participant in that part of the market.
34
Some companies prefer to achieve most of their growth through internal

development. The may feel that true leadership is only achieved by running their
own research and development laboratories. They many feel that the companies
around to acquire are not very good or are asking for too much. Or there may be no
companies around to acquire.
Entry into a new market or market segment may also be accomplished by
collaboration with others to jointly exploit the new opportunity. A major advantage
is that the risk is shared, and therefore, reduced, for each of the participating
companies. Another advantage may be that each company brings specific skills or
resources, the lack of which makes it impossible for either company to venture by
it. In the best joint-venturing combinations, there is not only complementarily by
synergy.
4. Marketing –mix strategy: The next element in marketing strategy is for the
company to determine how it will profits its offering to the particular market
segment. The key concept here is marketing mix. Marketing mix is the set of
controllable variables that the firm can use to influence the buyers responses.
Many variables quality as marketing – mix variables. McCarthy popularized a
four-factor classification which he called the “four P’s” product, place, promotion
and price. This classification implied that buyers are influenced by variables related
to the product, the place, promotion, and price.
Assembling the marketing mix simply means assembling the “Four Ps” of
marketing in the right combination. Involved in this process are the choice of the
appropriate marketing activities and the allocation of the appropriate marketing
effort to each one of them. Product strategy is a part of this process. Matching the
products with market needs and consumer aspirations is the purpose of product
strategy. Distribution strategy is another part of this exercise. Taking the product
where the consumer wants it and delivering the product to him in a manner that is
most convenient to him is the essence of the distribution strategy. When other
elements like pricing, advertising and promotion are superimposed appropriately on
this framework, the marketing mix gets assembled.
5. Timing strategy: The final element of strategy is that of timing. Just because
a company has spotted a good opportunity, set an objective, and developed a
marketing strategy does not mean it should immediately move in. It may lost by
moving in too soon or too late. The proper sequencing and timing of its moves are a
key component of strategy.
5.3.5 KINDS OF MARKETING STRATEGY
In actual practice, it can be often seen that different firms take different
strategy stances. This is but natural. As long as their situational designs and
consequently their specific requirements of strategy differ from each other, they will
evidently follow different strategy stances. One firm may find it appropriate to have
a direct confrontation with the market leader; another may find it appropriate to
keep aloof for some time from the heat of competition; the third may find it relevant
35
to chalk out a strategy of sheer survival. It is essential to understand that there is

no universally valid strategy stance. It is so because the various firms do not share
the same situational design. Depending on the unique situational requirement
faced by each firm, the strategy stances adopted by them can fell into any of the
following broad categories.
1. CONFRONTATION STRATEGY
It is a strategy of aggression /offence. The firm is ready for a direct frontal
attach on the existing competition. Reliance Textiles adopted a confrontation
strategy. Balsaras, makers of ‘Promise’ toothpaste, too adopted a confrontation
strategy. And to confront, a firm may adopt several kinds of tactics /approaches.
Taking the cue from military strategies, Philip Kotler classifies these approaches
into Frontal attach, Flanking attach, Encirclement attack, Bypass attach and
Guerrilla warefare.
2. DEFENSIVE STRATEGY
Here the firm wants to avoid any possible direct conformation with leading
competitions. For its own reasons, it assumes a defensive stance in the market. Its
concern is: how best can I defend my present position? ‘VIP’ in the moulded luggage
market adopted a defensive strategy when big competition landed it in rough
weather.
3. NICHE STRATEGY
In this case, the firm neither confronts nor defends. It cultivates a small market
segment for itself with unique products/services, supported by a unique marketing
mix. These segments are too small to attract big competitors. Normally, smaller
firms with distinctive capabilities adopt niche strategy.
4. DEMARKETING STRATEGY
When for certain reasons, a firm wants to withdraw a product that is enjoying
good demand, it ‘demarkets’ the product through a conscious manipulation and
suppression of demand. The firm may canalize the demand towards some other
products which it would like to popularise.
5. REMARKETING STRATEGY
Through this strategy, a product with losing demand is brought back of like
and remarketed in the same name and style or in a changed name and style. A
repositioning of the product and /or a modification in the marketing mix often
constitutes the broad components of a remarketing strategy.
5.4. REVISION POINT
Diversification growth opportunities, Types of Diversification
1. How do you formulate a marketing strategy?
2. Explain the different kinds of marketing strategies.
5.6. SUMMARY
Organisational marketing strategies differs and choose the strategy according
to their requirement.
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Comment on the competitive marketing strategies to convert the competition
from multinationals in India.
5.9. ASSIGNMENT
Give a brief write up on the “Current marketing situation” and how to face
challenge of dynamism.
Write about the organization marketing strategies for a big trading house
dealing with multiple group of items.
5.12. KEY WORDS
Market Penetration, Marketing Mix, Diversification, Niche Demarketing,
Remarketing, Market segmentation, Market positioning.
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LESSON – 6
MARKET SEGMENTATION, MARKET TARGETING AND PRODUCT
POSITIONING
6.1. INTRODUCTION
Market consists of buyers, and buyers differ in one or more respects. They may
differ in their wants, purchasing power, geographical locations, buying attitudes
and buying practices. This varied and complex buyer behaviour is the root cause of
market segmentation. A market segment is a meaningful buyer group having
similar wants. Each segment can be a group of people with similar or homogeneous
demand and this will enable the enterprise to have tailor-made marketing mix to
each market segment. Segmentation is a consumer oriented marketing strategy.
Though wants and desires of consumers are diverse, segmentation helps in
grouping those consumers having similar wants or desires.
Market segmentation is a method for achieving maximum market response
from limited marketing resources. This is made possible by recognizing the
difference in the response characteristics of various parts of the market. In a sense,
market segmentation is the strategy of ‘divide and conquer’. Thus, segmentation
answers the following question:
“To whom should the products be sold and what should be sold to them?”
Market segmentation enables the marketers to select the target market and
offer appropriate marketing mix. The essence of segmentation is to identify
consumer demand. With the rising cost of production, Distribution and promotion,
precise market segmentation has assumed considerable importance in marketing
management.
6.2. OBJECTIVES
 To know the requirements, benefits of market segmentation
 To study the process of market segmentation
 To study the concepts market targeting and product positioning
6.3. CONTENTS
6.3.1 Definition
6.3.2 Rationale for MS
6.3.3 Product positioning technique
6.3.1 DEFINITION
“Market segmentation consists of taking the total, heterogeneous market for a
product and dividing it into several sub-markets or segments, each of which tends
to be homogeneous in all significant aspects”.
“Market segmentation is the sub-dividing of a market into homogeneous
subsets of customers where any subset may conceivably be selected as a market
target to be reached with a distinct marketing mix. The power of this concept is that
in an age of intense competition for the mass market, individual sellers may
38
prosper through creatively serving specific market segments whose needs are
imperfectly satisfied by the mass-market offerings”.
6.3.2 RATIONALE FOR MARKET SEGMENTATION
Every organisation must decide not only of what needs to serve but also whose
needs. Most markets are too large for an organisation to provide all the products
and services needed by all the buyers in that market. Some delimitation of the
market is necessary for the sake of efficiently and because of limited resources.
This is the problem of selecting target markets.
Markets vary in their degree of heterogeneity. At one extreme, there are
markets made up of buyers who are very similar in their wants, product
requirements, and responses to marketing influences. For example, suppose all
buyers of salt want to buy the same amount per month and want the simplest
packaging and the lowest price. Such a market would be homogeneous, and selling
to it would be fairly straight forward. The market offers of competitors would
probably be very similar.
At the other extreme are markets made up of buyers seeking substantially
different product qualities and/or quantities. For example, furniture buyers are
looking for different styles, sizes, colours, materials, and prices. Such a market is
heterogeneous. It is made up of customer groups with different buying needs and
interests. These groups are called market segments.
In a heterogeneous market, the marketer has three targeting options:
He can introduce only one product, hoping to get as many people to want and
buy it as possible. We call this undifferentiated marketing.
He can go after one particular market segment and develop the ideal product
for them. We call this concentrated marketing.
He can introduce several product versions, each appealing to a different group.
We call this differentiated marketing.
Thus market segments and the determination of market targets are separate
questions. Market segmentation is the process of identifying groups of buyer with
different buying desires or requirements. Market targeting is the firm’s decision
regarding which market segments to serve.
Benefits of segmentation
The manufacturer is in a better position to find out and compare the marketing
potentialities of his products. He is able to judge product acceptance or to assess
the resistance to his product.
The result obtained form market segmentation is an indicator to adjust the
production, using men, materials and other resources in a most profitable manner.
In other words, the organisation could allocate and appropriate its efforts in a most
useful manner.
Changes required may be studied and implemented without losing markets. As
such as soon as the product becomes obsolete, or even earlier, the product line
could be diversifies or even discontinued.
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It helps in determining the kinds of promotional devices that are effective and
also their results
Appropriate timing for the introduction of new products, advertising, etc., could
be easily determined.
Requirements for effective segmentation
The first condition is measurability, the degree to which information exists or is
obtainable on the particular buyer characteristic. Unfortunately, many suggestive
characteristics are not susceptible to easy measurement. Thus it is hard to
measure the respective number of automobile buyers who are motivated primarily
by considerations of economy versus status quality.
The second condition is accessibility, the degree to which the firm can
effectively focus its marketing efforts on chosen segments. This is not possible with
all segmentation variables. It would be nice if advertising could be directed mainly
to opinion leaders, but their media habits are not always distinct from those of
opinion followers
The third condition is substantiality, the degree to which the segments are
large and /or profitable enough to be worth considering for separate marketing
cultivation. A segment should be the smallest unit for which it is practical to tailor
a separate marketing programme. Segmental marketing is expensive, as we shall
shortly see. It would not pay, for example, for an automobile manufacturer to
develop special cars for midgets.
Geographic Segmentation: (Bases for Segmentating Consumer Markets) in
geographic segmentation, the market is divided into different locations, such as
nations, states, cities, or neighbourhoods. The organisation recognizes that market
potentials and costs vary with market location. It determines those geographical
markets that it could serve best.
Demographic Segmentation: In demographic segmentation, the market is
subdivided into different parts on the basis of demographic variables such as age,
sex, family size, income, occupation, education, family life cycle, religion,
nationality, or social class. Demographic variables have long been the most popular
bases for distinguishing significant groupings in the market place. One reason is
that consumer wants or usage rates are often highly associated with demographic
variables: another is that demographic variables are easier to measure than most
other types of variables.
Psychographic Segmentation: The third category of segmentation variables is
the psychographic. Psychographic variables tend to refer to the individual and such
aspects as his life-style, personality, buying motives, and product knowledge and
use. People within the same demographic group can exhibit vastly different traits.
Life-style: Life-style refers to the distinctive mode of orientation an individual or
a group has toward consumption, work, and play. Such terms as hippies, swingers,
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straights, and jet-setters are all descriptive of different life-styles. Marketers are
increasingly being drawn to life-style segmentation.
Personality: Marketers have used personality variable to segment the market.
They try to endow their products with brand personalities (brand image, brand
concept) designed to appeal to corresponding consumer personalities (self-images,
self-concepts).
Benefits sought: Buyers are drawn to products with different buying motives. In
the case of toothpaste, there are customers who seek decay prevention, bright
teeth, good taste, or low price. An attempt is made to determine the demographic or
psychographic characteristics associated with each benefit segment. Haley has
characterised those seeking decay prevention as worriers, bright teeth as sociable,
good taste as sensories, and low price as independents.
User status: Many markets can be segmented into nonusers, ex-users,
potential users, first-time users, and regular users of a product. High-market-share
companies such as Kodak (in the film market) are particularly interested in going
after potential users, whereas a small film competitor will concentrate on trying to
attract regular users to its brand: Potential users and regular users require
different kinds of communication and marketing efforts.
Usage rate: Many markets can be segmented into light, medium and heavy-
user groups of the product called volume segmentation. Heavy users may constitute
only a small percentage of the numerical size of the market but a major percentage
of the unit volume consumed. For example, 50 percent of the beer drinkers account
for 88 percent of beer consumption.
Loyalty status: Loyalty status describes the amount of loyalty that users have
to a particular object. The amount of loyalty can range from zero to absolute. We
find buyers who are absolutely loyal to a brand to an organisation, to a place and
so on. Companies try to identify the characteristics of their hard-core loyal so that
they can target their market effort to similar people in the population.
Stage of Readiness: At any point of time, there is a distribution of people in
various stages of readiness toward buying the product. Some members of the
potential market are unaware of the product: some are aware; some are informed;
some are interested; some are desirous; and some intend to buy. The particular
distribution of people over stages of readiness makes a big difference in designing
the marketing programme.
Marketing factors: Markets can often be segmented into groups responsive to
different marketing factors such as price and price deals, product quality, and
service. This information can help the company in allocating its marketing
resources. The marketing variables are usually proxies for particular benefits
sought by buyers. A company that specializes in a certain marketing factor will
build up hard-core loyal seeking that factor or benefit.
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Bases for segmenting industrial markets
Industrial markets can be segmented using many of the variable employed in
consumer market segmentation. Demographic variables are the most important
basis for market segmentation. They are followed by operating variables and
personal characteristics. The following factors should be borne in mind to segment
industrial market.
Demographic Factors: The type of industries to which the goods sold, the size of
the companies and geographical areas shall be the demographic factors to which
attention should be paid. For example, a rubber tyre company’s buyers may be car
manufacturers, aircraft manufacturers, heavy vehicle manufacturers etc.
Purchasing Approach Factors: Companies some times have a centralised
purchase function or a totally decentralised purchase function. The purchasing
policies of the company, the power structure viz., financial soundness,
technological soundness have an impact the market segmentation. The criteria for
purchasing, say, quality, service, price etc., and the company’s relationship with
market do need attention while segmenting these markets.
Situational Factors: Some industries may require sudden be immediate delivery
of the product. The product sometimes may serve only a single purpose. e.g. picture
tubes. The size of orders may also vary according to requirements.
Personal characteristics: the industrial customer may have the similar or
different values than the marketer. Some industrial customers may be enterprising
and risk-taking where as some may be conservative and cautious. The industries
might be loyal to a particular supplier. All these personal characteristics are
noteworthy for segmentation of industrial markets.
Within a chosen target industry, a company can further by segmented by
customer size. Separate marketing programmes can be formulated for dealing with
large and small customers.
Within the chosen customer size, the company can segment on the basis of
purchase criteria. Government industries may require products at a lower price
where as private industrial units may give importance to reliability.
Thus, industrial companies do not focus on one segmentation variable. They
apply multi attribute segmentation.
Steps involved in segmentation process
The process of market segmentation is not complete merely by identifying the
differences between one customer group and another. Identification is the starting
point. There are many other steps in completing the process. The main steps are as
follows
1. Assessing the difference between one customer group and the other.
This may be in terms of needs, likely response, market inputs, etc.,
2. Finding out the factors or characteristics on the basis of which
consumers can be appointed to a specific segment.
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3. Based on the above steps, disaggregating the customers into suitable

segments.
4. Analysing and establishing whether it is possible to formulate separate
marketing programmes and marketing mixes for the different segments.
5. Finding out the segment which will be benefited by the products of the
firm. Such a segment can be considered as the target segment of the
firm.
6. Estimating the likely levels of purchase by each segment, especially the
significant and relevant ones.
7. Finally, selecting those segments which offer higher potential and which
would be amenable to the offerings of the firm.
As mentioned earlier while carrying out the segmentation, the practical
requirements have to be kept in view. The segments arrived at must be relevant to
the marketing requirements of the firm. The segments must be ‘accessible’ or
‘available’ to the firm; they should not remain a dreamland, i.e., by normal
standards, it should be possible for the firm to capture the segments; they must
also be ‘sizable’. A very small segment may not serve the purpose of commercial
exploitation. Again, they must be ‘profitable’ to the firm there is no use in locating
sizable markets that are unprofitable. The chosen segments should also be clearly
‘measurable’. i.e. the sales potential and profit potential of the segments must be
measurable; the extent of influence of a specific marketing mix over the segment
should also be measurable.
Market targeting and product positioning
Introduction: Market segmentation is actually the prelude to target market
selection. The marketing man normally carries out several steps in addition to
segmentation before selecting the target market. Essentially, he carries out a
thorough evaluation of the various segments and selects those segments that are
most appropriate. The evaluation of the different segments has to be actually based
on these criteria and only on the basis of such an evaluation should the target
segments be selected. The marketing man must assess the sales potential and
profit potential of each segment; he must evaluate the worth of each segment from
his firm’s viewpoint- whether the segment is relevant to his firm, whether it is
sizable, whether it is accessible and whether it is attractive and profitable. He must
examine alternative possibilities whether the whole market has to be chosen for
tapping or only a few segments have to be chosen ad if so, how many and which
one. He can look for segments which are relatively less satisfied by the current
offers of competing brands. He must look at each segment as a distinct marketing
opportunity. He must evaluate his company’s resources and try to match the
resources and the market segments. He must also take at the product
characteristics and try to match the product characteristics and market segments.
The future position of the segment would be the next consideration in the
evaluation process. Usually, business firms seek out the high growth segments. In
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the soap business, market analysis would readily indicate that the premium
segment happen to be the high-growth segment of the business.
Next in line will be the consideration of profitability. In the example under
consideration, the firm can easily size up that the premium segment is the more
profitable segment in the soap business. The price in this segment is usually high,
between Rs.6 per cake in respect of the popular segment. The profit potential in the
premium segment is quite high and a relatively lower volume would provide
adequate returns to the firm. On the contrary, in the popular or regular segment, a
much larger sales volume would be necessary for the business to be viable since
prices and profit margins in the segment are low.
The firm has to now consider whether the segment is accessible to it. This may
need further analysis. The market realities of the segment under consideration will
now enter the picture.
Having satisfied itself that the premium segment is sizable, growth oriented,
profitable and accessible, the firm has to analyse and find out if the segment would
match the firm’s resources, objectives, ambition and distinctive capabilities. Given
the position of the firm in these respects, for some firms, the popular segment may
be natural and for others, the premium segment may be the ideal choice. The
premium segment is a highly competitive segment; all new brands that enter the
segment do not make a success; though it is a high growth segment, several new
brands in the segment are seen falling by the wayside. Only a firm endowed with an
aggressive marketing culture, a strong marketing organisation and the required
resources can successfully fight for a share of the premium segment. The firm has
to assess whether its marketing capabilities are compatible with the segment under
consideration.
In addition to the segmentation on the basis of premium vs. popular groups,
the firm can also attempt a geographical segmentation of the soap market before
finally selecting the segments to be served. The firm, for example, may look at each
zone in the country as a separate market segment and analyse whether distinctive
marketing strategies and distinctive marketing mixes could be applied over the
different zones. Here again, an analysis of whether the segment considered is
sizable, attractive, profitable and accessible, etc. will have to be seen.
Target market strategies
There are three target market strategies viz.,
Un differentiated marketing
Differentiated marketing
Concentrated marketing
1. Undifferentiated Marketing: In undifferentiated marketing, the firm chooses
not to recognize the different market segments making up the market. It treats the
market as an aggregate, focusing on what is common in the needs of people rather
than on what is different. It tries to design a product and a marketing programme
that appeal to the broadest number of buyers. It relies on mass channels, mass
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advertising media, and universal themes. It aims to endow the product with a
superior image in people's minds, whether or not this is based on any real
difference.
Undifferentiated marketing is primarily defended on the grounds of cost
economies. The fact that the product line is kept narrow minimizes production,
inventory, and transportation costs. The undifferentiated advertising programme
enables the firm to enjoy media discounts through large usage. The absence of
segmental marketing research and planning lowers the costs of marketing research
and product management. On the whole, undifferentiated marketing results in
keeping down several costs of doing business.
2. Differentiated Marketing: Under differentiated marketing, a firm decides to
operate in two or more segments of the market but designs separate product and /
or marketing programmes for each.
In recent years an increasing number of firms have moved toward a strategy of
differentiated marketing. This is reflected in trends toward multiple product
offerings and multiple trade channels and media. The net effect of differentiated
marketing is to create more total sales than undifferentiated marketing. However, it
also tends to be true that differentiated marketing increases the costs of doing
business.
3. Concentrated Marketing: Both differentiated marketing and undifferentiated
marketing imply that the firm goes after the whole market. However, many firms
see a third possibility, one that is especially appealing when the company’s
resources are limited. Instead of going after a small share of a large market, the
firm goes after a large share of one or a few sub markets. Put another way, instead
of spreading itself thin in many parts of the market, it concentrates its forces to
gain a good market position in a few areas.
At the same time, concentrated marketing involves higher than normal risks.
The particular market segment can suddenly turn sour or a competitor may decide
to enter the same segment. For these reasons, many companies prefer to diversify
in several market segments.
Selecting a market targeting strategy
Particular characteristics of the seller, the product, or the market serve to
constrain and narrow the actual choice of a market targeting strategy.
The first factor is company resources. Where the firm's resources are too
limited to permit complete coverage of the market, its only realistic choice is
concentrated marketing.
The second factor is product homogeneity. Undifferentiated marketing is more
suited for homogeneous products such as grape fruit or steel. Products that are
capable of great variation, such as cameras and automobiles, are more naturally
suited to differentiation or concentration.
The third factor is product stage in the life cycle. When a firm introduces a new
product into the market place it usually finds it practical to introduce one or, at the
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most, a few product versions. The firm's interest is to develop primary demand, and
undifferentiated marketing seems the suitable strategy; or it might concentrate on a
particular segment. In the mature stage of the product life cycle, firms tend to
pursue a strategy of differentiated marketing.
The fourth factor is market homogeneity. If buyers have the same tastes, buy
the same amounts per periods, and react in the same way to marketing stimuli, a
strategy of undifferentiated marketing is appropriate.
The fifth factor is competitive marketing strategies. When competitors are
practicing active segmentation, it is hard for a firm to compete through
undifferentiated marketing. Conversely, when competitors are practicing
undifferentiated marketing, a firm can gain by practicing active segmentation if
some of the other factors favour it.
PRODUCT POSITIONING
The significance of product positioning can be easily understood from David
Ogilvy's assertion. "The results of your campaign depend less on how we write your
advertising than on how your product is positioned".
Let us understand product positioning through certain examples.
Great Shake, the newly introduced soyamilk, is positioned as a health drink,
and positioned against milk.
Complan is positioned as a health-builder, and positioned against milk, listing
out the additional nutritive agents it possessed over milk.
Limca is positioned as a thirst-quenching soft drink. Rasna is positioned on the
plank of economy and convenience.
The detergent powder, Nirma is positioned on the plank of economy, and it is
positioned for a price-conscious segment of the detergent users.
6.3.2 PRODUCT POSITIONING TECHNIQUE
There are certain brands and companies which occupy a dominant position in
the consumer's mind, on account of the distinction that the brand or company has
already attained. For example, throughout the world, among the customers of
computers. IBM holds a dominant position. No other brand can enter the market
without somehow relating itself to IBM's position. So, wherever there is a dominant
brand or competitor, the other brands have to reckon the leader's position.
Positioning is the outcome of a conscious strategy of marketing. Some unique
features of the product, some unique features of the market or some unique
features of the competition is normally isolated and around that feature the product
is placed in the market. Positioning comes out to the marketing man's awareness
that a product cannot be 'everything to everyone'. It can only be something to
someone. Identifying these features imaginatively and using it as the ‘Plank’ on
which to pedestal the product is the essence of positioning. So, the product can be
positioned against a competing brand, it can be positioned for an exclusive well-to-
do segment of the market, it can be positioned for men, it can be positioned for
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children, it can be positioned for the fun-loving youth, it can be positioned for a
health-conscious market, it can be positioned on a claim of luxury, a claim of
distinctiveness, a claim of convenience, uniqueness, novelty, or usage.
The marketing man has to formulate his positioning theme right from the
product idea stage. He cannot suddenly invent a positioning theme when he is
ready to enter the market with his product. He should have already decided what
his ‘cash on’ point should be, where he should introduce his product and for whom,
and on what distinctive claim he should go around and promote his product.
Positioning is essentially a battle or capturing a place in the mind of the prospect.
Quite often, products undergo ‘repositioning’ as they go along their life-cycle.
This is done to increase the sale of the products by appealing to a wider market.
The product may be provided with new features for the same old product may be
associated with new uses and may be offered to existing and new markets. In India,
in the past, manufacturers of transistor radios positioned them for the urban and
educated customers. Later, they repositioned them as an affordable convenience for
the common man of the semi-urban and even the rural markets.
Positioning is a technique which the marketing mean has to employ with a lot
of care and pre-planning. By positioning a product in a particular way, the
marketing man is committing the product to the particular decision and situation.
If the positioning decision is faulty, the product suffers heavy damages. It may take
a long time and enormous effort to retrieve a wrongly positioned product. While
repositioning a successful product later in the life-cycle may be easy, it is not at all
easy to retrieve and reposition a wrongly positioned product.
6.4. REVISION POINT
Rationale for Market Segmentation, Benefits of Segmentation And Steps
Involved in Segmentation Process
1. What is market segmentation? What is the rationale behind the market
segmentation>
2. Distinguish between the base for segmenting consumer market and
industrial markets?
3. Explain the steps involved in market segmentation process.
4. What is market targeting? As a two-wheeler marketer, how would you
select the target segment?
5. Explain the target market strategies with illustrations.
6. What is product positioning? Distinguish between product positioning
and product repositioning?
7. Explain the features of the product positioning technique.
6.6. SUMMARY
Market segmentation enables the marketers to select the target market and
offer appropriate marketing mix.
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What do you understand by segmentation and targeting marketing?
6.9. ASSIGNMENT
What are the benefits of market segmentation? Identify the requirements of
effective segmentation.
‘Segmentation is at the heart of marketing strategy’. Explain the importance of
market segmentation. Choose two markets (one from a consumer and one from an
organizational market) and show how these may be segmented.
6.12. KEY WORDS
Segmentation, Positioning, Repositioning
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LESSON – 7
BUYER (CONSUMER) BEHAVIOUR
7.1. INTRODUCTION
The buyer is a complex person, influenced by the social environment in which
he lives-his family, his society, his neighbour, his friends, his job, his colleagues.
Every component of his social environment leaves some imprint on him and
influences him in his day-to-day life. His purchases and consumption are carried
out within the larger context of his living. And his role as a buyer is not distinct
from his role as a human being. Buyer behaviour, after all, is a specific aspect of
general human behaviour. And, it is only natural that it is as complex as general
human behaviour.
7.2. OBJECTIVES
 To know the meaning of consumer behaviour
 To study the theories of buyer behaviour
 Discuss about buyer behaviour process
7.3. CONTENTS
7.3.1 The Buyer Behaviour
7.3.2 Theories of Buyer Behaviour
7.3.3 Buyer Behaviour Products
7.3.1 THE BUYER
Buyer is a riddle. He is not a simple entity. His needs vary from security needs
to self-actualisation needs. He satisfies his needs by his means. When his needs are
costlier, he postpones them.
With the revolution in the field of communication, the buyer is exposed to a
great deal of information. He does not take all the information, but selects those
which suit him.
When the buyer takes a buying decision, there is no rigid rule to bind him. His
decision may either be spontaneous on the spot, or the made after a thorough
analysis.
BUYER BEHAVIOUR
Buyer behaviour is defined as "all psychological, social and physical behaviour
of potential customers as they become aware of, evaluate, purchase, consume, and
tell others about products and services". In other words, buyer behaviour includes
the acts of individuals directly involved in obtaining and using economic goods.
These acts are the result of a sequence of decisions made by the buyer. These
decisions are influenced by various factors. Hence buyer behaviour is the process
by which individuals decide whether, what, when, where, how and from whom to
purchase goods and services.
The above definition gives the following information about buyer behaviour:
• Buyer behaviour involves both individual (psychological) processes and
group (social) processes.
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• Buyer behaviour is reflected by post-purchase evaluation which

indicates satisfaction or non-satisfaction
• Buyer behaviour includes communication, purchasing and consumption
behaviour.
• Buyer behaviour is shaped by social environment.
• Buyer behaviour includes both consumer and industrial buyer
behaviour.
7.3.2 THEORIES OF BUYER BEHAVIOUR
1. Economic Theory: According to economic theory, the buyers are assumed to
be rational in their decision-making. They follow the law of marginal utility.
Consumers evaluate the alternatives available and they chose that alternative
which would provide him with highest utility and lowest cost. The consumers have
a set of needs and tastes. They have got a certain amount of purchasing power. He
may not be able to fulfill all his needs because his purchasing power is the limiting
factor. Hence, he allocates his expenditure over different products at given prices so
as to maximize utility. Thus, the law of equi-marginal utility enables him to secure
maximum utility from limited purchasing power. The purchasing decision is based
on economic calculations and reason.
Economic model of consumer behaviour is un-dimensional. The following
presumptions are made about buyer behaviour;
i. Lower the price of the product, larger will be the quantity bought-price
effect.
ii. Higher is the purchasing power, higher will be the quantity bought-
income effect.
iii. Lower the price of a substitute product, lesser the quantity that will be
bought of the original product-substitution effect.
iv. Higher the promotional expenditure, higher will be the sales-
communication effect.
Economic model assumes that markets are homogeneous. But now markets
are assumed to be heterogeneous. Hence the economic man is a myth. Buying
process is not always rational and price is not the only factor of motivation. Buying
is not always at the lowest price. It is obvious that the economic model is
insufficient to explain the intricacies of buyer behaviour.
2. Learning Theory: Classical psychologists interpret man's needs are coming
about through the interplay of drives, stimuli, cues, responses, and reinforcement.
Every organism has innate physiological drives connected with survival.
Psychologists distinguish between primary drives (such as hunger, thirst, sex, and
acquisitiveness). The latter are learned through experience in trying to satisfy
primary drives.
A drive is a strong internal stimulus impelling action. A drive becomes a motive
'when it is directed toward a particular drive- reducing object. A person may reach
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for a soft drink to satisfy his thirst or a hotel to satisfy his hunger. These objects
are stimuli in that they are capable of arousing and satisfying his drives.
The particular response of a person to a stimulus is influenced by the
configuration of cues. Cues are minor stimuli that determine when, where and how
the person responds. In satisfying a thirst, a person is cued by the time of day, the
cost and availability of different beverages, and so on.
The response is the organism's reaction to the configuration of stimuli and
cues. If the response is rewarding, the probability of a similar response next time to
the same cue configuration is reinforced. If a response is not rewarding, the
probability of a similar response is diminished.
Cue configurations are constantly changing. For example, the shopper's
favorite brand may be out of stock or he may see another brand on sale. He will
shift to similar stimuli because learned responses are generalised.
A countertendency to generalisation is discrimination. When a person tries two
similar brands and finds one more rewarding, his ability to discriminate between
similar cue configurations improves. Discrimination increases the specificity of the
cue- response connection, while generalisation decreases the specificity.
Thus, the learning theory has the following predictions.
Learning refers to change in behaviour brought about by practice or experience.
Almost everything one does or thinks is learned.
Product features such as price, quality, service, brand, package etc., acts as
cues or hints influencing consumer response.
Marketing communications such as advertising, sales promotion also act as
guides persuading buyer to purchase the product.
Response is decision to purchase.
3. Psycho-analytic Theory: This theory is developed from the thoughts of
Sigmund Freud. He postulated that the personality has three basic dimensions: id
refers to the free mechanism that leads to strong drives. Such drives (motives) are
not influenced by morality or ethics. Ego refers to the act of weighing consequences
and tries to reconcile with reality. It is an equilibrating device that leads to socially
acceptable behaviour and imposes rationality on the id. The ego weighs, the
consequence of an act rather than rushing blindly into the activity.
Super ego is a person's conscience. It is highly rational and tries to keep the
activities morally right. In essence, the id urges and enjoyable act: the super ego
presents the moral issues involved and the ego acts as the arbitrator n determining
whether to proceed or not. This has led to motivation research and has proved to be
useful in analysing buyers behaviour. This, in turn, has contributed some useful
insights in the advertising and packaging fields.
4. Socio-cultural Theory: Man is primarily a social animal and his wants and
behaviour are largely influenced by the group of which he is a member. The
tendency of all people is to "fit in" a society in spite of their personal likes and
51
dislikes. Most of the luxury goods are bought primarily because one's neighbour or
friend of the same status bought it. Culture, subculture, social classes, reference
groups, family are the different factor groups that influence buyer behaviour.
Culture: Culture is the most fundamental determinant of a person's wants. The
individual learns the values of his culture through a process called socialization.
Culture has a great deal to do with how an individual sees, thinks, and feels. This
becomes obvious when one steps into another culture. He suddenly becomes aware
of his cultural biases. International marketers in particular must study cultural
differences as a prelude to planning their products and marketing programmes in
different countries.
Sub-cultures: Each culture contains smaller groups or subcultures, and each of
these provides more specific identification and socialization for its members. Nationality
groups, Religious groups, Racial groups, and Geographical areas are the four types of
subcultures identified. Major marketers, although their markets are broad, require
sensitivity to variations in the needs and preferences of different subcultures.
Social class: Virtually all human societies exhibit social stratification.
Stratification may take the form of a caste system where the members of different
castes are reared for certain roles and cannot change their caste membership. More
frequently, stratification takes the form of social classes. Social classes are
relatively homogeneous and enduring divisions in a society which are ordered with
respect to each other and whose members share similar values, life-styles,
interests, and behaviour.
Marketers have found social class a useful variable for segmenting markets.
Products, advertising appeals, services, and atmospheres can be designed to appeal
to specific social classes. Social classes show distinct differences in their tastes in
clothing, home furnishings, leisure activity, automobiles, and so on. There is
evidence that social classes differ in their purchase decision processes as well
Reference groups: An individual is influenced by the many small groups with
which he interacts. Some are primary groups (family, close friends, neighbours and
fellow workers) and others secondary groups (fraternal organisations, professional
associations). He is also influenced by groups of which he is not a member, such as
sports clubs and movie clubs. Groups that interact and influence the attitudes and
behaviour of an individual are called reference groups.
Reference group influences consumption behaviour most strongly in those
product and brand categories that are visible and even conspicuous. The more
cohesive the reference group, the more effective its communication process; and the
higher the individual esteems it, the more influential it will be in shaping his
product and brand choices.
The Person: From what has been said, a person's basic motivations are heavily
influenced by social learning. The norms and value systems in his culture,
subculture, social class, and reference groups leave in indelible imprint on his
needs and wants. These social forces deserve the most careful study by marketers
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trying to interpret the objectives that might motivate consumer interest in their
products and brands.
5. The Nicosia Model: In recent years, some efforts have been made by
marketing scholars to build behaviour models totally from the marketing man's
standpoint. The Nicosia model and the Howard and Sheth model are two important
models in this category. Both of them belong to the group called the systems model,
where the human being is analysed as a system with stimuli as the input to the
system and behaviour as the output of the system.
The model tries to establish the links between a firm and its consumer-how the
activities of the firm influence the consumer and result in his decision to buy. The
messages from the firm first influence the predisposition of the consumer towards
the product. Depending on the situation, he develops a certain attitude towards the
product. It may lead to a search for the product or an evaluation of the product. If
these steps have a positive impact on him, it may result in a decision to buy. This is
the sum and substance of the 'activity explanations' in the Nicosia model. The
Nicosia model groups these activities into four basic fields.
Field One has two sub-fields-the firm's attributes. An advertising message from
the firm reaches the consumer's attributes. Depending on the way the message is
received by the consumer, a certain attribute may develop, and this becomes the
input for Field two. Field Two is the area of search and evaluation of the advertised
product and other alternatives. If this results in a motivation to buy, it becomes the
input for Field Three. Field Three consists of the act of purchase. And Field four
consists of the use of the purchased item. There is an output from Field Four –
feedback of sales results to the firm.
6. The Howard-Sheth Model: John Howard and Jagdish Sheth put forward the
Howard and Sheth model in 1969, in their publication entitled 'The Theory of Buyer
Behaviour'. The logic of the model runs like this: There are inputs in the form of
stimuli. There are outputs beginning with attention to a given stimulus and ending
with purchase. In between the inputs and the outputs there are variables affecting
perception and learning. These variable are termed 'hypothetical' since they cannot
be directly measured at the time of occurrence.
Over the years, several other models have also been put forward, with the
intention of explaining buyer behaviour. All these models have certain merits and
certain limitations. They do not fully explain the complex subject of buyer
behaviour. Nor do they establish a straight input-output equation on buyer
behaviour. And, none of them provides a precise answer to the why's or how's of
buyer behaviour. They merely explain the undercurrents of human behaviour from
different angles and premises. But these models will certainly be helpful in gaining
at least a partial insight into buyer behaviour.
7.3.3 BUYING MOTIVES
A consumer buys a particular product because he is influenced by certain
motives. Motive is a strong feeling, urge, instinct, desire or emotion that makes the
buyer to react in the form of a decision to buy. For that matter, every human
activity is motivated and is not spontaneous. Consumers, for example, are goal-
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seekers who gratify their needs by purchases and consumption. In other words,
needs are the motivational element behind purchase. These needs were classified
by Abraham H. Marlow, in a pyramid form known as 'Hierarchy of Needs'.
Satisfaction proceeds through each of the five stages viz., psychological, safety,
social, self esteem and self realisation. When one need is satisfied, the customer
will seek higher goals and thus proceeds up the hierarchy. It seems that distinction
between needs and wants is necessary here. Needs are general in nature and
common to all people. For example, need for safety is common. But all needs may
not become demand. Only when need becomes specific and is consciously felt, it
conditioned by certain motives. These are termed as buying motives buying motives
are defined as "those influences or consideration which provide the impulse to buy,
induce action or determine choice in the purchase of goods or services. These
buying motives may be classified into two:
i. Product Motives
ii. Patronage Motives
Product Motives: Product Motives may be defined as those impulses, desires
and considerations which make the buyer to purchase a product. Product motives
may still be classified on the basis of nature of satisfaction as,
a. Emotional Product Motives and
b. Rational Product Motives
Emotional product motives are those impulses which persuade the consumer
on the basis of his emotion. The buyer does not try to reason our or logically
analyse the need for purchase. He makes a buying to satisfy:
(i) pride; (ii) sense of ego, (iii) urge to imitate others; (iv) his desire to be
distinctive
Rational product motives are defined as those impulses which arise on the
basis of logical analysis and proper evaluation. The buyer makes a rational decision
after cheap evaluation of the purpose, alternatives available, cost benefit, and such
other valid reasons.
Product motives may also be classified in the following ways:
i. Operational product motive
ii. Socio-psychological product motives
Operational product motive may be defined as an impulse arising out of the
ability or function that a product is likely to provide. Socio-psychological product
motive may be defined as the desire to buy the product which shall arise as a result
of psychological or social significance that a buyer attaches to the product.
Patronage Motives: Patronage Motives may be defined as consideration or
impulses which persuade the buyer to patronise specific shops. Just like product
motives, patronage can be grouped as emotional and rational. Emotional Patronage
Motives are those that persuade a customer to buy from specific shops, without any
logical reason behind this action. He may be subjective for shopping in his favourite
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place. Rational Patronage Motives are those which arise when selecting a place
depending on the buyers satisfaction that
i. it offers a wide selection
ii. it has latest models
iii. it offers good after-sales services etc.
Factors influencing buyer behaviour
1. Impact of Information on Buyer Behaviour: The buyer today is exposed to a
veritbale flood of information. There is a deluge of information unleashed on him
from different sources. These sources inform him about new products and services,
improved versions of existing products, new uses for existing products and so on.
The common information sources that persuade people to try a product are:
• advertising
• samples and trials
• display in shops
• salesmen's suggestions
2. The Socio-Cultural Environment: Affecting Buyer Behaviour: The buyer
whom we are studying is living in a society, influenced by it and in turn influencing
its course of development. He is a member of several organisations – formal and
informal. He is a unit of several groups. He belongs to a family, he is a member of
some religion or caste, he belongs to a certain language group. He may be a
member of a professional forum, he may belong to a particular political group, or a
cultural body. There is constant interaction between the individual and the
organisations to which he belongs. And all these interactions leave some imprint on
him. Which influences him in his day-to-day life and consequently, his buying
behaviour.
3. Group Influence on Buyer Behaviour: Actually group influence on buyer
behaviour is of two types since there are two types of groups exercising an influence
on buyers:
i) the intimate group and
ii) the broad social classes
Influence of intimate group on buyer behaviour: Examples or intimate groups
are family, friends, close colleagues, and small, closely-knit organisations. These
groups exercise a strong influence on the life styles and the buying patterns of the
members. Among these groups, the most influential and primary groups are the
family and peer groups. The peer groups are close-knit groups composed of
individuals, who have a common social background and who normally belong to the
same age group.
4. Influence of Social Classes on Buyer Behaviour: Buying behaviour of
individuals is also influenced by the social class to which they belong. Structurally,
the social class is a larger group than the intimate groups. The constitution of a
social class is decided by the occupation, place of residence etc., of the individual
55
members. The members of a social group will enjoy more or less the same
community status and prestige. Each class develops its own standard of life style
and behaviour patterns. And the members of the class normally select a product or
a brand which caters to their group norms. Marketers stand to gain considerably
form a proper study of group influence on individual buying behaviour. It will help
them to develop proper marketing strategies for different customer segments.
5. Influence of Religion, Culture, Language, etc, on Buyer Behaviour: Every
culture, every religion and every language group dictate its own unique patterns of
social conduct. Within each religion, there may be several set and sub-sects; there
may be orthodox groups and cosmopolitan groups. In dress and food habits,
education or marriage in almost all matters of individual life, religion and culture
exercise an influence on the individual directly or indirectly. The do’s and don’ts
listed out by religion and culture, control significantly the individual's life style and
buying behaviour.
6. Status Influencing Buyer Behaviour: People are becoming more and more
concerned about their image or their status in society. This concern is a direct
outcome of the material property of the society. The desire to the somebody, 'to feel
that you are somebody, are to show that you are one, is a compelling one in modern
society. Status is announced through various symbols like dress, ornaments,
possessions, and general lifestyle. The values attached to these status-symbols may
change over time. It is for the marketing man to know and capture the marketing
opportunity behind these changing symbols-symbols of status.
Buying Habits: Marketers should also know the buying habits of customers-
how, when and where they buy. Buying habits can be best studied in relation to the
types of products purchased. In fact, classifications of consumer goods have been
made on the basis of buying habits. One such classification divides them into
convenience goods, shopping goods and specialty goods.
Convenience Goods: There are certain product which the consumers would like
to purchase with the least possible effort. Such items are purchased frequently and
their unit price is low. There is not much of planning behind the purchase.
Products like toothpaste, soap, cigarettes, etc., come under this category. There is a
recurring need of these items and the consumer would desire to get it at an easily
accessible place. These are convenience goods. Manufacturers marketing such
products know that the products have to be made available within the customer's
easy reach. So they make these products available in as many outlets as possible
ensuring maximum exposure. If the products are not available easily, the consumer
is not prepared to make a special shopping trip for buying the products, and he
may readily switch over to any substitute product or brand available at the
immediate vicinity.
Shopping Goods: Items like furniture, dress materials, electrical appliances,
etc., are not purchased so frequently. There is an element of planning behind the
purchase. It is not necessarily purchased at the easily accessible store. The buyer is
56
willing to make one or more shopping trips to buy these items. Unlike the purchase
of convenience goods, these purchases involve considerable expenditure. The
customer would certainly like to compare the prices, quality, patterns etc., in a
number of stores before finalizing the purchase. Such products are normally not
standardized items. There is an element of fashion in them. They are termed
shopping goods.
In accordance with these buying habits, marketing methods of these goods
have been modified. Since the buyers of shopping goods are in the habit of
comparing the items in one shop with those of another, stores dealing in such
goods are seen clustered in market centres. Whereas manufacturers of convenience
goods make their products available through innumerable sales points, in the case
of shopping goods, normally there will be a smaller number of selling points. And
the manufacturers normally sell directly to the retailers without routing the
supplies through a wholesale tier.
Specialty Goods: Specialty goods are high-priced goods-care, watches, high-
priced dresses and ornaments, etc. Purchases of specialty goods involve substantial
investment and the periodicity of purchase is less frequent than that of shopping
goods. Specially goods are not purchased out of instant decisions. The various
aspect of the purchase-the cost angle, the utility angle, the prestige angle, the
alternatives available, the experience of others who have purchased the product are
analysed before deciding on the purchase. Normally the entire family take part in
the decision- making process in the purchase of specialty goods.
Since the buyers of such products are prepared to make special purchase
efforts, the manufacturers need not have a wide distribution. They normally deal
through a small number of outlets in potential markets. They have a selective
distribution, normally entrusting the job to selected retailers. In certain cases, the
manufacturers of specialty goods operate their own retail outlets.
Buying process
The buying process includes the following five steps:
1. Need Recognition: Buying process begins when a person begins to feel that
a certain need or desire has arisen. The need may be activated by internal or
external factors. The intensity of the want will indicate the speed with which a
person will move to fulfill the want. The buyer will postpone the less important
motives. Marketing management should offer appropriate cues to promote the sale
of the product.
2. Information Search: Aroused needs can be satisfied promptly when the
desired product is not only known but also easily available. But when it is not clear
what type or brand of the product can offer best satisfaction, the person will have to
search for information. This may relate to the brand, location and the manner of
obtaining the product. Consumers can use many sources, like family, friends,
neighbours, opinion leaders and acquaintances. Marketers also provide relevant
information through salesman, advertisements, dealers, packaging, sales promotion
57
and window-displaying. Mass-media like newspapers, radio and television provide

information. Marketers are expected to provide reliable, up-to-date and adequate
information regarding their products and services. This is the pressing demand of
consumerism.
3. Evaluation of Alternative: This is the critical stage in the process of
buying. There are several important elements in the process of evaluation:
A product is viewed as a bundle of attributes. These attributes or features are
used for evaluating alternative brands. For example, a product like it has certain
common attributes such as taste, flavour, strength, aroma, colour, number of cups
per packet and price.
Information cues or hints about a set of characteristics of the product in brand
such as quality, price, distinctiveness, availability etc. brand images and brand
concepts can help in the evaluation of alternatives.
In order to reduce the number of alternatives, some consumers may consider
more critical attributes and mention the level of for those attributes.
Occasionally, consumers, may use an evaluation process permitting trade off
among different alternatives.
Marketers should grasp thoroughly the process and utility functions for
designing and promoting the product.
4. Purchase Decision: While the consumer is evaluating the alternatives, he
will develop some likes and dislikes about the alternative brands. This attitude
towards the brand influence the intention to buy. Thus the prospective buyer heads
towards final selection. In addition to all other factors, situational factors like
dealers terms, falling prices etc., also are considered. Perceived risk may also
influence the decision to purchase. High priced products involve higher risk.
Sophisticated products involve performance risk. Consumers may not have
confidence in foreign products involving higher cost and they would prefer national
brands to reduce risks and problems of service after sale.
5. Post-purchase Experience and Behaviour: The brand purchase and the
product use provides feedback of information regarding attitudes. If the derived
satisfaction is as per the expected satisfaction, it will create brand preference
influencing future purchase. But if the purchased brand does not yield desired
satisfaction, negative feelings will occur and this will create anxiety and doubts.
This phenomenon is called cognitive dissonance. There will be lack of harmony
between the buyer's beliefs and his purchase decision. Marketer may try to create
dissonance by attracting users of other brands to his brand. Advertising and sales
promotion can help marketer in this job of brand switching.
7.4. REVISION POINT
The Buyer Behaviour, Theories of Buyer Behaviour and Buyer Behaviour
Products
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1. Explain the factors influencing Buyer Behaviour.
2. Narrate the Buying process.
7.6. SUMMARY
Buyer mind is a black box, many persons tried to study the buyers mind and
are successful to some extent only. Hence Buyer Behaviour is still a riddle.
Everyone talks about the fact that customers are central to the company and
need focus and attention. Explain in your own words why the customer is so
important (illustrate your answer with examples to show your understanding)
7.9. ASSIGNMENT
What do you mean by Buyer Behaviour? As a manager discuss the different
themes of Buyer Behaviour.
Why consumer buying behavior is important to the organization? - Justify
7.12. KEY WORDS
Reference group, Buying motives, Buying process, Patronage motives
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LESSON – 8
SALES FORECASTING
8.1. INTRODUCTION
A sales forecast is an estimate of the amount or unit sales for a specified future
period under a proposed marketing plan or programme. The American Marketing
Association has defined sales forecast as "an estimate of sales, in dollars or
physical units for a specified future period under a proposed marketing plan or
programme and under an assumed set of economic and other forces outside the
unit for which the forecast is made"
The making of a proper sales forecast requires assessment of two sets of
factors:
1. The outside uncontrollable forces likely to influence the company's sale,
such as the weather, government activity and competitive behaviour.
2. The internal marketing methods or practices of the firm that are likely to
affect its sales, such as product, quality, price, advertising, distributing
and service.
The sales forecast may be for a specified product or for the entire product line
or it can be for market as a whole or any portion of it. Once the sales forecast is
prepared, it becomes the key controlling factor in all operational planning
throughout the company. The forecast is the basis of sound budgeting. Financial
planning or working capital requirements, plant expansion, and other need is based
on anticipated sales. Scheduling of all production as setting man power needs
purchasing raw material requirement, and determining the rate of production
output, depends upon sales forecast.
8.2. OBJECTIVES
 To know the meaning of sales forecasting and its uses
 To study various techniques of sales forecasting
 To study the sales forecasting procedure and its limitations
8.3. CONTENTS
8.3.1 Uses of Sales Forecast
8.3.2 Techniques of Sales Forecast
8.3.3 Limitations of Sales Forecast
8.3.1 USES OF SALES FORECAST
Sales forecasting serves the following purposes:
It enables the company concerned to meet the growing needs by balancing
supply and demand. As far as sudden and temporary pressures are concerned,
forecasting helps the organisation to avoid them.
It is useful for measuring the efficiency of sales department. Sales forecasting
may be said to occupy a forefront seat in management.
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Reliable sales forecasting is a first rate aid to proper pricing whether in terms of
costs or in terms of what the market will bear.
It aids in reallocation of sales territories.
It mitigates the twin evils of under-stocking and over-stocking
It acts as a tonic for financial departments which may make use of sales
forecast.
It acts as a friend, philosopher and guide in so far as plant layout, warehousing
and transportations facilities are concerned.
Seasonal or timely fluctuations may be easily met with by averaging out
production and employment over the year.
Maximum regularisation of production which forecasting makes possible serves
to eliminate completely or reduce substantially the need for over-time work at
premium rates. It also eliminates slack periods in which workers have nothing to
do. Perhaps the most dramatic advantage of forecasting in the personal field is the
opportunity it gives management to avoid frantic discharging and hiring policies.
According to Henry Fayol, "The act of forecasting is of great benefit to all who
take part in the process, and is the best means of ensuring adaptability to changing
circumstances. The collaboration of all concerned leads to a unified front, an
understanding of the reasons for decisions, and a broadened outlook".
The specific contributions of forecasting to the field of marketing management
may be summed as follows:
• To decide whether to enter a new market or not.
• To determine how much production capacity to be built up.
• To help in the product mix decisions (to eliminate or to add a new product).
• To prepare standards against which to measure performance.
• To prepare annual budgets based on estimated sales revenue.
• To assess the effects of a proposed marketing programme.
Sales forecast is the cost or keystone of marketing management. On the basis
of the reliable sale forecast, we can have (1) the required number of the salesmen to
achieve our sales objective, (2) allocation of sales quota for each salesman, (3)
determination of sales compensation plan, (4) determination of sales territories, (5)
advertising and sales promotion programme, (6) scheme of distribution, (7) fixing of
sales price, (8) production plan, (9) regulating inventories and purchasing, (10)
estimating standard cost, (11) budgeting and controlling expenses, and (12)
planning cash requirements.
In fact entire marketing mix, viz., product, price, promotion and physical
distribution revolves round the sales forecasts. Sales forecasting acts as the basis
not only of production planning and marketing planning but also of financial
planning and personal planning. The master plan or budget of the company as the
functional or departmental plan and budgets are ultimately based on sales
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forecasts. Thus a comprehensive and integrated business planning (strategic as

well as short term) is based on the foundation of sales planning.
Sales forecasting is a device by means of which management may integrate its
objectives, its operating programmes, and its targets with potential market
opportunity. This is done by translating the sales forecast into specific profit and
sales volume goals to be realised in the given period. The sale forecast thus
becomes a basis for marketing programmes, purchasing plans, financial, budgets,
personnel needs, production schedules, plant and equipment needs, expansion
programme and many other aspects of management programming.
Period of sales forecasts
As far as time frame is concerned, basically, there are three types of sales
forecasts:
• The short range forecasts
• The long range forecasts
• Perspective planning forecasts
The short range forecasts help in short range business planning. Such forecast
are usually made for a period of one year and reviewed monthly, quarterly or half
yearly. Revisions are made in the light of experience and changing conditions. The
short-range forecasts are used for planning the various sales/marketing
programmes like personal selling, advertising, warehousing arrangements and so
on. They also used for short-term planning of the activities in the functional areas
that are outside marketing like production, finance and materials.
The long range forecast at the time of starting facilitate investment decisions at
the time of starting a new industry or while attempting and expansion or
diversification. Since industrial investment is often irrevocable and the pay-off
period extends over a long term, demand forecasting for a longer-term, say ten
years will be essential for investment decisions. The margin of error may be high in
such long-term forecasts. Yet, they would be sufficiently reliable for planning
purposes.
Sometimes, one comes across a still longer-term forecast, say for 15 or 25
years. Such forecasts are normally used for the purpose of perspective planning.
Economies subscribing to planned economic development often generate
perspective planning targets in the different sectors of the national economy.
Perspective planning of this kind serves as a guide to the planning and
implementation process over a really long ranging period.
Sales forecasting is a difficult task
In any business, sales forecasting invariably turns out to be a difficult exercise.
There are two vital reasons for this. In the first place, forecasting means predicting
the future. And as Peter F. Drucker said, we can be certain of only three things
about the future.
i. It cannot be known with certainty.
ii. It will be different from what it is now.
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iii. It will be different from what we expect

Secondly, each business has certain peculiarities. As such forecasting of
demand and sales in any business bristles with certain peculiar complexities. One
has to master these complexities in any attempt at sales forecasting.
Criteria in sales forecasting
The following are the criteria frequently used:
• Market potential (or industry potential)
• Company potential (or sales potential)
• Market demand (or industry demand)
• Company demand (or sales possibilities)
• Market forecast (or industry forecast)
• Company forecast (or sales forecast)
'Market potential' is nothing but a quantitative estimate of the total possible
sales by all the firms selling the product in a given market. It gives an indication of
the maximum demand or the ultimate potential for that product assuming that the
ideal marketing effort is made. 'Company potential' refers to a part of the market
potential, what an individual firm can sell at the maximum in a given market, again
under ideal conditions and on the assumption that the ideal marketing effort is
made.
The terms 'Market demand' and 'Company demand', refer to those portions of
'Market potential' and 'Company potential' that are achievable under existing
conditions. 'Market forecast' and 'Company forecast' are still narrower they refer to
what the industry and the firm respectively are likely to sell in actual practice
during the period of the forecast.
It can be easily seen that 'Company potential' is just a part of 'Market
potential', 'Company demand' is just a part of 'Market demand', and 'Company
forecast', i.e., sales forecast is just a part of 'Market forecast'.
8.3.2 TECHNIQUES OF SALES FORECASTING
No one method of sales forecasting can be applied to all enterprises, nor can all
factors that establish a sales forecast be obtained form one source. These
techniques range from uninformed guesses of the executives to highly sophisticated
statistical methods. Usually separate estimates are prepared for each article or
product line. Then each total product forecast is sub-divided in as much detail as
possible i.e., a forecast should be made in rupees and/or units for each territory,
customer, group or other meaningful sales unit. Such forecast may then be used in
planning for sales quota or allocating the advertising expenditure.
Some of the most common techniques used for sales forecasting are discussed
below:
1. Jury Method/Executive Opinion Method: Under this method, opinions of the
top executives (form marketing, production, finance and other departments)
regarding future sales volume is obtained. Such method provides forecasts easily
63
and quickly; does not require any elaborate statistics; permits combining and
averaging the specialised opinion of different executives. But such method lacks
scientific validity and may turn out to be absolutely wrong and deceptive; and it
also disperses responsibility for accurate forecasting.
2. Sales Force Composite Method: As per the sales force composite method, the
sales forecasting is done by the sales force. All salesmen develop the forecast for
their respective territories; the territory-wise forecasts are consolidated at
branch/region area level; and the aggregate of all these forecasts is taken as the
corporate forecast.
3. Survey of Export Opinion Method: This is yet another judgment-based
method of sales forecasting. This is somewhat different form the jury method and
the sales force composite method. In those two methods, opinions of the executives
and sales force are used to develop the forecast. In survey of expert opinion method,
experts in the concerned field inside or outside the organisation are approached for
their estimates. This method may be relatively more useful when total industry
forecast is developed than in company level sales forecast.
4. Users' Expectation Method: This method is adopted for industrial marketing.
The advantage here is that the customers comprise only a small group. Clearly, if a
company can obtain an adequate and reliable information sample of what
customers will buy, even though the actual orders are not in hand, it will have a
good basis upon which to develop a sales forecast.
As pointed out, this method cannot be adopted in consumer goods marketing
as the customer are large in number. Secondly, customer expectations cannot be
predicted accurately.
5. Market Share Method: Some firms use a simple method of sales forecast in
which the desired/planned market share of the firm is the key factor. They work
out the industry forecast apply their market share factor and deduce the company's
sales forecast. The market share factor is developed based on past trend, company’s
competitive position, brand preference etc. Such conversion of industry forecast
into company sales forecast enquires considerable expertise. By a detailed
marketing audit, the firm must correctly appraise its market standing, brand
image, market share and strengths and weaknesses as compared with the
competitors in the industry. It must also correctly assess through reliable
marketing intelligence, its competitor’s plans, policies and activities. Only then, the
forecast arrived at by this method will have a good degree of reliability. Retail audit
would also be of considerable help in employing, the market share method; it would
help assess the industry position as well as the individual firm’s market shares.
6. Simple Projection Method: Among the projection methods, the simplest is the
one that uses the ‘rule of the thumb’ by which current year’s forecast is arrived a by
simply adding a certain percentage to last year’s sales. Some firms use the formula
shown below:
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Next year's sales =

(This year's Sales)2
Last year's sales
This formula will provide a reasonably reliable estimate only if the sales are
stable and show an increasing trend. Some other firms go by the growth rates
adopted by industry leaders. In certain cases the rate of growth of the industry as a
whole is adopted or the projection.
7. Extrapolation Method: Some firms rely on the extrapolation method.
Extrapolation is also a projection/trend method. It involves the plotting of the sales
figures for the past several years and stretching of the line or the curve as the case
may be. The mechanical extrapolation will give the sales forecast for the coming
years. Extrapolation basically assumes that the variables will follow the previously
established pattern. Accordingly, this method will be effective where the pattern of
past movement has been relatively steady and abrupt disruptions are unlikely in
the future. In other words, the assumption is that the future will mirror the past.
8. Moving Averages Method: This method enables us to eliminate the effects of
seasonality and other irregular trends in sales. Each point of a moving average of
time series is the arithmetical or weighted average of a number of preceding
consecutive points of the series. If seasonal effects are present in the demand
pattern of the product, a minimum of two years sales history is needed for applying
this method.
9. Exponential smoothing: Exponential smoothing is yet another projection
method of sales forecasting. It is similar to moving averages and is used fairly
extensively. It represents the weighted sum of all past numbers in a time series
with the heaviest weight placed on the most recent data. This method is
particularly useful when forecasts of a large number of items are made. It is not
necessary to keep a long history of past data. The method can have a stable
response to changes and responses can be adjusted as required.
10. Time-series Analysis: It is a common device of mathematical projections of
future sales. It involves the projection of past sales trends into the future. To
predict future sales we analyse four kinds of historical sales variations (1) seasonal
variations, (2) movements related to changes in the business cycles (Depression,
Revival, Prosperity, Boom followed by Slump and so on), (3) the long-term trends of
sales, and (4) irregular or unexplained variations. By isolating and analysing these
four types of variations in sales, an analyst can estimate with accuracy the
probable level of sales for a coming period. Of course, it is assumed that the past
trend will continue in the future under such extrapolation. This is an objective
method of sales forecast.
11. Regression Analysis: Regression analysis is another analytical technique of
sales forecasting. This technique tries to functionally relate sales to those variables
that influence sales. They may be economic factors, competitive factors or price.
The variable which is to be forecasted is the dependent variable and the factors
which cause changes in the dependent variable are explanatory or casual variables.
65
The association between the dependent the dependent variable (i.e. the sales
forecast of the company) and the explanatory or causal variables is determined and
measured. An equation is fitted to explain the fluctuations in sales in terms of
explanatory or causal variables.
After establishing the relationship based on past data and with the estimated
values for the factors for future years, we can get the sales estimates for the future
years. Where sales are influenced by two or more causal variables acting together,
multiple regression analysis is applied. Computers are used for regression analysis
involving complex calculations.
The regression method, in general, will give more accurate forecasts than the
trend method since regression takes into account causal factors. At the same time,
in regression analysis involving a number of causal variables, the error of
forecasting will multiply along with the error in determining and measuring the
relationship or influence of each of these variables.
12. Econometric Models: Econometric models constitute yet another analytical
method of sales forecasting. Econometrics basically attempts to express economic
theories in mathematical terms so that they can be verified by statistical methods
and used to measure the impact of one economic variable upon another for
predicting future event. The econometric forecasting models vividly portray the real
world situations and the multiple variables involved in the sales situation.
The econometric models are quite complex and expensive to develop. But they
predict the turning points more accurately. The econometric models are used more
in forecasting the demand of durable industrial as well as consumer durables,
where ‘replacement demand’ is a significant factor to be projected.
13. Market Survey Method: When a company wants to introduce a new product
or an improved product, it resorts to a market survey to assess the likely demand
for the product. Likewise, any new company entering the market for the first time,
resorts to the market survey method for forecasting its demand/sales. This is quite
natural. The firm does not have any data of past sales or past demand patterns to
fall back upon. It has to gather the information from the market and take decisions.
Usually, the firm conducts a survey among a sample of consumers and gauges their
attitudes, likely purchases and purchase habits. Sometimes, a survey is conducted
among the channel members-wholesalers, and/or retailers to elicit information on
their attitudes, likely purchases, etc.
Selection of appropriate forecasting method
The forecaster must carefully choose his method of forecasting from among the
wide variety of methods. Basically, the method chosen must match the
requirements of his product and his organisation. Since all the methods have their
associated merits and demerits and there is nothing like an ideal forecasting
method that could be applied to advantage in all situations, the forecaster must
assess the suitability of the specific method to his specific situation before
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commissioning the forecasting exercise. Quite often, the forecaster can improve his
forecast by choosing a combination of more than one method.
Sales forecasting procedure
The usual steps involved in sales forecasting are:
• Determining the objectives for which the sales forecasts are to be used.
• Dividing Company’s products into homogeneous groups.
• Determining the relative importance of the factors which affect sales of
each such group.
• Selecting the appropriate sales forecasting method.
• Collecting and analysing the sales and drawing conclusions there from.
• Converting the conclusions into specific forecasts relating to the
products and territories involved.
• Applying these forecasts to company’s operations; and
• Periodically reviewing and revising the forecasts.
Marketing Information System (MIS) and sales forecasts
Marketing information is central to sales forecasting. Since a large number of
factors, such as changes in economic and business conditions, changes in market
potential, changes in competition and changes in the programmes of the firm
influence the sales of a firm, sales forecasting requires a data base relating to all
these factors.
The following are the essential data requirements for effective sales forecasting.
• Industry sales for the past few years; product-wise territory-wise,
customers class-wise, month-wise and dealer-wise.
• Past sale of the company.
• Production data-industry and company.
• Market share of each firm in the industry with break-up of sales by
markets/territories/channel types.
• Sales of substitute products.
• Use pattern of the product.
• Economic, technological and environmental date relevant for the
product’s consumption.
• Strengths and weaknesses of the firm in the market.
5.3.3 LIMITATIONS OF SALES FORECAST
It is subject to certain limitations, which hamper the accuracy of sales
forecasting. The limitations are offered by factors such as fashion, absence of sales
history, growth elements and psychological behavioural variables of the market.
Fashion or style affects the sales. It is difficult to say how for the market will
adopt the new fashion and for how long. If the fashion becomes popular, large sales
may result, otherwise the sales may be very small.
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Absence of sales history also creates difficulty in accurate forecasting in case of

those firms which base their forecasts on the past sales trends. In the absence of
past a sales history the sales forecasts may be based on mere guess work.
Anticipated growth rate for the product can be calculated precisely, because the
rate of growth never remains uniform, the same rate may rather continue, decline
or remain stationary.
Psychological behavioural variables prevailing in the market are difficult to
measure for any change in the consumer attitude may upset the entire sales
forecast.
Therefore, while preparing sales forecasting, due consideration should be given
to these limitations by the marketing executives.
8.4. REVISION POINT
Uses of Sales Forecast, Techniques of Sales Forecast and Limitations of Sales
Forecast
1. Define Sales Forecasting. State the importance of Sales Forecasting.
2. Explain the techniques of Sales Forecasting.
8.6. SUMMARY
Sales forecasting is an estimate or projection of sales likely in the future. It is
helpful for a marketing man in several ways in planning. There are various
techniques used for sales forecasting. An organisation should choose an
appropriate method of Sales Forecasting.
How can you describe the sales forecast of a multinational company? What are
the factors that influence the sales forecast of multinational companies while
identifying opportunities for global business?
8.9. ASSIGNMENT
How would you judge Sales for the future? State the importance of Sales
Forecasting.
The purpose of planning is to allocate company resources in such a manner
as to achieve sales anticipated from the sales forecast. Such forecasts are for the
short, medium and long terms. Describe and discuss the purpose of each of these
forecasts and state their implications for the various functional areas of a business.
8.12. KEY WORDS
Sales Forecasting, Market Potential

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LESSON – 9
MARKETING MIX
9.1. INTRODUCTION
It was James Culliton, the American marketing expert, who coined the
expression Marketing Mix and described the marketing manager as a ‘mixer of
ingredients’. To quote him, “The marketing man is a decider and an artist-an mixer
of ingredients, who sometime follows a recipe prepared by others: sometimes
prepares his own recipe as he goes along; sometimes adapts a recipe to the
ingredients immediately available; sometimes invents some new ingredients; and
sometimes experiments with ingredients as no one else has tried before”.
It was Jerome McCarthy, the well-known American Professor of marketing, who
described the variables of marketing mix in terms of the four Ps, classifying the
variables under four heads, each beginning with the alphabet ‘P’;
• Product.
• Place (distribution).
• Pricing.
• Promotion.
These for components of the marketing mix are also alternatively described as:
• The product mix.
• The distribution mix.
• The pricing strategy.
• The communication mix.
In each of the marketing mix elements there are several sub-elements. The
complete set of marketing mix elements and sub- elements are presented below:
9.2. OBJECTIVES
After reading this lesson you will understand
 The concept of Marketing mix
 Variables of Marketing mix
9.3. CONTENTS
9.3.1 Product Variables
9.3.2 Place Variables
9.3.3 Price Variables
9.3.4 Customer Variables
9.3.5 Competition Variables
9.3.6 Trade Variables
9.3.7 Environmental Variables
9.3.8 Management of Marketing Mix
9.3.1 PRODUCT VARIABLES
i. Product line and range.
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ii. Design, quality, features, models, style, appearance, size and warranty
of product.
iii. Packaging, type, materials, size, appearance and label.
iv. Branding and trade mark.
v. Service, pre-sale and after-sale.
vi. New products.
9.3.2 PLACE VARIABLES
i. Channels of distribution, types of intermediaries, channel policy and
design, location of outlets, channel remuneration, and dealer-principal
relations.
ii. Physical distribution, transportation, warehousing, inventory, levels,
order processing etc.
9.3.3 PRICE VARIABLES
i. Pricing policies, levels of prices, levels of margins, discounts and
rebates.
ii. Terms of delivery, payment terms, credit terms and instalment facilities.
iii. Resale price maintenance.
9.3.4 PROMOTION VARIABLES
i. Personal selling, objectives, level of effort, quality of sales force, cost
level, level of motivation.
ii. Advertising, media mix, budgets, allocations and programmes.
iii. Sales promotional efforts, display, contests, trade promotions.
iv. Publicity and public relations.
In addition to the marketing mix variables described above, the marketing
manager of any firm handles another set of variables, viz., Behavioural/
Environmental variables. As the same indicates, these variables are constituted by
the behavioural or environmental forces that are external to the enterprise. This set
of variables too can be classified under four heads;
• Customer variables.
• Competition variables.
• Trade variables.
• Environmental variables.
There are several sub-variables under each of the Behavioural/Environmental
variables. They are presented below:
9.3.4 CUSTOMER VARIABLES
i. Number of customers.
ii. Location of the customer.
iii. Purchasing power of the customers.
iv. Buying behaviour.
v. Habit of purchase.
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vi. Personality traits and attitudes.

vii. Lifestyles and needs
9.3.5 COMPETITION VARIABLES
i. Structure of the industry.
ii. Nature and intensity of competition.
iii. Products and services offered by the competitors.
iv. Number of competitors, their size, capacity and territory of operation.
v. Competitors’ sales levels in each market segment/product.
vi. Competitors’ strengths and weaknesses.
vii. Competition from substitute products.
9.3.6 TRADE VARIABLES
i. Structure of the trade.
ii. Types of intermediaries, their number and strength.
iii. Trade practices.
iv. Service provided by the trade.
v. Motives and attitudes of the intermediaries.
vi. Extent of sophistication of the trade.
9.3.7 ENVIRONMENTAL VARIABLES
• Level of technology.
• Government regulations on products, prices, distribution, etc.
• Controls on trade practices.
• Economic conditions in the country.
• Geography and climate.
• Culture and traditions.
• Law and politics.
• Attitudes of the public and the press.
The ‘marketing mix variables’ are often termed as ‘controllable variables’ of
marketing, as they emanate from within the enterprise and the marketing manager
is free to choose, alter and control these variable as he likes. The ‘environmental
variables’ are termed as ‘non-controllable variables’ as they are external to the firm
and the marketing manager cannot choose them or control them at his will.
The marketing process is nothing but the interaction of the marketing mix
variables with the environmental variables. As the environmental variables are non-
controllable any marketing programme in effect turns out to be a conscious
adjustment of the marketing mix variables to suit the environment variables.
9.3.8 MANAGEMENT OF MARKETING MIX
Assembling the marketing mix elements into a winning marketing programme
is by no means an easy task. It involves many crucial decisions relating to each of
the elements-product, price, channel and promotion. Decisions are also required on
the interrelationships of the elements. What is the ideal combination of the four Ps
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in a given situation? Which line of products, or which individual product should be

the price structure? What are the channel options available and which one has to
be selected? What is the right promotion strategy for the product in the chosen
market? How should the total marketing effort and resource of the firm be
apportioned among each of the four Ps? These and many other similar questions
have to be raised and answered. The impact of the mix would be best when the
different elements of the mix are chosen correctly and are integrated very well with
one another.
Blending the marketing mix elements into a winning combination is a
continuous task and not a one shot assignment. No marketing man can assume
that the marketing job is over once the elements of the marketing mix are
assembled in the right way. The mix may require constant changes. The marketing
man has to carefully monitor the mix and adjust the elements as required by the
changing conditions.
The marketing man has to keep the marketing mix open. Without keeping the
marketing mix open and dynamic, the marketing man will not be in a position to
respond properly to the changes that are taking place constantly in the
environmental variable. Let us, for instance, take competition, which is a major
environmental variable. The competitor in a given industry may be making many
tactical manoeuvres in the market all the time. They may introduce a new product
or initiate an aggressive promotion campaign or announce a price reduction. The
marketing man of the firm has to meet all these manoeuvres and take care of the
competitive position of his firm and his brands in the market. The only route open
to him for achieving this is the manipulation of his marketing mix.
Just as the changes taking place in the external environment necessitate
modifications in the marketing mix, changes taking place within the firm too
necessitate modifications in the marketing mix. For example, changes in the
corporate strategy of the firm, changes in the resource level of the firm, or changes
in the product lines of the firm lead to changes in the marketing mix as well.
In short, the elements of the marketing mix have to be ingeniously altered to
accommodate the changes taking place within the firm and in the relevant external
environment. And this is precisely why assembling and operating the marketing
mix remains a continuous task in marketing management.
9.4. REVISION POINT
Variables of Marketing Mix and Management of Marketing Mix
Explain the different variables of Marketing Mix.
Brief the Behavioural/ Environmental variables.
Narrate Management of Marketing Mix.
9.6. SUMMARY
The four elements of marketing mix are co-equal, inter-dependent and
essential. The marketing mix acts as the integrated marketing strategy and the four
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elements together constitute the marketing strategy. Individually the four elements
are important but their significance lies in the proper mix or blend indicating the
unique way they are combined as a careful plan, or strategy, to meet competition in
a dynamic marketing environment. For one market segment we have a typical
marketing mix. The decisions on the elements of marketing mix must be properly
co-ordinate and balanced in order to achieve an optimum marketing mix.
Your are making and marketing mosquito nets. Now the market is flood with
mosquito repellents. How would you manipulate your marketing mix to face the
market situation?
9.9. ASSIGNMENT
The marketing man has to keep the marketing mix open – Do you agree to this
statement?
Discuss the assembly of a company’s product mix, giving reasons for mix
optimization and ways in which this might be achieved.
9.12. KEY WORDS
Four Ps, Variables, Marketing mix, Blending the Marketing mix
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LESSON – 10
PRODUCT
10.1. INTRODUCTION
In a most simple way a product could be defined as “everything the purchaser
gets in exchange for his money.” From a strictly technical or manufacturing point of
view, a product consists of a number of raw materials put together that the end
result (i.e., the product) serves a useful purpose of consumption. From the
economic point of view, a product consists of a bundle of utilities involving various
product features and accompanying services. These utilities are created by a set of
tangible, physical and chemical attributes assembled in an easily identifiable form.
The products, for easy identity, will have a descriptive name also (brand name).
Thus, a consumer is buying what is expressed economically as “want satisfaction”.
A product is, therefore, not just a physical object but what consumers perceive it to
be.
Almost everything that we come across in our daily life is a product this course
material on Marketing Management is a product; Financial Express news paper is a
product; Reynolds ball point pen is a product; a bottle of Kissan’s Orange squash, a
tin of Complan, a Close-up tooth paste, a Margo soap, a packet of Surf, a Onida TV
set – they are all products. All of them have some utility behind them; all of them
cater to and satisfy some needs of some people. So, in simple terms, we can define
a product as a ‘need satisfying entity’.
A product is something more than a mere physical commodity. It has a
personality. Products carry certain meaning with them and project certain
distinctive image. These meanings and images arise out of the many components
that make up the total product personality. The major components are:
i. The core or the basic constituent
ii. The associated features
iii. The brand name
iv. The package and
v. The label
10.2. OBJECTIVES
 To know the meaning of the term product and its importance
 To know the classification of products
 To study the product policy and factors influencing product mix
10.3. CONTENTS
10.3.1 Classification of Products
10.3.2 Factors influencing Products Mix
10.3.1 CLASSIFICATION OF PRODUCTS
Importance of the product
A firm is not selling a product. It sells only the “Product benefit”. Product is the
most important variable in the marketing mix of a firm. Any firm is floated to
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manufacture and sell a product. If the product is sound and easily acceptable to
the market, if it satisfies reseller’s needs and consumer preferences and is carefully
fitted to the needs and desires of the customers, sales success is assured. In
essence, the right product is a great stimulus to sales. A right product is bound to
reduce considerably the problems pricing, promotion and distribution. It need not
have aggressive advertising and high pressure salesmanship. It may not demand
extra-ordinary sales promotion gimmicks. Hence ‘product’ is the centre of all
marketing policies and decisions. The marketing planning begins with the product
and also ends with the product. So product decisions are the most important
decisions.
Product classification
It is evident that ‘product’ has been undergoing a constant change and the
marketing man has been constantly engaged in enriching his product offer. In his
attempt to score over competition, he has been bringing out refinements upon
refinements on his basic product offer but managing the product was becoming
more and more difficult. He had to take the ‘product’ to higher and higher levels of
evolution such as:
• The generic product
• The branded product
• The differentiated product
• The customized product
• The augmented product
• The potential product
The generic product and the branded product
The generic product is an unbranded and undifferentiated commodity like rice,
bread, flour or cloth. The branded product gets an identity through a ‘name’.
Spencers bread and Modern bread are branded products. The marketing
implications of ‘the Brand’ have already been dealt with earlier in detail.
The differentiated product
The differentiated product enjoys a further distinction form other similar
products/brands in the market. The differentiation claimed may be ‘real’, with a
real distinction on quality or utility or service; or it may be ‘psychological’, brought
about through subtle sales appeals. All season’s Hi-tech Tomato soup is an
example of a differentiated product. It claims a distinction and difference over other
brands of packaged soups-it is ready in two minutes, it involves absolutely no
cooking, the product is to be just poured into boiled water and consumed. The
differentiation is essentially on the plank of convenience to the user.
The customised product
In the customized product, the customer’s specific requirements are taken into
account while developing the product. This is a frequent practice in industrial
products marketing, where the manufacturer and the user are in direct contact and
the product gets customized to the requirements of the customer. When an
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engineering and fabrication firm like Larsen and Toubro undertakes to supply oil
rigs to the Oil and Natural Gas Commission, it is offering a customized product to
the specifications of ONGC. It is not supplying an off-the-shelf or standard product.
When the same firm supplies its cement to ONGC, it is offering just a branded
product, not a customized product.
The augmented product
The augmented product is the result of voluntary improvements brought about
by the manufacturers in order to enhance the value of the product. These
improvements are neither suggested by the customers nor even expected by them.
The marketer, on his own, augments the product, by adding an extra facility or an
extra feature to the product. When manufacturers of Aristocrat mouled luggage
introduced luggage cases with wheels, it was a case of product augmentation. The
wheel was an extra facility the manufacturer thought of and added to the luggage.
Instead of lifting and carrying the suitcase, the users could now pull it along the
ground on its wheels.
The potential product
The potential product is tomorrow’s product carrying with it all the
improvement and finess possible under the given economic and competitive
conditions. There are no limits to the ‘potential product’. The limit is set only by the
technological and economic resources of the firm. A computer which can
understand human language, and respond directly to human voice and oral
instructions is an example of a potential product.
Product concept
The product concept has three dimensions viz.,
Managerial Dimension
Consumer Dimensions and
Societal Dimension
1. Managerial Dimension: It covers physical attributes, related services,
brand, package, product life-cycle and product planning and development.
2. Consumer Dimensions: To the consumer, a product actually represents a
bundle of expectations. Once a product is bought by a consumer and his
evaluation, i.e., post-purchase experience, is favourable, marketers can have repeat
orders. Buyers are not interested in the composition of a product. They are
concerned only with what the product does, and to what extent it satisfies their
social and psychological needs.
3. Societal Dimensions: To the society salutary products (having good effect in
the body & mind) e.g. Tonic and desirable product (TV., Cycle etc.) are always
welcome, as they fulfill the expectations of social welfare and social interests.
Salutary products yield long run advantages, but may not have immediate appeal.
Desirable products offer both immediate satisfaction and long run consumer
welfare.
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Marketers have to fulfill the following social responsibilities while offering the
products to consumer.
a. Safety to users
b. Long-run satisfaction to consumers
c. Quality of life, concern for better environment
d. Fulfillment of government regulations relating to composition, packaging
and pricing of many products.
Product policy
The modern marketing concept is that it is not sufficient merely to produce a
better product; it is also necessary to bring it to the attention of the prospective
customers. In other words:
(1) Even if there is a better product, it will not be bought unless its existence is
brought to the notice of the consumers
(2) A bad or useless product may be bought when its uses are highlighted to
the consumers. This makes it necessary on the part of the producers to adopt
certain “policies” to bring the product to the notice of the prospective buyers. The
term ‘policy’ can notes a principle of operation adopted by the management to guide
those who carry out action. A policy sets the objectives to be achieved and also the
limits within which the management has to operate. For the proper carrying out of
business functions, each function must have a policy. As far as a product is
concerned, such a policy is essential to make the product live up to the
expectations of the consumers. Such policies taken in regard to the development of
a new product or for retaining an existing product in the market is known as
product policy.
The main function of product policy is to guide the activities of the firm towards
common goals. Today the success of the company is measured not only by its
current profits but also by its long-term growth. In other words, a company must
strike a delicate balance between optimizing current operations and making
necessary provisions for the future. These aims could be achieved only by adopting
a proper product policy.
The important aspects analysed under product policy are:
• Consideration of the product mix;
• the rate, nature and direction of changes in demand for existing
products;
• Product elimination and new product development decisions, and
• Product policy of the competitors.
It is to be understood that product policies do not provide ready made answers
to the above problems. Product policy could provide only guidelines for efficient
planning and action.
Product policies are company rules to guide those engaged in product planning
development, production or marketing. Stated more specifically, such policies are
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concerned with defining the type, volume and timing of the products that are
offered by a company for sale, it is sometimes suggested that the product policy is
applicable only in cases where new products are introduced. Product policies are
applicable for both existing and new products.
Deciding the product policy
Deciding the product policy is the main task in product management. What
products should a company make? Where exactly are these products to be offered?
To which market, or market segment? What should be the relationship among the
various members of a product line? What should be the breadth and depth of the
product mix? How many different product lines can a company accommodate? How
should the products be positioned in the market? What should be the brand policy?
Should there be individual brands, family brands and / or multiple brands? Can a
product be left to the middleman’s branding? Answers to these questions will
constitute the product policy of a firm.
Broadly, the product policy involves:
• Appraisal of the product line and the individual products.
• Decisions on product differentiation
• Product positioning
• Brand decisions
• Decisions of packaging
• New product development
Product policy has three elements viz. (1) Product item (2) Product line and (3)
Product Mix.
Product Item: Product item refers to the specific product manufactured by a
company. Simply speaking it refers to a particular product. For example, Godrej
Company produces various products (items), like locks, refrigerators, typewriters,
etc. Here each product is a product item.
Product Line: Product line refers to a group of products that are closely related
because: (a) they satisfy a class of need (b) they are used together (c) they are sold
to the same customer groups, (d) they are marketed through the same type of
outlets (e) they fall within given price ranges.
If any one of the conditions is fulfilled to a group of products manufactured by
a concern, then it is a product line.
Product Mix: Product Mix is defined as the composite of products offered for
sale by a firm or a business. Rather product mix is a collection of all products
offered for sale by a company. Product mix is one of the elements of product policy.
The product mix is three dimensional: it has breadth/ width, depth and
consistency.
a. Breadth/Width: Breadth or width of the product mix refers to the number of
product groups or product lines found within the company. For example,
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Bajaj Electricals produce varieties of electrical appliances such as fans,

mixies, lamps, etc.
b. Depth: Depth refers to the number of product items within each product
line. For example Kodak Company manufactures different varieties of
cameras.
c. Consistency: Consistency of product mix refers to the close relationship of
the various product lines. In other words the products manufactured by a
company are united by one factor. For example, Bajaj Electricals produces
various lines of products. But these goods are not united by a common
factor.
10.3.2 FACTORS INFLUENCING PRODUCT MIX
As long as profit motive is there in any business, changes, in product mix are
inevitable. The exact number of products to be manufactured and marketed by a
firm cannot be exactly determined. They are influenced by many factors –
controllable, non-controllable, external or internal.
(1) Non-controllable Factors: The non-controllable factors may be (a) population
increase / decrease, (b) changes in the level of income of buyers, (c) changes in
consumer behaviour.
In India, there is an ever increasing rate in the growth of population. This
naturally adds to the number of buyers leading to a quantitative change in the
volume of production. The development programme of the Government ensures
increase in income enabling the consumers to spend more. This also adds to the
stream of demand qualitatively and quantitatively. The consumer behaviour is the
source of reasons that invite changes in product planning.
(2) Controllable Factors:
a. Cost Considerations: A firm may think of adding the new product to its
product line which can be produced easily with the same machinery and
production facilities. It will certainly bring down the cost of production of
existing products. Thus the cost considerations may be tempting motive
behind such diversifications.
b. Complementary/Demand Factor: A firm can add the product to its product
line which has a complementary demand to its products. For example, a pen
manufacturing company can start the production of nibs and link also.
c. Advertising and Distribution Factors: A firm using a wide network of
advertising and distribution channels can think of adding new products, to
its product line as they can be distributed with the help of the same
network. It will lower down their advertising and distribution costs also.
d. Use of Waste: Sometimes due to use of waste and residual material also
there can be an increase in product line. The product can be manufactured
as by-product and it may bring down the cost of main product.
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e. Company Objective: The company objective may be to stabilize or increase

the profits, to maximum sales or to enter into new markets. This may
motivate the company to add new product to its product line. The
elimination of obsolete products and unsuccessful product also bring
changes in product line and product mix of the companies.
10.4. REVISION POINT
Classification of Products and Factors influencing Products
1. What is a Product? How would you classify it?
2. Explain product policy.
10.6. SUMMARY
Product is the import variable in the market. If the product is satisfied to the
buyer, then all other tasks to the organ is simple.
Make a visit to any two of the Departmental Chains – Pantaloons / Bigbazar /
Mega mart / reliance mart and try and make an attempt to study the Merchandise
Mix Strategy adapted by each of these stores?
10.9. ASSIGNMENT
As a manager, how would you design the product policy?
By regarding the multi-national as a final stage for all the product, explain how
a company may develop as it becomes increasingly committed to exporting
activities.
10.12. KEY WORDS
Generic product, Augmented product, Product differentiation, Product lone,
Customised product.
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LESSON – 11
PRODUCT PLANNING AND DEVELOPMENT
11.1. INTRODUCTION
The Marketing programme starts with product planning and the technical
activities involved in it, is called as Product development like human being the
product is having a definite life cycle. Various strategies are formulated depend
upon the stages of the cycle.
11.2. OBJECTIVES
 To understand the concepts Product Planning & Product development
 To study the stages in Product Life Cycle
 To know the strategies used in different product life cycle.
11.3. CONTENT
11.3.1 Product Planning
11.3.2 Product Development
11.3.3 Product Life Cycle
11.3.1 PRODUCT PLANNING
It is the starting point for entire marketing programme in a firm. It embraces all
activities, which enable producers and middlemen to determine what should
constitute a company’s line of products. Product planning has been defined as “the
act of marketing out the supervising the research, screening, development, and
commercialization of new products; the modification of existing lines and the
discontinuance of marginal or unprofitable items”.
In other words, product planning involves three important considerations:
1. The development and introduction of new products
2. The modification of existing lines to suit the changing consumer needs
and preferences; and
3. The discontinuance or elimination of unprofitable or marginal products.
11.3.2 PRODUCT DEVELOPMENT
Product development embraces the technical activities of product research,
engineering and design. It requires the collective participation of production,
marketing, engineering, and research departments. The scope of product- planning
and product development activities covers the decision making and programming in
the following areas.
Which product should the firm make and which should it buy?
Should the company expand or simplify its line?
How each new item could be more useful?
Is the quality right for the intended use and market?
What brand, package and label should be used for each product?
How should the product be styled and designed, and in what sizes and colours,
and what materials should it produce?
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In what quantities should each item be produced, and what inventory control
should be established?
How should the product be priced?
Of the above areas one of the most important is the taking of decision to make
or buy a product. Some firms may assemble a series of pre-manufactured parts;
others may decide to make some parts and buy others and then assemble to give
an end product. Yet others may assemble pre-manufactured parts; and the paint,
polish, or otherwise finish the end product.
The decision to “make or buy” a product depends upon the management’s
analysis of several issues, such as the following.
Relative cost of making or buying
Extent to which specialized machinery techniques, and production resources
are needed.
Availability of production capacity.
Managerial time and talents required – the amount of production supervision
needed.
Secrecy of design, style and materials – the extent to which the company wants
its processing methods kept secret.
Attractiveness of the investment necessary to make a product.
Willingness to accept seasonal, cyclical, and other market risks.
Risk of depending upon outside resource-will they raise the price cut off
relationship?
Extent of reciprocity present –Is the supplier of item also a customer of the
firm’s other products?
11.3.3 PRODUCT LIFE CYCLE
Products, like people, have a certain length of life, during which they pass
through different stages. For some, the life cycle may be as short as a month, while
for others it may last for quite a sufficiently long period. The examples may be of a
fashionable dress or an electrical appliance. From the time the product idea is born,
during its development, and upto the time it is launched in the market, a product
goes through the various phases of its development. It life begins with its market
introduction; next it goes through a period during which its market grows rapidly.
Ultimately, it reaches marketing maturity after which is a market decline and
finally the product dies. It is worth noting that the duration of each stage is
different among products go through all stages some fail in the initial stages; others
may reach the maturity stages after a long time. “In virtually all cases decline and
possible abandonment are inevitable because (1) the need for the product
disappears; (2) a better or less expensive product is developed to fill the same need,
or (3) a competitor does a superior marketing job”.
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Sales
Volume
Profit
Volume
INTRODUCTION GROWTH MATURITY DECLINE
1. Introduction
In the early stage when the product is introduced in a market sales revenue
begins to grow but the rate of growth is very slow. Profit may not be there as there
is low sales volume, large production and distribution costs. It may require heavy
advertising and sales promotion. Products are brought cautiously on a trial basis.
Weaknesses may be revealed and they must be promotion. Products are brought
cautiously on a trial basis. Weaknesses may be revealed and they must be promptly
removed. Cost of market development may be considerable. In this stage, ‘product
development and design are considered critical.
Marketing Strategies in the Introduction Stage
In launching a new product, marketing management can set a high or a low
level for each marketing variable such as price, promotion, distribution, and
product quality.
A high-price a high promotion level. The firm charges a high price in order to
recover as much gross profit per unit as possible. At the same time, it spends a lot
on promotion to convince the market of the product’s merits even at the high-price
level. The high promotion serves to accelerate the rate of market penetration. This
strategy makes sense under the following assumptions: (1) a large part of the
potential market is not aware of the product; (2) those that become aware of the
product are eager to have it and play the asking price; (3) the firm faces potential
competition and wants to build up brand preference.
A selective penetration strategy consists of launching the new product with a
high price and low promotion. The purpose of the high price is to recover as much
gross profit per unit as possible and the purpose of the low promotion is to keep
marketing expenses down. This combination is expected to skim a lot of profit from
the market. This strategy makes sense under the following assumptions (1) the
market is relatively limited in size; (2) most of the market is aware of the product;
(3) those who want the product are prepared to pay a high price; and (4) there is
little threat of potential competition.
A pre-emptive penetration strategy consists of launching the product with a low
price and heavy promotion. This strategy promises to bring about the fastest rate of
market penetration and the larger market share for the company. This strategy
makes sense under the following. Assumptions: (1) the market is large in size; (2)
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the market is relatively aware of the product (3) most buyers are price-sensitive; (4)
there is strong potential competition; and (5) the company’s unit manufacturing
costs fall with the scale of production and accumulated manufacturing experience.
A low-profile strategy consists of launching the new product with a low price
and low level of promotion. The low price will encourage the market’s rapid
acceptance of the product; at the same time, the company keeps its promotion
costs down in order to realize more net profit. The company firmly believes that
market demand is highly price-elastic but minimally promotion – elastic. This
strategy makes sense if (1) the market is large; (2) the market is highly ware of the
product (3) the market is price-sensitive; and (4) there is some potential
competition.
2. Growth or market Acceptance stage
In this stage, the product is produced in sufficient quantity and put in the
market without delay. The demand generally continuous to outpace the supply.
They sales and profit curves rise often at a rapid rate. Competitors enter in the
market in large number if the profit outlook appears to be very attractive. The
number of distribution outlets increase, economies of scales are introduced and
prices may come down slightly,. Sellers shift to “But-my-brand’ rather tan “Try –
my-product” promotional strategy.
Marketing Strategies in the Growth Stage
During this stage, the firm tries to sustain rapid market growth as long as
possible. This is accomplished though such actions as:
The firm undertakes to improve products quality and add new-product features
and models.
It vigorously searches out new market segments to enter.
It keeps its eyes open to new distribution channels to gain additional product
exposure.
It shifts some advertising from building product awareness to trying to bring
about product conviction and purchase.
It decides when the time is right to lower prices to attract the next layer of price
– sensitive buyers into the market.
3. Market strategies in the mature stage
The product manager whose product has settled into a stage of sales maturity
is not content to simply defend its current position. He recognizes that good offense
will provide the best defense of his product. These basic strategies are available in
this stage; market modifications product modification, and marketing –mix-
modification.
Market modification: The product manager first looks for opportunities to find
new buyers for the product. There are several possibilities.
First the manager looks for new markets and market segments that have not
yet tried the product.
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Second, the manager looks always to stimulate increased usage among present
customers. A common practice of food manufacturers, for example, is to list several
recipes on their packages to broaden the consumers’ uses of the product.
Third, the manager may want to consider repositioning his brand to achieve
larger brand sales, although this will be not affect total industry sales. For example,
a manufacturer of a chocolate drink mix may find that its heavy users are mostly
order people. This firm should give serious consideration to reposition the drink in
the youth market, which is experiencing faster growth.
Product modification: Managers also try to break out of a stagnant sales picture
by initiating calculated changes in the product’s characteristics that will attract
new users and /or more usage from current users. The trade term for this is
product relaunch, and it can take several forms.
A strategy of quality improvement aims at adding new features that expand the
product’s versatility, safety, or convenience. For example, the introduction of power
to hand lawn movers increased the speed and ease of cutting grass.
A strategy of style improvement aims at increasing the aesthetic appeal of the
product in contrast to its functional appeal. The periodic introduction of new car
models amounts to style competition rather than quality of feature competition.
Marketing-mix: Modification: As a final source of mature product strategy, the
product manger considers the possibility of stimulating sales through altering one
or more elements or the marketing mix. One strong possibility is to cut prices as a
way of drawing new segments into the market as well as attracting other brand
users. Another is to search for a new a brilliant advertising appeal that wins the
consumers’ attention and favour. A more direct way to attract other brand users is
through aggressive and attractive promotions – trade deals, cents-off, gifts, and
contests. The company can also offer more services to the buyer as a patronage
building step.
4. Market decline Stage
At the decline stage, the sales begin to fall. The demand for the product shrinks
probably due to new and functionally advanced products become available in the
market or the market becoming apathetic to the product. In any case, Prices and
margins get depressed, the total sales and the profits diminish. Some firms at this
stage may try to link up the sale of these products with some other premium
products they have developed and this try to strength out the life of the product.
But most firms perceive properly the impending total decline and prepare for the
gradual phasing out of the product. Successful firms quite often keep new products
ready in a queue to fill the vacuum created by the decline of existing products.
Marketing Strategies in the Decline Stage
A company faces a number of tasks and decisions to ensure the effective
handling of its aging products.
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Identifying the weak product: the first task is to set up on information system
that will spot those products in the line that are truly in a declining stage.
An overall view of such a system is
A product review committee is appointed with the responsibility for developing
a system for periodically reviewing weak products in the company’s mix. The
committee includes representatives from marketing, manufacturing and the
controller’s office.
The committee meets and develops a set of objectives and procedures for
reviewing weak products.
The controller’s office fills, out data for each product showing industry sales,
company sales, unit costs, prices, and other information over the last several years.
This information is run against a computer programme that identifies the most
dubious products. The criteria include the number of years of sales decline,
market-share trends, gross profit margin, and return on investment.
Products put on the dubious list are then reported to those managers
responsible for them. Each manger fills out a diagnostic and prognostic rating
forms showing where he thinks sales and profits on dubious products will go with
no change in the current marketing programme and with his recommended
changes in the current programme.
The product review committee examines the product rating form for each
dubious product and makes a recommendation (a) to leave it along (b) to modify its
marketing strategy, or (c) to drop it.
Determining marketing strategies: In the face of declining sales, some firms will
abandon the market earlier than others. The firms that remain enjoy a temporary
increase in sales as they pick up the customers of the withdrawing firms. Thus any
particular firm faces the issues of the whether it should be the one to stay in the
market until the end. For example, Procter & Gamble decided to remain in the
declining liquid – soap business until the end and made good profits as the others
withdrew.
If it decides to stay in the market, the firm faces further strategic choices. The
firm could adopt a continuation strategy, in which case it continuous its past
marketing strategy; same market segments, channels, pricing, promotion, and so
on. The product simply continuous to decline until at last it is dropped from the
line. Or the firm could follow a concentration strategy, in which case it concentrates
its resources only in the strongest markets and channels while phasing out its
efforts elsewhere. Finally, it could follow a milking strategy, in which case it sharply
reduces its marketing expenses to increase its current profits, knowing this will
accelerate the rate of sales decline and ultimate demise of the product. In some
situations the hard-core loyalty may remain strong enough to allow marketing the
product at a greatly reduced level of promotion, and that the old or even a higher
price, both of which mean good profits.
The drop decision: When a product have been singled out for elimination, the
firm faces some further decisions. First, it has the option of selling or transferring
the product to someone else or dropping it completely. It will usually prefer the
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farmer because this will bring in some cash and will minimize the hardship to
customer and employees. Second, the organization has to decide when the product
should be terminated. It could be dropped quickly and decisively so there would be
no chance for resistance to build up a reverse the decision. Or it could be
discontinued gradually with a time table to allow resources to transfer out in an
orderly way and to allow customers to make other arrangements. Management will
also want to provide a stock of replacement parts and service to stretch over the
expected life of the most recently sold units.
This is a description of the typical product life cycle. This does not man that
every single product necessarily passes through all these stages. Several new
products, all of a sudden, find their way into decline before entering the growth
stage. However, most successful products can be seen to pass through the typical
life cycle. The knowledge that the product will pass through such a cycle of life is
helpful in evolving proper product policies and promotion and pricing strategies. A
marketer can also try to foresee at the very outset the pattern of life of the proposed
product and plan the product strategy, pricing strategy and promotion strategy, so
as to shape the life cycle of the product to suit his objectives and requirements.
Product Planning, Product Development and Product Life Cycle
1. What is Product Planning? How will you differentiates it from product
development?
2. Explain the different stages in Product Life Cycle.
11.6. SUMMARY
Product Planning and Product Developments are two important attributes for
Product Mix. Introduction, Growth, Maturity, Saturation and Decline are various
stages of Product life cycle.
What does our marketing look like? Where are our competitors situated? What
is the reality for our customers? Why do they currently identify with our brand?
11.9. ASSIGNMENT
How would you judge, whether a firm is really has Product planning or not?
Briefly explain the key stages involved in product planning and developing an
effective communication campaign for your organisation.
11.12. KEYWORDS
Product Planning, Product Development, Product Life Cycle, Pre-Emptive
Penetration
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LESSON – 12
NEW PRODUCT DEVELOPMENT
12.1. INTRODUCTION
New product development is one of the most important components of product
policy and product management. It is not enough if the existing product lines and
products are appraised properly, products are positioned effectively and brand
decisions are taken wisely. A progressive firm must always consider new product
development as a cardinal element of its product policy.
12.2. OBJECTIVES
 To study the concept New Product Development
 To know the stages in NPD
12.3. CONTENTS
12.3.1 Stages in New Product Development
12.3.2 Innovation
12.3.3 Product Obsolescence
NEW PRODUCTS BECOME NECESSARY FOR MEETING THE CHANGES IN DEMANDS
Innovation is the essence of all growth. This is especially true in marketing. In
the age of scientific and technological advancements, change is a natural outcome
of change in food habits, change in comforts and conveniences of life, change in
social customs and habits, change in expectation and requirements. Any business
has to be vigilant to these changes taking place in its environment. People always
seek better and better product more convenience to products, more fashion, and
more value for the money they part with. A business firm has to respond to these
dynamic requirements of its clientele, and these responses take the shape of new
products and new services. Through such as response, the firm reaps a good deal of
benefits.
NEW PRODUCTS BECOME NECESSARY FOR MAKING NEW PROFITS
New products become necessary from growth and profit angles too. Products
that are already established often have their limitations in enhancing the profit level
of the firm. It thus becomes essential for business firms to bring in new products to
replace old and declining ones and products incurring losses. New products become
part and parcel of the growth requirements of the firm and in many cases, new
profits come to the firm on through new products.
The need for responding to changes and the need for new profits are not the
only factors that persuade business firms to go in for new products. There is amore
compelling reason-the threats arising from the environment. These threats make
some of their current products highly vulnerable. And to reduce the vulnerability of
their business as a whole, they seek our new products. New products offer new
avenues of growth and thus secure to overall viability of the firm. The risk also gets
spread over several products, existing ones and new products, so that the firm does
not face the threat of sudden extinction.
Successful new-product development is becoming increasingly hard to achieve,
there are several reasons for this.
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Some technologist think there is shortage of fundamentally new technologies

on the order of the automobile, television, computers, xerography, and wonder
drugs. Although there are many minor products emerging the nation needs major
innovations to avoid economic stagnation.
Keen competition is leading to increasing fragmented markets. A new product
is aimed at capturing a large share of a small market segment rather than the mass
market. This means smaller sales and profits, although the company may maintain
its position longer.
New products have to increasingly satisfy public criteria in addition to
promising reasonable profits. They must be designed with consideration given to
consumer safety and ecological compatibility. Government requirements have
slowed down the rate of innovation in the drug industry and have considerably
complicated product design and advertising decisions in such industries as
cosmetics, automobiles, small appliances, and toys.
A company typically has to develop a great number of new- product ideas in
order to finish with a few good ones. Thus management finds itself in a dilemma; it
must develop new products, yet the odds weigh heavily against their success. The
answer still must lie in new product development, but conducted in a way that
reduces the risk of failure. Two needs stand out; the need for effective
organizational arrangements and the need for improved techniques at each stage of
the new product development process.
12.3.1 STAGES IN NEW PRODUCT DEVELOPMENT
New product development goes through several important stages as given
below:
Exploration: The first stage of the new product’s evolution begins with an idea
for the product. Hence this stage is also termed as ‘Idea Generation’.
The new product ideas may come from customers, dealers, in-company sources
or from research organisation. Consumers’ problems are the most fertile ground for
the generation of new product ideas. This is equally true of both industrial products
and consumer products. From shampoos to computers, customers are generating
product ideas. And innovation –bound companies are cashing in on them. Several
companies follow user-stimulus strategies by announcing attractive rewards for
good new product ideas. Experienced workforce, research staff and salesman are
also source of product ideas. There are companies well known for silently
encouraging ‘skunkworks’ where small ‘unauthorized’ teams of executives/workers
spend company’s time and money to work to crazy product ideas of their own.
New product ideas can also come from market research studies. Research
studies on the consumers, products, competition, etc. will reveal market gaps by
comparing the existing supply of products with the ideal product conceptions of
consumers. But all market gaps are not commercially viable. The promising ideas
will be chosen for framing new product concepts.
Creatively techniques like brainstorming and synectics are also used for
generation of product ideas. In brainstorming, a small group of people are
encouraged to come up with their ideas on a specified problem. In synectics, the
real problem is kept away initially from the group and only a broader framework of
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the problem is given to them. The group is encouraged to think in all possible
dimensions, and slowly the problem would be made clearer to them, and their ideas
would get refined.
SCREENING
The main purpose of the first stage in the new-product development process is
to increases the number of good ideas. The main purpose of all the succeeding
stages is to reduce the number of ideas. The company is not likely to have the
resources or the inclination to develop all of the new-product ideas, even if they
were all good. And they will not all be equally good. Evaluation and decision now
enter the picture. The first idea-pruning stage is screening.
In the idea screening stage, the various product ideas are put to rigorous
screening by expert product evaluation committees. They seek answers to basic
questions, like:
o Is there a felt need for the new product?
o Is it an improvement over an existing product?
o Is it close to out current line of business?
o Does it take us to a totally new line of business?
o Can the existing marketing organisation handle the product?
o Or does it need extra expertise on the production and marketing front?
The more attractive looking ideas pass on to the next stage.
CONCEPT DEVELOPMENT
During this stage the ‘idea-on-the paper’ is turned into a ‘product-on-hand’. In
other words, the idea is converted into a product that is producible and
demonstrable. This stage is also termed as ‘Technical Development’. It is during
this period that all development of the product, from idea to final physical form,
take place.
The final decision whether a product should be developed on a commercial
scale or not is decided at this stage because the time-lag required to attain this
stage is a long one and it is possible that some adverse developments might have
taken place during this period. Once the management decides to go forward with
the product idea, the following activities are undertaken:
o Establishing development projects for each product.
o Building the product with the changed specifications, if necessary, and
o Completing laboratory evaluation and releasing the product for testing.
CONCEPT TESTING
This is different from test marketing of the product which takes place at a later
stage. What is tested at this stage is the ‘product concept’ itself-whether the
prospective consumers understand and product idea, whether they are receptive
towards the idea, whether they actually need such a product and whether they
would try out such a product if its is made available of getting the market response
to the product idea, this exercise helps bring the company’s own version of the
product concept into clearer focus. Because, in the absence of any real product to
be shown to the respondents at this stage, the company has to make very elaborate
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and definite statements about the product, its attributes and benefits. Much of the
vagueness associated with a new product idea may get thrashed out at the concept
testing stage.
BUSINESS ANALYSIS
This stage is crucial in the total process of new product development because
several vital decisions regarding the project are taken based on the analysis done at
this stage. This stage will decide whether from the financial and marketing point of
view, the project is worth proceeding with. Investment analysis and profitability
analysis of the project under different assumptions are made at this stage. The
project’s overall impact on the corporation’s financial position with and without the
new product are estimated and compared. The financial estimates would be reliable
only if they are based on a fairly accurate demand forecast and related market
factors. The marketing experts by now should have undertaken detailed exercises
on the marketability of the product.
The purpose of this stage is to project the future sales, profits, and rate of
return for the proposed new product, and to determine whether these meet the
company’s objectives. If they do, the company will develop the new product.
Business analysis is done not only at this stage but throughout the development
process as new information is accumulated about the product and the market.
PRODUCT DEVELOPMENT
Product ideas appearing sound from a business point of view can now be
turned over to the research and development department. This is an important step
in at least three ways. It marks the first attempt to develop the product in a
“concrete” form. Upto now, it has existed only as idea, or perhaps as a drawing, or a
very crude mock-up. Second, it represents a very large investment, which is likely
to dwarf the idea-evaluation costs incurred in the earlier stages. Much time and
money go into trying to develop a technically feasible product. And finally, it
provides an answer as to whether the product idea can be translated into a
technically and commercially feasible product. If not, the company’s investment up
to now is lost except for any by-product information gained in the process.
Three steps are involved in the product-development stage: prototype
development and consumer testing, branding and packaging.
The first task is for the research and development department to build a
physical prototype that realizes the attributes specified in the product concept and
its trouble – free and economical to manufacture. Consumer testing goes hand in
hand with prototype development. Various methods have been proposed for the
testing of consumer preferences among a set of prototype alternatives, such as
paired comparisons, multiple choices, and ranking procedures. Consumers are
normally asked to sample the alternative products in a laboratory or home setting,
and the testing organization exercises the normal controls to avoid biased results.
The company examines the results and decides on the prototype model that seems
not promising on the overall criteria.
The brand name should not be casual after thought but an integral part or
reinforcer of the product concept. Among the desirable qualities for a brand name
are:
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o It should suggest something about the product’s benefits.

o It should suggest product qualities such as action colour, or whatever.
o It should be easy to pronounce, recognize and remember.
o It should be distinctive.
The two traditional packaging concerns of manufactures are product protection
and economy. A third packaging objective, which comes closer to considering the
consumer, is convenience. This means such things as size options and packages
that are easy to open. Over the years a fourth packaging objective has received
increasing recognition from manufacturers, particularly those in the consumer’s
goods field. This is the promotional function.
TEST MARKETING
Test marketing is a form of risk control and ensures avoidance of costly
business errors. It is a controlled marketing experiment with minimum possible
cost and risk; to decide the soundness and feasibility of full-fledged marketing of
the product. If totally new products are introduced into the market on a commercial
scale without resorting to test marketing, it may so happen that the product was
not the right one for the chosen market. It may be too costly a mistake for the firm.
Test marketing of a product may indicate that the sales prospectus for the product
are bound to be poor. The firm can save the investment by dropping the new
product idea. On the contrary, if the results received from the test marketing are
positive and encouraging, the firm may go ahead with the commercial production
and marketing of the new product.
Test marketing is an experiment that has to be carefully conducted. Care is
required in selecting the test markets and control markets, in monitoring the test
and in analysing and interpreting the test results. In many cases, test marketing is
also a time-consuming process; it has to be carried out for long duration in order to
obtain reliable and meaningful indications. And if competitors get information
regarding the test, it is possible for them to manipulate the test process and
thereby make the test results unreliable.
In the Indian context, text marketing as a marketing technique is becoming
popular in recent times. In the past, only giant corporations like Hindustan Lever
and Tatas used to go in for test marketing. Now more and more firms with the help
of their advertising agencies are going in for test marketing before a new product is
commercially launched.
COMMERCIALISATION
In this stage the product is submitted to the market, and thus commences its
life-cycle. Commercialisation is also the phase where marketing is most active in
connection with the new product. This stage is considered to be a critical one for
any product and should therefore be handled carefully. For instance, it should be
checked whether advertising and personal selling have been done effectively and
whether proper outlets have been arranged for the distribution. Despite the care
with which the previous development stages have been planned, unforeseen events
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can impair commercialisation seriously. The following activities are usually

undertaken during this stage:
o Completing final plans for production and marketing
o Initiating coordinated production and selling programmes.
o Checking results at regular intervals.
It should be remembered that new products should be launched in the market
only stage by stage. In other words, introduction may be restricted to a few regions
in the first instance. This is to avoid short supply of the product due to initial gaps
in production and distribution. It is not prudent to extent a product nationally and
then not be able to meet demand or to come across some unexpected deficiency.
NEW PRODUCT ADOPTION PROCESS
When a new product is launched, it can be highly successful if the
management identifies the nature and extent of adoption process of that product.
Stanton visualises six mental stages which a prospective user goes through while
deciding whether or not to adopt new product. According to him, these stages are:
Awareness stage, where the individual is exposed to innovation-product,
service, idea-but knows very little about it.
Interest information stage, where the prospect becomes interested to ask for
and know specific information about it.
Evaluation stage, in which the prospect mentally measures the relative merits
and demerits of the innovation.
Trial stage, in which the prospects actually adopted the innovation on a limited
basis.
Adoption stage, in which the individual decides whether or not to use the
innovation on a full scale basis.
Post-adoption stage, in which the prospect continues to seek assurance that he
made the right decision.
Why new products fail? Despite careful attention to product planning and
development, as many as 50% of the new products actually entering the markets
have a very short life span and market failures occur. The following are the usual
reasons for the failure of new products.
1. Inadequate market analysis: if the market analysis is inadequate, improper,
biased or not extensive enough, the analysis will yield only wrong idea.
Acting on such data leads to product failure.
2. Product problems and defects: It arises out of technical mistakes in the
process of production. This is a basic reason for product failure.
Inadequacies in products, to a large extent, are got rid of by proper product
testing.
3. Higher costs than estimated costs: This is another reason for product failure.
The cost estimate often also go wrong when the products are finally
introduced into the market.
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4. Poor/Bad timing of introduction: The basic principle to be followed in product

planning is to find out the exact time within which the product is to be
introduced into the market. Usually when and how are the two questions, a
manufacturer often finds it difficult to answer. A close analysis of market
conditions and the consumer behaviour and attitudes is essential to find out
an answer to the two problems.
5. Failure to estimate the strength of competition: this is also an important factor
that leads products to struggle hard in the market. There are various
methods to overcome severe market. Price cuts on the marked price and
various kinds of discounts, etc., may be adopted. Whatever it is,
improvement in the quality alone will withstand competition. Customers
cannot be cheated by price cuts, discounts, etc.
6. Insufficient and ineffective marketing effort: It is wrong to assume that a
manufacturer’s job ends at the moment a product is ready for sale. He
should try very much to market his product by proper promotional activities.
7. Inadequate sales force: Selling is done by personal or impersonal methods.
Impersonal methods constitute the advertisement and similar promotional
activities. Personal methods on the other hand, are more intimate and more
efficient. Promotional activity should be backed by adequate sales force to
introduce the product in the market.
8. Failure to recognise rapidly changing market environment.
9. Failure of product to fill consumer needs due to ignorance about consumers
attitudes and about new products.
10. Too many new products entering the market and
11. Many products are not new as perceived by consumers.
HOW TO SOLVE THE PROBLEMS OF NEW PRODUCT FAILURE?
All these problems could be solved by timely action of the marketing
management. The following methods are suggested to prevent a new product
failure:
o By analysing and ensuring that there is adequate demand existing for the
product. In other words one should identify and ensure a potential market
for his products.
o By making a product that would exactly fit into the existing market
structure of a company.
o By using continuous and efficient demand creation methods and
o By selecting a product that should reflect the company’s image already
created in all respects, especially with regard to quality and price.
PRODUCT ELIMINATION
There are some products which cannot be improved or modified to suit the
market. Here, the profitable alternative would be withdrawn the product. The
process of withdrawal is technically known as “product elimination”.
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12.3.2 INNOVATION
Product innovation is not just about being new or being different. It’s
about creating new products that customers will love, taking a different path
consumers will want to follow. That’s where our expertise in product innovation
comes into its own. We seek out new flavours, formulas, fragrances, packaging,
ingredients and ideas. And we track how consumers respond, identifying what
works and what doesn’t. And explaining exactly why. That gives our clients an edge.
It tunes them in to emerging trends, giving them a base of knowledge on which
their own new ideas can flourish. It’s why we work with 90% of the world’s leading
FMCG businesses. It’s why we can work for yours.
You work in product development, product innovation, research and
development or product design. You’re challenged to improve the speed, quality and
success of product development projects. You need evidence and insights to develop
and validate concepts, build business cases, develop the products and take them
successfully to market. Our product innovation insights can inspire your ideas and
our data can support them.
INTELLIGENCE
You need data to support your thinking and innovation strategies. We spot the
trends and spell out their implications so you can concentrate on what you do best
– innovating for your business.
INSPIRATION
Our global view can expand your creative horizons and give you a new
perspective. Our experience puts innovation in context, so you can see its potential
on your own patch.
IMPACT
We’re focused on results, on exploring objectively the reasons for the success
and failure of new product launches. We can show you best practice and help you
avoid the same mistakes so you’re one step ahead of the competition.
12.3.3 PRODUCT OBSOLESCENCE
Product obsolescence refers to the time and state in which a piece of technology
or product ceases to be useful, productive or compatible.
Product obsolescence may occur when a company stops producing, marketing
or supporting a sold or developed product.
Product obsolescence is an estimation of the end of a product’s operational
lifecycle. Generally, product obsolescence is measured before or during the product
development phase and is estimated using past and future technological and
industry growth statistics.
Planned obsolescence or built-in obsolescence in industrial design and
economics is a policy of planning or designing a product with an artificially limited
useful life, so it will become obsolete, that is, unfashionable or no longer functional
after a certain period of time.[1] The rationale behind the strategy is to generate
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long-term sales volume by reducing the time between repeat purchases (referred to
as "shortening the replacement cycle").[2]
Producers that pursue this strategy believe that the additional sales revenue it
creates more than offsets the additional costs of research and development
and opportunity costs of existing product line cannibalization. In a competitive
industry, this is a risky strategy because when consumers catch on to this, they
may decide to buy from competitors instead.
Planned obsolescence tends to work best when a producer has at least
an oligopoly. Before introducing a planned obsolescence, the producer has to know
that the consumer is at least somewhat likely to buy a replacement from them. In
these cases of planned obsolescence, there is an information asymmetry between the
producer – who knows how long the product was designed to last – and the
consumer, who does not. When a market becomes more competitive, product life
spans tend to increase. For example, when Japanese vehicles with longer life spans
entered the American market in the 1960s and 1970s, American carmakers were
forced to respond by building more durable products
Stages in New Product Development
1. Explain the significance of New Product Development.
2. Explain the different stages in New Product Development.
3. Why New Product Fail? Suggest measures to overcome this problem.
12.6. SUMMARY
All the stages in new product development get importance study of marketing.
Identify and explain briefly the 3 broad types of new product categories and list
three reasons for introducing new products.
12.9. ASSIGNMENT
All organizations need new product development- Do you agree to this
statement? If so give reasons in support of your answer
Explain the key stages of the New Product Development (NPD) process with
relevant examples and identify four reasons why NPD fails
12.12. KEY WORDS
Product Elimination, Commercialisation, Test Marketing, Concept testing,
Screening.
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LESSON – 13
PRODUCT RELATED STRATEGIES: BRANDING
13.1. INTRODUCTION
The physical product is only a part of the product image. It cannot stand alone
before the potential buyer. There are four elements that surround the product to
give us a complete product concept. These are (1) Branding, (2) Packaging and
Labelling, (3) Product Warranty and (4) Services. These four elements are the vital
marketing tools in any marketing programme to secure the desired market share in
a competitive market.
13.2. OBJECTIVES
 To know the concept of Branding and its importance
13.3. CONTENTS
13.3.1 Branding
13.3.2 Advantages and disadvantages of Branding
13.3.1 BRANDING
Brand is a wider term and it includes brand name and brand mark.
Brand Name: According to American Marketing Association, brand name is part
of a brand consisting of a word or group of words comprising a name which is
intended to identify the foods or services of a seller to differentiate them from those
of competitors. In other words, a brand name consists of words which may be
pronounced e.g. Usha fans. Allwyn Refrigerators, Godrej etc. It is a single word or
words used to identify a product and to differentiate it from other products.
Brand Mark: A brand mark is that part of the brand which appears in the form
of a symbol, design, or distinctive colouring or lettering. It is recognised by sight,
but not pronounceable. It is designed for easy identification of the product. For
example, the picture of “Gopuram” of the Tamil Nadu Tourism and Development
Corporation.
Trade Mark: When a brand name or brand mark is registered and legalised it
becomes a trade mark. Thus registered brands are Trade Marks. In that sense all
trade marks are brands but not all brands are trademarks. Trade Mark is defined
as “a brand or part of a brand that is given legal protection because it is capable to
exclusive appropriation”. Thus the trade mark is essentially a legal term protecting
the manufacturer’s right to use the brand name and /or brand mark.
Trade Name: This term is frequently and erroneously used as synonym for
either ‘brand name’ or ‘trade mark’. A trade name is the name of business,
preferably the name of the organisation itself. A trade name may also be a brand
name, but in such a case in serves two separate purposes. It brings name, but in
such a case it serves two the product. TATAS is solely a trade name of the marker
of various brands of cosmetics. GODREJ is both a trade name and a brand name
for most of their products.
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Patents: Patents are public documents conferring certain rights privileges, titles
of offices. A patent confers the right to the use of a technical invention. It is
applicable in the case of new inventions such as a new process, a new machine.
When a new invention is made it is registered so that an exclusive right is obtained
by the inventor to use it. Defined more precisely, a patent confers the right to
secure the enforcement power of the State in excluding unauthorized persons, for a
specific number of years, from making commercial use of a clearly identified, new
and useful technological invention.
Copyright: This is applicable in the case of books and is used in the same
meaning as that of patents. It is a sole right to reproduce literary, dramatic,
musical or artistic work. Copyright is available for the whole of the author’s life-
time and fifty years after his death.
IMPORTANCE OF BRANDING
Branding is an essential part of marketing sub-function of selling.
Manufactured goods are standardized in the process of production. Thus they are
of uniform quality, size, etc. and do not require grading. But every manufacturer or
seller feels the need of identifying his goods with some definite symbol, mark or
slogan so that his goods catch the attention of the consumers. Also, a manufacturer
or a seller wants to establish certain definite image in the mind of the public about
the quality, durability, shape, fashion and colour of his product. He does this by
using a brand or trade mark to symbolize his product. For example, it is not a car
which is sold, but a ‘Maruti’ or an ‘Ambassador’. We may take the example of tea
which satisfies a number of our needs like hospitality, sociability, intimacy, leisure
and relaxation. What is purchased by us is not tea as such but a particular brand
of tea. The seller is selling “Brook Bond” or “Lipton” tea. This is so because there is
an image in the mind or the buyer that a particular brand satisfies his need.
Consequently sales of this brand exceed those of the competing brands which have
not created such distinct image. Thus, brands provide the base for selling efforts.
Manufacturers and sellers know that branded products can be sold more easily and
at highest prices than competitive unbranded products. Therefore, branding is
invariably used as a method of modern mass selling. The primary object of
branding is to introduce “product differentiation” in the market, that is, to single
out a product from its rivals.
Factors which have made branding necessary. Following factors have made the
need of branding felt effectively:
a. The growth of competition.
b. The increasing importance of advertising
c. Significance of packing as an important function of marketing.
d. The growing habit among consumers to buy goods of particular brands.
FUNCTIONS OF BRANDING
1. It helps in product identification gives ‘distinctiveness’ to a product.
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2. A branded product indirectly denotes the quality or standard of a

product.
3. It eliminates imitation products
4. It ensures legal right on the product.
5. Brands differentiate the product and facilities advertisement to be more
effective and successful.
6. Brands help or facilitate consumer’s shopping.
7. It helps to create brand loyalty to particular products.
8. Branding reduces the price comparison, because two similar items with
two different brands may not be compared.
9. Repeated sales are facilitated with minimum effort through brands.
10. A good brand signifies prestige.
BRAND IMAGE AND PRODUCT IMAGE
Every brand image is partially derived from a product image. The product
image relates to the fundamental aims and satisfactions which the consumers find
in a particular product. Therefore, it is not wrong to say that the brand image
relates to the specific versions of the product image.
METHODS OF BRANDING
Products are branded in one of the following ways:
i. Based on the name of the manufacturer: The name of the manufacture
may be used in the abbreviated form to name the product Example-
Bata, Remington.
ii. Special names: The products may be given special name without may be
coined especially to be used as the brand name Example-Sunlight;
Lifebuoy.
iii. Special symbol or mark: Special symbol or mark may be designed for
use as trade-mark or brand to describe a particular product and to
identify and distinguish it from other products some class Examples-
Scissors cigarettes, Camel ink.
TYPES OF BRAND
Individual Brand: A firm very decides upon a policy of adopting distinctive
brands for each of its products. For example ITC Ltd., gives different brand names
for its products.
Family brand: When a firm is making many lines of products and each line of
product is given a particular brand name it is called family brand. A company may
produce different lines Milk food, soft drinks, cosmetics and so on. If each line is
given a separate brand name, it is known as family brand.
Umbrella Brand / Company Brand: When all the products of a company have
the name of the company as a brand name, such brand name is known as umbrella
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brand or company brand. All the products of Godrej Company – Soap, Furniture,
Typewriter, Refrigerator etc. has only one brand name “Godrej”.
Combination Device: Tata house is using a combination device. Under this
device each product of the company has an individual brand name but it also has
the name of the company brand to indicate the business house producing the
product e.g. Tata’s Tea. Under this method, side by side with the product image, we
have the image of the organisation also. Many companies use this device profitably.
Private of Middleman’s Brand: Under this arrangement manufacturer
introduces his products under the distributors’ brand name. In India this practice
is popular in the woolen, hosiery, sports goods etc. The manufacturer merely
produces goods as per the specifications and requirements of distributors and he
need not worry about marketing. Middlemen enjoy more freedom in pricing
products sold under their own brands. They have more control distribution.
CONDITIONS FAVOURABLE TO BRANDING
The following conditions, if satisfied, will lead to successful branding:
1. The demand for the general product class should be large and strong
enough to support a profitable marketing plan, involving additional
promotion cost.
2. The product should be easily identifiable by a brand and lend itself
easily to conspicuous marketing.
3. The brand must vary through to the ultimate consumer.
4. There must be economies of large scale production whenever additional
production is undertaken as a result of expanding sales volume.
5. The quality of the product should be the best and it should be easily
maintained.
6. There must be a consistent and widespread supply of the product.
ESSENTIALS OF A GOOD BRAND
A brand to be an effective weapon in the hand of manufacturer or seller for the
creation of consumers preference or “:product differentiation” must posses the
following essential qualities:
Firstly it should simple short and easy to memorise :
Secondly, it should be easy to recognize and recall.
Thirdly, it should be distinctive and attractive to the eyes and pleasing to ears.
Fourthly, it should not be based on prevailing styles and fashions.,
Fifthly, it should be easy economical to reproduce.
Sixthly, it should be effectively illustrative.
Finally, its owner should be able to protect the brand or trade mark in the low
court.
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13.3.3 ADVANTAGES OF BRANDING OR TRADE MARK
The practice of selling goods under a brand name or trade mark brings
advantages to manufacturers, whole – salers, retailers and consumers alike. More
important of these advantages are discussed here:
(a) Advantages to manufacturers
1. Distribution of the product in a wider market with the help of effective
advertising is made possible.
2. The individuality of a product is established. This helps the manufacturer to
distinguish his product from those of his competitors. Thus a fixed demand
and preference for the branded product are created.
3. Advertising costs are reduced. Once the brand has been made popular
retailers are forced to keep the product in their stock because of its popularity.
4. Wholesalers and retailers have preference for branded products because they
can be hold easily.
5. After some time, it is possible for the manufacturer to dispense with the
services of the wholesaler. In such a case manufacturer reduces the expenses
in distribution of goods.
6. Manufacturer can directly control the price of his product because in case of
the branded product retail selling price is fixed by manufacturer.
7. Branded products are often handled on smaller margins. Therefore,
manufacturer is required to pay lower rate of commission to wholesalers (or
retailers).
8. Manufacturer has not to depend upon the wholesalers and retailers for the
creation of demand for his product. Branding aids the manufacture to
maintain contact with the consumers.
9. Branding insures steadier demand which leads to economics of planned and
continuous production.
(b) Advantages to wholesalers and retailers
1. No efforts of promoting a sale are necessary. Consumers often know and
accept many branded products. Therefore, consumers themselves come to the
retailer for the purchase of such products.
2. Less risk involves in the case of a branded product of a manufacturer for the
retailer.
3. In case of products with manufacturer’s brands less time is required to sell
them. This many help in the turnover of sales in retail shops.
4. Retailer is assured of a more or less stabilized demand for the branded
products which have been brought to the notice of the consumers.
5. Breading aids in the standardization of quality and saves the retailer much
trouble in choosing and buying his stock.
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6. It helps in advertising and display programmes. Brand name or brand mark

gives a seller a short, quick method of attracting the consumer’s attention and
creating an impression which will “motives his into buying action”. A product
sold on self-service basis has to rely heavily on brand appeal so that in can be
immediately recognized and selected by the customer out of the mass of
products displayed on shelves and counters.
7. It help in increasing control and share of market. By putting his own brand on
the product a manufacturer or a middleman can be sure of some control over
the market. Branding also helps the owner of the brand to encourage “repeat
sales” and to protect himself against “product substitution”. Unless the
product can be identified by a brand, a wholesaler cannot be sure that a
retailer will not substitute a product of another make.
8. It reduces price comparisons and helps stabilize prices. A brand differentiates
a product and enables the brand owner to establish a price for his product
which cannot be easily compared with prices of competing goods. Also,
branding reduces price- fluctuations. Prices of well-known brands tend to
fluctuate less than those of non-branded products or of unknown brands.
9. It facilities introduction of a new item. A firm selling one or more lines of
branded much more easily than a firm selling unbranded goods.
c) Advantages to consumers
1. Consumers cannot be charged higher prices by the retailers. Prices of branded
products are fixed by the manufacturers and they are well advertised. Thus
the consumers know what the price is. Therefore, it is not possible for the
retailers to charge higher prices of branded products.
2. Consumers are assured of good quality: Manufacturers have to maintain the
quality of products, their reputation is to be retained, products of inferior
quality cannot be sold. Therefore, supply of quality product is ensured to
consumers.
3. Quality goods are easily available: Retailers have to keep ready in stock goods
of all popular brands. Therefore consumers can get such goods easily
whenever they want.
4. Quality of branded goods is protected: Branded goods are usually sold in
sealed packages. Thus, they are protected from the effect of heat, moisture
and dust. Adulteration by middlemen is also made impossible in case of
branded goods.
5. Stability in price: Generally the retail price of branded products is maintained
steady because manufacturers do not find it advisable to change the prices as
frequently as those of unbranded products.
DISADVANTAGES OF BRANDING
1. The serve criticism leveled against branding is that it leads to some kind of
monopoly known as “Brand monopoly”. The brand monopoly created by
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gradually creating a brand loyally to the products in the minds of the

customers.
2. It is difficult to establish a brand and the expense of advertising in the initial
stage is very high which raises the cost.
3. Brand names do not always assure good quality. Manufacturers sometimes
place inferior goods in the market under a glamorous brand name.
BRANDING DECISIONS
Branding has become a management technique as it involves considerations of
alternatives and choosing the best alternative. Some of the practical hints have
been discussed above. Brand managers have in develop a logical order of action in
developing brand awareness and ultimately leading to brand loyalty. These steps
may be as follows:
Non – recognition – Consumers are unware of the availability of a
particular brand
Brand recognition – Making the consumers to realise the availability
of a particular brand
Brand preference – Making the consumers buying out of habit a
particular brand
Brand insistence – In this stage consumers will not accept any
substitute product
Brand loyalty – Last stage in the Branding process – when
consumers make repeat purchases of the same
brand.
Branding and Advantages and disadvantages of Branding
1. What is branding? Differentiate brand name from brand mark.
2. Write notes on:
a. Trade Mark
b. Trade Name
c. Patents
d. Copyright
3. State the importance of branding
4. Explain the functions of branding
5. What are the essentials of a good brand?
6. Explain the different methods of branding.
7. Narrate the features of different types of brands
8. State the conditions favouring branding
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9. What are the limitations to branding?

10. How would you make a branding decision?
13.6. SUMMARY
Brand is a wider term and it includes brand name and brand mark.
What will our brand ultimately achieve? Once our brand has changed, how will
we show that differentiation?
13.9. ASSIGNMENT
As a manager, how would you discuss the advantages of branding to
manufacturers, wholesalers / retailers, and consumers.
Provide guidance for our brand as it makes this journey
13.12. KEY WORDS
Brand Name, Brand Mark, Brand Loyalty, Trade Mark, Patents, Copy Right.
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LESSON – 14
PRODUCT RELATED STRATEGIES: PACKAGING AND LABELLING
14.1. INTRODUCTION
Packing means the wrapping and creating of goods before they are transported
or stored. Many goods must be packed in order to be preserved or delivered to the
buyers. Liquids must be placed in barrels, bottles or cans. Bulky foods such as
cotton and jute are compressed into bales. Goods must be placed in boxes or bags
for delivery to dealers. Retailers often wrap goods or place them in bags or boxes for
delivery to the ultimate consumer. Fragile goods are often packed in special
containers.
Packages are the sub-division of the packing function of marketing. It means
placing of goods in small packages – boxes, bottles or cans, bags, barrels etc., for
sale to the ultimate consumers. It is concerned with putting goods in the market in
the size convenient to the buyers. Packaging has been defined as the general group
of activities which involve designing and producing the container or wrapper for a
product.
14.2. OBJECTIVES
 To know the importance of Packaging and labelling.
14.3. CONTENTS
14.3.1 Packaging
14.3.2 Need for Packaging
14.3.3 Kinds of Packaging
14.3.4 Advantages of Packaging
14.3.5 Consumer problems in Packaging
14.3.6 Labelling,
14.3.7 Advantages of Labelling
14.3.8 Disadvantages of Labelling
14.3.1 PACKING AND PACKAGING
Packing means the wrapping and creating of goods before they are transported
or stored. Many goods must be packed in order to be preserved or delivered to the
buyers. Liquids must be placed in barrels, bottles or cans. Bulky foods such as
cotton and jute are compressed into bales. Goods must be placed in boxes or bags
for delivery to dealers. Retailers often wrap goods or place them in bags or boxes for
delivery to the ultimate consumer. Fragile goods are often packed in special
containers.
Packages are the sub-division of the packing function of marketing. It means
placing of goods in small packages – boxes, bottles or cans, bags, barrels etc., for
sale to the ultimate consumers. It is concerned with putting goods in the market in
the size convenient to the buyers. Packaging has been defined as the general group
of activities which involve designing and producing the container or wrapper for a
product.
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14.3.2 NEED OF PACKING AND PACKAGING
Protection from damage: Goods are likely to get damaged in transit or while in
store. Therefore they must be kept in suitable containers.
Prevention of Evaporation: Products like gas, spirit etc., are volatile in nature. If
they are not properly packed they will evaporate.
Protection Against spoilage: Products like gur, sugar, tea, etc., are likely to get
spoiled in transit or in store if they are not protected against dust and other
articles. Also gur, sugar, honey and such other products attract flies, ants, etc.
Hence they must be kept properly and tightly packed in suitable containers.
Protection against pilferage: To product goods from getting stolen also packing
becomes essential.
Protection against leakage: To prevent liquid articles like oil flow away while in
storage or in transit, these must be kept in barrels or containers.
Protection of the quality of goods: Packing is also necessary to prevent
deterioration in the quality of goods because of the effect of light, air or other
atmospheric effects.
Convenience of consumers: Goods are packaged in convenient sizes and units
which are easy of handle by the consumers.
Economy: Package should provide various economies both to the producers and
to the consumers. Well packed products are fresh, clean and it tack. Therefore
monetary loss is prevented. Moreover, whenever possible, containers should be so
designed that they may be useful for further use-domestic or re-use.
Promotion Role: Packaging also has a promotional role which has become more
important. It has received increasing recognition from the manufacturers in recent
years.
The various promotional functions are :
a. Self- Service: The package must be capable of performing many of the
sales tasks. It must attract attention, describe the producers’ features,
give the consumer confidence and make a favourable over all
impression.
b. Consumer difference: Prestige of a product is maintained with the help of
proper packaging. Good packaging is capable of projecting various
qualities of the product as well as of the manufacturers.
c. Product identification: Packages differentiate similar products and
thereby they have an advertisement value. When people think that a
good package, taller in size, not shorter, contains bigger products. Above
all many people buy the products for the sake of containers.
PACKAGING DECISION
Packaging as a marketing activity confronts the seller with following questions:
Which of the numerous materials available for packaging will serve the purpose
of enhancing the appearance of the product best?
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What colours, designs, shapes and sizes of packages should be preferred?

How to design a package which will be convenient for the consumers to handle?
Can a package be so designed that it can be used by the consumer even after
the product it contains has been consumed?
Should special gifts and such other packages be designed for Diwali, Christmas
marriage and such other selling seasons.
REQUISITES OF GOOD PACKAGING
To perform its function effectively in the process of marketing, packaging must
possess the following essential qualities: (i) Attractiveness, (ii) Protective strength,
(iii) Consumer’s convenience, and (iv) Economy.
i) Attractiveness: The package must be attractive enough to tempt the on looker
to try it. Generally, colours are used to make to packages look attractive. But while
using colour certain caution is necessary.
Firstly, colour to be used should be pleasing to eye.
Secondly, while using colours it must be borne in mind that different colours
are associated with different human feeling and emotions. For example, white
colour is the symbol of purity and cleanliness, blue stands for coolness, green
symbolizes freshness and red indicates warmth.
Thirdly, different colours should be used for packages containing goods for
customers from different age-groups. Bright colours should be used for packaging
articles meant for children but use of such colours should be avoided if the article
is meant for grown – up persons.
Usually, a picture, is used on the package to make it attractive. In such a case,
care should be taken to see that the picture suggests the nature of the product.
Pictures having no relation with the product should be avoided.
Printed matter on the package also adds to its attractiveness. But to be
effective, such matter should be informative and should occupy minimum of the
space. Also it must have been printed clearly, attractively and in prominent letters.
ii) Protective strength: Basically packaging is concerned with the protection of
goods. Therefore it should be strong enough to protect the goods from breakage or
leakage, spoilage, pilferage etc. In case of goods packaged in glass bottles or
containers, they should be further packed in good cardboard packing. Goods
subject to determination in quality due to atmospheric effects should be packed in
glass containers or in tight-capped metal tins.
iii) Consumer’s convenience: Goods are packaged in the size which suits the
requirements of the consumers. Usually consumers prefer to purchase their
requirements in small quantities rather than in bulk. Therefore, there is tendency
towards smaller packages.
iv) Economy: Another essential requisite of good packaging is it must be as
inexpensive as possible. For this purpose special efforts should be made to reduce
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the cost of packaging. Whenever possible containers should be so designed that

they may be useful for domestic and other purposes even after the contents have
been used. For example, glass cans, baskets, wooden etc., have many uses.
Sometimes packages are so designed that they may be returned for refilling, for
example edible oil bottles.
14.3.3 KINDS OF PACKAGING
The following are the various kinds of packaging:
1. Consumer Packaging: A consumer package is a kind of package which holds
the required volume of products for the household consumption. For example tooth
paste, shoe polish, face powder, oil, shaving cream, blade, ink, nail polish, kum-
kum, gas cylinder etc., have packed is small volume. Sometimes the same article
may be packed in larger volume for office or factory purposes. For example oil, ink,
gas etc. are packed in larger volumes also.
2. Family packaging: The products of a particular manufacturer when packed
in an identical manner is known as family packaging. The shape, colour, size, etc.,
of packaging will be similar for all his products. In such a case packaging methods,
materials used for packaging, the appearance etc., will be one end the same for all
the products of a manufacturer. For example, Asian Paints Company packs all its
products in a similar type of packing. Similar in the sense, the shape of tins and
appearance will be same. Bata shoe company’s products are packed in similar type
of boxes.
3. Re-use Packaging: Re-use packaging is also known as dual package.
Packages that could be used for some other purposes after the packed goods have
been consumed is known as re-use packing. For example, the glass jar of Nescafe
Instant Coffee and many other products are packed in such a way that the package
can be put into many uses. The other examples are V.V.D. Oil packing, liquor
bottles, Sweet tins, biscuit tins and so on.
4. Multi Packaging: The practice of placing several units in one container is
known as multiple packaging. Johnson’s Baby care set, Parker pen set, etc., are
example of multiple packaging.
PACKAGING MATERIALS
Packaging differs from goods to goods. It depends upon the nature of the goods
to be packed. For liquid products container made of materials which can prevent its
disperson is used. For solid product, packing is necessary and helpful in retaining
the moisture, freshness and such other characteristics of the product. For fragile
articles like bangles, wooden containers are used to protect then from breakage.
Different materials at used for the purpose of packaging. Earthenware is
porous and helps in retaining the freshness of the products kept in it. Chin jars are
becoming popular and replacing the old earthenware containers. They can protect a
product against right and corrosive action of acid. Their defect is that they are
fragile.
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Wooden boxes are used as the outermost packing because they are strong
enough to protect goods even if roughly handled in the process of transportation.
Cardboard containers have become popular and in many cases have replaced
wooden boxes, particularly in the case of packing small articles. This is because
cardborad containers have certain advantages over wooden boxes. Firstly,
cardboard is cheap, though sufficiently, strong and right to product fragile goods.
Secondly, it can be manufactured in varying thickness and different colours.
Thirdly, its surface can be used for marking and design or written material.
Gunny bags are popular for packing goods like grains, cement, sugar, etc. They
are strong and can stand rough handling through long distance involved in the
transportation of such goods. Paper bags are popular as package for products solid
in form. Paper bags are commendable because they can be given very attractive
appearance and they have an advertisement value as it can be printed upon. But
they suffer from certain limitations. Firstly, the freshness of the product cannot be
preserved. Secondly, production against damage is not possible.
Tin and plastic containers have gained extreme degree of popularity because
they are light in weight and they can be made attractive by giving any shape or
colour to them. They are rigid and non-porous too. But, in case of plastic, caution
to keep them away from fire is always necessary.
The new family of synthetic packaging materials have several merits such as: (I)
waterproof and moister proof property; (ii) capacity to provide effective barrier to
vapour; (iii) greater resistance to sun exposure (iv) thermal stability; (v) light weight;
(vi) alkali and acid proof property; (vii) attractiveness and transparency. They also
lend themselves to attractive printing/ branding on them. Plastics as a group are
now dominating the packaging field in India. They are now used in a variety of
packaging applications from simple grocery bags to sophisticated stretch blown
bottle. Consumer products like Paloma Tea, Nescafe, Sponta Wafers, Dalda, Amul
Milk Chocolates and agricultural inputs like chemical fertilizers have all gone in for
plastic packaging materials.
Tetrapacks: One of the latest among these innovations is the tetrapack bricks
or aseptic packaging. It is the new development in food packaging. The special
feature in this case is that the package as well as the contents are sterilized and
human handling is dispensed with. The package consists of several thin layers of
polyethylene foil and paper. Several manufactures of fruit juices and fruit drinks
are now using tetrapacks. In the past, fruit juices were made available in cans and
fruit drinks in bottles. These packing processes necessitated the addition of
preservatives to the products. Tetrapacks have an edge over cans since their
contents have as shelf life of three months without the addition of preservatives.
Parle’s Frooti and Appy, Lipton’s Tree Top, Voltas’ Volfruit and Noble Soya’s Great
Shake are some of the drinks now being marketed in aseptic tetrapack bricks.
Flexible Containers: The trend generally is towards flexible packaging whenever
the products lend themselves to such package. Not only in consumer goods
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packaging, but in the bulk transportation of commodities also, flexible containers

have made their entry. For example, the Transport Corporation of India (TCI), one of
the leading transportation agencies in the country, have recently introduced flexible
containers for bulk movement of liquids, granules and powders. They are durable
rubber containers-tanks and drums – made from high tenacity polymide fabric
matrix and coated with compatible polymers. The flexible containers are useful in
large volume transportation of several products like oil, chemicals, liquid
detergents, alcohol, food grains, fertilizers cement, etc.
14.3.4 ADVANTAGES OF PACKING AND PACKAGING
Packing is very useful in the marketing of goods. Most of the products are
packed for their protection. Apart from this protective packaging”, package is also
used as a “Powerful selling tool”. This is particularly so in the marketing of
consumer’s goods. Chief advantages of packing and packaging are listed below:
1. It protects goods on its route from the manufacturer to the consumer or
industrial user against breaking, spoilage, leakage or pilferage.
2. It facilitates branding and advertising of products.
3. It is useful in getting display in retail stores which usually suffer from the
shortage of space.
4. It helps the seller to increase his sales and obtain higher prices than he
could get for similar goods handled in the bulk.
5. It products the quality of the products.
6. It ensures the supply of goods of right quality in desired quantity of
consumers.
7. A company with several products gets the advantage of the goodwill or one
product to push the sale of other products by using similar package with the
“same colour scheme and name”.
8. Printed literature containing information about the method of using the
product can be easily passed on to the consumers by putting it in the
package.
9. Packaging gives the product a prestige, an individuality which are not
possessed by goods sold in the loose form by retailers. It helps to identify a
product and thus may prevent substitution of competitive goods.
10. Compared with products sold in bulk, packaged goods, usually, are more
convenient, cleaner and less susceptible to losses from evaporation, spilling
and spoilage.
11. At the selling point, the package serves as a ‘silent salesmen’ encouraging
impulse buying. While in the possession of the customer, it induces the
customer to reorder the same brand and thus stimulates ‘repeat sale’.
12. An increase ease of handling or a reduction in losses due to damage may cut
marketing costs.
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Thus, packaging is important not only for the purpose of protection and
convenience but also for product-differentiation and stimulation of demand.
14.3.5 CONSUMER PROBLEMS WITH PACKAGING
In spite of its various advantages, packaging has been subjected to many
criticisms. One among them it that it adds to cost. To some extent this complaint
holds good. But the benefits received are sufficient to compensate the increase in
cost. Apart from this criticism the other disadvantages are listed below:
1. Unless the package is transparent, the buyer cannot judge the contents
by appearance. If information about the quality on the package label is
absent, the buyer has to buy almost blindly.
2. If the consumer wants a specific quantity, he may not have that amount
when goods are sold in packages.
3. There is no way to check the weight and volume of the contents unless
the buyer opens the packages to ascertain the weight. Package sizes
inflate the contents.
4. During the period of rising prices less contents are packed in the same
package and apparently same prices are charged.
5. Packaging may create health hazards for consumers. Certain plastic
food packaging has been shown to cause cancer. Packages stored in god
owns are susceptible to infection.
SOCIAL VIEW OF PACKAGING
1. Pollution control:
Pollution control is a burning issue in packaging
particularly in western countries. Broken bottles, crushed cartons and
bent cans litter the streets and choke municipal dumps. This has
created the solid waste problems in those countries. Hence all packaging
programmes must consider the environmental and ecological issues.
2. Resources scarcity: Resources scarcity is another problem. Some
precious natural resources are being wasted on non-returnable
(disposable) containers e.g. soft drink bottles. Later on these disposal
packages create litter and pollution problems. Such type of packages
cannot be tolerated now.
GAUGING THE REACTION OF CONSUMERS TO PACKAGING
It is essential to gauge periodically the reaction of the consumers to packaging
and adapt the packaging to their requirements. Consumers may have their own
preferences covering (a) package size, (b) package shape and (c) package material.
Marketing men must grasp through systematic research, consumer preferences on
the one hand and the cost and availability aspects on the other and provide the
consumers with the best possible packaging. They should also remember that any
change in packaging, even when it means an improvement in every respect, must
be handled deftly and carefully. The consumer’s perception of the change is the
most important factor.
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LABELLING
Label is a small slip placed on or near anything (product) to denote its nature,
contents, ownership, destination, etc. The function of standardization is made
perfect and known to the users through labels. Packages afford a place where the
labels could be affixed. It is a medium through which the manufacturer gives
necessary information to the user or consumer. It is defined as a part of a product
which carries verbal information about the product of the seller. A label plays an
important role in making the packaging and branding functions meaningful. Hence
these three functions are closely related. The recently passed Packaged
Commodities (Regulation) Order 1975, makes it obligatory on the part of
manufacturers to show details about the identity of the commodity, its weight, date
of manufacturer, etc. The provision of this enactment is carried out with the help of
labelling.
FUNCTIONS
1. It gives definiteness to the product and therefore the identification of a
product is easy.
2. It stresses the standard and other special features of the product which are
advertised.
3. It enables the manufacturer to give clear instructions to the consumer about
the proper use of his product.
4. By mentioning prices, undue price variations caused by the intermediaries
are avoided. In other words, price is recorded registered and maintained.
5. It encourages to produce only standardized and quality products.
6. It provides a method for the manufacturer by which a contact with the
customer is established.
14.3.6 KINDS OF LABELS
William J. Stanton classifies the labels into four: Brand, Grade, Descriptive and
Informative labels.
i) Brand labels: These labels are exclusively meant for popularising the brand
name of the product. Cosmetics manufacturers prefer to use this kind. They are
interested, above all, in popularising the brand manes for their products.
ii) Grade labels: These give emphasis to standards or grades. This is used as an
indirect method of product identification,. E.g. cloth, leaf, tea, dust tea.
iii) Descriptive labels: the labels which are descriptive in nature are typified as
descriptive labels. They are most illustrative in nature. In addition to the product
feature they explain the various uses of the product. Most of the milk – food
products and other similar household products invariably have descriptive a labels.
iv) Informative labels: The main object of these labels is to provide maximum
possible information. These may contain the product characteristics and in addition
the method of using it properly. In the case of medicine detailed labels are attached
which even specify the side effect in using them.
14.3.7 ADVANTAGES OF LABELLING
1. Labelling is a social service to customers, who very often do not know
anything about the product’s characteristic features. False claims are
prevented by using labels.
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2. It avoids price variations by publishing the price on the label.

3. It helps advertising activity of the organisation. Label is the medium to
popularise the product.
4. It helps the customers to assess the superiority of the product.
5. It is guarantee for the standard of the product. Hence it raise the prestige of
the product and of the manufacturer.
6. It gives all needed information to the buyers and avoids confusion.
14.3.8 DISADVANTAGES OF LABELLING
1. For an illiterate this is of no use.
2. It increases the cost of the product, since labelling involves expenditure on
the part of the manufacturer.
3. Labelling is effective only where standardization is compulsory.
4. It aims at mainly popularizing the product rather than giving information
to the consumers.
5. It enables to customers to weigh and compare the advantages of products
before they are used. This ultimately ends in discarding of one product in
favour of the other.
PRODUCT WARRANTY
In modern life we have numerous products with complicated, intricate and
elaborate mechanism, such as radio, television, motor car, electrical appliances,
etc. An average consumer is incompetent to know the ins and outs of such
sophisticated products. The law has now started to alter the famous maxim “Let the
Buyer Beware” and give due recognition to its substitute “Let the Seller Beware”. In
many countries the law takes into consideration the handicaps and disabilities
encountered by average buyers while purchasing such highly mechanized or
automated products. Informative labelling and informative advertisement will also
educate consumers in making wise selection while purchasing the products. The
Sale of Goods Act has given legal protection in the form of implied conditions and
warranties.
Condition is a stipulation essential to the main purpose of the contract. If it is
broken, victimized party, i.e., the buyer can claim for damages but has no right to
reject the contract.
The product warranty must be clear, unambiguous and meaningful. A warranty
is an assurance of the quality, service and performance. It is a written guarantee of
the intrinsic value of a product. It points out the responsibility of the maker for
repairs, service and maintenance in the case of consumer durables. The producer
should use the word warranty instead of the word guarantee.
The warranty is the outcome of the rule of law viz., “let the buyer beware”.
Producers developed warranties to create buyers confidence and to provide redress
to aggrieved customers. Buyers could rely on the statement made by the seller. For
example, a manufacturer may warrant that his produce is 100% wool or that the
colour of the cloth will not fade. Such a warranty may be supported by money-back
guarantee.
The value of warrantee to consumers depends upon the reliability of the
warrantor and the person who has specific responsibility of making good on the
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warranty. This is true because in practice and it law, the consumer has little
resource. However, courts have started awarding damages for an injury simply if
the product is shown to be defective or unfit for its intended use. There are four
guidelines as instruments for meeting social responsibilities of marketing as well as
for assuring a continuous customer interest 1) Warranty integrity, (2) Education of
consumer in the use of the product, (3) Product quality control, and (4) Service on
demand.
If the four guidelines are followed by the manufacturers, repeat sales can be
stimulated and Government may not be compelled to enact additional consumer
legislation. There are millions of appliances being used by consumers all over the
world. They are complicated and need honest warranties from the manufacturers.
Consumer satisfaction is the key to successful warranty programme. Customer
satisfaction with product in use provides the clue as to the effectiveness of the
warranty programme.
Implied warranties are promise of the maker that the product is of average
saleable quality, will do what the product is normally expected to do; and will last a
reasonable period of time. Express warranties are specific promises in writing made
by the manufacturer or trader relating to quality, performance, condition or other
feature. When one accepts an express warranty, one may have to give up the
implied warranty as a condition of acceptance.
Manufacturer is expected no go give deceptive advertisement of warranties or
guarantees as they will defect the very purpose viz., warranty acting as seller aid.
Manufacturer should not give fraudulent warranties and victimize innocent
consumers, particularly in the case of costly durable goods such as television,
refrigerators, motor cars, fans, electrical appliances etc. False warranty is an unfair
trade practice.
SERVICE FACILITIES
After – sales service is an important aspect of a marketing transaction. Every
increase in the use of machinery, appliances and equipment in all branches of our
economy has created a continuous demand for after-sales service, i.e., for the
smooth maintenance and repairs at low charges as well as quick access to spare
parts and accessories at reasonable prices.
Market research emphasizes the importance of after sales service in the
marketing campaign of costly and durable goods such as typewriters, duplicators,
all kinds of office appliances and machines refrigerators, TV sets, tape recorders,
radios, washing machines, domestic appliances and such other status-symbol
goods. It is also necessary in the sale of machine and equipment.
BENEFITS OF AFTER –SALES SERVICE
1. It can build up and maintain seller’s goodwill.
2. Mass distribution of costly consumer durables is possible only through
after-sales service and consumer credit.
3. Complaints and grievances regarding servicing and maintenance will be
promptly and efficiently dealt with by the seller. Customer satisfaction is
the master-key to further sales and growth.
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4. Sales campaign will achieve remarkable success if after-sales service is

included in sales promotion.
5. Free service during the guarantee period is the best selling point in the
sale of machinery and appliances.
Packaging, Need for Packaging, Kinds of Packaging and Consumer problems in
Packaging
1. What is packaging? What is the need for packaging?
2. How would you make a good packaging decision?
3. Explain the requisites of good packaging.
4. What are the different kinds of packaging?
5. What are packaging materials?
6. Discuss the advantages of packaging?
7. State the problems of consumers associated with packaging.
8. What is labelling? What are its functions?
9. State William J. Stanton’s classification of labelling.
10. What are the advantages and disadvantage of labelling.
11. ‘Product warranty is a seller aid’ – Elucidate.
12. Highlight the importance of after sales service in marketing the durable
goods.
14.6. SUMMARY
Packing means the wrapping and creating of goods before they are
transported or stored.
What does our marketing look like? Where are our competitors situated? What
is the reality for our customers? Why do they currently identify with our brand?
14.9. ASSIGNMENT
Give a brief write up on the “Goods Packaging”.
Explain the significance of product management. How branding packaging and
labeling help product manager in realising their business goals.
14.12. KEYWORDS
Packaging, Packing, Labelling, After Sales Service, Product Warranty
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LESSON 15
PRICING
15. 1 INTRODUCTION
Pricing decisions have strategies importance to all organizations profit as
well as non-profit organizations. Price is the only element in the marketing mixes
that produce revenue, the other elements produce costs. You come across the
concept of price every time you buy something – whether it is in a shop, on the
move or surfing online.
Price is:
• The money charged for a product or service
• Everything that a customer has to give up in order to acquire a product
or service
• Usually expressed in terms of £ per unit
You can see from the above that price is not the same thing as cost.
The price is the amount customers pay for a product. The cost is the amount
spent by a business making the product. However, as we see later, a firm needs
to take account of the cost of production when setting price to ensure that it is
making a profit on the products it offers.
The price a business charges for its product or service is one of the most
important business decisions management take.
For example, unlike the other elements of the marketing mix (product, place &
promotion), pricing decisions directly affect revenues rather than costs.
Pricing also has to be consistent with the other elements of the marketing mix,
since it contributes to the perception of a product or service by customers.
Setting a price that is too high or too low will - at best - limit the business
growth. At worst, it could cause serious problems for sales and cash flow.
So pricing is important, but it is really tough to get right. There are so many
factors to consider, and much uncertainty about whether a price change will have
the desired effect.
15.2 OBJECTIVES
After reading the lesson, you will understand
 The Concept of price and pricing
 The objectives and roles of pricing
 The pricing policy and various pricing strategies
 The different methods of pricing
15.3 CONTENTS
15.3.1 Pricing –Meaning and objectives
15.3.2 Pricing policies and strategies
15.3.3 Pricing Methods
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15.3.1 PRICING – MEANING AND OBJECTIVES.
A pricing strategy takes into account segments, ability to pay, market
conditions, competitor actions, trade margins and input costs, amongst others.
Definition: Price is the value that is put to a product or service and is the
result of a complex set of calculations, research and understanding and risk taking
ability.
Many pricing objectives are available for careful consideration. The one you
select will guide your choice of pricing strategy. You’ll need to have a firm
understanding of product attributes and the market to decide which pricing
objective to employ. Your choice of an objective does not tie you to it for all time. As
business and market conditions change, adjusting your pricing objective may be
necessary or appropriate. How do you choose a pricing objective? Pricing objectives
are selected with the business and financial goals in mind. Elements of your
business plan can guide your choices of a pricing objective and strategies. Consider
your business’s mission statement and plans for the future. If one of your overall
business goals is to become a leader in terms of the market share that your product
has, then you’ll want to consider the quantity maximization pricing objective as
opposed to the survival pricing objective.
If your business mission is to be a leader in your industry, you may want to
consider a quality leadership pricing objective. On the other hand, profit margin
maximization may be the most appropriate pricing objective if your business plan
calls for growth in production in the near future since you will need funding for
facilities and labor. Some objectives, such as partial cost recovery, survival, and
status quo, will be used when market conditions are poor or unstable, when first
entering a market, or when the business is experiencing hard times (for example,
bankruptcy or restructuring). Brief definitions of the pricing objectives are provided
below.
Pricing Objectives
The firm's pricing objectives must be identified in order to determine the
optimal pricing. Common objectives include the following:
Current profit maximization - seeks to maximize current profit, taking into
account revenue and costs. Current profit maximization may not be the best
objective if it results in lower long-term profits.
Current revenue maximization - seeks to maximize current revenue with no
regard to profit margins. The underlying objective often is to maximize long-term
profits by increasing market share and lowering costs.
Maximize quantity - seeks to maximize the number of units sold or the
number of customers served in order to decrease long-term costs as predicted by
the experience curve.
Maximize profit margin - attempts to maximize the unit profit margin,
recognizing that quantities will be low.
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Quality leadership - use price to signal high quality in an attempt to position

the product as the quality leader.
Partial cost recovery - an organization that has other revenue sources may
seek only partial cost recovery.
Survival - in situations such as market decline and overcapacity, the goal may
be to select a price that will cover costs and permit the firm to remain in the
market. In this case, survival may take a priority over profits, so this objective is
considered temporary.
Status quo - the firm may seek price stabilization in order to avoid price wars
and maintain a moderate but stable level of profit.
For new products, the pricing objective often is either to maximize profit margin
or to maximize quantity (market share). To meet these objectives, skim pricing and
penetration pricing strategies often are employed. Joel Dean discussed these
pricing policies in his classic HBR article entitled, Pricing Policies for New Products.
Skim pricing attempts to "skim the cream" off the top of the market by setting
a high price and selling to those customers who are less price sensitive. Skimming
is a strategy used to pursue the objective of profit margin maximization.
Skimming is most appropriate when:
• Demand is expected to be relatively inelastic; that is, the customers are not
highly price sensitive.
• Large cost savings are not expected at high volumes, or it is difficult to predict
the cost savings that would be achieved at high volume.
• The company does not have the resources to finance the large capital
expenditures necessary for high volume production with initially low profit
margins.
Penetration pricing pursues the objective of quantity maximization by means
of a low price. It is most appropriate when:
• Demand is expected to be highly elastic; that is, customers are price sensitive
and the quantity demanded will increase significantly as price declines.
• Large decreases in cost are expected as cumulative volume increases.
• The product is of the nature of something that can gain mass appeal fairly
quickly.
• There is a threat of impending competition.
As the product lifecycle progresses, there likely will be changes in the demand
curve and costs. As such, the pricing policy should be reevaluated over time.
The pricing objective depends on many factors including production cost,
existence of economies of scale, barriers to entry, product differentiation, rate of
product diffusion, the firm's resources, and the product's anticipated price elasticity
of demand.
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15.3.2 PRICING – POLICIES AND STRATEGIES.
Price is the amount of money that is charged for “something” of value. Fees,
tuition, rent, and interest are all examples of price. Almost every business
transaction today involves the exchange of money for something. Price is one of the
main variables in the marketing mix. Companies are particularly concerned with
price because it directly affects their sales and earnings. Price can include delivery
of a product, insurance, warranties, and tax. It can be related to a physical product
- such as a house - or to a
Service, such as an estate agent’s commission. The list price is the price that
final consumers are charged for the product.
The list price might include any or all of the following:
• Physical good or service.
• Assurance of quality.
• Repair facilities.
• Packaging.
• Credit.
• Warranty.
• Delivery.
Customers may pay a lower price if certain elements of the list price – such as
warranties - are not provided. The list price does not include discounts, allowances,
rebates, or coupons. However, it does include any applicable taxes. From the
perspective of channel members, the list price should include a branded,
guaranteed product with warranties and service. In addition, the price should
include place availability, a fair profit margin, and promotion to attract customers.
Taxes and tariffs are included, but Discounts and allowances are not. Pricing
objectives should fit in with a company’s overall marketing strategy. Therefore, if a
company is profit-oriented, its pricing objective should be to maximize profits.
Types of pricing objectives include:
● Profit- oriented.
● Sales- oriented.
● Status quo- oriented.
Pioneer pricing: setting the base price for a new product is a necessary part
of formulating a marketing strategy. The base price is easily adjusted (in the
absence of government price controls) and its establishment is one of the most
fundamental decisions in the marketing mix. The base price can be set high to
recover development costs quickly or to provide a reference point for developing
discount prices to different market segments.
When marketers set base prices, they also consider how quickly competitors
will enter the market, whether they will mount a strong campaign on entry and
what effect their entry will have on the development of primary demand. If
competitors will enter quickly, with considerable marketing force and with limited
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effect on the primary demand, then a firm may adopt a base price that will
discourage their entry.
Price Skimming: A firm introducing a new or innovative product can use
skimming pricing, setting the highest initial price that customers really desiring the
product are willing to pay. These customers are not very price sensitive because
they weigh the new product’s price, quality, and ability to satisfy their needs
against the same characteristics of substitutes. As the demand of these customers
is satisfied, the firm lowers the price to attract another, more price-sensitive
segment. Thus skimming pricing gets its name from skimming successive layers of
“cream”, or customer segments, as prices are lowered in a series of steps. Demand
tends to be inelastic in the introductory stage of the product life cycle (for example,
the DVD player).
Penetration Price: A penetration price is a price below the prices of
competing brands and is designed to penetrate a market and produce a larger unit
sales volume. When introducing a product, a marketer sometimes uses a
penetration price to gain a large market share quickly. This approach places the
marketer in a less flexible position than price skimming because it is more difficult
to raise a penetration price than to lower or discount a skimming price. It is not
unusual for a firm to use a penetration price after having skimmed the market with
a higher price.
Prestige Pricing: In prestige pricing, prices are set at an artificially high
level to provide a prestige or quality image. Prestige pricing is used especially when
buyers associate a higher price with higher quality. Typical product categories in
which selected products are prestige priced include perfumes, cars, alcoholic
beverages, jewellery and electrical appliances. If producers that use prestige pricing
lowered their prices dramatically, it would be inconsistent with the perceived
images of such products.
Psychological Pricing: Psychological pricing encourages purchases based
on emotional rather than rational responses. It is used most often at the retail
level. Psychological pricing has limited use for industrial products.
Odd-Even Pricing: By odd-even pricing – ending the price with certain
numbers (odd or even) it is generally thought that marketers are trying to influence
buyers’ perceptions of the price or the product. Odd pricing assumes that more of
a product will be sold at $99.95 than at $100.00. Supposedly, customers will think
that the product is a bargain-not $100.00 but $99.00 plus a few insignificant
cents. Some claim, too, that certain types of customer are more attracted by odd
prices than by even ones. However, there are no substantial research findings to
support the notion that odd prices produce greater sales. Nonetheless, even prices
are far more unusual today than odd prices.
While it is true that a great many marketers and a great many buyers actually
believe that odd-even pricing is designed to make buyers believe the product is
cheaper, the most probable reason for its original introduction is often overlooked.
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A price such as $9.95 (originally perhaps9 shillings and 11 pence) required shop
assistants to use the cash register to make change. Thus the transaction is
recorded – the money is not just pocketed.
Price Lining: Often a firm that is selling not just a single product but a line of
products may price them at a number of different specific pricing points, which is
called price lining.
In some instances all the items might be purchased for the same cost and then
marked up at different percentages to achieve these price points based on colour,
style, and expected demand. In other instances manufacturers design products for
different price points and retailers apply approximately the same mark-up
percentages to achieve the three or four different price points offered to buyers.
The basic assumption in price lining is that the demand is inelastic for various
groups or sets of products. If the prices are attractive, customers will concentrate
their purchases without responding to slight changes in price.
Customary Pricing: In customary pricing, certain goods are priced primarily
on the basis of tradition.
Demand-Backward Pricing: Marketers sometimes estimate the price that
buyers would be willing to pay for a relatively expensive item such as a shopping
good. They then work backward through the margins that may have to be paid to
retailers and wholesalers to determine what price they can charge wholesalers for
the product. This demand-backward pricing results in the manufacturer
deliberately adjusting the quality of the component parts in the product to achieve
the target price.
Bundle Pricing: A frequently used demand-oriented pricing practice is
bundle pricing – the marketing of two or more products in a single “package” price.
Professional Pricing: Professional pricing is used by people who have great
skill or experience in a particular field or activity. The concept of professional
pricing carries with it the idea that professionals have an ethical responsibility not
to overcharge unknowing customers. Some professionals who provide such
products as medical services feel that their fees (prices) should not relate directly to
the time and involvement in specific cases; rather, a standard fee is charged
regardless of the problems involved in performing the job.
Promotional Pricing Price: is an ingredient in the marketing mix, and it is
often coordinated with promotion. The two variables sometimes are so interrelated
that the pricing policy is promotion orientated. Examples of promotional pricing
include price leaders, special-event pricing, and experience-curve pricing.
Price Leaders: Sometimes a firm prices a few products below the usual mark-
up, near cost, or below cost, which results in prices known as price leaders. This
type of pricing is used most often in supermarkets and department stores to attract
buyers by giving them special low prices on a few items. Management hopes that
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sales of regularly priced merchandise will more than offset the reduced revenue
from the price leaders.
Special-Event Pricing: To increase sales volume, many organizations
coordinate price with advertising or sales promotion for seasonal or special
situations (Sales). Special event pricing involves advertised sales or price cutting
that is linked to a holiday, season, or event. If the pricing objective is survival, then
special sales events may be designed to generate the necessary operating
capital. Special-event pricing also entails coordination of production, scheduling,
storage, and physical distribution. Whenever there is a sales lag, special event
pricing is an alternative that marketers should consider.
In cost-orientated pricing, a certain monetary amount or a percentage is
added to the cost of a product. The method thus involves calculations of desired
margins or profit margins. Cost-orientated pricing methods do not necessarily take
into account the economic aspects of supply and demand, nor do they necessarily
relate to a specific pricing policy or ensure the attainment of pricing
objectives. They are, however, simple and easy to implement.
Cost-Plus Pricing: In cost-plus pricing, the seller’s costs are determined
(usually during a project or after a project is completed) and then a specified
amount or percentage of the cost is added to the seller’s cost to set the price. When
production costs are difficult to predict or production takes a long time, cost-plus
pricing is appropriate. Custom-made equipment and commercial construction
projects are often priced by this method. The government frequently uses such
cost-orientated pricing in granting deference contracts. One pitfall for the buyer is
that the seller may increase costs to establish a larger profit base. Furthermore,
some costs, such as overheads, may be difficult to determine.
Mark-up Pricing: A common pricing method among retailers is mark-up
pricing. In mark-up pricing, a product’s price is derived by adding a predetermined
percentage of the cost, called mark-up, to the cost of the product. Although the
percentage mark-up in a retail store varies from one category of goods to another
(35 percent of cost for hardware items and 100 percent of cost for greeting cards,
for example), the same percentage is often used to determine the price of items
within a single product category, and the same or similar percentage mark-up may
be standardized across an industry at the retail level. Using a rigid percentage
mark-up for a specific product category reduces pricing to a routine task that can
be performed quickly.
High-volume products usually have smaller mark-ups than do low-volume
products.
Cost Plus Fixed-Fee Pricing: In buying highly technical, few-of-a-kind
products such as aircraft or space satellites, governments have found contractors
are reluctant to specify a formal, fixed price for the procurement. Therefore it uses
cost plus fixed-fee pricing, which means that a supplier is reimbursed for all costs,
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regardless of what they turn out to be, but is allowed only a fixed fee as profit that
is independent of the final cost of the project.
Target Profit Pricing: A firm may set an annual target of a specific dollar
volume of profit, which is called target profit pricing.
Target Return-on-Sales Pricing: A difficulty with target profit pricing is that
although it is simple and the target involves only a specific dollar volume, there is
no benchmark of sales or investment used to show how much of the firm’s effort is
needed to achieve the target. Firms like supermarket chains often use target
return-on-sales pricing to set typical prices that will give the firm a profit that is a
specified percentage, say 1 percent, of the sales volume.
Target Return-on-Investment Pricing: Firms set annual return-on-
investment (ROI) targets such as ROI of 20 percent. Target return-on-investment
pricing is a method of setting prices to achieve this target.
New Product Pricing Strategies:
With a totally new product, competition does not exist or is minimal. Two
general strategies are most common for setting prices:
(1) Penetration pricing
In the introductory stage of a new product's life cycle means accepting a lower
profit margin and to price relatively low. Such a strategy should generate greater
sales and establish the new product in the market more quickly. Penetration
pricing is the pricing technique of setting a relatively low initial entry price, often
lower than the eventual market price, to attract new customers. The strategy works
on the expectation that customers will switch to the new brand because of the
lower price. Penetration pricing is most commonly associated with a marketing
objective of increasing market share or sales volume, rather than to make profit in
the short term. The advantages of penetration pricing to the firm are as follows:
It can result in fast diffusion and adoption. This can achieve high market
penetration rates quickly. This can take the competitors by surprise, not giving
them time to react.
 It can create goodwill among the early adopters segment. This can create
more trade through word of mouth.
 It creates cost control and cost reduction pressures from the start, leading to
greater efficiency.
 It discourages the entry of competitors. Low prices act as a barrier to entry.
 It can create high stock turnover throughout the distribution channel. This
can create critically important enthusiasm and support in the channel.
 It can be based on marginal cost pricing, which is economically efficient.
A penetration strategy would generally be supported by the following
conditions: price-sensitive consumers, opportunity to keep costs low, the
anticipation of quick market entry by competitors, a high likelihood for rapid
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acceptance by potential buyers, and an adequate resource base for the firm to meet
the new demand and sales.
(2) Skimming
Skimming involves goods being sold at higher prices so that fewer sales are
needed to break even. Selling a product at a high price and sacrificing high sales to
gain a high profit is therefore "skimming" the market. Skimming is usually
employed to reimburse the cost of investment of the original research into the
product. It is commonly used in electronic markets when new ranges, such as DVD
players, are firstly dispatched into the market at a high price. This strategy is often
used to target "early adopters" of a product or service. Early adopters generally have
a relatively lower price-sensitivity and this can be attributed to their need for the
product outweighing their need to economize, a greater understanding of the
product's value, or simply having a higher disposable income.
This strategy is employed only for a limited duration to recover most of the
investment made to build the product. To gain further market share, a seller must
use other pricing tactics such as economy or penetration. This method can have
some setbacks as it could leave the product at a high price against the competition.
A skimming strategy would generally be supported by the following conditions:
• Having a premium product. In this case, "Premium" does not just denote
high cost of production and materials- it also suggests that the product
may be rare or that the demand is unusually high. An example would be
a USD 500 ticket for the World Series or an USD 80,000 price tag for a
limited-production sports car such as this.
• Having legal protection via a patent or copyright may also allow for an
excessively high price. Intel and their Pentium chip possessed this
advantage for a long period of time. In most cases, the initial high price
is gradually reduced to match new competition and allow new
customers access to the product.
Polices involving differentials:
Method in which a product has different prices based on the type of
customer, quantity ordered, delivery time, payment terms, etc. Also called
discriminatory pricing or multiple pricing, some of the important differentials
involving to reduce the price include the discounts and rebates. A brief mention
may be made on each class discount.
Prompt payment discount:
Trade Discounts are deductions in price given by the wholesaler or
manufacturer to the retailer at the list price or catalogue price. Cash Discounts are
reductions in price given by the creditor to the debitor to motivate the debitor to
make payment with in specified time. These discounts are intended to speed
payment and thereby provide liquidity to the firm. They are sometimes used as a
promotional device. we also explain that discount is relaxation in price.
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xamples
• 2/10 net 30 - this means the buyer must pay within 30 days of the invoice
date, but will receive a 2% discount if they pay within 10 days of the invoice
date.
• 3/7 EOM - this means the buyer will receive a cash discount of 3% if the bill
is paid within 7 days after the end of the month indicated on the invoice
date. If an invoice is received on or before the 25th day of the month,
payment is due on the 7th day of the next calendar month. If a proper
invoice is received after the 25th day of the month, payment is due on the
7th day of the second calendar month.
• 3/7 EOM net 30 - this means the buyer must pay within 30 days of the
invoice date, but will receive a 3% discount if they pay within 7 days after
the end of the month indicated on the invoice date. If an invoice is received
on or before the 25th day of the month, payment is due on the 7th day of the
next calendar month. If a proper invoice is received after the 25th day of the
month, payment is due on the 7th day of the second calendar month.
• 2/15 net 40 ROG - this means the buyer must pay within 40 days of receipt
of goods, but will receive a 2% discount if paid in 15 days of the invoice date.
(ROG is short for "Receipt of goods.")
Preferred payment method discount
Some retailers (particularly small retailers with low margins) offer discounts to
customers paying with cash, to avoid paying fees on credit card transactions.
Partial payment discount
Similar to the Trade discount, this is used when the seller wishes to improve
cash flow or liquidity, but finds that the buyer typically is unable to meet the
desired discount deadline. A partial discount for whatever payment the buyer
makes helps the seller's cash flow partially
Forward dating
This is where the purchaser doesn’t pay for the goods until well after they
arrive. The date on the invoice is moved forward - example: purchase goods in
November for sale during the December holiday season, but the payment date on
the invoice is January 27.
Seasonal discount
These are price reductions given when an order is placed in a slack period
(example: purchasing skis in April in the northern hemisphere, or in September in
the southern hemisphere). On a shorter time scale, a happy hour may fall in this
category. Generally, this discount is referred to as "X-Dating" or "Ex-Dating". An
example of X-Dating would be:
3/7 net 30 extra 10 - this means the buyer must pay within 30 days of the
invoice date, but will receive a 3% discount if they pay within 7 days after the end
of the month indicated on the invoice date plus an extra 10 days.
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Discounts and allowances dealing with trade

Bargaining
Bargaining is where the seller and the buyer negotiate a price below the original
asking price.
Trade discount
Trade discounts, also called functional discounts, are payments to distribution
channel members for performing some function. Examples of these functions are
warehousing and shelf stocking. Trade discounts are often combined to include a
series of functions, for example 20/12/5 could indicate a 20% discount for
warehousing the product, an additional 12% discount for shipping the product, and
an additional 5% discount for keeping the shelves stocked. Trade discounts are
most frequent in industries where retailers hold the majority of the power in the
distribution channel (referred to as channel captains).
Trade discounts are given to try to increase the volume of sales being made by
the supplier.
The discount described as trade rate discount is sometimes called "trade
discount". Trade discount is the discount allowed on retail price of a product or
something. for e.g. Retail price of a cream is 25 and trade discount is 2% on 25.
Trade rate discount
A trade rate discount, sometimes also called "trade discount", is offered by a
seller to a buyer for purposes of trade or reselling, rather than to an end user. For
example, a pharmacist might offer a discount for over-the-counter drugs to
physicians who are purchasing them for dispensing to the physicians' own patients.
A seller supplying both trade or resellers, and the general public will have a general
list price for anybody, and will offer a trade discount to bona-fide trade customers.
Trade-in credit
Trade-in credit, also called trade-up credit, is a discount or credit granted for
the return of something. The returned item may have little monetary value, as an
old version of newer item being bought, or may be worth reselling as second-hand.
The idea from a seller's viewpoint is to offer some discount but have the buyer
showing some "counter action" to earn this special discount. Sellers like this as the
discount granted is not just "given for free" and makes future price/value
negotiations easier. Buyers have the advantage of getting some value for something
no longer used. Examples can be found in many industries.
Discounts and allowances dealing with quantity
These are price reductions given for large purchases. The rationale behind
them is to obtain economies of scale and pass some (or all) of these savings on to
the customer. In some industries, buyer groups and co-ops have formed to take
advantage of these discounts. Generally there are two types:
i. Cumulative quantity discount: Cumulative quantity discounts, also called
accumulation discounts, are price reductions based on the quantity
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purchased over a set period of time. The expectation is that they will
impose an implied switching cost and thereby bond the purchaser to the
seller.
ii. Non-cumulative quantity discount: These are price reductions based on the
quantity of a single order. The expectation is that they will encourage
larger orders, thus reducing billing, order filling, shipping, and sales
personnel expenses.
iii. Dependence of price on quantity: An extreme form of quantity
discount is when, within a quantity range, the price does not depend on
quantity:
• if one wants less than the minimum amount one has to be pay for the
minimum amount anyway
• if one wants an amount between two of the fixed amounts on offer, one
has to pay for the higher amount
These also apply in the case of a service with "quantity" referring to time. For
example, an entrance ticket for a zoo is usually for a day; if one stays shorter, the
price is the same. It is a kind of pass for unlimited use of a service during a day,
where one can distinguish whether or not, when leaving and returning, one has to
pay again. Similarly a pass can be for another period. In the case of long periods, it
is obvious that one can leave and return without paying again.
If one has to buy more than one wants, we can distinguish between the surplus
just not being used, or the surplus being a nuisance, e.g. because of having to carry
a large container.
Discounts and allowances dealing with customer characteristics
The following discounts have to do with specific characteristics of the customer
Disability discount
A discount offered to customers with what is considered to be a disability
Educational or student discount
These are price reductions given to members of educational institutions,
usually students but possibly also to educators and to other institution staff. The
provider's purpose is to build brand awareness early in a buyer's life, or build
product familiarity so that after graduation the holder is likely to buy the same
product, for own use or for an employer, at its normal price. Providers also offer
student discounts as means of offering a product within the budget of a student,
which would otherwise be too expensive, thus gaining extra sales. Educational
discounts may be given by merchants directly, or via a student discount program,
such as College Budget in the United States or NUS and Studentdiscounts.co.uk in
the United Kingdom.
Employee discount
A discount offered by a company to employees who buy its products.
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In 2005, the American automakers ran an "employee discount" for all

customers promotional campaign in order to entice buyers, with some success.
Military discount
A discount offered to customers who are or were members of a military service.
A discount is the value that deduct from a service or from goods. Types of military
discounts include discounts for active duty military, veterans, retired military
personnel, and military spouses or dependents. In the United States, military
discounts frequently require proof of ID to show eligibility such as a DD Form 214,
DD Form 215, or DD Form 217 from any branch of the Armed Forces, TRICARE
Cards, Veterans Affairs Cards Uniformed Services Privilege and Identification Cards
(USPIC) or other official documentation. Eligibility for military discounts can also be
verified online or via mobile by verification companies like Sheer ID. Companies
such as AutoAccessoriesGarage.com offer discounts to military personnel once they
verify. In the case of AutoAccessoriesGarage that could mean up to 20% off parts
and accessories. For a list of companies offering military discounts in your area.
Age-related discounts:
Toddler discount, child discount, kid discount: A discount, or free service, offered to
children younger than a certain age, commonly for admission to entertainments
and attractions, restaurants, and hotels. There may be a requirement that the child
be accompanied by an adult paying full price. Small children often travel free on
public transport, and older ones may pay a substantially discounted price; proof of age
may be required.
Young person's discount: Discounts are sometimes offered to young people
below a certain age who are neither children nor in education.
Senior discount: "senior discount" redirects here. For the band, see Senior
Discount (band).
A discount offered to customers who are above a certain relatively advanced
age, typically a round number such as 50, 55, 60, 65, 70, and 75; the exact age
varies in different cases. The rationale for a senior discount offered by companies is
that the customer is assumed to be retired and living on a limited income, and
unlikely to be willing to pay full price; sales at reduced price are better than no
sales. Non-commercial organizations may offer concessionary prices as a matter of
social policy.[4] Free or reduced-rate travel is often available to older people (see, for
example, Freedom Pass). In United States most grocery stores offer senior
discounts, starting for those age 50 or older, but most discounts are offered for
those over 60.
Discount card
Sometimes a document, typically a plastic card similar to a payment card, is
issued as proof of eligibility for discounts. In other cases, existing documents
proving status (as student, disabled, resident, etc.) are accepted. Documentation
may not be required, for example, for people who are obviously young or old enough
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to qualify for age-related discounts. In some cases, the card may be issued to
anyone who asks.
Coupons
A discount, either of a certain specified amount or a percentage to the holder of
a voucher, usually with certain terms. Commonly, the terms involve the terms of
other discounts on this page, such as being valid only if a certain quantity is
bought or only if the customer is older than a specified age. Coupons are often
printed in newspapers, brochures, and magazines, or can be downloaded and
printed from Worldwide Web pages that can be accessed via the Internet.
Rebates
A refund of part of sometimes the full price of the product following purchase,
though some rebates are offered at the time of purchase. A particular case is the
promise of a refund in full if applied for in a restricted date range some years in the
future; the hope is that the promise will lure customers and increase sales, but that
the majority will fail to meet the conditions for a valid claim.
Other discounts and allowances:
X Promotional allowances - These are price reductions given to the buyer for
performing some promotional activity. These include an allowance for creating and
maintaining an in-store display or a co-op advertising allowance.
X Brokerage allowance - From the point of view of the manufacturer, any
brokerage fee paid is similar to a promotional allowance. It is usually based on a
percentage of the sales generated by the broker.
15.3.3 PRICING METHODS:
Pricing methods: are the methods that firms use to calculate the price of their
products. Pricing is one of the toughest challenges encountered by the firms as the
prices should not only be relevant as per the current market scenario, but should
also meet the expenses of the firm and help it gain profit. It must also take into
account competitor’s pricing. Hence, it is important to choose the right pricing
method. The various pricing methods are as follows:
The two methods of pricing are as follows: A. Cost-oriented Method B. Market-
oriented Methods.
There are several methods of pricing products in the market. While selecting
the method of fixing prices, a marketer must consider the factors affecting pricing.
The pricing methods can be broadly divided into two groups—cost-oriented method
and market-oriented method.
A. Cost-oriented Method:
Because cost provides the base for a possible price range, some firms may
consider cost-oriented methods to fix the price.
Cost-oriented methods or pricing are as follows:
1. Cost plus pricing:
Cost plus pricing involves adding a certain percentage to cost in order to fix the
price. For instance, if the cost of a product is Rs. 200 per unit and the marketer
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expects 10 per cent profit on costs, then the selling price will be Rs. 220. The
difference between the selling price and the cost is the profit. This method is
simpler as marketers can easily determine the costs and add a certain percentage
to arrive at the selling price.
2. Mark-up pricing:
Mark-up pricing is a variation of cost pricing. In this case, mark-ups are calcu-
lated as a percentage of the selling price and not as a percentage of the cost price.
Firms that use cost-oriented methods use mark-up pricing.
Since only the cost and the desired percentage markup on the selling price are
known, the following formula is used to determine the selling price:
Average unit cost/Selling price
3. Break-even pricing:
In this case, the firm determines the level of sales needed to cover all the
relevant fixed and variable costs. The break-even price is the price at which the
sales revenue is equal to the cost of goods sold. In other words, there is neither
profit nor loss.
For instance, if the fixed cost is Rs. 2, 00,000, the variable cost per unit is Rs.
10, and the selling price is Rs. 15, then the firm needs to sell 40,000 units to break
even. Therefore, the firm will plan to sell more than 40,000 units to make a profit. If
the firm is not in a position to sell 40,000 limits, then it has to increase the selling
price.
The following formula is used to calculate the break-even point:
Contribution = Selling price – Variable cost per unit
4. Target return pricing:
In this case, the firm sets prices in order to achieve a particular level of return
on investment (ROI).
The target return price can be calculated by the following formula:
Target return price = Total costs + (Desired % ROI investment)/ Total sales in
units
For instance, if the total investment is Rs. 10,000, the desired ROI is 20 per
cent, the total cost is Rs.5000, and total sales expected are 1,000 units, then the
target return price will be Rs. 7 per unit as shown below:
5000 + (20% X 10,000)/ 7000

Target return price = 7
The limitation of this method (like other cost-oriented methods) is that prices
are derived from costs without considering market factors such as competition,
demand and consumers’ perceived value. However, this method helps to ensure
that prices exceed all costs and therefore contribute to profit.
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5. Early cash recovery pricing:
Some firms may fix a price to realize early recovery of investment involved,
when market forecasts suggest that the life of the market is likely to be short, such
as in the case of fashion-related products or technology-sensitive products.
Such pricing can also be used when a firm anticipates that a large firm may
enter the market in the near future with its lower prices, forcing existing firms to
exit. In such situations, firms may fix a price level, which would maximize short-
term revenues and reduce the firm’s medium-term risk.
B. Market-oriented Methods:
1. Perceived value pricing:
A good number of firms fix the price of their goods and services on the basis of
customers’ perceived value. They consider customers’ perceived value as the
primary factor for fixing prices, and the firm’s costs as the secondary.
The customers’ perception can be influenced by several factors, such as advertising,
sales on techniques, effective sales force and after-sale-service staff. If customers perceive a
higher value, then the price fixed will be high and vice versa. Market research is needed to
establish the customers’ perceived value as a guide to effective pricing.
2. Going-rate pricing:
In this case, the benchmark for setting prices is the price set by major com-
petitors. If a major competitor changes its price, then the smaller firms may also
change their price, irrespective of their costs or demand.
The going-rate pricing can be further divided into three sub-methods:
a. Competitors ‘parity method:
A firm may set the same price as that of the major competitor.
b. Premium pricing:
A firm may charge a little higher if its products have some additional special
features as compared to major competitors.
c. Discount pricing:
A firm may charge a little lower price if its products lack certain features as
compared to major competitors.
The going-rate method is very popular because it tends to reduce the likelihood
of price wars emerging in the market. It also reflects the industry’s coactive wisdom
relating to the price that would generate a fair return.
3. Sealed-bid pricing:
This pricing is adopted in the case of large orders or contracts, especially those
of industrial buyers or government departments. The firms submit sealed bids for
jobs in response to an advertisement.
In this case, the buyer expects the lowest possible price and the seller is
expected to provide the best possible quotation or tender. If a firm wants to win a
contract, then it has to submit a lower price bid. For this purpose, the firm has to
anticipate the pricing policy of the competitors and decide the price offer.
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4. Differentiated pricing:
Firms may charge different prices for the same product or service.
The following are some the types of differentiated pricing:
a. Customer segment pricing:
Here different customer groups are charged different prices for the same
product or service depending on the size of the order, payment terms, and so on.
b. Time pricing:
Here different prices are charged for the same product or service at different
timings or season. It includes off-peak pricing, where low prices are charged during
low-demand tunings or season.
c. Area pricing:
Here different prices are charged for the same product in different market
areas. For instance, a firm may charge a lower price in a new market to attract
customers.
d. Product form pricing:
Here different versions of the product are priced differently but not
proportionately to their respective costs. For instance, soft drinks of 200,300, 500
ml, etc., are priced according to this strategy.
15.3.4 A SUMMARY OF PRICING STRATEGIES
All businesses can draw from a number of alternative pricing strategies:
• Penetration- setting a low price to increase sales and market share
• Milking - setting an initial high price and then slowly lowering the price
to make the product available to a wider market, thus milking profits
from the market layer by layer
• Premium - setting price high to reflect the exclusiveness of the product
• Competition - setting a price in comparison with competitors
• Product line - pricing different products within the same product range
at different price points
• Bundle - offering a group of products at a reduced price
• Psychological - considering the psychology of price and the positioning
of price within the market place: for example, charging 99p instead of £1
or £199 instead of £200
• Optional - offering optional extras along with the product to maximise
revenue (used commonly within the car industry).
Between the Boston and Ansoff matrices and the eight alternative pricing
strategies provide a framework for considering price. But the key is to understand
who you are targeting, with what and why. Only then can you begin to develop an
effective pricing strategy.
Discuss various pricing strategies and tactics and their use in marketing (e.g.,
cost-based pricing, competition-based pricing, value-based pricing, psychological
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pricing, new product pricing, and pricing tactics targeted to consumers and
channel members)
Companies tend to use different pricing strategies and tactics for different
products or different markets. Pricing strategies are a long-term approach to pricing
products, whereas price tactics focus more on the short-term aspects of the 5Cs of
pricing. The various pricing strategies can be grouped into three broad categories—
cost-based strategies, value-based strategies, and competition-based strategies.
Cost-based strategies are based on the firm ascertaining the cost of producing and
marketing the product, and then adding some mark-up for profit. Competition-
based pricing is based on a firm understanding what competitors are doing and
reacting accordingly. Firms may choose to set prices below, at or above competitors'
prices. Value-based pricing is based on a firm understanding consumers'
perceptions of value as reflected in the price of the product (cheap, expensive,
bargain, etc.). Consumers' assessments of value may be influenced by their
reference prices of similar products or may use marketers' prices to infer a price-
quality relationship. Marketers often use price skimming or penetration pricing
when they introduce new products in the marketplace based on the nature of the
product and their marketing goals, for example, whether they want to gain market
share, show price leadership, or signal innovation. Companies may use a wide
variety of pricing tactics from two categories:
(1) business-to-business pricing tactics and discounts, and (2) pricing tactics
aimed at consumers. Business-to-business pricing tactics and discounts usually
include seasonal discounts, cash discounts, quantity discounts, allowances, and
geographic pricing. Pricing tactics aimed at consumers include quantity discounts,
markdowns, seasonal discounts, and coupons and rebates.
15.4 REVISION POINT
Pricing Polices and strategies, Pricing Methods.
15.5 INTEXT QUESTIONS
1. Describe the major pricing objective which a company may set out to
achieve.
2. Describe the cost-based methods of pricing and outline its strength the
Limitations.
3. What is rational of following policies involving price-differentials?
4. Describe the kinds of differentials usually allowed by the marketers.
5. Write Short Notes on:
a) Bargaining, b) Area pricing, c) Cost plus pricing, d) Discount card.
6. Distinguish between
a. Skimming Pricing and Penetration Pricing
b. Trade Discount and Quantity Discount
c. Break-Even Pricing and Incremental Cost Pricing.
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15.6 SUMMARY
Pricing plays major role for Profit making in all companies. All the authorities
in organisation should consider the internal and external pricing methods
15.7 TERMINAL EXERCISES
1. Show the practical difference between discount and pricing?
18.8 SUPPLEMENTARY MATERIALS
1. African journal of marketing management.
15.9 ASSIGNMENT QUESTIONS
1. Discuss the two methods of pricing: A. Cost-oriented Method B. Market-
oriented Methods.
15.10 REFERENCES
1. "Prestige Pricing: Pros & Cons and Examples". Inevitable Steps. March 15,
2016. Retrieved March 17, 2016.
2. Yeoman, I. (2011). The changing behaviors of luxury consumption. Journal
of Revenue and Pricing Management,
3. Yeoman, I, & McMahon-Beattie, Una. (2005). Luxury markets and premium
pricing. Journal of Revenue and Pricing Management.
4. Kumcu, E., & McClure., J. (2003). Explaining Prestige Pricing: An Alternative
to Back-Bending Demand. Marketing Education Review.
15.11 LEARNING ACTIVITIES
1. Explain the methods of pricing?
15.12 KEYWORDS
1. Promotional Pricing, rebate, Trade-in allowance, Contributions and
discounts.

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LESSON -16
PROMOTION
16.1 INTRODUCTION
Promotion is all about communication. Promotion is the way in a business
makes its products known to the customers, both current and potential.
It is a common mistake to believe that promotion by business is all about
advertising. It isn't. There are a variety of approaches that a business can take to
get their message across to customers, although advertising is certainly an
important one.
The main aim of promotion is to ensure that customers are aware of the
existence and positioning of products. Promotion is also used to persuade
customers that the product is better than competing products and to remind
customers about why they may want to buy.
It is important to understand that a business will use more than one method of
promotion. The variety of promotional methods used is referred to as the
promotional mix
Which promotional methods are used depends on several factors:
Stage in the life cycle • E.g. advertising is important at the launch stage
Nature of the product • How much information is required by customers
before they buy
Competition • What are rivals doing?
Marketing budget • How much can the firm afford?
Marketing strategy • Other elements of the mix (price, product, place etc)
Target market • Appropriate ways to reach the target market
The main methods of promotion are:
• Advertising
• Public relations & sponsorship
• Personal selling
• Direct marketing
• Sales promotion
A business will use a range of promotional activities for its product, depending
on the marketing strategy and the budget available.
The way in which promotion is targeted is split into two types:
Above the line promotion – paid for communication in the independent media
e.g. advertising on TV or in the newspapers. Though it can be targeted, it could be
seen by anyone outside the target audience.
Below the line promotion – promotional activities where the business has
direct control e.g. direct mailing and money off coupons. It is aimed directly at the
target audience.
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16.2 OBJECTIVES
After reading this lesson, you will understand,
 The concept of promotion-mix
 The aims/purposes of promotion
 The scope of sales promotion
 The promotion strategy.
16.3 CONTENTS
16.3.1 Promotion-Meaning and scope
16.3.2 Objectives of Sales Promotion
16.3.3 Importance of Sales Promotion
16.3.4 Marketing Communications
16.3.5 Nature and Scope
16.3.6 Sales Promotion
16.3.7 Purpose of Promotion
16.3.1 PROMOTION – MEANING AND SCOPE.
Meaning and Definition:
Sales promotion refers to ‘those marketing activities that stimulate consumer
shows and expositions. Purchasing and dealer effectiveness such as displays,
demonstration and various non- recurrent selling efforts not in the ordinary
routine.” According to A.H.R. Delens: “Sales promotion means any steps that are
taken for the purpose of obtaining an increasing sale. Often this term refers
specially to selling efforts that are designed to supplement personal selling and
advertising and by co-ordination helps them to become more effective.”
In the words of Roger A. Strong, “Sales promotion includes all forms of
sponsored communication apart from activities associated with personal selling. It,
thus includes trade shows and exhibits, combining, sampling, premiums, trade,
allowances, sales and dealer incentives, set of packs, consumer education and
demonstration activities, rebates, bonus, packs, point of purchase material and
direct mail.”
16.3.2 OBJECTIVES OF SALES PROMOTION:
Sales promotion is a vital bridge or a connecting link between personal selling
and advertising.
Sales promotion activities are undertaken to achieve the following objectives:
1. To increase sales by publicity through the media which are complementary
to press and poster advertising.
2. To disseminate information through salesmen, dealers etc., so as to ensure
the product getting into satisfactory use by the ultimate consumers.
3. To stimulate customers to make purchases at the point of purchase.
4. To prompt existing customers to buy more.
5. To introduce new products.
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6. To attract new customers.

7. To meet competition from others effectively.
8. To check seasonal decline in the volume of sales.
16.3.3 IMPORTANCE OF SALES PROMOTION:
The importance of sales promotion has increased tremendously in the modern
times. Lakhs of rupees are being spent on sales promotional activities to attract the
consumers in our country and also in other countries of the world.
Some large companies have also begun to appoint sales promotion managers to
handle miscellaneous promotional tools. All these facts show that the importance of
sales promotion activities is increasing at a faster rate
16.3.4 MARKETING COMMUNICATIONS:
Marketing communications stems from Integrated marketing communications
(IMC). Marketing communication comes in two different forms, a channel and a tool
(Tomse, & Snoj, 2014). Marketing communication channels focuses on any way a
business communicates a message to its desired market, or the market in general.
A marketing communication tool can be anything from: advertising, personal
selling, direct marketing, sponsorship, communication, promotion and public
relations (Tomse, & Snoj, 2014). If the two kinds of marketing communications are
put together, it can be seen that marketing communications are the different ways
a message is communicated to different markets (Tomse, & Snoj, 2014).
Marketing communications are made up of the marketing mix which is made
up of the 4P’s: Price, Promotion, Place and Product, for a business selling goods,
and made up of the 7P’s: Price, Promotion, Place, Product, People, Physical evidence
and Process, for a service based business (Kusumawati, Oswari, Utomo, & Kumar,
2014)
Communication process
Communication can be defined as process of using, word, sound or visual cues
to supply information to one or more people (“Communication”, n.d.). A
communication process is defined as information that is shared with the intent that
the receiver understands the message that the business intended to send.
(“Communication process”, n.d.). The communication process was once thought of
as having the source of the message, which is then encoded, put through the
chosen communication channel, which is then decoded by the recipient and then
received (Belch, & Belch, 2012). Throughout the middle of the channel there is the
potential for noise to distort the message being sent (Belch, & Belch, 2012). Once
the receiver has the message they then give feedback to the original source, where
they then find out whether the campaign has been successful or not (Belch, &
Belch, 2012).
In present times with the prevalent use of technology, customers are seeking
out information about brands, products and businesses prior to purchase
(Edelman, & Singer, 2015). This means that there is a need for an additional
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channel within the communication process, so it is a more accurate representation

of the current business environment. Businesses now have to take into
consideration that both opinion leaders and opinion formers who have a great
influence over todays society and their perceptions. So they have to be included
into the communication process before the recipient of the message receives it
(Zhang, Zhao, & Xu, 2016)
In the traditional manner, the communication between two humans involves a
simple process which is as follows.
Sender —> Encoding —> Message —> Decoding —> Receiver
Like the above human model, marketing communications too involves a
communication message being sent from the Sender (which can be a company,
product or a brand) to a receiver (who can be an audience, your target group,
stakeholders or anyone whom you want to target your message)
Figure.1
Sender and Receiver – In marketing communications, there are two main

entities “Sender” and “Receiver”. The sender may be the company wanting to target
the consumer group. The receiver is the consumer himself. There are several
features which you need to know about the sender and receiver before the
communication process begins, like their demographics, financial power and their
compatibility. If a sender is a sports shoes maker, but the message is received by
60 years old customers, then the marketing communications may fail. The sender
needs to know beforehand who the receiver of the message is going to be. This is
why the process of segmentation targeting and positioning is done before marketing
communications begins.
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Encoding – The message needs to be bundled in the right format for the
sender to send the appropriate message to the receiver. This is known as encoding.
In marketing communications, this is where advertising agencies play an important
role. Depending on the choice of the sender, the creative ad agencies encode the
message in the proper format. The format depends on the type of media vehicle
being used to deliver the communication message. Thus, you will find that a radio
message, a TV message or a print message are encoded differently as all of them
have their own pros and cons. Whatever media vehicle / message format you may
use, the focus message needs to be the same.
Message Decisions – During marketing communications, there are various
ways in which the message can be sent to the end customers. Television and print
is known to have the highest retention and hence advertisers use them the most.
Other then these 2, there is radio marketing, online marketing, out of home media,
banner advertising, so on and so forth. Any of these media vehicles can carry your
message. The important point here is that the message should reach to as large a
target audience as possible. In the sales funnel, the more prospects you have the
more would be the conversion rate. Thus the objective of a message is to reach as
many prospects as possible. A proper message can immediately connect you with
your target group, build a better brand positioning, and thereby give an immediate
boost to your organization. Marketing communications messages can be of various
types. Some of the normally used ones are;-
• Introducing a new product
• Creating awareness
• Building brand image
• Sales promotion offers
• Customer retention
A marketing message therefore needs to be altered on the basis of these three
fundamental factors
a) Media vehicle to be used
b) What is the objective of the message?
c) Which is the target group?
Decoding – Decoding a message is not in the hands of the sender. It is instead
done by the receiver. All the sender can do is encode the message as best as he can
and ensure that it reaches the receiver. The receiver than decodes the message.
For Example – If i show you a shoe in muddy water, some of you might not be
interested in the image, some of you might think this is an advertising for the shoe,
and some of you might get the message that i am trying to show a shoe which is
water proof and easy to clean. Thus, if i am unable to get the message across to
most of my audiences, than i fail as a marketer. I need to ensure that decoding of
the message is as easy as possible for the receiver. This is the essence of marketing
communications. This is the reason why agencies such as O&M, Lowe lintas etc get
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such a high fee. Because their messages can be decoded easily by the end user and
by the masses.
Receiver – The receiver is the one making the decision after decoding the
message. In other words, the receiver is your end customer / prospect. Thus the
receiver is a very important entity in the marketing communications process.
Ideally, the receiver should act on the message he has received. Thus if your
message was of a sales promotion, your receiver will go ahead and purchase the
product. However, as in any situation, there are different variants of receivers.
Some will completely ignore the message, some will use it for reference later and
others will act on it.
To make sure that the receiver acts on the message, integrated marketing
communications is used. The same message is sent in different formats through
various media vehicles. The receiver receives the same message in differently
encoded format and decodes it. This is why nowadays advertising frequency plays
an important role in converting prospects to customers. As FMCG companies have
the maximum consumer interactions, they are known to use integrated marketing
communications in the best manner.
Feedback – Nowadays, another factor which has been added to the marketing
communications model is the feedback parameter. This is because taking feedback
is gaining importance with the noise that happens due to too many products being
advertised. Thus after an ad campaign for increasing awareness of a product, the
company can take market feedback to know what percentage of target customers
are aware of the new product. This feedback will tell the company whether its
advertising strategy was right or wrong.
In the end, you have to understand that marketing communications is not just
an interaction between the company and the end customer. Rather it involves the
presence of numerous entities. Marketing communications is an art in itself. A
significant amount of an organizations resources are used to ensure that the right
message reaches the end customers and the end customer acts in a desired
manner.
15.3.5 NATURE AND SCOPE
Promotion is a form of communication with an additional element of persuasion
to accept ideas, products, services and hence persuasive communication becomes
the heart of promotion, the third element of marketing-mix.
Promotion is an important marketing strategy and is the sparkplug of the
marketing-mix. Promotion helps people know that the right product at right price is
available at the right place. In a competitive market, without promotion, practically
no sale is effected. Promotion is the process of marketing communication to inform,
persuade, remind and influence consumers in favour of a product or service
(a) Promotion has following three specific purposes:
i. It communicates marketing information to consumers, users and resellers.
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ii. It persuades and convinces the buyer and influences his/her behavior to
take the desired action.
iii. Promotional efforts act as powerful tools of competition, providing the
cutting edge of its entire marketing programme.
(b) Definition and Importance:
Promotion is defined as the co-ordinated self-initiated efforts to establish
channels of information and persuasion to facilitate or foster the sale of goods or
services, or the acceptance of ideas. Thus promotion is persuasive communication
to inform potential customers of the existence of products, to persuade and
convince them that those products have want satisfying capabilities.
Promotion offers the communication of the benefits to consumers who buy a
bundle of expectations to satisfy their economics, psycho-social wants and desires.
Promotion is persuasive communication and also is a tool of competition. It is a
form of non-price competition.
Promotion is responsible for awakening and stimulating consumer demand for
a Product or Service. It can create and stimulate demand, capture demand from
rivals and maintain demand even against stiff competition. While speaking in
favour of promotion, it is taken, for granted that the product has the capacity to
satisfy consumer expectations and can fill their wants and desires.
Four Most Important Elements of Promotion Mix
The promotion element of marketing mix is concerned with activities that are
undertaken to communicate with customers and distribution channels to enhance
the sales of the firm The promotional communication aims at informing and
persuading the customer to buy the product and informing him about the merits of
the products.
Promotion mix:
It refers to all the decisions related to promotion of sales of products and
services. The important decisions of promotion mix are selecting advertising media,
selecting promotional techniques, using publicity measures and public relations
etc.
There are various tools and elements available for promotion. These are
adopted by firms to carry on its promotional activities. The marketer generally
chooses a combination of these promotional tools.
Following are the tools or elements of promotion. They are also called elements of
promotion mix:
1. Advertising
2. Sales promotion
3. Personal selling
4. Public relation
1. Advertising:
Advertisement can be defined as the “paid form of non-personal presentation
and promotion of idea, goods or services by an identified sponsor”.
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It is an impersonal presentation where a standard or common message

regarding the merits, price and availability of product or service is given by the
producer or marketer. The advertisement builds pull effect as advertising tries to
pull the product by directly appealing to customer to buy it.
From the above definition we can find that the three distinct features of advertising are:
1. Paid Form:
The sponsor has to pay for advertising he has to bear a cost to communicate
with customers.
2. Impersonality:
There is no face to face contact between customers and advertiser. It creates a
monologue and not a dialogue.
3. Identified Sponsor:
Advertisement is given by an identified company or firm or individual.
Features of Advertising and Advantages/Merits of Advertisement:
(i) Reach:
Advertising can reach a large market. As through various media of advertising
there is benefit of mass reach for example, any message given on All India Radio or
TV can reach in different corners of the country wherever TV and Radio network is
available.
(ii) Choice:
There is wide variety of media available for advertising for video, audio, visual
audio, print media etc. Under each category large variety is available for example, in
print media we can select from magazines, newspaper, banner etc. This variety or
choice helps the marketer to select the media, keeping in mind the target customer.
(iii) Legitimacy:
In advertisement the messages regarding the product or service are given
publicly to customers so there is always a proof for it and customers believe that
publicly the company will not give false information of the product. The customer
feels comfortable to buy a product which is widely advertised.
(iv) Expressiveness:
Advertising provides enough opportunities to marketers to dramatize the
message with the help of drawings, colours, pictures, music, dance
etc. They can easily express the use of product through various techniques, and
can add multimedia effect also.
(v) Economy:
It is always felt that advertising increases the cost of product or service but
advertising is considered economical as compared to other promotional techniques
because it reaches masses and if we calculate cost per customer it is very low or
nominal.
(vi) Enhancing Customer Satisfaction and Confidence:
Customer feel more assured about quality and feel more comfortable if
sponsors claim these benefits in advertising.
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Disadvantages of Advertising:
(i) It is an Impersonal Communication/Less Forceful:
In advertising there is no direct communication between the customer and
marketer. The marketer assumes that the message is communicated but the
audience or customers do not pay any attention to impersonal messages conveyed
through advertising. The response of customer cannot be known in advertising.
(ii) Advertising is less effective:
In advertising there is only one way communication i. e., communication from
seller only, but two way communication is always more effective as in two way
communication the customer gets chance to clarify his or her queries. Sometimes
customers have many doubts regarding the use of product, these doubts can be
clarified only when there is two way communication.
(iii) Difficulty in Media Choice:
In advertising various media are available. Each media have its own advantages
and disadvantages. So the effectiveness of advertisement depends to a great extent
on the right choice of media. When choice of media is faulty or wrong no matter
how good the advertisement is it will not reach the target customer.
(iv) Inflexibility:
It is very difficult to change advertisement as companies use standardized
messages which cannot be changed according to the need of customers.
(v) Lack of Feedback:
The evaluation of effectiveness of advertisement is very difficult as there is no
immediate and accurate feedback given by the customers.
Objections to Advertising or Criticism of Advertising:
Advertising has been subject to lot of criticisms. The following are main
objections raised on advertisements by a group of people. Along with objections the
answers to these objections are also mentioned below:
(i) Effect of Advertising on Values, Materialism and Life Styles:
The major objection on advertisement is that it promotes materialism. The
advertisements inform people about more and more products, the use of existing
products and the new products are shown dramatically to attract the customers.
This knowledge about more and more products induces the customers to buy
more and more products. They start demanding the products which they don’t even
require. If there was no advertising we would be less aware of material things and
we can be more contented.
We do not agree with this objection as it is wrong to say that a person who is
least informed is most contented or satisfied. The advertisement increases the
knowledge of customers by informing them about various products along with their
utilities.
The advertisement only informs the customers, the final choice of buying or
not, lies with the customers only.
(ii) Advertising Encourages Sale of Inferior and Dubious Products:
The advertisements show all types of products irrespective of their quality. With
the help of advertising anything can be sold in the market.
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The objection to sale of inferior goods is not correct because what is inferior
and what is superior depends upon the economic status and preference. Every one
cannot afford to buy superior quality expensive products but it does not mean they
should not use the product.
The lower income group people satisfy their needs with low cost inferior goods
for example; those who cannot afford to buy shoes of Nike or Reebok have to satisfy
with local brand only. So it is not advertisements which encourage sale of inferior
goods; it is one’s pocket or financial capacity which decides this.
The real criticism of advertisement is that it encourages sale of duplicate
products. Some producers exaggerate the use of products and innocent consumers
get trapped in and buy duplicate products.
(iii) Advertising Confuses Rather than Helps:
The number of advertisements shown in TV and Radio are increasing day by
day for example, if we take TV, there are so many advertisements of different
companies shown such as LG, Onida, Sony, BPL, Samsung, Videocon etc. each
brand claiming they are the best. These claims by different companies confuse the
customer and it becomes very difficult for him to make choice.
We do not agree with this objection because advertisements give wide choice to
customers and today’s customer is smart enough to know and select the most
suitable brand for him.
(iv) Some Advertisements are in Bad Taste:
Another objection to advertisements is that advertisements use bad language,
the way they are speaking may not appeal everyone, sometimes women are shown
in the advertisements where they are not required for example, a woman in after
shave lotion and in advertisements of suiting etc. Some advertisements distort
relationship between employer-employee, mother-in-law and daughter-in-law etc.
for example, in advertisement of Band Aid, Detergent Bar, Fevistick, etc.
Although those types of advertisements should be avoided but it can’t be an
objection because good or bad taste differs from person to person. It is a matter of
personal opinion as to what was not accepted by yesterday’s generation is accepted
by today’s generation and they may not find it of bad taste.
(v) Advertisement Costs are passed on to the Customers in the Form of Higher Price:
The most serious objection to advertisement is that it increases the price of
product because the firms spend a huge amount on advertisement and these
expenses are added to cost and consumer has to pay a higher price for the product
or service.
This objection is also not correct because with advertisements the demand for
product increases which brings increase in sale and this leads to increase in
production. With increase in production the companies can get the economies of
scale which reduces the cost of production and thus the increase in cost due to
expenses on advertisements gets compensated. So if advertisement is used properly
it brings reduction in cost the in long run.
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16.3.6 SALES PROMOTION
Sales promotion refers to short term use of incentives or other promotional
activities that stimulate the customer to buy the product. Sales promotion
techniques are very useful because they bring:
a. Short and immediate effect on sale.
b. Stock clearance is possible with sales promotion.
c. Sales promotion techniques induce customers as well as distribution
channels.
d. Sales promotion techniques help to win over the competitor.
Sales Promotion Techniques for Customers:
Some of the sales promotion activities commonly used by the marketer to
increase the sale are:
(i) Rebate:
It refers to selling product at a special price which is less than the original price
for a limited period of time. This offer is given to clear off the stock or excessive
inventory for example; coke announced 2 liter bottles at Rs 35 only.
(ii) Discounts:
This refers to reduction of certain percentage of price from list price for a
limited period of time. The discounts induce the customers to buy and to buy more.
Generally at the end of season big companies offer their products at discounted
price to clear off the stock e.g., season’s sale at Snow-White Jain Sons, Paul
Garments, Bhuvan Garments, etc.
(iii) Refunds:
This refers to refund or part of price paid by customer on presenting the proof
of purchase for example, Rs 2 off on presentation of empty pack of Ruffle Lays.
(iv) Premiums or Gifts/or Product Combination:
These are most popular and commonly used promotion tool. It refers to giving a
free gift on purchase of the product. Generally the free gift is related to product but
it is not necessary for example, Mug free with Bourn vita, Shaker free with Coffee,
Toothbrush free with Toothpaste, etc.
(v) Quantity Deals:
It refers to offer of extra quantity in a special package at less price or on extra
purchase some quantity free for example, buy three get one free e.g., this scheme of
buy three get one free scheme is available on soaps.
(vi) Samples:
It refers to distribution of free samples of product to the customers. These are
distributed when the seller wants the customer must try the product. Generally
when a new product is launched for example, when Hindustan Level launched Surf
Excel it distributed the samples as it wanted the customers to try it.
(vii) Contests:
It refers to participation of consumers in competitive events organised by the
firm and winners are given some reward for example, Camlin Company organizes
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painting competition, Bourn vita quiz contest and some companies organise contest
of writing slogans and best slogan is awarded prize.
(viii) Instant Draws and Assigned Gifts:
It includes the offers like ‘scratch a card’ and win instantly a refrigerator, car,
T-shirt, computer etc.
(ix) Lucky Draw:
In this draws are taken out by including the bill number or names of customers
who have purchased the goods and lucky winner gets free car, computer, A.C., T.V.,
etc. Draw can be taken out daily, weekly, monthly, etc.
(x) Usable Benefits:
This includes offers like ‘Purchase goods worth Rs 5000 and get a holiday
package’ or get a discount voucher, etc.
(xi) Full Finance @ 0%:
Many marketers offer 0% interest on financing of consumer durable goods like
washing machine, T.V. etc. e.g., 24 easy installments 6 paid as front payment and
remaining 18 with post-dated cheques. In these types of scheme customers should
be careful about the file charges etc.
(xii) Packaged Premium:
In this type of sales promotion the free gift is kept inside the pack. The gift is
kept in limited products but the excitement of getting the gift induces the customer
to buy the product for example, gold pendant in soap, gold coin in Tata tea etc.
(xiii) Container Premium:
This refers to use of special container or boxes to pack the products which
could be reused by the customer for example, Pet Bottles for Cold Drinks. This
bottles can be used for Steering Water, Plastic Jars for Bourn vita, Maltova, etc.
which can be reused by the housewives in kitchen.
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Merits of Sales Promotion:
1. Attention Value:
The incentives offered in sales promotion attract attention of the people.
2. Useful in New Product Launch:
The sales promotion techniques are very helpful in introducing the new product
as it induces people to try new products as they are available at low price or
sometimes as free sample.
3. Synergy in Total Promotion Efforts:
Sales promotion activities supplement advertising and personal selling efforts of
the company. Sales promotion adds to the effectiveness of advertisement efforts.
4. Aid to other Promotion Tools:
Sales promotion technique makes other promotion techniques more effective.
Salesmen find it easy to sell products on which incentives are available.
Demerits of Sales Promotion:
1. Reflect Crisis:
If firm is offering sales promotion techniques again and again it indicates that
there is no demand of product which can create crisis situation.
2. Spoil Product Image:
Use of sales promotion tool may affect the image of product as buyer feel that
product is of low quality that is why firm is offering incentives.
3. Personal Selling:
Personal selling means selling personally. This involves face to face interaction
between seller and buyer for the purpose of sale.
The personal selling does not mean getting the prospects to desire what seller
wants but the concept of personal selling is also based on customer satisfaction.
Features of Personal Selling:
(i) Personal Interaction:
In personal selling the buyers and sellers have face to face interaction. This
closeness allows both the parties to observe each other’s action closely.
(ii) Two Way Communication:
In personal selling the sellers give information about the product, at the same
time the buyer get a chance to clarify his doubts. It is suitable for sale of complex
products where buyer wants to interact with the manufacturer.
(iii) Better Response:
When seller is personally explaining the utilities of product to the customers
then customer do pay some attention and listen to the information.
(iv) Relationship:
When the seller and buyer come together this may improve relation between
the customer and seller. Salespersons normally make friendly relations with the
customers.
(v) Better Convincing:
Personal selling is most effective form of promotion because with this the sales
person can convince the buyer by demonstrating the use of product and making
changes in the product according to the need of customer.
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Qualities of a Good Salesman:
The qualities which are commonly found among effective salesman are
described below:
1. Physical Qualities:
A salesman must have good health and pleasing personality. He must be well
built and free from physical defects. A pleasing and charming personality boosts
self-confidence. Good grooming, appropriate dress, clean and tidy appearance and a
good posture will go a long way in creating a first impression. More importantly, a
salesman must always have a cheerful smile on his face.
2. Social Qualities:
A salesman must have good manners, courtesy in dealing with customers. The
practice of greeting and thanking customers, using polite expression are necessary
for success in personal selling. He should not be shy or reserved but an extrovert
and a good listener. He must have the ability to say the proper things and do the
right thing without offending others.
3. Mental Qualities:
A good salesman must have a high degree of intelligence, initiative and
foresight. He must be intelligent and imaginative enough to understand the
customer quickly and read his mind accurately.
Salesman must have two basic qualities i.e., empathy and ego drive. Empathy
means he must have ability to understand the problem from customer’s point of
view. Ego drive means salesman must pursue sale not just for money but for
recognition and personal success. A good salesman must have presence of mind
and good common sense.
4. Technical Quality:
The salesman must have full technical knowledge about the product.
5. Other Qualities:
Other qualities, a salesman must possess, are:
i. A salesman must have a good power of memory and observation.
ii. A salesman must be honest and should not try to win the customer
through false and misleading representation.
iii. A salesman must be a man of sound character, loyal and dependable. He
must perform his duties sincerely.
iv. The salesman must have wide knowledge about the product he is selling
and company he is representing.
v. He must have capacity to inspire trust.
Role of Personal Selling:
Personal selling plays a very important role in marketing of goods and services.
It is important tool for businessmen, customers and society.
1. Importance to Businessmen:
Personal selling is an important tool to increase the sale. It is important for
businessman due to following reasons:
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(i) Effective Promotion Tool:
Personal selling is an effective tool to increase the sale of product. Salesmen
explain the merits of products to customers.
(ii) Flexible Tool:
Personal selling efforts can be changed according to the type of customer
salesmen are attending. They may change the offer in varying purchase situations.
(iii) Minimum Wastage of Efforts:
As compared to other methods of promotion in personal selling the wastage of
efforts is minimum.
(iv) Consumer Attention:
Through personal selling it is easy to get the attention of customer as there is
face to face interaction between salesman and customers.
(v) Relationship:
Personal selling helps to create lasting relationship between customers and
sales-persons which help in increasing sale.
(vi) Personal Support:
Through personal selling salesmen can create personal support with the
customers. This can improve competitive strength of organisation.
(vii) Very Effective to Introduce New Product:
Personal selling is very effective to introduce a new product as salesman can
explain the merits, show the demonstration and clarify the doubts of customers.
(iv) Importance to Customers:
Personal selling is very important from customer’s point of view, as customers
can get required information about the product from customers. Customers are
benefits by personal selling in the following ways:
1. Helps in Identifying Needs:
Salesmen help the customers to discover their needs and wants and they also
help customers to know how these needs and wants can be satisfied.
2. Latest Market Information:
In personal selling salesmen provide information regarding the new products
available in market, uses of those products etc.
3. Expert Advice:
Customers can get expert advice and guidance in purchasing various goods
and services.
4. Induces Customers:
Personal selling induces customers to buy products for satisfying their needs.
(v) Importance to Society:
Personal selling brings following positive effects for society
1. Converts Latest Demand into Effective Demand:
Personal selling creates effective demand which results in increasing sale and
more income. With more income there will be more products and services which in
turn bring economic growth.
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2. Employment Opportunities:
Unemployed youth can work as salesman and earn their livelihood.
3. Career Opportunities:
Personal selling offers attractive career with job satisfaction and security.
4. Mobility of Sales Persons:
Sales people move from one place to other, this promotes travel and tourism
industry.
5. Product Standardisation:
With the help of personal selling there can be uniformity of consumption by
supplying standardised products.
4. Public Relations:
Apart from four major elements of marketing mix, another important tool of
marketing is maintaining Public Relations. In simple words, a public relations
means maintaining public relations with public. By maintaining public relations,
companies create goodwill.
Public relations evaluate public attitudes; identify the policies and procedures
of an organisation with the public interest to earn public understanding and
acceptance.
Public does not mean only customers, but it includes shareholders, suppliers,
intermediaries, customers etc. The firm’s success and achievement depends upon
the support of these parties for example, firm needs active support of middle men to
survive in market, it must have good relations with existing shareholders who
provide capital. The consumers’ group is the most important part of public as
success of business depends upon the support and demand of customers only.
Role, Significance, advantages of public relations:
Public relations are significant in the following ways:
1. Help to convey the policies and programmes of the organisation.
2. Help to collect information about public opinion about the organisation,
management activities etc.
3. To overcome the complaints and dislikes of public.
4. To mould people’s attitude in favour of organisation.
5. To maintain goodwill and understanding between organisation and public.
6. To build an image of the organisation.
Ways/Methods and Tools of Public Relations:
The companies can use the following tools to improve their relations with
public:
1. News:
Sometimes companies get involved in such kind of activities or make such
policies so that they get some positive coverage in news. For example, a company’s
name may be covered in news for reservation of jobs for women or for introducing
new technology etc.
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2. Speeches:
The speeches given by the leaders of corporate sectors influence various
members of public specially banks, shareholders etc. Public relations department
creates occasion when the speeches are delivered by the leader of company.
3. Events:
Events refer to organizing press conferences, multimedia presentation,
matches, stage shows etc.
4. Written Materials:
Sometimes written materials such as Balance Sheet, Annual Reports, Special
documents, Brochures etc. are circulated to various parties to improve and
maintain public image of the company.
5. Public Service Activities:
Big business houses often associate themselves with various social service
projects such as women welfare programmes, charity shows, up-keeping of parks,
planting trees on road side, training schools, running schools, colleges, hospitals
etc.
Let’s take a quick look at what promotional tools an average marketer has
access to and what each one brings to the table
16.3.7 PURPOSE OF PROMOTION

Fundamentally, there are three basic objectives of promotion. These are:
1. To present information to consumers and others.
2. To increase demand.
3. To differentiate a product.
The purpose of a promotion and thus its promotional plan can have a wide
range, including: sales increases, new product acceptance, creation of brand equity,
positioning, competitive retaliations, or creation of a corporate image
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The term promotion is usually an "in" expression used internally by the

marketing company, but not normally to the public or the market, where phrases
like "special offer" are more common. Examples of a fully integrated, long-term, and
large-scale promotion.
PROMOTION STRATEGY:
Definition. Promotion refers to raising customer awareness of a product or
brand, generating sales, and creating brand loyalty. It is one of the four basic
elements of the market mix, which includes the four P's: price, product, promotion,
and place.
A pull strategy involves using methods to communicate directly to the
consumer, so for example Boots the Chemist advertising a new shampoo on TV that
encourages ‘footfall ‘to pop into the store to buy. The consumers are pulling the
product through the distribution channels as opposed to a push strategy which is
employed to communicate to members of the distribution channel. So a
manufacturer such as Wella (still on hair care!) will use promotional tools to inform
their wholesaler of product pricing or change. The wholesaler with communicate
with their retailers who in turn will ‘push’ the product to the consumer. In reality
Wella will probably use a combination of both a push and pull strategy.
‘Push Policy - a promotional policy in which the producer promotes the
product only to the next institution down the marketing channel.
Pull - A promotional policy in which a business promotes directly to
consumers in order to develop a strong consumer demand for its products.’
Figure 2: Push-pull strategies.

OVERALL PROMOTIONAL MIX
Determined by the nature of each promotion tool and the selected promotion
mix strategy
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Jobber (2010 p 469) looks at the process of developing and planning

advertising which could be adapted and applied to other elements of the
promotional mix
Figure 3. Developing advertising strategy
FRAMEWORK
Marketing Strategy
1. Positioning
2. Communication Decisions
Step 1: Identifying the Target Audience Affects decisions related to what,
how, when, and where message will be said, as well as who will say it.
Step 2: Determining Communication Objectives: Awareness, etc.
Step 3: Designing a Message
• AIDA framework guides message design
• Message content contains appeals or themes designed to produce
desired results
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* Rational appeals
* Emotional appeals
* Love, pride, joy, humour, fear, guilt, shame
* Moral appeals
Step 4: Push v Pull strategy
Push strategy: trade promotions and personal selling efforts push the product
through the distribution channels.
Pull strategy: producers use advertising and consumer sales promotions to
generate strong consumer demand for products.
Step 5: Setting the Overall Promotional Mix
Determined by the nature of each promotion tool and the selected promotion
mix strategy
1. Execute the Integrated Communications Putting the plan into action can
take some time and often businesses will employ an advertising or specialist
agency to undertake this work for them. Tactical decisions can include:
* where to advertise and in what medium, TV, radio, internet, billboards
or a combination of all?
* Locally, nationally or globally…..you might decide on a UK launch?
* How often? What size advertisement? How long will the advertising
transmission take?
* What message content will the press release contain?
* How many leaflets will you print and who will you send them too?
* Any in-store promotions? Packaging? Points of Sale?
A few but not all the questions you might ask. You can use all of the elements
in promotional mix as well as exhibitions and sponsorship. Enjoy spending the
budget!
Evaluate the integrated marketing strategy.
1. To see whether objectives have been meet
2. Evaluate alternatives
3. Develop efficient and effective communication
4. Help defend budgets
5. Enrich planning and managing
6. Provide controls
Through cross channels of integrated communication, business and consumer
perceive the strategy of an Omni channel, in which allows both the consumer and
business the ability to analyses future marketing experiences. This is where the
business can begin to make alternatives, and see if the products objective in the
market has been met, or to enrich its planning and management of the product or
item throughout the market. Omni channels is the realisation of a social business
through communication channels or touch points. As Omni channels perceive the
way shoppers influence the market as well as the buying process this helping
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business defend its budgeting over time. Therefore, shown through ones brand
loyalty, quality and message of the product to the consumer, by its overall
integrated marketing communications reaching the consumers values as well as
wants and needs at the time the product or item within the market is in need to the
consumer.
16.4 REVISION POINT
Promotion Strategy, Role of personal selling, Merits/Demerits of sales
promotion, Push and pull strategy.
1. Explain in brief the process of communication in marketing, give
illustration.
2. Define promotion and give its classifications. Also describe the purpose
of promotions.
3. How does sales promotion differ from advertising? State the importance
of sales promotional activities
4. Write Notes on :
(a). Push v Pull Strategy (b).Premium, (c) POP Materials
5. Distinguish between:
(a) Push Strategy and Pull Strategy
(b) Premium and sweepstakes.
(c) Advertising and Sales Promotion.
6. What is the need for motivating the sales force? Explain the various
tools that are used for sales promotion.
16.6 SUMMARY
The marketing communication environment is undergoing a thorough change
due to the fragmentation of markets and vast improvements in information
technology. Mass marketing and mass media have been replaced by segmented or
one-to-one marketing and more specialized and highly targeted communication
efforts. Though mass media communication channels like newspapers, magazines
and television remain important, their dominance is declining. Advertising was
viewed as the crown jewel of marketing communication and the primary tool for
brand building for many years.
However, more marketers are recognising that brands are the sum total of all
marketing communications and that no single Integrated Marketing
Communication tool is capable of building brand image, sales and relationship with
consumers, as well as the trade, at the same time. A variety of companies from
package goods, fast food and electronic and automotive to
Consumer electronics and financial services are making branding the core of
their marketing strategies. In the process, they are recognising that a solid
branding strategy requires true integration of all the various marketing
communication tools. Moreover, many are discovering that sales promotion is the
engine that drives the sales numbers.
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Marketers generally agree that advertising is essential in positioning a brand

and building its promises, personality and image. But, today's consumers are
concerned about more than a promise or brand image. They want image to be
accompanied by an offer or extra incentive. Now sales promotion is being used to
build customer equity and is taking center stage alongside advertising. The new
mandate is to deliver experience that deepens each consumer's relationship with
the brand. In the past sales promotion specialists would be brought in are key
strategic brand building decision were made. They were viewed as tacticians whose
role was to develop a promotional programme such as a contest or sweepstake,
coupon or sampling programme that would create a short-term spike in sales.
However, many companies are now making promotion specialists as part of
their strategic brand building team
Sales promotional activities can be broadly divided in to (a) consumer
promotion (b) Dealer promotion (c) Sales force promotion.
Broadly two promotional strategies exist viz. Push Strategy and Pull Strategy.
1. What types of consumer response should the markets aim at the
communication strategies for the following.
a. Mutual funds
b. Four wheeler
c. Water purifier
d. Cellular phones
16.8 SUPPLEMENTARY MATERIAL
1. Journal of the academy of marketing science.
16.9 ASSIGNMENT
Explain various methods to promotions for durable goods
16.10 REFERENCES
1. Advertising Management – concepts and cases Mahendra Mohan.
2. Marketing Management – Philip Kotler
3. Branding – Geoffrey Randoll
4. Strategic Brand Management – Kapferer
It is said that advertising is a waste of scare resources in a developing country
like India. Do you agree? Substantial your arguments with appropriate examples.
16.12 KEY WORDS
1. Sales promotion Push strategy
2. Pull Strategy Consumer
3. Communication Promotion mix
❑
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LESSON -17
ADVERTISING AND ADVERTISING BUDGET
17. 1 INTRODUCTION
Meaning of Advertising - Advertising is an activity of attracting public
attention to a product, service, or business as by paid announcements in the print,
broadcast, or electronic media.
Definition of Advertising - "Advertising is the non-personal communication of
information usually paid for and usually persuasive in nature about products,
services or ideas by identified sponsors through the various media." Now let's take
this statement apart and see what it means.
According to American Marketing Association "advertising is any paid form of
non-personal presentation and promotion of ideas, goods and services by an
identified sponsor".
Advertising is used for communicating business information to the present and
prospective customers. It usually provides information about the advertising firm,
its product qualities, place of availability of its products, etc. Advertisement is
indispensable for both the sellers and the buyers.
Advertisement is indispensable for both the sellers and the buyers. However, it
is more important for the sellers. In the modern age of large scale production,
producers cannot think of pushing sale of their products without advertising them.
Advertisement supplements personal selling to a great extent.
17.2 OBJECTIVES
After studying this lesson you will be in a position to learn the Following:
 The meaning and nature of advertising-an important element. In the
promotion.
 The kinds of advertising.
 Advertisement Budgeting/appropriation for advertising.
 The Evaluations of advertising effectiveness.
17.3 CONTENTS
17.3.1 Features of Advertising
17.3.2 Nature of advertising
17.3.3 Role/Functions of advertising
17.3.4 Classification of advertising.
17.3.5 Advertising Budget
17.3.6 Evaluation of Advertising Effectiveness
17.3.7 Public relation advertising
17.3.1 FEATURES OF ADVERTISING
1. Communication: Advertising is means of mass Communication reaching
the masses. It is a non-personal communication because it is addressed to masses
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2. Information: Advertising informs the buyers about the benefits they would
get when they purchase a particular product. However, the information given
should be complete and true.
3. Persuasion: The advertiser expects to create a favorable attitude which will
lead to favorable actions. Any advertising process attempts at converting the
prospects into customers. It is thus an indirect salesmanship and essentially a
persuasion technique.
4. Profit Maximization: True advertising does not attempt at maximizing
profits by increasing the cost but by promoting the sales. This way It won’t lead to
increase the price of the product. Thus, it has a higher sales approach rather than
the higher - cost approach.
5. Non-Personal Presentation: Salesmanship is personal selling whereas
advertising is non-personal in character. Advertising is not meant for anyone
individual but for all. There is absence of personal appeal in advertising.
6. Identified Sponsor: A sponsor may be an individual or a firm who pays for
the advertisement. The name of reputed company may increase sale or products.
The product gets good market because of its identity with the reputed corporate
body.
7. Consumer Choice: Advertising facilitates consumer choice. It enables
consumers to purchase goods as per their budget requirement and choice. Right
choice makes consumer happy and satisfied.
8. Art, Science and Profession: Advertising is an art because it represents a
field of creativity. Advertising is a science because it has a body of organized
knowledge. Advertising is profession is now treated as a profession with its
professional bodies and code of conduct for members.
9. Element of Marking Mix: Advertising is an important element of promotion
mix. Advertising has proved to be of great utility to sell goods and services. Large
manufactures spend crores of rupees on Advertising.
10. Element of Creativity: A good advertising campaign involves lot of
creativity and imagination. When the message of the advertiser matches the
expectations of consumers, such creativity makes way for successful campaign.
Scope and Importance of Advertising
Advertisements are important for:
 Standardized products
 Products aimed at large markets
 Products that have easily communicated features
 Products low in price
 Products sold through independent channel members and/or are new.
Broadcast Ad spending is at an all-time high due to heavy competition in the:
 Computer industry
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 Telecommunications Industry
 Auto Industry.
Whenever severe competition between marketers, introducing new products
etc. Even with evolution of direct marketing, and interactive media.
17.3.2 NATURE OF ADVERTISING
Used by many types of organizations including Churches, Universities, Civic
groups and Charities, Politicians!!
Need to consider the following issues:
 Does the product possess unique, important features to focus on Unique
Selling Point (USP)
 Are the hidden qualities important to the buyers
 Is the general demand trend for the product adequate
 Is the market potential for the product adequate
 Is the competitive environment favorable
 Is the organization able and willing to spend the required money to
launch an advertising campaign?
17.3.3 ROLES /FUNCTION OF ADVERTISING
Following are the basic functions of advertising:
1. To distinguish product from competitors' products
There are so many products of same category in the market and they competes
with each other, advertising performs the function of distinguishing advertiser's
product from competitors.
2. To communicate product information
Product related information required to be communicated to the targeted
customers, and advertisement performs this function.
3. To urge product use
Effective advertisement can create the urge within audience for a product.
4. To expand product distribution
When the market demand of a particular product increases, the number of
retailer and distributor involved in sale of that product also increases, hence
product distribution get expanded.
5. To increase brand preference
There are various products of different bands are available, the brand which is
effectively and frequently advertised is preferred most.
6. To reduce overall sale cost
Advertising increases the primary demand in the market. When demand is
there and the product is available, automatically the overall cost will decrease,
simultaneously the cost of sales like distribution cost, promotional cost also get
decreased.
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17.3.4 CLASSIFICATION OF ADVERTISING
Advertising is the promotion of a company’s products and services though
different mediums to increase the sales of the product and services. It works by
making the customer aware of the product and by focusing on customer’s need to
buy the product. Globally, advertising has become an essential part of the corporate
world. Therefore, companies allot a huge part of their revenues to the advertising
budget. Advertising also serves to build a brand of the product which goes a long
way to make effective sales
There are several branches or types of advertising which can be used by the
companies. Let us discuss them in detail.
Classification of Advertising
Print Advertising - The print media has been used for advertising since long.
The newspapers and magazines are quite popular modes of advertising for different
companies all over the world. Using the print media, the companies can also
promote their products through brochures and fliers. The newspaper and
magazines sell the advertising space and the cost depends on several factors. The
quantity of space, the page of the publication, and the type of paper decide the cost
of the advertisement. So an ad on the front page would be costlier than on inside
pages. Similarly an ad in the glossy supplement of the paper would be more
expensive than in a mediocre quality paper.
Broadcast Advertising - This type of advertising is very popular all around the
world. It consists of television, radio, or Internet advertising. The ads on the
television have a large audience and are very popular. The cost of the advertisement
depends on the length of the ad and the time at which the ad would be appearing.
For example, the prime time ads would be more costly than the regular ones. Radio
advertising is not what it used to be after the advent of television and Internet, but
still there is specific audience for the radio ads too. The radio jingles are quite
popular in sections of society and help to sell the products.
Outdoor Advertising - Outdoor advertising makes use of different tools to gain
customer’s attention. The billboards, kiosks, and events and tradeshows are an
effective way to convey the message of the company. The billboards are present all
around the city but the content should be such that it attracts the attention of the
customer. The kiosks are an easy outlet of the products and serve as information
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outlets for the people too. Organizing events such as trade fairs and exhibitions for
promotion of the product or service also in a way advertises the product. Therefore,
outdoor advertising is an effective advertising tool.
Covert Advertising - This is a unique way of advertising in which the product or
the message is subtly included in a movie or TV serial. There is no actual ad, just
the mention of the product in the movie. For example, Tom Cruise used the Nokia
phone in the movie Minority Report.
Public Service Advertising - As evident from the title itself, such advertising is
for the public causes. There are a host of important matters such as AIDS, political
integrity, energy conservation, illiteracy, poverty and so on all of which need more
awareness as far as general public is concerned. This type of advertising has gained
much importance in recent times and is an effective tool to convey the message.
CLASSIFICATION AND TYPES OF ADVERTISING
1. Product – Related Advertising
A. Pioneering Advertising
B. Competitive Advertising
C. Retentive Advertising
2. Public Service Advertising
3. Functional Classification
A. Advertising Based on Demand Influence Level.
i. Primary Demand (Stimulation)
ii. Selective Demand (Stimulation)
B. Institutional Advertising
C. Product Advertising
i. Informative Product Advertising
ii. Persuasive Product Advertising
iii. Reminder-Oriented Product Advertising
4. Advertising based on Product Life Cycle
A. Consumer Advertising
B. Industrial Advertising
5. Trade Advertising
A. Retail Advertising
B. Wholesale Advertising
6. Advertising Based on Area of operation
A. National advertising
B. Local advertising
C. Regional advertising
7. Advertising According to Medium Utilized.
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1. Product – Related Advertising
It is concerned with conveying information about and selling a product or
service. Product advertising is of three types, viz.
Pioneering Advertising B. Competitive Advertising C. Retentive Advertising.
A. Pioneering Advertising:
This type of advertising is used in the introductory stages in the life cycle of a
product. It is concerned with developing a “primary” demand. It conveys
information about, and selling a product category rather than a specific brand. For
example, the initial advertisement for black – and – white television and color
television. Such advertisements appeal to the consumer’s emotions and rational
motives.
B. Competitive Advertising
It is useful when the product has reached the market-growth and especially the
market-maturity stage. It stimulates “selective” demand. It seeks to sell a specific
brand rather than a general product category. It is of two types:
A. Direct Type: It seeks to stimulate immediate buying action.
B. Indirect Type: It attempts to pinpoint the virtues of the product in the
expectation that the consumer’s action will be affected by it when he is ready to
buy.
Example:
Airline advertising. Air India attempts to bid for the consumer’s patronage
either immediately - direct action-in which case, it provides prices, time tables and
phone numbers on which the customer may call for reservations; or eventually –
indirect action – when it suggests that you mention Air India’s name when talking
to your travel agent.
C. Retentive Advertising:
This may be useful when the product has achieved a favorable status in the
market – that is, maturity or declining stage. Generally in such times, the
advertiser wants to keep his product’s name before the public. A much softer selling
approach is used, or only the name may be mentioned in “reminder” type
advertising.
2. Public Service Advertising
This is directed at the social welfare of a community or a nation. The
effectiveness of product service advertisements may be measured in terms of the
goodwill they generate in favor of the sponsoring organization. Advertisements on
not mixing drinking and driving are a good example of public service advertising. In
this type of advertising, the objective is to put across a message intended to change
attitudes or behavior and benefit the public at large.
3. Functional Classification
Advertising may be classified according to the functions which it is intended to
fulfil.(i) Advertising may be used to stimulate either the primary demand or the
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selective demand.(ii) It may promote either the brand or the firm selling that
brand.(iii) It may try to cause indirect action or direct action.
i. Advertising Based on Demand Influence Level.
A. Primary Demand Stimulation
Primary demand is demand for the product or service rather than for a
particular brand. It is intended to affect the demand for a type of product, and not
the brand of that product. Some advertise to stimulate primary demand. When a
product is new, primary demand stimulation is appropriate. At this time, the
marketer must inform consumers of the existence of the new it demand convince
them of the benefits flowing from its use. When primary demand has been
stimulated and competitors have entered the market, the advertising strategy may
be to stimulate the selective demand.
B. Selective Demand Stimulation
This demand is for a particular brand such as Charminar cigarettes, Surf

detergent powder, or Vimal fabrics. To establish a differential advantage and to
acquire an acceptable sort of market, selective demand advertising is attempted. It
is not to stimulate the demand for the product or service. The advertiser attempts
to differentiate his brand and to increase the total amount of consumption of that
product. Competitive advertising stimulates selective demand. It may be of either
the direct or the indirect type.
ii. Institutional Advertising
Institutional Advertising may be formative, persuasive or reminder oriented in
character. Institutional advertising is used extensively during periods of product
shortages in order to keep the name of the company before the public. It aims at
building for a firm a Positive public image in the eyes of shareholders, employees,
suppliers, legislators, or the general public. This sells only the name and prestige of
the company. This type of advertising is used frequently by large companies whose
products are well known. HMT or DCM, for example, does consider able
institutional advertising of its name, emphasizing the quality and research behind
its products. Institutional advertisements are at consumers or focus them upon
other groups, such as voters, government officials, suppliers, financial institutions,
etc. If it is effective, the target groups will respond with goodwill towards, and
confidence in the sponsor. It is also a useful method or introducing sales persons
and new product to consumers. It does not attempt to sell a particular product; it
benefits the organization as a whole. It notifies the consumers that the company is
a responsible business entity and is patriotic; that its management takes
ecologically responsible action, is an affair- motive action employer, supports the
socialistic pattern of society or provides employment opportunities in the
community. When Indian Oil advertisements describe the company’s general
activities, such as public service work, this may be referred to as institutional
advertising because it is intended to build an overall favorable attitude towards the
company and its family of products. HMT once told the story of the small-scale
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industries supplying it with component parts, thus indicating how it aided the
development of ancillary industries.
Types of Advertising Media
As we noted in Managing the Advertising Campaign tutorial, selection of the
media outlet through which an ad will be presented has important implications for
the success of a promotion. Each outlet possesses unique characteristics though
not all outlet are equally effective for all advertisers. Thus, choosing the right
media can be a time consuming process requiring the marketer to balance the pros
and cons of each option.
While just a few years ago marketers needed to be aware of only a few media
outlets, today’s marketers must be well-versed in a wide range of media options.
The reason for the growing number of media outlets lies with advances in
communication technology, in particular, the Internet. In this tutorial we provide
an overview of the following advertising media:
 Television
 Radio
 Print Publications
 Internet
 Direct Mail
 Signage
 Product Placement
 Mobile Devices
 Sponsorships
 Other Media Outlets
As we discussed in the Advertising Trends section in the Advertising tutorial,
the number of media outlets will continue to grow as new technologies
emerge. Thus, marketers are well advised to continually monitor changes occurring
within each media outlet.
17.3.5 ADVERTISING BUDGET
An advertising budget reflects the importance given to the function
of advertising within a company. The budgeting process is the responsibility of
the top management along with the marketing manager.
The advertising budget is both a planning and control device. There are many
managerial functions that are performed through the process of budgeting.
Managerial goals are discussed and are synchronized with marketing and
advertising objectives. This provides a forum of communication that resolves
conflicts and sets the priorities for the communication plan of the company.
An advertising budget is a plan that sets a limitation on advertising
expenditures, states how expenditure will be allocated and controls the
dispersement of expenditure over a designated period of time.
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The process of budgeting is therefore a decision making process that divides

the total appropriation under different expenses heads. For example if the total
advertising budget for launching a new product is rupees two-three cores, then
deciding that 1.5crores will be spent on the national media, is a budgeting
decision.
Definition of Advertising Budget
"Advertising budget is an estimated amount an organization decides to invest in
its promotional expenditures over a period of time. An advertising budget is the
money a company set aside to accomplish its marketing objectives."
Who Decides the Advertising Budget?
It is the primary responsibility of the advertising manager to prepare draft
budget proposals. It is his duty to access the needs of the company with respect to
the challenges posed by the market. He also takes into account the cost of the
media, creative and actual production, while preparing the proposals. This draft
budget then becomes the basis of Discussion Between the marketing Manager
and,advertising manager and sometimes, even the advertising agency (especi
ally when the agency has a long term relationship with the company. This result
in final budget plan that is then recommended to the top management for approval.
Though this is the most scientific process of arriving at the advertising budget, it is
sometimes not followed, especially by small advertisers. In such circumstances the
top management may decide upon the amount to be spent (b
udget appropriation) and the advertising manager will then plan how to allocate
this sum between different expenditure heads.
Methods of Setting The Advertising Budget
One of the most difficult tasks facing advertisers and ad agencies is the
decision on the optimum money to be spent on advertising. Advertisers want to
minimize expenditure and maximize the returns.
Though advertising expenditure is considered to be an investment, its
utilization has to be intelligent and profitable.
Though there are several accepted methods of arriving at the budget, t
he individual brand budget will depend upon several factors such as profitability,
marketing objective and competitor’s position. The various methods, which are
used, for setting advertising budgets are:
1. Percentage of sales method
2. Unit of sales method
3. Task and objective method
4. The competitive parity method
5. Brand history method
6. All you can afford method
7. The break even method
8. The quantitative method
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9. Share of voice method

Each of these methods has certain advantages and disadvantages. In reality,
a combination of these methods will be used.
1. PERCENTAGE OF SALES METHOD:
Percentage of sales method is the most widely used widely used method of
setting the appropriation, although it has been criticized
by many. The percentage is based on the past years’ sales or on estimated sales
for the coming year or on some combination of these two. This is simplest method,
as it requires little decision making. Many companies in India use this method to
arrive at a tentative budget appropriation. But this method suffers from a basic
drawback in
that it does not take into account any specific need of the market situation
. Moreover, when past sales are used to arrive at the current year’s budget,
the
figure may have more historical value rather than current utility. Advertising
leads to sales and the amount of advertising expenditure depends upon the
sales target and therefore, when the percentage of future sales is used the
estimates are more realistic.
In conclusion one can say that this method is not appropriate as m
arket situations change rapidly and past sales alone are not an effective indicator of
the company’s communication needs.
2. UNIT OF SALES METHOD:
The unit sales method also relates the advertising expenditure of
sales. In this approach, a percentage of the price of each unit of the item sold is
allocated to advertising. Thus a soap manufacturer might budget that a cake of
soap costing Rs.6/- will have Rs.1.50 as the advertising expenditure. Thus, if the
manufacturer sells one lakh units, his expenditure on that brand will be Rs.
1.5lakh. This approach is useful as it links the price of a brand with
its advertising expenditure. This approach is simple to plan and execute. However,
it does not lead to efficient marketing since past sales determine how much
a firm should spend on advertising, when in fact advertising is a tool
to create sales and expand markets.
This also assumes that the advertiser is satisfied with the current rate of
growth in sales. This is rarely so, as every advertiser aims at improving the rate of
growth.
In an extreme situation if sales go down, a firm following this method will also
reduce advertising expenditure. This will be disastrous for the company as it
may lose its market rapidly to competitors.
In conclusion the unit of sales and percentage of sales method are not suitable
to a dynamic market situation. However they are useful guides to give direction to
planners who use them as a basis for deciding the ad budget, in combination
with other methods.
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3. TASK OBJECTIVE METHOD:
This method is gaining more popularity because it provides a more logical basis
for deciding advertising appropriation. The objective task method concentrates
on the marketing/advertising objectives that are pre-decided and ask these
questions: what is the role of advertising in obtaining these objectives? How
much should we spend to achieve these objectives?
Thus under this method a company launching a new product will decide to
spend more money as it has to create immediate awareness amongst consumers.
(for example Ranbaxy will spend more on its new product Olesan). For
an existing well know brand, the company may spend less on advertising (for
example Ranbaxy will spend less to advertise its product Garlic Pearls.)
As it is obvious in the above example, the objective task approach directs the
efforts of manufactures to think through the objective while setting the budget.
There is one problem involved in the use of this method of setting
the appropriation and that is: how does one determine just how much
advertising and what type of advertising will achieve the stated objectives.
The present methods of research do not give a direct link between advertising
expenditures and achievement of the objectives. Until more sophisticated
methods are developed managers will have to face this problem of uncertainty
while deciding the optimum budget.
4. THE COMPETITIVE PARITY METHOD:
This is the most controversial method and few executives admit that they use it
while preparing the budget. In this approach an advertiser bases his budget
decision primarily on the expenditures of competitors. That is they try
to keep pace with their competitor’s advertising budgets. This method could be
useful in deciding individual brand ad expenditures. It has the advantage of
recognizing the importance of competitors and ensure that the
competitors do not increase their ad expenditure to a level that affects the
advertiser’s sales. But the approach has disadvantages.
Firstly your objective may be different from that of your
competitors. And secondly it assumes that your competitors are spending
optimally. It also maintains the present market position rather than bringing any
positive change for the company. If you want to overtake your competitors you may
have to spend more than them and spend this money more efficiently.
5. BRAND HISTORY METHOD:
Under this method the brand’s product life cycle is considered while setting the
budget. Thus a brand at the introductory or pioneering stage will use more
advertising appropriation than an established brand.
Brands that are facing a decline may also use more advertising to add new
life into it. For example Close Up, the toothpaste manufactures by
Hindustan Lever had a stagnating market share till recently. In 1990 its spent
Rs. 3.45 crore on television advertising with its new theme close up:
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“a mouth wash in tingling red and blue colours”. The result was that close up
has over taken Promise and is now number two in the toothpaste market behind
Colgate.
6. ALL YOU CAN AFFORD METHOD:
This approach means that the advertising budget will be decided on the basis
of whatever money is left after all other fixed and unavoidable expenses have been
allocated.
This method seems to be illogical and unambitious but conservative
management use this method as it is safe and ensure that there is
no overspending. New entrepreneurs have no other option but to follow this
method when they are short of funds.
7. THE BREAK EVEN METHOD:
The break even or the marginal analysis method attempts to quantify t
he advertising spending level that will offer an organization the highest additional
gross profits. That is the firm continues to spend on the advertising as long as the
incremental expenditure are exceeded by the marginal revenue they generate,
thus maximizing the gross profits of the firm.
This method has an advantage because it helps in diagnosing any problem,
that is when the company is overspending or under spending. But it suffers from
the disadvantage of limited research techniques that cannot isolate the effect
of advertising on marginal revenues and gross profits.
Other activities such as personal selling and sales promotions also influence
the revenue earned by a company. Moreover, it assumes that there is an
immediate effect of advertising expenditure. This is possible in direct mail
advertising. In most other advertising there is a carryover effect that is a potential
consumer may be influenced by the ad, in the month of June but may make
a purchase in December. Advertising may also attract customers who become
loyal customers for several years. The immediate. purchase measures up to only
a small part of the value the firm enjoys from such continuous purchases.
This drawback can be overcome by using the experimental method.
In the experimental method varying advertising expenditures are
used in different cities. For example the advertising expenditure in Pune may be
greater than the advertising expenditure in Hyderabad. Then sales in the two cities
are compared to find out which is optimum level of expenditure
ADVERTISING BUDGET AND FACTORS AFFECTING IT:
Advertising Budget is the amount of money which can be or has to be spent on
advertising of the product to promote it, reach the target consumers and make the
sales chart go on the upper side and give reasonable profits to the company.
Before finalizing the advertising budget of an organization or a company, one
has to take a look on the favorable and unfavorable market conditions which will
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have an impact on the advertising budget. The market conditions to watch out for
are as follows:
 Frequency of the advertisement
 Competition and Clutter
 Market Share of the Product
 Product Life Cycle Stage
Frequency of the Advertisement
This means the number of times advertise has been shown with the description
of the product or service, in the granted time slots. So here, if any company needs
more advertising frequency for its product, then the company will have to increase
its advertising budget.
Competition and Clutter
The companies may have many competitors for its product. And also there are
plenty of advertisements shown which is called clutter. The company has to then
increase their advertising budget.
Market Share
To get a good market share in comparison to their competitors, the company
should have a better product in terms of quality, uniqueness, demand and catchy
advertisements with resultant response of the customers. All this is possible if the
advertisement budget is high.
Product Life Cycle Stage
If the company is a newcomer or if the product is on its introduction stage,
then the company has to keep the budget high to make place in the market with
the existing players and to have frequent advertisements. As the time goes on and
product becomes older, the advertising budget can come down as then the product
doesn’t need frequent advertising.
When the market conditions are studied thoroughly, then the company has to
set up its advertising budget accordingly. For setting advertising budget, there are
four methods:
They are as follows.
 Percentage of Sales: In this method, the budget is decided on the basis of
the sales of the product from previous year records or from the predicted
future sales. This is a pure prediction based method and best applicable to
the companies which have fixed annual sales. But if in case there is a
requirement for more promotional activities then this method has a
disadvantage because there will be decrease in advertisements as the budget
is fixed.
 Affordability: this method is generally used by the small companies. Only
the companies which have funds and can afford advertising opt for this
method. The companies can go for advertising at any time in whole year
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whenever they have money to spend. The amount spent also varies from
time to time as per the advertisements takes place.
 Best guess: This method is basically for newcomers who have just entered
the market and they have no knowledge or say they are not aware of how the
market is and how much to spend on advertising. Thus, this method is
applied by the higher level executives of the company as they are the only
experienced people.
Thus, doing the homework and then moving forward, i.e. searching for best
market conditions and setting the best advertising budget will have a great impact
on improvement and development of the company.
17.3.6 EVALUATION OF ADVERTISING EFFECTIVENESS
In today's advertising world, every firm invests heavily on advertisement for
making their products or services known to the target audience and to arouse the
interest of target audience in firm's products or services. Advertising is done with
some predefined objectives- to generate awareness about product, to arouse
interest in product, to change the attitude of audience towards product, to
stimulate desire for product, or to make them buy the product.
Advertising is of no use if the defined objectives of communication is not
achieved. So, it is necessary to evaluate the effectiveness of advertisement at
different level, starting from creation of ad-copy to running of ad on media, and also
after execution of ad to know to what extent the objectives are achieved.
Types of Test
Following are the types of test applied in advertisement evaluation:
 Pre-Testing
 Concurrent Testing
 Post Testing
1. Pre-Testing
Pre-Testing follows the universal law "Prevention is better than cure".
Advertising can be pretested at several points in the creative development process.
Pre-Testing helps the advertiser to make a final go or no go decision about finished
or nearly finished advertisement. Pre-Testing method refer to testing the potentiality
of a communication message or ad-copy before printing, broadcasting, or
telecasting. Following are the types of pre-testing methods:
A. Qualitative Methods of Pre-Testing
 Focus Group: Focus group involve exposing the ad to a group of 8 to 12
respondents. Focus groups are used with surprising frequency for making
final go or no go decision. A moderator facilitates the discussion and walk s
the group through a series of issues that are outlined in discussion guide.
 In-depth Interview: In-depth interview involve one on one discussion with
respondents. Interviews are very effective when a researcher has a good idea of
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critical issues but does not have a sense of the kind of responses one will get.
This method can be effectively used to generate new ad concepts and ideas.
 Projective Techniques: In this technique the respondent is instructed to
project himself into the situation and verbalise the thoughts. Projective
technique can be very effective for evaluating ad concepts and for generating
new ad concepts. But, it cannot be used for making final decisions.
B. Quantitative Methods of Pre-Testing
 Checklist Method: Checklist method is used to test the effectiveness of ad-
copy. The purpose of this method is to ensure that all elements of the ad-copy
are included with due importance in the advertisement. As it is a pre-test
method any omitted element of ad can be included in the copy before release
of the advertisement.
 Consumer Jury Method: This method involves the exposure of alternative
advertisements to a sample of jury or prospects. This test is designed to learn
from a typical group of prospective customers. Advertisements which are
unpublished are presented before the consumer jury either in personal
interviews or group interviews and their reactions are observed and responses
are recorded.
 Sales Area Test: Under this method advertising campaign is run in the
markets selected for testing purposes. The impact of the campaign is
evaluated by actual sales in the selected markets. The market with high sales
is considered the best market for effective sales campaign. In other markets
suitable changes are made in the advertising campaign.
 Questionnaire Method: It is a list of questions related to an experiment. The
draft of an advertisement along with some relevant questions is to be sent to a
group of target consumers or advertising experts. Their opinions are collected
and analyzed to find out whether the proposed advertisement is satisfactory or
not.
 Recall Test: Under this method, advertising copies are shown to a group of
prospects. After few minutes they are asked to recall and reproduce them.
This method is used to find out how far the advertisements are impressive.
 Reaction Test: The potential effect of an advertisement is judged with the
help of certain instruments, which measure heartbeats, blood pressure, pupil
dilution etc. Their reactions reveal the psychological or nervous effects of
advertising.
 Readability Test: All the listeners of advertisements cannot read it equally.
So respondents are drawn from different socio economic and geographical
backgrounds. This method is used to find out the level of effectiveness when
and advertisement is read.
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 Eye Movement Test: The movements of eyes of the respondents are recorded
by using eye observation camera when advertisements are shown to them in a
screen. This helps to find out the attention value of advertisement.
2. Concurrent Testing
Concurrent testing is evaluated throughout the whole advertisement execution
process. Tests are conducted while audience is exposed to different type of media.
Following are the types of concurrent testing methods:
 Consumer Diaries: Diaries are provided to a selected customers. They are
also informed to record the details of advertisements they watch, listen or
read. The diaries are collected periodically. The result obtained from such a
survey reveals the effectiveness of advertisement.
 Co-incidental Surveys: This method is also called as co-incidental telephone
method. Under this method, samples of customers are selected and calls are
made at the time of broadcast of the advertisement programme. The data
obtained and analyzed will give a picture about the effectiveness of an
advertisement.
 Electronic Devices: Now day’s electronic devices are widely used to measure
the effectiveness of an advertisement. They are mainly used in broadcast
media. These are auto meters, track electronic units etc.
3. Post Testing
Post testing is done to know- to what extent the advertising objectives are
achieved. Following are the types of post testing methods:
Recognition Test: Recognition test involves the ability of viewers to correctly
identify ad, brand, or message they previously exposed to. The types of recognition
test are:
Starch Test - The Starch test is applied only to print ads that have already
run. The interviewer shows each respondent a magazine or newspaper containing
the ads being tested. For each ad the interviewer asks the respondents to reply to
ad related questions.
Bruzzone Test - The Bruzzone test is conducted through mail surveys.
Questionnaires containing frames and audio scripts from television commercials
are sent to respondents and respondents are asked whether they recognise the ad
and brand.
Recall or Impact Test: The recall test is designed to measure the impression of
readers or viewers of the advertisement. If a reader has a favorable impression of
the advertisement, he will certainly retain something of the advertisement. The
measures of interest would be obtained by interviewing the readers or viewers or
listeners, days after the advertisement or commercial is appeared in the newspaper,
or on T.V. Interviewer asks the readers or viewers to answer some ad related
questions, and in response to the question asked, the reader reveals the accuracy
and depth of his impression.
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17.3.7 PUBLIC RELATIONS ADVERTISING
The PR or public relations is nothing but the practice of protecting as well as
enhancing the reputation of any particular organization/firm or for that matter any
individual. In today’s world of fierce competition, where every organization strives
hard to work toward its brand image, public relations has become the need of the
hour. It is essential for every organization to communicate well with its
public/target audience. The correct flow of information is essential. Here comes the
importance of public relations.
What is Public Relations?
The practice of maintaining a healthy relationship between organization and its
public/employees/stakeholders/investors/partners is called public relations.
Public relation activities ensure the correct flow of information between the
organization and its public also called its target audience. Public relations goes a
long way in maintaining the brand image of an organization in the eyes of its
audience, stake holders, investors and all others who are associated with it.
For schools, the target audience would be students and their
parents/guardians, for retailers the target audience would be customers and so on.
In the above examples, Public Relations ensures a smooth two way
communication between the school authorities and its target audiences (students
and their parents).Retailers must address their customers well for a positive word of
mouth and a strong brand positioning. It is really important to create a positive
image of any particular brand in the minds of consumers for it do well. Public
relations experts not only help in the flow of information from the organization to its
public but also from the public to the organization.(Two way communication).The
flow of information from the public to the organization is generally in the form of
reviews, feedback(positive/negative),appreciation and so on. Public relations
strengthens the relationship between the organization and its target audience,
employees, stakeholders, investors etc.
Public Relation Activities
Here are some ways of enhancing an organization’s brand image:
1. Addressing the media
2. Speaking at various press conferences, seminars.
3. Advertisements to correctly position the brand, Pamphlets, Brochures,
magazines notices, newsletters and so on.
4. Corporate Social responsibility(CSR Activities)
5. Introducing various loyalty schemes for customers like membership
cards, premium clubs so as to retain the customers.
6. Various events, shows and activities.
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Spin
Public relation experts sometimes turn a bad situation into the organization’s
favour. Such a situation is called as spin. Spin refers to a situation where public
relation experts tactfully utilie an unfavorable situation for company’s benefits and
publicity.
Negative PR
In cases of negative PR, public relation experts instead of focusing on
enhancing their organization’s image, concentrate on tarnishing the reputation of
business rivals. Negative PR als called as dirty tricks involves extensive research
and information gathering.
Effective Public Relations
Public Relations is said to be effective under all the below circumstances:
 Awareness: To create a positive image of an organization, the message must
reach the public. Information must reach in its desired form for effective public
relation.
 Acceptance: The audience must understand what the message intends to
communicate. They ought to agree with the message.
 Action: The audience ought to give feedback to the organization accordingly.
To conclude public relations is nothing but an effort to present one’s
organization in the best light.
17.4 REVISION POINTS
Explain various methods of Promotions for durable goods
1. Describe the importance of advertising strategy.
2. Explain the Advertising roles and functions.
3. Write short notes:
i. Outdoor Advertising ii. Exhibitions
iii. Recall Test. iv. Direct mail Advertising
4. Explain the Advertising budget and who decide the advertising budget.
5. What media choices would you suggest in the following cases? And give your
reasons.
i. Family Planning iii. Refrigerators.
ii. Garments iv. LPG.
17.6 SUMMARY
Advertising (or advertising) is a form of marketing communication used to
promote or sell something, usually a business's product or service.
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In Latin, ad vertere means "to turn toward". The purpose of advertising may
also be to reassure employees or shareholders that a company is viable or
successful. Advertising messages are usually paid for by sponsors and viewed via
various old media; including mass media such as newspaper, magazines, television
advertisement, radio advertisement, outdoor advertising or direct mail; or new
media such as blogs, websites or text messages.
Commercial ads seek to generate increased consumption of their products or
services through "branding," which associates a product name or image with
certain qualities in the minds of consumers. Non-commercial advertisers who
spend money to advertise items other than a consumer product or service include
political parties, interest groups, religious organizations and governmental
agencies. Non-profit organizations may use free modes of persuasion, such as a
public service announcement.
Modern advertising was created with the techniques introduced with tobacco
advertising in the 1920s, most significantly with the campaigns of Edward Bernays,
considered the founder of modern, "Madison Avenue" advertising.
 Understand the magnitude of advertising and the percentage of sales revenue
companies invest in this marcom tool.
 Recognize that advertising can be extraordinarily effective but that there is
risk and uncertainty when investing in this practice.
 Appreciate the various functions advertising is capable of performing.
 Explore the advertising management process from the perspective of clients
and their agencies.
 Understand the functions agencies perform and how they are compensated.
 Explore the issue of when investing in advertising is warranted and when
disinvesting is justified.
 Examine advertising elasticity as a means for understanding the contention
that “strong advertising is an investment in the brand-equity bank.”
1. Examine the suitability of the following media in relation to some products
or service.
i. TV. iii. Sticker Advertising
ii. Folders iv. Vehicle advertising.
1. Journal of advertising
17.9 ASSIGNMENT
It is said that advertising is a waste of scarce resources in a developing country
like India. Do you agree? Substantiate your arguments with appropriate examples.
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17.10 REFERENCES
1. Belch, George E., and Michael A. Belch. Advertising and Promotion: An
Integrated Marketing Communications Perspective.
2. Biocca, Frank. Television and Political Advertising: Volume I: Psychological
Processes (Routledge, 2013).
3. Chandra, Ambarish, and Ulrich Kaiser. "Targeted advertising in magazine
markets and the advent of the internet." Management Science 60.7 (2014)
4. Chen, Yongmin, and Chuan He. "Paid placement: Advertising and search on
the internet*."
1. Why should effectiveness of advertising be evaluated? Describe the various
methods /tools available for the purpose.
17.12 KEY WORDS
2. Advertising, Public Relations, Function and Roles of advertising, Sponsor,
Promotional.
❑
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LESSON 18
SALES MANAGEMENT
18.1 INTRODUCTION
In daily life, a layman deals with different transaction in terms of selling and
purchasing of goods and services. In these transactions the second one persuades
the first person. Therefore, selling may be defined as persuading people to satisfy
the want of first one. The person, who does this act, is called as the salesman, the
result of this action as sales, while these activities of the person, are supervised and
controlled by sales-management. In the present scenario sales executives are
professionals. They plan, build and maintain effective organisations and design and
utilize efficient control procedures. The professionals approach requires thorough
analysis, market-efficient qualitative and quantitative personal-selling strategy. It
calls for skilful application of organizational principles to the conduct of sales
operations. In addition, the professional approach demands the ability to install,
operate, and use control procedures appropriate to the firm’s situation and its
objectives. Executives capable of applying the professional approach to sales
management are in high demand today. The quality of selling is referred to as
salesmanship. In other words, ‘management’ is synonymous with leadership.
Managers do the same thing in industry, as ministers do in states and at the
center, i.e., they have to plan, forecast, direct and control their personnel. Here
success lies in running together, hand in hand. Managers are the captains of the
army of their followers.
18.2 OBJECTIVES
 The concept of sales management, its scope and importance.
 The salesmanship qualities.
 The stage of selling process.
 The effective of selling.
18.3 CONTENTS
18.3.1 Definition
18.3.2 Benefits of Selling Activities
18.3.3 Objectives of Sales Management
18.3.4 Elements of Sales Management
18.3.5 SMBO Approach
18.3.6 Organisation of Selling Unit
18.3.1 DEFINITION
Sales management is a business discipline which is focused on the practical
application of sales techniques and the management of a firm's sales operations. It
is an important business function as net sales through the sale of products and
services and resulting profit drive most commercial business.
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Sales-management differs from other fields of management, mainly in different

aspects: the selling operation of a business firm does not exist in isolation. Thus,
simultaneous with the changes taking place in the business, as well as marketing-
orientation, a new concept of sales
Management has evolved. The business, is now society-oriented, on human-
welfare aspects. So, sales-management has to work in a broader and newer
environment, in co-existence with the traditional lines. The present emphasis is
now on total development of human resources.
18.3.2 BENEFITS OF SELLING ACTIVITIES
There are different benefits of selling activities, which are as follows:
(1)Benefits to the society: economic growth and maximum employment are the
basics for national development. The achievement of both these goals means jobs
and incomes for a nation’s labour-force.
(2) Benefits to consumers: professional people may not know every fact of a
product, but they, at least know its major uses, limitations and benefits; so they
can easily serve their customers, quite effectively.
(3) Benefits to business firms; their sales-persons and customers:
Salespersons are owned by their companies, while customers are the end-users
of the company’s product(s) and/or services, all these people, in the chain of
marketing, stand to benefit by sales-activities.
18.3.3 OBJECTIVES OF SALES MANAGEMENT
Every business firm has certain objectives to achieve. These objectives may be
very explicit and definitive, or they may be implicit or general. Although, firms have
different mixes of objectives, and they do place differing emphasis, on individual
ones, the typical objectives Include (i) profitability, (ii) sales-volume, (iii) market
share, (iv) growth, and (v) corporate-image. While all these objectives are important
to a business firm, the objectives, relating to sales-volume, market share and
profitability, are greatly affected by the effectiveness and efficiency, with which the
sales-function is managed. Business firms, have, in fact, found that it is the most
effective management objective of the firm; that must emanate out of its overall
business or corporate objectives. The sales-management objectives of a business
firm, generally relate to the areas of (i) achieving sufficient sales-volume, (ii)
providing sufficient profit, and (iii) experiencing continuing growth. Generally,
objectives of sales-management have to cover various sales-functions, in an
integrated manner. These objectives are to be expressed, as far as possible, in
measurable and quantitative terms, and should also be realistic and achievable.
Since, there are more than one objective, these should be put, on a hierarchical
manner (most important, down to the least important). To ensure their flawless
realization, they must be congruent, i.e., they must fit together, and not be in
conflict with each other. For example, suppose you ask a salesman to cut his
travelling expenses, and ask him to spend more time, in the field. To make these
two requirements, more meaningful, they must be linked with specific time-
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element. The setting of objectives should not be based only on the judgment of the
top-management. Rather, it should be formulated and finalised, with the
involvement of the sales-force, at the grass-roots level. In addition, the process of
setting of sales-objectives should begin, only after the company has conducted
benchmark studies, to find out, as to where it stands in terms of product, brand
and market-sales and market share trends (all in measurable terms).
18.3.4 ELEMENTS OF SALES MANAGEMENT
There are the four basic elements of sales management, discussed below:
(1) Planning: a business cannot be taken as a chance. Every salespeople or
person concerned have to see for the future, in a planned way like what must be
done? And who will do it? The plan must be based on extensive market research,
and the facts must be verified at every stage. The plan should also be evaluated,
after investigating the total-market, for a particular type of product. Flexibility must
be provided by establishing a specialist’s production line, to allow for Variation in
production. The plan should also be subject to continued review. The details of the
plan should be discussed, with all the departmental heads, concerned, and their
sub-ordinates, who bear responsibility for fulfilling their parts of the plan.
(2) Co-ordination: Co-ordination is all pervasive and permeates every function of
the management-process. For example, ill planning, departmental-plans are
integrated into a master. Plan, ensuring adequate co-ordination. Similarly,
organizing starts by co-ordination wholly, partially inter-departmental and inter-
personnel matters. Co-ordination also helps in maximum utilisation of human-
effort by the exercise of effective leadership, guidance, motivation, supervision,
communication etc. The control-system also needs coordination. Co-ordination
does not have any special techniques. Nevertheless, there are sound principles, on
which to develop skills. It has a special need to help the staff, to see the total
picture and co-ordinate their Activities, with the rest of the team. The sales
manager has to encourage direct personal-contact, within the organisation,
particularly where there is lateral-leadership. Harmony, and not discord, Should be
the guiding mantra. In addition, one has to ensure free flow of information that is
selective to the objectives of the business. No personal problems, arising from
Business operations are to be ignored, but solved through a free exchange of ideas.
This is especially true in the case of the sales-force of any organisation.
(3) Controlling: the sales manager has to check regularly, that the sales activities
are moving in the right direction or not. He guides, leads, and motivates the
subordinates, so as to achieve the goals planned for the business. He has to take
steps to ensure that the activities of the people conform to the plans and objectives
of the organisation. The controlling system should be such that one can study the
past, note the pitfalls and take corrective measures, so that similar Problems may
not occur in the future. The controller has to ensure that the set targets, budgets
and schedules are attained or followed in letter and spirit. There must be
procedures to bring to light the failure to attain a target. The control-system has to
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(i) prepare sales and market forecasts; (ii) determine the level of sales-budget; (iii)
determine the sales-quotas for each salesman; (iv) determine, review and select
distribution-channels; (v) organise an efficient sales force; (vi) establish a system of
sales-reporting; (vii) establish a system of statistical sales-credit; (viii) establish
stock control system(s); (ix) review of performance of the sales force; and (x)
establish periodical testing programmes. In a big organisation, each salesman is
assigned a territory (not so big that it cannot be adequately covered). Each
salesman has a target, set for specific ‘period. From the weekly and monthly sales-
reports, the control system is established, that will prepare records whether a
particular salesman is working efficiently or not.
(4) Motivating: Motivation is essentially a human resource concept. It aims to
weld together distinctive personalities into an efficient team. For this, knowledge of
human Psychology is needed, as a means of understanding behaviour patterns.
This is especially important in the case of the sales-force. Only motivated sales-
persons can achieve company’s goals
18.3.5 SMBO APPROACH
It is another approach to formulate and accomplish sales-objectives is the sales
management by objectives (SMBO) technique. It is formulated combined by sales
manager and sales-force (representatives). It aims to focus on (i) results, within a
specified set of objectives and (ii) participative style of management.
Process of SMBO:
The operationalization of SMBO is a process, comprising of the following steps:
I. Setting goals jointly with the salesman: In this process the goals for sales-
man and sales managers are settled simultaneously in the organisation
so that they can built a close coordination between them and lastly they
achieve the main objective of the organisation.
II. Planning strategy to reach the objectives:
His the participative style of sales. Management proves to be a boon to
the top-management, in the sense of the close familiarity of the
salesman, with their markets. The outcome of the joint exercise would
be the development of a strategy that directs the salesman to his
objectives, following a plan, in the correct sequence, with the correct
timing, and must be efficient, in the use of resources of time and money.
Importance of SMBO:
The importance of SMBO for a business firm is as follows:
a. Directing the salesman towards the broader sales and marketing
objectives of the Company;
b. Providing a better approach, from the view-point of the salesman; and
c. Motivating the salesman.
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18.3.6 ORGANISATION OF SELLING UNIT
The main objective of any business firm is to sell effectively its goods and
services to the consumer at reasonable prices. So long as the business undertaking
operates on a small-scale; the proprietor can handle himself, or with the help of a
few salesmen, under his direct control and supervision. But, as the business grows
and expands, the size of the target market, to be covered to sell large quantities of
goods and services becomes too large to be controlled by the owner of the business
firm, personally. Therefore, these activities arises the need of a sales-organisation.
Generally, an organisation is a structured-process in which individuals interact
with each other for achieving stated-objectives. It is a social and dynamic system. It
emphasises human-values. It is the job of management, to integrate and co-
ordinate all its constituents.
Need and Importance
The sales organisation is required for the following purposes:
(i) To enable the top-management, to devote to more time in policy making for
the growth and expansion of business.
(ii) To divide and fix authority among the sub-ordinates so that they may shirk
work.
(iii) To avoid repetition of duties and functions so that there may not be any
confusion among them.
(iv) To locate responsibility of each and every employee so that they can
complete the whole work in stipulated time; if not then the particular person must
be responsible.
(v) To establish the sales-routine in the business unit.
(vi) To stimulate sales-effort.
(vii) To enforce proper supervision of sales-force.
(viii) To integrate the individual in the organisation.
Business organisations consist of an input, a processing-unit, an output and a
feedback-loop; with its own environment Organisation as an open-ended social and
dynamic system. Feedback-loop, provides control mechanism. Input is drawn from
the environment. It gives output to satisfy the needs of environment, which the
process itself transfers, input to output through its operators. In this approach, the
main emphasis is on human-values. Workers are not simply cogs in the machinery
they are social beings first. They are the key players of the production-system; and
the management has to recognise this fact, that each person is unique. This makes
an organisation, in the present-day context, quite complex.
Functions of Sale Organisation.
A sales organisation performs the following functions:
i. Analysis of markets thoroughly, including products and market research.
ii. Adoption of sound and defensible sales-policy.
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iii. Accurate market or sales forecasting and planning the sales campaign, based
on relevant data or information supplied by the marketing research staff.
iv. Deciding about prices of the goods and services; terms of sales and pricing
policies to be implemented in the potential and existing markets.
v. (v)Labelling, Packaging and packing, for the consumer, who wants a container,
which will satisfy his desire for attractive appearance; keeping qualities, utility,
quantity, and correct price and many other factors in view.
vi. Branding or naming the product(s) and/or services to differentiate them from
the competitors and to recognize easily by the customer.
vii. Deciding the channels of distribution for easy accessibility and timely delivery
of the products and services.
viii. Selection, training and control of salesmen, and fixing their remuneration to
run the business operations efficiently and effectively.
ix. Allocation of territory, and quota setting for effective Selling and to fix the
responsibility to the concern person.
x. Sales-programmes and sales-promotion-activities prepared so that every sales
activity may be completed in a planned manner
xi. Arranging for advertising and publicity to inform the customer about the new
products and services and their multiple uses.
xii. Order-preparation and office-recording to know the profitability of the business
and to evaluate the performance of the employees.
Structure of Sales Organisation:
The structure of sales organisation differs from company to company. There
may be a very small and simple one with only a few salesmen. At the other extreme,
there may be quite complex, with many sub-organisations, based upon divisions,
according to territory, product and marketing-functions. The structure of the sales-
organisation, usually depends upon the following factors:
(i) Nature and size of the firm.
(ii) Methods of distribution, adopted by the firm.
(iii) Selling-policies of the firm.
(iv) Financial conditions of the firm.
(v) Personality of the sales manager.
The other dimension of the sales-organisation-structure, is related to:-
(i) What shall be the status of the sales manager?
(ii) What functions shall his department perform?
(iii) What shall be the strength of the department? etc.
These are many issues, which, besides being based on the factors, listed in the
procedure shall depend upon the state of the acceptance of the modem marketing
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concept, within the organisation, and the extent to which, it is found to permeate
within it. We have some firms in India, where the sales manager is the head of total
marketing and sales operations of the company; others where the head of the sales-
operations of the company, is a functional director of the company’s board of
directors, and responsible for total sales-operations of the company.
Further, to carry out the functions of the sales-organisation successfully, the
sales department is divided into sub-departments. Each sub-department is put
under an officer, who is responsible to the sales manager, who is the head or chief
executive officer (CEO) of the company. For example, in the case of a big business
firm, these sub-departments could be
(i) market-research, (ii) advertising, (iii) sales-promotion, (iv) recruitment and
training, (v) credit and collection, (vi) sales-office for receiving the orders and
arranging to dispatch goods to their destinations.
Steps to establish a sales structure
The following procedure may be adopted to, establish a practical and viable
sales-organisational structure:
i. Begin with a historical profile of the company’s allegiance, overall
organisation and top-management philosophy of the firm.
ii. Analyse the requirements of the company and the sales department,
particularly in terms of its: size, position in the market, nature of activities,
product mix, nature of customers, state of competition, and sales-people
and their ambitions.
iii. Appraise the potential of the company, in terms of its impact on the
financial, technical, and scientific and human resources, existing
currently.
iv. Analyse the prevailing working-atmosphere and state of communications,
especially from the view-point of relationship and human-feelings involved
in such relationships.
v. List the various administrative-details, connected with the company.
vi. Prepare a note, relating to the various administrative-details including
aspects like hierarchy, span of control, etc. on the sales-department, and
overall organisation of the department.
vii. Describe the procedures and Processes to be followed for executing various
tasks.
viii. Based on the above, prepare a draft-structure of the sales department,
giving job-descriptions of the whole of the department, and a who’s who of
the department.
ix. Examine the structure, from the point of view of viability and practicality.
In the light of the complexities and vastness of the above process, for
creating a sales structure, once again, we state that various industries,
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though being equally efficient, and of the same category, organise their
sales-departments, in different ways.
SMBO approach, elements of sales management
1. Differentiate (i) selling, (ii) sales, and (iii) salesmanship.
2. Salesmanship is both an Art as well as a Science. Comment.
3. Write a short essay on sales-management.
4. What do you mean by objectives of any organisation? Explain.
5. What do you mean by organisation for sales-management? Explain its
need, importance, functions and the essentials of a good structure.
6. Write short notes on:
(i) SMBO
(ii) Organisational Structure of Call Center
(iii) Selling activities of a firm.
18.6 SUMMARY
In total, Selling is the act, sales is the result of this act, while salesman is the
person who does this act. So, salesmanship is the quality of act of selling. Thus,
selling and salesmanship cannot be used synonymously. Salesmanship serves the
dual purpose of discovering and persuading prospective buyers. By his creative
faculties, a salesman has not only to sell but also establish a winning, regular and
permanent relationship with his customers. A satisfied customer is just the
beginning of this type of relationship, which ensures future repeat orders. Sales-
management is governed by the principle of management. The four elements viz., (i)
planning, (ii) co-ordination, (iii) controlling, and (iv) motivation are very relevant, as
per requirement of the special nature of the business. Objectives are equally
important for sound sales management. Generally, these are (i) achieving sufficient
sales-volume, (ii) providing reasonable profit, and (iii) experiencing continuing
growth. SMBO (sales management by objectives) is a recent approach to formulate
and accomplish these objectives. Sales-management also needs proper
organisational structure. Different structures suit different situations and
requirements. These may be based on national or regional basis or on product
market basis. A sales manager/director is the key person to plan, co-ordinate, and
control and motivate all the selling-activities of a business-concern. His job is
multi-purpose and he has to face, all the odd and difficult changes. However, with
his skill, urgency, and adaptability, these can be easily faced with.
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1. Describe the various qualities of a successful salesman?
1. Journal of Public Policy and Marketing
18.9 ASSIGNMENT
1. Differentiate (i) selling, (ii) sales, and (iii) salesmanship.
2. Salesmanship is both an Art as well as a Science. Comment.
3. Write a short essay on sales-management.
4. What do you mean by objectives of any organisation? Explain.
5. What do you mean by organisation for sales-management? Explain its
need, importance, functions and the essentials of a good structure.
(i) SMBO
(ii) Organisational Structure of Call Center
(iii) Selling activities of a firm.
18.10 REFERENCES/SUGGESTED READINGS
1. Still, Cundiff, and Govoni, ‘Sales Management’, PHI.
2. Stanton and Spiro, ‘Management of a Sales Force’, McGraw Hill.
3. Anderson, Joseph, and Bush, ‘Professional Sales Management’, McGraw Hill.
4. Roburt J. Calvin, ‘Sales Management’, Tata McGraw Hill.
5. Dalrymple, Cron, and Decarlo, ‘Sales Management’, John Wiley and Sons.
6. Manning and Reece, ‘Selling Today’, Pearson Education
1. Define personal selling state and explain in brief the various stages which
are followed by salesman.
18.12 KEYWORDS
1. SMBO: Sales Management by objective is a selling technique or
approach which focus on result within a specified set of objectives.
2. Sales Volume: It is the total number of products sold. It may be expressed
in monitory terms as well.
❑
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CASE STUDY 1
MARKETING AND DISTRIBUTION OF MUSHROOM
Sachin and Virag are two enterprising youth. They have passed out from IIM,
Bangalore. They thought instead of doing a job, they will launch fresh vegetables in
Indian markets. Having learnt of the future conventional foods, they decided to
venture into cultivation of mushrooms.
Mushrooms are known to be the best alternative food for vegetarians. For
Sachin and Virag fund raising was a serious handicap for mass production.
However, the first trial batch of mushrooms that they produced was bought by Star
Hotel in Bangalore. Further, the hotel placed orders for supply of 20 kgs every day.
Now mushroom industry is run by small entrepreneurs, like Sachin and Virag.
Another big player M/s Ashtavinayak Mushrooms, equipped with cold storage
facility was more interested in the export market.
Sachin and Virag have set their sights high. They aim to sell mushrooms in a
very big way all over India. Mushrooms have a great market potential and is a
perishable food.
Questions
1. How will you advise Sachin and Virag, as how to increase the consumer
awareness about this new food?
2. What would be your suggestions for distribution channel for
mushrooms?
Possible Solutions
A.
 Consumer awareness can be created by test marketing. Through sales persons

and customer response to the product.
 Samples can be distributed in big malls and Variety stores.
 Awareness can also be created through outdoor publicity such as wall
hoardings, banners, insertions in newspapers etc.
Targeted Customers:
 Hotels
 Household sector
 Restaurants
 Industrial canteens
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 Brand name of the company along with the product can also be
highlighted to the customer by using the concept of event marketing.
 For different kinds of selling modes they can target different customers
Institutional sale: Hotel / Restaurants/Industrial canteens
Individual sale: Household
 Approach to hotel industry can be made and product benefit can be
shown to convince the customer. Mushroom related recipe booklet can
be given to them for use.
 Can approach the T.V programs for Khana Khazana to show different
recipes of Mushrooms in their shows.
 Dealer push through sales promotion campaign.
 Press meetings can be a way to consumer awareness. Editors,
journalists of newspapers having maximum circulation can be contacted
and samples to be distributed to them (such as 250 gm or 100 gm
packs).
 Packaging should be attractive.
B.
Distribution network:
 Product having being perishable, company should go for faster and
effective distribution network having cold storage facility.
 Distribution through company delivery vans in local market and
distribution through rail or road transport to urban markets.
Network
Sales person Manufacturer
Chain Store Telemarketing Supplier Order
Retailer
Customer
***
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CASE STUDY 2
INDIAN REFRIGERATOR MARKET
India's Refrigerator market estimated at Rs. 2750 Cr. is catered mainly by 10

brands. The annual capacity is estimated at around 4.15 million units is running
head of demand of 1.5 millions.
As there is a demand and a surplus supply, all the manufacturers are trying
out for new strategies in the market.
Times have changed and also the buying behaviour of the customer. Earlier it
was cash and carry system. Now dealers play an important role in selling; now the
systems is exchange for old “bring your old refrigerator and take a new one with
many gifts”.
A new company by name Electrolux has entered the market which has
acquired Allwyn, Kelvinator and Voltas brand.
Researchers have revealed that urban and city sales are declining and hence all
manufacturers are trying to concentrate on rural markets.
Electrolux strategy is customisation of market, with special attention to the
Northern and Southern India markets, while Godrej the main player thinks that
dealer network in rural market for sales and service will be beneficial and is trying
to give more emphasis on dealer network, whereas Whirlpool has adopted the
strategy of increasing the dealer network by 30%.
The market shares of the major players are as follows:
Godrej 30%
Videocon 13%
Kelvinator 12%
Allwyn 10%
Voltas 5%
Whirlpool 27%
Daewoo 1%
L.G 1%
Others 1%
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Questions
1. Could the refrigerator market be segmented on geographical base
planned by Electrolux?
2. What would be the marketing mix for rural market?
3. Would 125 L and 150 L models be an ideal choice to launch in rural
market?
Possible Solutions
1. The main justification for Electrolux strategy would be Electrolux is

amalgamation of 3 companies, Kelvinator, Voltas and Allwyn. Allwyn is popular in
South Indian market, while Kelvinator is famous in North India Market. Electrolux
wants to cash in on the popularity of the respective brands.
It is not possible to segment according to North or South Indian Market, once a
company's name becomes a logo, then the reason for buying for customers for other
brand depends upon price, quality, usability and features of the product.
The storage pattern of foods in North India and South India is same. Same is
the case of rest of India, so it won’t be possible to segregate the market according to
the geographical base.
2. The rural market is small but significant as far as refrigerator is concerned.

Moreover, the cost of selling of dealer in the rural market should also be justified.
The type of food the rural people consume should also be taken into account;
they prefer to have more of natural foods and less of derived food products like Ice-
creams, butter, cheese etc. The cost of the refrigerator should be less attractive to
buy. The size and material should be so adjusted that the cost price would be
reasonable. The capacity of the refrigerator should be 100 l - 300 l. Much more
space has to be given for storing vegetables. Other important factor to be taken into
consideration is the Power supply which is not so good in rural areas. To avoid the
voltage fluctuations in built stabilisers will be the selling features in the rural areas.
3. The chances of selling of 125 l and 150 l refrigerators are high because the
prices of the refrigerators would be less. This would be a major factor. The second
aspect would be they don’t have many items to store. They would prefer a small
refrigerator, also the space in their homes are not very big wherein a small
refrigerator would serve their needs.
***
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LESSON-19
DISTRIBUTION CHANNELS
19.1 INTRODUCTION
The distribution function of marketing is comparable to the place component of
the marketing mix in that both center on getting the goods from the producer to the
consumer. A distribution channel in marketing refers to the path or route through
which goods and services travel to get from the place of production or manufacture
to the final users. It has at its center transportation and logistical considerations.
Business-to-business (B2B) distribution occurs between a producer and
industrial users of raw materials needed for the manufacture of finished products.
For example, a logging company needs a distribution system to connect it with the
lumber manufacturer who makes wood for buildings and furniture.
Business-to-customer (B2C) distribution occurs between the producer and
the final user. For instance, the lumber manufacturer sells lumber to the furniture
maker, who then makes the furniture and sells it to retail stores, who then sell it to
the final customer
19.2 OBJECTIVES
 The meaning and importance of distribution in marketing.
 Major channels of distribution for both industrial and consumer
products.
 The role and functions of wholesalers and retailers.
 The considerations/ factors involved in alternative method of
distribution.
19.3 CONTENTS
19.3.1 Meaning and Importance of distribution Channels.
19.3.2 Roles and function of Wholesalers.
19.3.3 Role and function of retailers.
19.3.4 Selection of Channels of Distribution.
19.3.5 Channels of Distribution for Consumer and Industrial Goods
19.3.6 Factors influencing distribution decisions
19.3.1 MEANING AND IMPORTANCE OF DISTRIBUTION CHANNELS
DEFINATION:
“A distribution channel is the chain of businesses or intermediaries through
which a good or service passes until it reaches the end consumer. A distribution
channel can include wholesalers, retailers, distributors and even the internet”.
You know that the main purpose of trade is to supply goods to the consumers
living in far off places. As goods and services move from producer to consumer they
may have to pass through various individuals. Let us take an example. A farmer in
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Srinagar has an apple orchard. Once the apples are ripened he sells the apples to
an agent of Delhi. The agent collects the apples from Srinagar, packs them, and
sells them to a wholesaler at New Delhi Sabzimandi .
The wholesaler then distributes them to various retail fruit vendors
Throughout Delhi by selling smaller quantities. Finally, we purchase apples from
those vendors as per our requirement. Thus, we find that while coming from the
producer at Srinagar, the product reaches the consumers by passing through
several hands like an agent, a wholesaler and a retailer. All these three are called
middlemen.
These middlemen are connecting links between producers of goods, on one side
and consumers, on the other. They perform several functions such as buying,
selling, storage, etc. These middlemen constitute the channels of distribution of
goods. Thus, a channel of distribution is the route or path along which goods move
from producers to ultimate consumers
Importance of distribution Channels:
What is the importance of Marketing channels and distribution? But before we
discuss the importance of these we should first define what is marketing channel
and distribution. Marketing channel is a series of ways or activities needed
essentially to transfer the ownership of goods, and to move goods, from the point of
production to the point of consumption. This consists of the institutions and all the
marketing activities in the marketing process. The distribution channel on the other
hand is defined as a chain of intermediaries, each passing the product down the
chain to the next organization, before it finally reaches the consumer or end-user.
This process is known as the ‘distribution chain’ or the ‘channel.’ Each of the
elements in these chains will have their own specific needs, which the producer
must take into account, along with those of the all-important end-user.
Distribution is one of the most important features that one must consider in
undertaking even a simple marketing. Distribution (Place) is the fourth traditional
element of the marketing mix. The other three are Product, Price and Promotion. It
is one of the fundamental factors specifically the 4P’s that marketers should master
in marketing. Distribution channels are very important because these distribution
channels are the ones who help and simplify how every consumer gets their needed
and wanted products. Let me expound more on the nature of distribution channels,
Most businesses use third parties or intermediaries to bring their products to
market. They try to forge a “distribution channel” which can be defined as “a
passage where all the organizations products must go through between its point of
production and consumption”.
I being a marketing student can’t help myself but ask why we need this
“intermediaries” using intermediaries means giving up some control over how
products are sold and who they are sold to. The answer lies in efficiency of
distribution costs. Intermediaries are specialists in selling. They have the contacts,
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experience and scale of operation which means that greater sales can be achieved
than if the producing business tried run a sales operation itself.
Another important thing we should learn is that even though the distribution
channel may sound simple, it can be very complicated especially with the ever-
changing demands of the market. A simple one way distribution channel can
change drastically to multiple channels instantly. Marketing plan now has to be
versatile and should not be directed toward one market but should have a wide
outlook for every distribution channel. There are six factor that is very important:
The trade channel’s price-value positioning; The trade-channel’s merchandise
display; The trade channel’s delivery needs; The trade channel’s preferred
advertising and promotion method; The trade channel’s packaging need; and lastly
The channel’s core versus noncore product. Each of these must be carefully studied
and take into consideration seriously by anyone doing marketing because this is
now a reality rather than mere point of views.
Marketing channel is also very important for marketers, organizations and
businesses because, how does one get his products and services efficiently to
consumers that are willing to pay for it? Marketing channels illustrate the
organizations that work together tog get your product and service to the end-user.
Many producers of products and services do not sell directly to their end users.
They use a marketing channel. In its most basic form, a marketing channel
performs the work of moving goods from producers to consumers.
A marketing channel includes one or more marketing intermediaries who
perform a variety of functions. Each channel member: Provides value, performs a
function and expects an economic return. Marketing channel often speak about the
sale of products. However, it is not limited to the distribution of physical goods.
Providers of services and ideas also benefit from marketing channel. Marketing
channels offer better services at costs lower than offerings without the assistance of
channel members. Organizations can achieve differentiation through their
distribution channels. Each of these channels may offer different coverage, skill,
and performance. They may also realize economies of scale that channels of
distribution often offer. Marketing channel decisions are among the most critical
decisions facing an organization. The chosen channels closely affect all other
marketing decisions. The organization’s pricing depends on whether it uses mass
merchandisers or high-quality boutiques. The firm’s sales force and advertising
decisions depend on how much training and motivation the dealers need.
Marketing channel intermediaries exist because they offer value in making
goods and services more available and accessible to the targeted markets. Channel
intermediaries offer contacts, experience, specialization, and economies of scale to
organizations that cannot offer these attributes on their own. Marketing channels
allow producers to realize the benefits that only larger organizations may be able to
support. Each channel intermediary provides value that is very much needed for a
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marketing channel to operate successfully. In order for a marketing channel to

successfully run each channel members must effectively execute their parts well.
Distribution and marketing Channels are very important because they are
the ones who help us find the products and services that we greatly need.
Most producers use intermediaries to bring their products to market. They try
to develop a distribution channel (marketing channel) to do this. A distribution
channel is a set of interdependent organizations that help make a product available
for use or consumption by the consumer or business user. Channel intermediaries
are firms or individuals such as wholesalers, agents, brokers, or retailers who help
move a product from the producer to the consumer or business user.
A company’s channel decisions directly affect every other marketing
decision. Place decisions, for example, affect pricing. Marketers that distribute
products through mass merchandisers such as Wal-Mart will have different pricing
objectives and strategies than will those that sell to specialty stores. Distribution
decisions can sometimes give a product a distinct position in the market. The
choice of retailers and other intermediaries is strongly tied to the product itself.
Manufacturers select mass merchandisers to sell mid-price-range products while
they distribute top-of-the-line products through high-end department and specialty
stores. The firm’s sales force and communications decisions depend on how much
persuasion, training, motivation, and support its channel partners need. Whether a
company develops or acquires certain new products may depend on how well those
products fit the capabilities of its channel members.
Some companies pay too little attention to their distribution channels.
Others, such as FedEx, Dell Computer, and Charles Schwab have used imaginative
distribution systems to gain a competitive advantage
19.3.2 ROLES AND FUNCTION OF WHOLESALERS
Wholesaling is the buying/handling of products and services and their
subsequent resale to institutional users and in some cases to final consumers.
Wholesaling assumes many functions in a distribution channel, particularly those
in the sorting process. Manufacturers and service providers sometimes act as their
own wholesalers.
Industrial, commercial and government institutions are wholesalers’ leading customers
followed closely by retailers:
(a) Importance of Wholesaling:
Wholesaling is a significant aspect of distribution because of its impact on the
economy, its functions in the distribution channel and its relationship with
suppliers and customers. In USA, wholesalers generate almost one-fifth of their
total revenues from foreign markets.
Revenues are high since wholesaling involves substantial purchases by
institutional consumers. There are larger numbers of retailers because they serve
individual, disposed final consumers, and wholesalers handle fewer, larger and
more concentrated customers.
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From cost prospective, wholesalers have a great impact on prices. Operating

costs for wholesalers include inventory charges, sales force salaries, rent charges
and costs of advertising etc. Wholesaler costs and profits depend on inventory
turnover, money value of products the functions performed and efficiency etc.
(b) Functions of Wholesaling:
Wholesalers carry out tasks ranging from distribution to risk taking.
Following functions are performed by wholesalers:
i. Enable manufacturers and service providers to distribute locally without
making customer contacts.
ii. Provide a trained sales force.
iii. Provide marketing and research supports for manufacturers, service
providers and retail or institutional consumers.
iv. Purchase large quantities, thus reducing total physical distribution costs.
v. Provide warehousing and delivery facilities.
vi. Provide credit facilities for retail and institutional customers, whenever
required.
vii. Provide adjustments for defective merchandise.
viii. Take risks by being responsible for theft, deterioration and obsolescence of
inventory. Wholesalers who take title of ownership of products and services
usually perform all the above tasks.
(c) Relationship of suppliers and customers with wholesalers:
In this case the needs of the wholesaler are considered unimportant.

(d) Types of Wholesaling:
Three broad categories of wholesaling are discussed below:
(i) Manufacturer Wholesaling:
In this case a firm has its own sales offices and wholesale activities are done at
these offices. Sales office may be conveniently located in a market place. This type
of arrangement is preferred when the manufacturer desires more control on
marketing and/or customers who may be few in number and each is a key account.
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(ii) Merchant Wholesaling
Merchant wholesalers buy, take title and take possession of products for
further resale. Merchant wholesalers may perform full range distribution tasks.
They provide credit, store and deliver products, after merchandising and promotion
assistance, have a personal sales force, offer research and training support and
provide all necessary information to customers and provide installation and after-
sales services. This class is very commonly prevalent in durable consumer goods,
pharmaceuticals and grocery items etc. Merchant wholesalers demand higher
compensation for performing large number of functions.
(e) Agents and Brokers:
They perform various wholesale tasks, but do not take title of products, unlike
merchant wholesalers. Agents and brokers enable a manufacturer to expand sales
volume because of their special expertise and experience in the field.
Such agents and brokers may work for many firms and carry non competitive
and complementary products in exclusive territories. Agents have little say on
marketing and pricing. This class is prevalent in steel, cement, automobile and
white goods. Voltas Ltd. works as wholesale agent for many white goods
manufacturers.
(f) Present Trends in Wholesaling:
Due to phenomenal expansion of marketing activities and entry of many foreign
exporters, the wholesaling has changed dramatically in India. The vast popularity of
Internet and mobile phones have enhanced the importance of wholesalers in India.
These Medias have also played a major role in selling books, CDs and PCs etc.
Wholesalers are constantly looking for productivity gains to benefit their customers
and themselves and protect their position in the market place. Wholesaler
rendering after-sales service to customer is very important and it provides him the
competitive advantage
Functions of Distribution Channels
Distribution channels perform a number of functions that make possible the
flow of goods from the producer to the customer. These functions must be handled
by someone in the channel. Though the type of organization that performs the
different functions can vary from channel to channel, the functions themselves
cannot be eliminated. Channels provide time, place, and ownership utility. They
make products available when, where, and in the sizes and quantities that
customers want. Distribution channels provide a number of logistics or physical
distribution functions that increase the efficiency of the flow of goods from producer
to customer.
Distribution channels create efficiencies by reducing the number of
transactions necessary for goods to flow from many different manufacturers to large
numbers of customers.
This occurs in two ways. The first is called breaking bulk. Wholesalers and
retailers purchase large quantities of goods from manufacturers but sell only one or
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a few at a time to many different customers. Second, channel intermediaries reduce

the number of transactions by creating assortments—providing a variety of
products in one location—so that customers can conveniently buy many different
items from one seller at one time. Channels are efficient. The transportation and
storage of goods is another type of physical distribution function. Retailers and
other channel members move the goods from the production site to other locations
where they are held until they are wanted by customers. Channel intermediaries
also perform a number of facilitating functions, functions that make the purchase
process easier for customers and manufacturers. Intermediaries often provide
customer services such as offering credit to buyers and accepting customer returns.
Customer services are oftentimes more important in B2B markets in which
customers purchase larger quantities of higher-priced products.
Some wholesalers and retailers assist the manufacturer by providing repair
and maintenance service for products they handle. Channel members also perform
a risk-taking function. If a retailer buys a product from a manufacturer and it
doesn’t sell, it is “stuck” with the item and will lose money. Last, channel members
perform a variety of communication and transaction functions. Wholesalers buy
products to make them available for retailers and sell products to other channel
members. Retailers handle transactions with final consumers. Channel members
can provide two-way communication for manufacturers. They may supply the sales
force, advertising, and other marketing communications necessary to inform
consumers and persuade them to buy. And the channel members can be invaluable
sources of information on consumer complaints, changing tastes, and new
competitors in the market.
19.3.3 ROLE AND FUNCTION OF RETAILERS
Functions performed by retailers:
(1) Buying and Assembling:
A retailer deals in different variety of goods which he purchases from different
wholesalers for selling to the consumers.
He tries to locate best and economical source of the supply of goods.
(2) Warehousing or Storing:
After assembly of goods from different suppliers, the retailers preserve them in
stores and supply these goods to the consumers as and when required by them.
The goods are kept as reserve stocks in order to ensure uninterrupted supply to the
consumers.
(3) Selling:
The end objective of the retailer is to sell the goods to consumers. He
undertakes various methods to sell goods to the ultimate consumers.
(4) Credit Facilities:
He caters to the needs of the customers even by supplying them goods on
credit. He bears the risk of bad debts on account of non-payment of amount by the
customers.
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(5) Risk Bearing
A retailer has to bear different type of risks in relation to goods. While in stores,
goods are exposed to various risks like deterioration in quality, spoilage and
perishability etc. The products are confronted to natural risks viz; fire, flood,
earthquake and other natural calamities. Other type of risks like change in
customer’s tastes also adversely affects the sales.
(6) Grading and Packing
The retailer grades the goods which are left ungraded by the manufacturers
and the wholesalers. He packs the goods in small packages and containers for the
convenience of the customers.
(7) Collection and Supply of Market Information
The retailers are in direct touch with the consumers. They gather invaluable
information with regard to likes dislikes tastes and demands of the consumers and
pass on this information to the wholesalers and the producers which are very
helpful to them.
(8) Helps In Introducing New Products
Without the services of retailers, new products cannot be introduced properly
in the market. This is so because a retailer has a direct link with the consumer. He
can explain nicely about the utility and the characteristics of a new product to the
customer.
(9) Window Display and Advertising
The retailer displays the products in show windows in order to attract the
customers. This leads to immense publicity for the product.
Services Performed By Retailers
Retailers provide important services to both the wholesalers and the
consumers.
These can be explained as under
(I) Services To Wholesalers
a. They supply invaluable information with regard to tastes, preferences,
fashions and demands of the customers to the wholesalers who in turn
transmit the same to the producers which is of immense utility to them.
b. By taking over the function of retailing from the wholesalers and
manufacturers, retailer’s relive them from selling goods in small quantities to
the consumers.
c. Many retailers usually place orders in advance with the wholesalers which is
very helpful in planning the purchases of the wholesalers.
d. Sometimes retailers make advance payments for the goods to be received from
the wholesalers. In this manner, they help in financing the wholesale trade.
e. Without the services of the retailers a new product cannot be introduced in
the market supplied to him by the wholesalers.
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(II) Services to Consumers:
a. The retailers assemble variety to produces from the wholesaler and place them
at the doorstep of the consumers and provide them a convenience of choice.
b. They provide credit facilities to the consumers thereby helping them in times
of difficulty.
c. They extend personalised service to the consumers and try to give them
maximum satisfaction.
d. They introduce new products to the consumers and also guide them as to
their uses.
e. They extend free home delivery and after sales service to the consumers.
f. They allow cash discount to the consumers on the products sold.
g. They buy and stock products best suited to the consumers.
h. They give valuable advice regarding the use and maintenance of the products
delivered by them.
i. They cater to the needs of every type of consumer by keeping in view their
paying capacity.
j. They supply fresh products to the consumers.
k. They usually take back the goods which do not suit to the consumers and
replace them.
19.3.4 SELECTION OF CHANNELS OF DISTRIBUTION
Some of the factors to consider while selecting channels of distribution are as
follows: (i) Product (ii) Market (iii) Middlemen (iv) Company (v) Marketing
Environment (vi) Competitors (vii) Customer Characteristics (viii) Channel
Compensation.
We have to consider the following factors for the selection of channel of distribution:
(i) Product
Perishable goods need speedy movement and shorter route of distribution. For
durable and standardized goods, longer and diversified channel may be necessary.
Whereas, for custom made product, direct distribution to consumer or industrial
user may be desirable.
Also, for technical product requiring specialized selling and serving talent, we
have the shortest channel. Products of high unit value are sold directly by travelling
sales force and not through middlemen.
(ii) Market
(a) For consumer market, retailer is essential whereas in business market we
can eliminate retailing.
(b) For large market size, we have many channels, whereas, for small market
size direct selling may be profitable.
(c) For highly concentrated market, direct selling is preferred whereas for widely
scattered and diffused markets, we have many channels of distribution.
(d) Size and average frequency of customer’s orders also influence the channel
decision. In the sale of food products, we need both wholesaler and retailer.
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Customer and dealer analysis will provide information on the number, type,
location, buying habits of consumers and dealers in this case can also influence the
choice of channels. For example, desire for credit, demand for personal service,
amount and time and efforts a customer is willing to spend-are all important
factors in channels choice.
(iii) Middlemen
(a) Middlemen who can provide wanted marketing services will be given first
preference.
(b) The middlemen who can offer maximum co-operation in promotional
services are also preferred.
(c) The channel generating the largest sales volume at lower unit cost is given
top priority.
(iv) Company
a. The company’s size determines the size of the market, the size of its larger
accounts and its ability to set middlemen’s co-operation. A large company
may have shorter channel.
b. The company’s product-mix influences the pattern of channels. The broader
the product- line, the shorter will be the channel.
b. If the product-mix has greater specialization, the company can favor
selective or exclusive dealership.
a. A company with substantial financial resources may not rely on middlemen
and can afford to reduce the levels of distribution. A financially weak
company has to depend on middlemen.
b. New companies rely heavily on middlemen due to lack of experience.
c. A company desiring to exercise greater control over channel will prefer a
shorter channel as it will facilitate better co-ordination, communication and
control.
d. Heavy advertising and sale promotion can motivate middlemen in the
promotional campaign. In such cases, a longer chain of distribution is
profitable.
Thus, quantity and quality of marketing services provided by the company can
influence the channel choice directly.
(v) Marketing Environment
During recession or depression, shorter and cheaper channel is preferred.
During prosperity, we have a wider choice of channel alternatives. The distribution
of perishable goods even in distant markets becomes a reality due to cold storage
facilities in transport and warehousing. Hence, this leads to expanded role of
intermediaries in the distribution of perishable goods.
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(vi) Competitors
Marketers closely watch the channels used by rivals. Many a time, similar
channels may be desirables to bring about distribution of a company’s products.
Sometimes, marketers deliberately avoid channels used by competitors. For
example, company may by-pass retail store channel (used by rivals) and adopt
door-to-door sales (where there is no competition).
(vii) Customer Characteristics
This refers to geographical distribution, frequency of purchase, average
quantity of purchase and numbers of prospective customers.
(viii) Channel Compensation:
This involves cost-benefit analysis. Major elements of distribution cost apart
from channel compensation are transportation, warehousing, storage insurance,
material handling distribution personnel’s compensation and interest on inventory
carried at different selling points. Distribution Cost Analysis is a fast growing and
perhaps the most rewarding area in marketing cost analysis and control.
19.3.5 CHANNELS OF DISTRIBUTION FOR CONSUMER AND INDUSTRIAL GOODS
With the growth of specialization, particularly industrial specialization, and
with improvements in methods of transportation and communication, channels of
distribution became very complex. Thus, corn grown in Illinois may be processed
into corn chips in West Texas, which are then distributed throughout the United
States. Turkeys grown in Virginia may be sent to New York so that they can be
shipped to supermarkets in Virginia. A marketing channel is the network of
organizations that work together to provide goods for consumption.
This definition implies several important characteristics of the channel. First,
the channel consists of institutions, some under the control of the producer and
some outside the producer's control. Yet all must be recognized, selected, and
integrated into an efficient channel arrangement. Second, the channel management
process is continuous and requires constant, monitoring and reappraisal. The
channel operates 24 hours a day and exists in an environment where change is the
norm.
Channels for Industrial Goods include:
1. Producer to industrial user. This is a direct channel for industrial users,
commonly employed by manufacturers of large installations, such as
generators.
2. Producer to industrial distributor to industrial user. This channel of
distribution is commonly used to market accessory equipment, such as
typewriters or operating supplies which include typewriting papers,
pens, and office materials.
3. Producer to agent to industrial user. This is preferably used when an
industrial product is new in the market. Agents are middlemen who
have market contacts and can provide sufficient information on possible
markets.
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4. Producer to agent to industrial distributor to industrial user. This trade

channel is feasible when agents cannot directly sell to industrial users.
Since these agents or brokers shall render services only on demand, a
regular, fixed income can be minimized instead; commissions may be
given as they render services during season.
Channel Levels – Consumer and industrial marketing channels
Channel levels consist of consumer marketing channels or the industrial
marketing channels. A factor common among both channel levels is that both
include the producer as well as the end customer.
1) Zero Level channel / Direct Marketing Channel – Consists of a manufacturer
directly selling to the end consumer. This might mean door to door sales, direct
mails or telemarketing. Dell online sales is a perfect example of a zero level channel
marketing.
2) One Level channel – As the name suggests, the one level channel has an
intermediary in between the producer and the consumer. An example of this can be
insurance in which there is an insurance agent between the insurance company
and the customer.
3) Two level Channel – A widely used marketing channel especially in the
FMCG and the consumer durables industry which consists of a wholesaler and a
retailer.
4) Three level channel – Again observed in both the FMCG and the consumer
durables industry, the three level channel can combine the roles of a distributor on
top of a dealer and a retailer. The distributor stocks the most and spreads it to
dealers who in turn give it to retailers.
Here are perfect representations for channel levels between consumer
marketing channel and an industrial marketing channel.
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20.3.6 FACTORS INFLUENCING DISTRIBUTION DECISIONS

The selection of channel is not an easy job. Let me give certain points that you
have to considered before selection of the channel
1.Nature of Product: The is the first and most important consideration.
Product features, size, shape, color, durability, perishability, Value of product etc
are the factors that constitute the product characteristics. Perishable items needs
strong packaging and shorter channel whereas items with long life can have longer
channels. Size and handling also affects the channel. Odd sizes, difficult handling
are often found to have shorter channel. Industrial machinery, that requires
particular customer preference are often sold through direct channels.
2.Customer Characteristics: If the product has got huge customer base and
are geographically dispersed, buying product in small quantities requires longer
channels. This is because producers needs to have wide network of retailers and
wholesalers to make the product easily accessible in the local market. For eg
product like Pepsi needs a longer channel. Unlike above, industrial products, where
customers have preferences regarding the technology and the functions to be
incorporated needs shorter channel, because the product is needed to be adjusted
according to customer preference.
3.Nature of Market: The location and the coverage of the market also
determines the channel selection. If the market is dense, spread across in length
and breath, requires longer channel. Whereas if the product has niche market, the
channel can be short.
4.Cost Consideration: The cost of maintaining the channel is also a key
consideration. Every producer would like to have shorted channel, may be direct
channel, but its cost. Now this cost has to be compared with the benefits derived.
Longer channel, with high number of middleman also tend to raise the price of the
product, because every middleman, looks for his share and wants a larger share.
5.Time: Time taken by the channel to make the product available to the
consumer, is one other factor. Longer channel are often found to take shorter time.
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This is because the middleman are well versed with the market and are efficient in
distribution of product. Keeping a channel short means that the customers have to
first look for distributor and place his orders.
6.Competition: Manufacturers are often found to use the same channel of
distribution as the competitors are using. If one deviates, other plan for the same.
Longer, indirect channels are to be used if the competition is intense, however
shorter channel can be used, if competition is less. For eg Industrial product, where
the competition is less uses more direct and shorter channel than the FMCG
products where the competition is more.
7. Availability of Middleman: Availability of middleman in foreign nations, is one
other factor to be considered, specially for industrial product, or product with high end
specification. Product which are customer oriented, which are brought regularly, may be
everyday, which is a necessity can use longer channel, as middleman are very easily
available. However product with specific technology, industrial equipments, middleman
are not easy to come by. Even middleman needs to be trained with the product feature
thereby marketing the same in their local markets.
8.Technological Factors: The technology component of the product also
affects the channel selection. Products which are not technology oriented can have
longer channels are product Is not needed to be explain to the customers. However,
if the product is highly technical, requires a shorter direct channel, as it
functioning is to be explained to the consumers.
9.Consumption Pattern: Consumption pattern is also a factor to be
considered before designing the channel. If the product is consumed regularly, may
be periodic, then such products should longer channels, as consumers would like
such product to be easily accessible. People will not like to make great research and
run around for such product, and will buy anything which is easily available.
10.Other Factors: To end with, there are some other factors like infrastructure
in the foreign nation, political environment, legal regulations, social attitude,
culture, values etc that may affect the selection of the particular channel.
What are the factors influencing selection of Distribution Channel in
International Marketing? by MT UVA BMS
Distribution channels and selection of channels
1. Discuss the difference between the theories of the sorting concept and the
postponement concept.
2. What are the five important "flow~ " that link channel members and other
agencies together in Distribution? Explain each type.
3. Define the following three channel functions: (1) transactional, (2) logistical,
and (3) facilitating. What would happen to these functions if the middlemen
were eliminated from the chain linking manufacturer to consumer?".
4. Why are channels of distribution important for service products?
5. Compare the characteristics of the three forms of vertical marketing
systems: administered, contractual, and corporate.
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6. What are the advantages to wholesalers of contractual arrangement forming

cooperatives with? Retailers? What are the advantages to retailers?".
7. What is an ancillary structure? What is its function in the distribution channel?
19.6 SUMMARY
The complex mechanism of connecting the producer with the consumer is
referred to as the channel of distribution. This chapter has looked at the evolution
of the channel, as well as theoretical explanations for the distribution channel
phenomenon. Five "flows" are suggested that reflect the ties of channel members
with other agencies in the distribution of goods and services. A channel performs
three important functions: (I) transactional functions, (2) logistical functions, and
(3) facilitating functions. Channel strategies are evident for service products as well
as for physical products. Options available for organizing the channel structure
include: (1) conventional channels, (2) vertical marketing systems, (3) horizontal
channel systems, and (4) multiple channel networks. Designing the optimal
distribution channel depends on the objectives of the firm and the characteristics of
available channel options.
The primary members of distribution channels are manufacturers,
Wholesalers, and retailers,
Retailing is all activities required to market goods and services to the ultimate
consumer. This makes retailers who perform such activities an important link in
the channel of distribution for many consumer products.
Wholesaling involves all activities required to market goods and services to
businesses, institutions industrial users who are motivated to buy for resale or to
produce and market other products and services. Wholesalers provide a linkage
between producers and retailers or industrial users. Physical distribution
management involves the movement and storage of materials, parts, and finished
inventory from suppliers, between middlemen, and to customers. Physical
distribution activities are undertaken to facilitate exchange between marketers and
customers, the basic objective of physical distribution is to provide an acceptable
level of customer service at the lowest possible cost.
This is done using the total cost concept, which requires that all the costs of
each alternative distribution system be considered when a firm is attempting to
provide a level ()f customer service. Channels exhibit behavior, as people do, and
this behavior needs to be coordinated and managed in order to reach desired
objectives. The four dimensions of behavior examined are role, communication,
conflict, and power. Strategies for effective channel management include: (I) analyze
the consumer, (2) establish channel objectives, (3) specify the channel tasks, (4)
select the appropriate channel from available alternatives. And (5 ) evaluate the
results. The chapter concludes with a discussion
Suppose 15 firms in an industry wished to reach 15,000 potential customer are
selling to them directly. How many sales contacts would be required in this
industry if each firm called on each customer? How many sales contacts would be
required if an intermediary were placed between firms and potential customers.
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1. International journal of research in marketing
19.9 ASSIGNMENTS
1. Factors Affecting the Selection of the Channel of Distribution
2. Channels of Distribution for Consumer and Industrial Goods.
3. Role and function of retailers
19.10 REFERENCE BOOKS
1. NBWA (2013), ‘America’s Beer Distributors: Fueling Jobs, Generating
Economic Growth & Delivering Value to Local Communities’, Center for Applied
Business & Economic Research, Alfred Lerner College of Business & Economics,
University of Delaware.
2. Charlier, Marj (1995), ‘Beer Brouhaha: Existing Distributors Are Being
Squeezed By Brewers, Retailers; Biggest Discounters, Chains Seek Ways to
Eliminate “Middlemen” Wholesalers Trend Worries Little Guys’, The Wall Street
Journal, (22 November), A1.
3. FedEx (2013), ‘Mission, Strategy, Values’, [online] available at:
http://about.van.fedex.com/mission-strategy-values.
1. Supose the president of Libra carpet has asked you to look into the possibility of
by passing the firms wholesales(who sell to carpet department and furniture store) and
selling directly to these stores . What caution would you voice on these matter and
what type of information would you gather before making this decision?
19.12 KEY WORDS
Exchange function Sales of the product to the various members of the channel
of distribution.
Physical distribution function Moves the product through the 'Exchange
channel, along with title and ownership.
Marketing channel Sets of independent organizations involved in the process
of making a product or service available for use or consumption as well as providing
a payment mechanism for the provider.
Reutilization The right products are most always found in places where the
consumer expects to find them, comparisons are possible, prices are marked, and
methods of payment are available.
Retailing Involves all activities required to market consumer goods 8nd
services to ultimate consumers.
Nonstore retailing Sales made to ultimate consumers outside a traditional
retail store salting.
Wholesaling Includes all activities required to market goods and services to
businesses, institutions, or industrial users.
Conventional channel A group of independent businesses, each motivated by
profit, and having
Little concern about any other member of the distribution sequence.
❑
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LESSON-20
PHYSICAL DISTRIBUTION
20.1 INTRODUCTION
The Physical distribution includes all the activities associated with the supply
of finished product at every step, from the production line to the consumers.
Important physical distribution functions include customer service, order
processing, inventory control, transportation and logistics, and packaging and
materials.
Physical distribution is the group of activities associated with the supply of
finished product from the production line to the consumers. The physical
distribution considers many sales distribution channels, such as wholesale and
retail, and includes critical decision areas like customer service, inventory,
materials, packaging, order processing, and transportation and logistics. You often
will hear these processes be referred to as distribution, which is used to describe
the marketing and movement of products.
Accounting for nearly half of the entire marketing budget of products, the
physical distribution process typically garnishes a lot of attention from business
managers and owners. As a result, these activities are often the focus of process
improvement and cost-saving initiatives in many companies.
20.2 OBJECTIVES
 The importance of physical distribution in Marketing.
 The various important elements in physical distribution.
20.3 CONTENTS
20.3.1 Meaning, Objectives and Importance.
20.3.2 Components of PDS.
20.3.3 Managing Physical Distribution.
20.3.1 MEANING, OBJECTIVES AND IMPORTANCE.
Objectives and Significances of Physical Distribution Management!
The principal objectives of physical distribution are to deliver the right goods to
the right customer at the right time and place.
In other words, efficiency and satisfactory service are key goals of physical
distribution, although there might be some conflicts with each other.
Objectives:
(i) To Give Better Customer Service:
By improving the physical distribution system, the company’s promotional
efforts are strengthened.
(ii) To Enhance Sales:
By making sure that basic products in regular demand are always available,
and having contingency plans for quick order processing of items.
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(iii) To Decrease Cost:
By intelligently organising the physical distribution system and determining the
optimum number and location of warehouses, improving materials handling,
increasing stock turnover, and using sealed containers to ship products.
Significance or Importance of Physical Distribution Management:
The physical distribution of goods has assumed great importance particularly
in recent years, because of the ever increasing competition for markets.
The importance of physical distribution lies in the following directions:
1. It Creates Utilities Of Time And Place:
By making available a product at the place where and when it is needed.
2. It Accounts For A Major Portion Of Marketing Costs:
According to one estimate, physical distribution costs constitute as much 60%
of the total marketing cost and range according to industries, from 10% to 30% of
sales revenues; for machinery these were 9.8% ; wood products 16.1% ; paper and
allied products 16.7% ; chemicals, petroleum and rubber 23.1% and primary and
fabricated metals, 26.5%.’
3. Bigger Share in the National Wealth:
It represents large share in the national wealth in the form of facilities—rail,
road, trucks, highways, aircrafts, ship, docking facilities, pipelines, storage facilities
and equipment.
4. Specialisation It Facilitates Geographic Specialization:
Each area produces goods that its natural resources, climate or pool of
manpower resources enable it to produce more efficiently.
5. Determines Standard Of Living:
This is so because proper distribution of products makes them available to a
large number of people, at a relatively lower cost. Thus it can be said that physical
distribution directly affects sales, customer service and satisfaction, and costs.
Functions of Physical Distribution
The key functions within the physical distribution system are:
 Customer service
 Order processing
 Inventory control
 Transportation and logistics
 Packaging and materials
The customer service function is a strategically designed standard for
consumer satisfaction that the business intends to provide to its customers. As an
example, a customer satisfaction approach for the handbag business mentioned
above may be that 75% of all custom handbags are delivered to the customer within
72 hours of ordering. An additional approach might include that 95% of custom
handbags be delivered to the customer within 96 hours of purchase. Once these
customer service standards are set, the physical distribution system is then
designed to attain these goals.
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Order processing is designed to take the customer orders and execute the
specifics the customer has purchased. The business is concerned with this function
because it directly relates to how the customer is serviced and attaining the
customer service goals. If the order processing system is efficient, then the business
can avoid other costs in other functions, such as transportation or inventory
control. For example, if the handbag business has an error in the processing of a
customer order, the business has to turn to premium transportation modes, such
as next day air or overnight, to meet the customer service standard set out, which
will increase the transportation cost.
Inventory control is a major role player in the distribution system of a
business. Costs include investment into current inventory, loss of demand for
products, and depreciation. There are different types of inventory control systems
that can be implemented, such as first in-first out (or FIFO) and flow through,
which are methods for businesses to handle products.
First in-first out, or FIFO, is a method in which the new products coming into
the warehouse replace existing products of the same SKU so that merchandise is
cycled and does not expire or become old as more recent production is available.
Flow through, on the other hand, is product that does not get processed in the
warehouse. It is offloaded from an inbound trailer, pushed across the warehouse
and onto outbound trailers for departure without being stored in the warehouse.
Importance of Physical Distribution:
The importance of physical distribution to a company can vary and is
typically associated with the type of product and the necessity it has to customer
satisfaction. Strategically staging products in locations to support order shipments
and coming up with a rapid and consistent manner to move the product enables
companies to be successful in dynamic markets.
Physical distribution is managed with a systems approach and considers key
interrelated functions to provide efficient movement of products. The functions are
interrelated because any time a decision is made in one area it has an effect on the
others. For example, a business that is providing custom handbags would consider
shipping finished products via air freight versus rail or truck in order to expedite
shipment time. The importance of this decision would offset the cost of inventory
control, which could be much more costly. Managing physical distribution from a
systems approach can provide benefit in controlling costs and meeting customer
service demands.
20.3.2 COMPONENTS OF PDS
The physical distribution (PD) systems concept says that all transporting,
storing and product handling activities of a business and a who le channel system
should be coordinated as one system that seeks to minimize the total cost of
distribution for a given customer service level. This systems approach to physical
distribution management results in lower costs and better customer service which
help to increase customer value and customer Satisfaction. The study made use of
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the conceptual models of physical distribution activities and customer service/

satisfaction which are shown below in figure. The conceptual PDS/customer
satisfaction model, figure 2.3 was developed for this study based on the two models
FIGURE 2.1
Conceptual Customer Service/Satisfaction Model
The three approaches to organizing the area of customer service (physical

distribution being considered a part of overall customer service). These approaches
were based on (1) time-phasing (2) operational attributes and (3) functional areas.
In the operational attributes approach, separated the more objective performance
measures (speed, availability, accuracy, consistency and product performance) from
the more subjective customer expectation and perception measures (convenience,
flexibility, personalized attention, and information). While the performance
measures may be easily measured by a selling firm, the customer’s expectations
and perceptions are of critical importance.
Conceptually, in the Vendor Activity Domain, physical distribution service is a
family of activities with associated performance measures.
In the customer Response Domain, physical distribution service is a
multidimensional
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Construct with perceptual performance indicator(s) for each dimension

Figure 2.1: Shows physical distribution service with dimensions and indicators
of each dimension. The dimensions are:
1. Product availability: It is measured by its indicators, namely: (a) Percent
unit’s filled, (b) percent order lines 100 percent filled, and (c) percent order 100
percent filled.
2. PDS timeliness: It is measured by its indicators, namely: (a) mean order
cycle time, (b) standard deviation of order cycle time, and (c) percent units received
in specified time period.
3. PDS quality: It is measured by its indicators, namely: (a) Percent units
received in acceptable conditions, (b) Percent units are correct units, and (c)
percent units are in correct quantity.
4. PDS flexibility: It is measured by its indicators, namely: (a) flexible order
policies (b) expedite and substitute capacity, and (c) timely response to unexpected
needs of customers. This fourth dimension is not shown in the figure but it is being
considered as critically important in modern physical distribution service.
This involves a management culture which recognizes that customer will have
special needs and service breakdown will occur and that fast resolution can, in the
final analysis, cement customers’ loyalty.
Physical Distribution Service (Customer Service) Concept:
The objective of physical distribution management (PDM) is the minimization
of total cost with the maximization of time and place utility in goods. Early work in
the field was concerned with the realization of cost savings. But this cost savings
was unconstrained while physical distribution service levels provided an inherent
constraint upon physical distribution system. Physical distribution costs, i.e.,
transportation, warehousing, inventory, order processing, etc., are directly related
to the level of service provided. No reasonable cost reduction decision can be
implemented without consideration being given to the level of physical distribution
service necessary for a company to retain its competitive position in the market
place. As the physical distribution service matures, physical distribution service
level is being viewed as a variable that can differentiate the product in the market
place and thereby improve upon the product’s competitiveness. The physical
distribution management teams are now being called upon to develop physical
distribution service levels in light of its sales effect and corresponding cost. Physical
distribution service variable is made up of dimensions viz: product availability, PDS
timeliness, PDS quality and PDS flexibility. Each of these dimensions, individually
affects customer satisfaction.
Components of physical distribution
Physical distribution is a set of activities which is principally concerned with
the actual movement of finished products and materials continuously until it
reaches the consumers in the right quantity at the right time and place.
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Physical distribution is not only the loading, unloading and movement of

finished goods from the produces to their final destinations. The present demands
in the are of marketing cannot be early understood unless one looks at the
components or the various activities involves in physical distribution due to the
sphere of physical distribution, it cannot be ruled out seeing most trans-national
corporation and big side form creating separate sub department and appointing
various actions, component area of physical distribution
Present day physical distribution is made up of the following:-
Order processing:
These include all the activities that take place from the moment the customers
order is received by the organization until a warehouse close to the customers is
informed to fill the customers order. These activities includes:
a. Sales department checking the credit worthiness of the customers.
b. Legal department contacted to know the law surrounding the sales of
that particular product.
c. Entries made to give credit to particular sales person that brought in the
sales.
d. Master inventory card adjusted to shows present inventory level of the
particular distribution center from where the customers is served.
Customer’s service:
These are all the activities undertaken to keep the customers services.
Sales forecasting:
The production or estimation of the likely sales figures of a particular product
for a given period of time usually a year.
Distribution planning:
Taking the right amount of the right product at the right place at reasonable
interval that will meet consumers need requirements.
Inventory management:
The maintenance of right amount of units of a particular product at a point in
time in order not to run out of stock, not carrying of excess inventory.
Packaging:
The accordance of additional protective materials to the already packaged item
in order to prevent or reduce the likelihood of the produce being damaged or dented
while on transit.
Communication:
Management of message that move forth and back through the department and
its various customers located at various markets.
Warehouse location:
The selection of storage facilities and distribution centers at the best location in
order to provide efficient customers services at a reasonable cost.
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Return of merchandise:
The bringing of product from the market back to the organization due to
defectiveness out of storage and nonpayment by customers. Return - inwards also
include such items as empties and unused pallet back to the firm for recycling
purpose.
Transportation:
The provision and adequate management of the right quality of vehicle center
owned or hired for the evaluation of finished goods from the factory or plant
warehouse to the firm of various markets.
Documentation:
The insurance of the necessary document for payment of bought items and
controlling the movement for merchandise while in transit from factory tot eh
buyer.
The Total Cost Approach
The total cost approach of distribution management in similar to the total
system concept. The total const approach to distribution management makes sure
that all the important components of physical distribution and warehouse of
material and products need to be taken into consideration as a whole and not
individually. Important philosophy to the total concept is that all item are
considered at the same time when trying to cut down cost or significantly improve
performance in one of the component area of physical distribution.
Cost Trade Off
This concept recognized that while trying to carry out a change in any area of
component physical distribution will surely result to cost increase in certain
physical distribution component areas. The guild and objectives or principles of any
introduction of a new invention in physical distribution should be aimed at
achieving an overall cost reduction for a given level of performance.
20.3.3 MANAGING PHYSICAL DISTRIBUTION
The basic elements of specific functions that make up physical distribution
include (i) Materials handling; (ii) inventory planning and control ; (iii) order
processing ; (iv) transportation ; and (v) a communication system to integrate the
physical distribution process.’
These elements are explained below:
1. Materials Handling:
It involves moving products in and out of a stock. It consists of routine tasks
that can be performed through mechanisation and standardisation. Efficiency is
increased through use of electronic data processing to control conveyor systems,
order picking and other traffic flaws.
The modern mechanised handling services and protective packaging have
improved the level of customer service and at the same time lowered physical
distribution costs. Material handling and packaging services have also speeded up
the order processing and movement of consignments.
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2. Inventory Planning And Control:
Inventory refers to the stock of products a firm has on hand and ready for sale
to customers. Inventories are kept to meet market demands promptly. Inventory is
the link interconnecting the customer’s orders and the company’s production
activity.
Infact the entire physical distribution management rotates around the
inventory management. Inventory management is the heart of the game of physical
distribution.
Marketing managers undertake an inventory planning to develop adequate
assortments of products for the target market and also try to control the costs
involved in obtaining and maintaining inventory.
Marketing managers generally take three decisions while conducting inventory
management, viz, (i) how can the track be kept, on a day-today basis of location,
amount and the condition of the inventory? (ii) How can inventory information best
be channelled to production managers or buyers for resale to help them schedule
their activities? (iii) What inventory information can other departments in the
organisation use to help them perform their functions efficiently?
3. Order Processing:
Order-processing and inventory control are related to each other. Order
processing is considered as the key to customer service and satisfaction. It includes
receiving, recording, filling, and assembling of products for dispatch. The amount of
time required from the dates of receipt of an order up to the date of dispatch of
goods must be reasonable and as short as possible.
It comprises in undertaking the processes that are needed to make certain
orders processed quickly, accurately, and efficiently. The marketing manager has to
decide about these along with such issues as what is the most efficient way to bill
customers; how cans the paper work may be minimized? And how can the physical
function of assembling orders more efficiently?
4. Transportation:
It is an essential element of physical distribution. It involves integrating the
advantages of each transportation method by adopting containers and physical
handling producers to permit transfers among different types of carriers.
For example, to place containers in railway flat cars and then load the
containers on motor vehicles is called “piggy back” and if the containers are off
loaded to water carriers, it is called “flash back.” Exchange of containers between
air and truck carriers are referred to as “Air truck” or “birdy back”.
The marketing manager has to decide to (i) what mode or combination of modes
of transportation (rail, truck, pipeline, water ways or air) should be used to
transport products to warehouses and from there to customers? (ii) Should the
transportation cost be reduced and the desired levels of customer service still
maintained.
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5. Communications:
It is a process of passing information and understanding from one person to
another. This includes the information system which should link producers,
intermediaries, and customers. Computers, memory systems, display equipment
and other communication technology facilitate the flow of information among other
members in the channel.
A manager to be successful must develop an effective system of
communication. So that he may issue instructions, receive the reactions of the
subordinates, and guide and motivate them.
6. Organisational Structure:
The person in charge of the physical distribution should co-ordinate all
Activities into an effective system to provide the desired customer service in the
most efficient manner. Examples of organizational consideration are: (i) How can
the five elements of physical distribution best be coordinated so that a team effort
results? How can compartmentalization thinking be avoided? (ii) If a central head is
established to direct all physical distribution activities, to whom should he report—
The Head of the Marketing or The Chief Executive Officer?
20.4 REVISION POINT
Concept of Physical distribution and satisfaction models
1. Explain order processing for Physical distribution
2. Functions of Physical distribution
20.6 SUMMARY
To utilize the available human and material resources to the maximum extent
at industry/regional/national level• ii-To minimize the in fructuous expenditure of
resource and infrastructure facilities are provided on a liberal scale• iii Exploit
those areas of industrial development which have hitherto been considered
inaccessible, making availability of new methods and resources.
Important Logistic requirement of modern Industrial Enterprise• i-Sufficient
Land for an Industrial Plant ,considering future expansion, residence for workers
staff/Executives• ii-Enough availability of Water for Industrial Plant as well for
Workers/Staff during initial and regular phases.• Iii-Sufficient Electric supply
during construction/operation stage as well as maintenance of the plant, colony
and supporting staff population.
1. As marketing director of kellogg’s , evolve a market driven distribution
system for the Indian market.
Journal of international marketing
20.9 ASSIGNMENT
Explain Physical distribution for order processing
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1. Belch, George E., and Michael A. Belch. Advertising and Promotion: An
Integrated Marketing Communications Perspective.
2. Biocca, Frank. Television and Political Advertising: Volume I: Psychological
Processes (Routledge, 2013).
3. Chandra, Ambarish, and Ulrich Kaiser. "Targeted advertising in magazine
markets and the advent of the internet." Management Science 60.7 (2014)
4. Chen, Yongmin, and Chuan He. "Paid placement: Advertising and search on
the internet*."
1.Managing physical distribution involved balancing distribution costs against
acceptable level of customer services and satisfication-Explain
Important Logistic requirement of modern Industrial Enterprise• i-Sufficient
Land for an Industrial Plant ,considering future expansion, residence for workers
staff/Executives• ii-Enough availability of Water for Industrial Plant as well for
Workers/Staff during initial and regular phases.• Iii-Sufficient Electric supply
during construction/operation stage as well as maintenance of the plant, colony
and supporting staff population.
20.12 KEY WORDS
PDS, FIFO, Logistics, Trade off, Physical Distribution Management (PDM)
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LESSON-21
MARKETING RESEARCH
21.1 INTRODUCTION
Research is defined as a ‘‘systematic inquiry aimed at providing information to
solve managerial problems. ’The term systematic is related to the scientific method,
the idea being that research is the process of inquiry conducted in the best, or at
least, most appropriate way. In this text, we are more specific about a particular
domain of research – viz., marketing. We will examine what marketing research is,
why and how it is used by marketing managers.
21.2 OBJECTIVES
 The meaning, scope and objectives of marketing research.
 The marketing research process.
21.3 CONTENTS
21.3.1 Meaning, Scope and Importance.
21.3.2 Objectives of Marketing Research.
21.3.3 Marketing research process.
21.3.4 Types of Marketing Research
21.3.1 MEANING, SCOPE AND IMPORTANCE.
Marketing Research has two words, viz., marketing and research.
1. Marketing means buying and selling activities.
2. Research means a systematic and complete study of a problem. It is
done by experts. It uses scientific methods.
Thus, we can say, “Marketing Research is a systematic method of collecting,
recording and analyzing of data, which is used to solve marketing problems.
A company faces many marketing problems. It faces problems about
consumers, product, market competition, sales promotion, etc. Marketing research
helps to solve these problems.
Marketing research is a systematic process. It first collects data (information)
about the marketing problem. Secondly, it records this data. Then it analysis
(studies) this data and draws conclusions about it. After that, it gives suggestions
(advice) for solving the marketing-problem.
So, marketing research helps to solve the marketing problems quickly, correctly
and systematically.
Marketing research collects full information about consumers. It finds out the
needs and expectations of the consumers. So the company produces the goods
according to the needs and expectations of the consumers.
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Marketing research helps the company to make its production and marketing
policies. It helps the company to introduce new products in the market. It helps to
identify new-markets.
Marketing research also collects full information about the competitors. The
company uses this information to fight competition. It also helps the marketing
manager to take decisions.
Marketing research is a special branch and soul of 'Marketing Management'. It
is of recent origin and widely used by manufacturers, exporters, distributors and
service organisations.
Marketing research is very systematic, scientific, objective and organised. It has
a wide scope. It includes product research, consumer research, packaging research,
pricing research, etc.
Marketing research is a continuous process. It has a few limitations. However,
a company cannot survive and succeed without it.
Definition of Marketing Research:
Marketing research is defined numerous ways. Let us consider some
important definitions to understand the meaning of marketing research.
The American Marketing Association defines marketing research as follows:
Marketing Research is the function which links the consumer, customer, and
public to the marketer through information—information used to identify and
define marketing opportunities and problems; generate, refine, and evaluate
marketing actions; monitor marketing performance; and improve understanding of
marketing as a process.
According to Naresh Malhotra , a popular researcher and professor the
definition of Marketing research is:
The systematic and objective identification, collection, analysis, and
dissemination of information for the purpose of assisting management in decision
making related to the identification and solution of problems (and opportunities) in
marketing.
Green and Tull, a popular text book authors have defined marketing
research as follows:
Marketing research is the systematic and objective search for, and analysis of,
information relevant to the identification and solution of any problem in the field of
marketing.
These definitions bring out the following common features.
1. Marketing research is a function of a business organization.
2. It links marketer with consumer, customer and public.
3. Information is the outcome of marketing research.
4. It is an objective search- inquiry with a purpose
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5. It is systematic. It is based on a defined procedure and uses standard

methods.
6. It is a process involving steps like: identification, collection, analysis, and
dissemination of information.
7. It is purposeful. It helps managers in improving their understanding of
marketing as a process and assists in decision making related to problems and
opportunities in marketing. It helps evaluate marketing actions and monitor
marketing performance.
21.3.2 OBJECTIVES OF MARKETING RESEARCH
The main objective of marketing research (MR) is to provide information to the
marketing manager. The marketing manager uses this information to make
marketing decision and to solve marketing problems.
The purposes or objectives of marketing research are listed below.

1. Identify the consumer response to the company’s product.
2. Know the consumers’ needs and expectations.
3. Seek maximum information about the consumer, i.e. the know
consumers’ income range, their location, buying behavior, etc.
4. Know the nature and extent of competition and also the strength and
weaknesses of the competitors.
5. Check the reaction of the dealers to the company policies.
6. Evaluate the reputation of the company in the market.
7. Identify and solve the marketing problems of the company.
8. Search for new marketing opportunities.
9. Find out alternative uses of the existing products.
10. Estimate the cost of marketing of goods and service.
11. Help company to introduce new products in the market and improve its
existing products.
12. Assist a company to select a suitable channel of distribution and test
the effectiveness of this distribution channel.
13. Facilitate company to select suitable sales promotion measures and test
the effectiveness of the sales promotion techniques.
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14. Aids the company to select a suitable media for advertising and find out
the overall impact of advertising.
15. Help the marketing manager to decide about the quality of the product,
product modification, packaging, pricing, branding, etc.
16. Provide information to top level of management for making objective,
policies, plans and strategies.
17. Provide prerequisite information to forecast the marketing budget.
18. Supply up-to-date information about market trends, demand and
supply position, etc.
19. Forecast the future sales and business conditions.
Marketing research is very useful to government, manufacturers, wholesalers,
retailers, consumers and to entire society.
Features of Marketing Research
The salient characteristics or features of marketing research are as follows:
1. Wide and comprehensive scope - Marketing research has a very wide
scope. It includes product research, packaging research, pricing
research, market research, sales research, etc. It is used to solve
marketing problems and to take marketing decisions. It is used to make
marketing policies. It is also used to introduce new products in the
market and to identify new markets. Marketing research is used to
select channels of distribution, in advertising strategy, for sales
promotion measures, etc.
2. Systematic and scientific - Marketing research is conducted in a step-
by-step manner. It is conducted in an orderly fashion. Therefore, it is
systematic. Marketing research uses scientific methods. Thus, it is also
scientific.
3. Science and art : A Science collects knowledge (data) while an Art uses
this knowledge for solving problems. Marketing research first collects
data. It then uses this data for solving marketing problems. Therefore, it
is both, a Science and an Art.
4. Collects and analyzes data - Marketing research gathers data
accurately and objectively. It first collects reliable data and then
analyses it systematically and critically.
5. Continuous and dynamic process - The company faces marketing
problems throughout the year. So, Marketing research is conducted
continuously. It continuously collects up-to-date data for solving the
marketing problems. Large companies have their own marketing
research departments. They conduct Marketing research continuously
throughout the year. Therefore, Marketing research is a continuous
process. It is a dynamic process because it goes on changing. It does not
remain static (the same). It uses new methods and techniques for
collecting, recording and analyzing the data.
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6. Tool for decision-making - The marketing manager has to take many

decisions. For this, he requires a lot of data. Marketing research
provides correct and up-to-date data to the marketing manager. This
helps him to take quick and correct decisions. Therefore, Marketing
research is an important tool for decision-making.
7. Benefits company and consumers - Marketing research is useful to
the company in many ways. It increases the sales and profits of the
company. It helps the company to fight competition and boost its
goodwill in the market. It reduces the marketing risks. In short,
Marketing research brings success to the company. It also brings the
company closer to the consumers. It gives convenience and satisfaction
to the consumers.
8. Similar to military intelligence - Marketing research is a commercial
intelligence-gathering activity. It works similar to military intelligence.
Marketing intelligence first makes a systematic study and only then
takes a business action. Marketing research collects reliable data about
the consumers, the competitors, the market, etc. This data is then
organised and used for planning, decision-making and problem solving.
This data is also further used for introducing new products and services
in the market.
9. Applied research - Applied research is used for solving problems.
Marketing research is used for solving marketing problems. Therefore,
we can say that, Marketing research is also an applied research. It has a
practical value because it is used for solving present and future
problems.
10. Connected with MIS - Marketing research is a component of Marketing
Information System (MIS). Marketing research and MIS are interrelated.
Both are used to solve marketing problems and to take marketing
decisions.
11. Reduces gap between producers and consumers - Marketing research
informs producers about the needs and wants of the consumers. The
producers produce goods according to the needs and demands of the
consumers. This brings satisfaction to the consumers and in return
producers make good profits. So, Marketing research reduces the gap
between the producers and the consumers.
12. Uses different methods - Marketing research uses three methods for
collecting data, viz., Survey Method, Experiment Method and
Observation Method. All three methods are scientific. The researcher
has to use a suitable method for collecting a reliable data.
13. Has few limitations - Marketing research has few limitations too. It is
not an exact science. So, it does not give accurate results. It provides
suggestions and not solutions. It is also a costly and time-consuming
process.
14. Accurate data collection and critical analysis - Marketing research
gives much importance to accurate data collection and its critical
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analysis. Thus, in a Marketing research, the data must be first collected

accurately. That is, collected data or gathered information must be
accurate, reliable and relevant. Later, this information must be
systematically and critically examined before making any decisions.
Need and Importance of Marketing Research (MR)
A business faces many types of marketing problems. It faces problems about its
product, price, place and promotion. It also faces problems about product design,
packaging, branding, marketing channels, advertising, etc. Some marketing
problems are very serious. Therefore, in the marketing, managers use marketing
research as an important tool to solve marketing problems.
The need and importance of marketing research are depicted below.
Marketing research helps company and decision makers as follows:

1. Marketing research (MR) provides valuable data.
2. It studies and provides data about consumer behavior.
3. It helps to select suitable sales promotional techniques.
4. It supplies market-related information.
5. It helps a company to evaluate its marketing performance.
6. It also has miscellaneous needs and importance.
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1. Provides valuable data.
Marketing research provides valuable data to the decision makers. It provides
data about demand, supply, consumer behavior, competition, etc. This data is used
for decision making. This data improves the quality of decisions. It makes the
decision very successful.
2. Studies consumer behavior.
Marketing research provides data about consumer behavior. It provides data
about age, incomes, likes, dislikes, etc. of the consumers. It also finds out the
opinions of the consumers about a company’s product. This data is used to make
production and marketing policies.
3. Selects promotional techniques.
Marketing research helps the company to select suitable sales promotion
techniques. It helps to select marketing techniques. It helps to select proper media
for advertising. It helps to solve the problems of after-sales service. It also helps to
prepare the budget for advertising and sales promotion.
4. Supplies marketing information.
Marketing research supplies data about the market situation.
This market-related data is used to find out:
1. The present and future demand and supply position.
2. The level of competition and steps taken to control it.
3. Market opportunities.
4. The cause of fall in sales level.
5. Evaluates marketing performance.
Marketing research helps the company to evaluate its marketing performance
and to take steps to improve it.
Marketing research is used to find out the effect of price, package, brand name,
etc. on sales. It is used to find consumers’ reaction towards the company’s product.
It is used to evaluate the inventory and pricing policies. It is also used to evaluate
the effectiveness of advertising, sales promotion techniques, channels of
distribution, etc.
6. Miscellaneous needs and importance.
Miscellaneous needs and importance of marketing research are as follows:
 Marketing research improves the efficiency of the marketing department.
This creates goodwill and good reputation.
 It helps the marketing manager to take the rational and effective
decisions.
 It helps to choose suitable staff for doing research.
 It is used to make growth and expansions programs.
 It benefits all i.e. it benefits the company, distributor, advertising
agency, consumer, government and the entire society.
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So, marketing research is very helpful to everyone. But it is most useful to a

manufacturer because it helps to answer the basic questions, i.e. what, where,
when, who, whom and how to sell?.
21.3.3 MARKETING RESEARCH PROCESS
The six steps involved in marketing research process are as follows: 1. Define
the problem and research objectives 2. Develop a research plan 3. Collect the
information 4. Analyse the information 5. Present the findings 6. Follow-up.
According to Kotler, effective marketing research involves six steps, as shown in
Figure 1.3.
1. Define the problem and research objectives:

Marketing research helps in identifying problems and opportunities. Thus,
marketing management begins with defining the presence of a problem or an
opportunity. The marketing Fig. 1.3 Six Steps Involved in Marketing Research
management must be careful not to define the problem too narrowly or too broadly.
A well-defined problem provides direction and maintains uniformity in research
work. It also helps in developing alternatives and setting priorities. Research is
conducted by persons other than the marketing manager. Thus, manager must
state the objective of research which generally is to solve a problem or understand
an opportunity.
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2. Develop a research plan:
A research plan for gathering needed information is chalked out at this stage. A
research plan helps in estimating the time, cost and human resources required for
a research work. A research plan determines five vital aspects.
They are as follows:
i. Data sources:
A researcher can gather secondary data, primary data, or both. The secondary
data is a data collected for another purpose and existing in a published form. The
primary data is freshly gathered for research product in hand.
ii. Research approaches:
The primary data can be collected through observations, field surveys and
experiments. Fresh data can be gathered by observing relevant people, situations
and events. Companies can also undertake field survey to learn about people’s
knowledge, beliefs, preferences and satisfaction.
The most scientifically valid research is experimental research. It studies the
cause-and-effect relationship. The subjects for experiments are exposed to different
treatments, and external variables are controlled. The responses are observed and
transformed into solution.
iii. Research instruments:
Marketing researchers use three instruments to collect primary data:
a. Questionnaire:
It is a set of questions presented to a respondent. It is the most popular
instrument.
b. Qualitative measures:
Sometimes, consumer response does not match their answers. Thus,
unstructured techniques are used. For example, consumer journey is a technique
of keeping track of all the interactions of a consumer with a product service or
space.
c. Mechanical devices:
Electronic devices have replaced questionnaires and diary filling methods. For
example, galvanometer can measure the interest or emotion of a person on
watching a picture or an advertisement.
iv . Sampling plan:
Here, a researcher has to plan the sampling unit, procedure and size. It is not
possible to interview each and every person. Therefore, the researcher must define
the target population from which sample has to be drawn. The researcher has to
choose between probability and non-probability sampling. The choice is based on
circumstances facing the company and research work. A good sampling procedure
can provide good reliability.
v. Contact method:
A researcher must decide how the respondent should be contacted. Contact
methods include telephonic interview, personal interview, online interview and mail
interview.
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3. Collect the information:
This is the most expensive stage of research. Collecting primary data by
interviewing, observing, and/or experimenting can be done by people or machines.
Unfortunately, this step is the weakest link in the research process. It is prone to
errors. For example, some respondents may not be available at home.
They must be contacted again or replaced. Others may not cooperate. They give
biased or dishonest answers. It is equally difficult to motivate data collectors.
Largely, they are part-time workers doing a monotonous job. They require proper
training, incentives and supervision. Getting the right data is critical.
4. Analyse the information:
The value of research is determined by its results. Thus, data collected have to
be analysed and interpreted. The researcher tabulates the data. Averages and mea-
sures of dispersion are calculated for major variables. Advanced statistical
techniques are also used for discovering additional findings.
Today, software tools are available for data entry, data management, analysis
and presentation. Analysis of data provides general estimates, whereas
interpretation draws a specific and precise conclusion. It helps in preparing a final
recommendation to the management.
5. Present the findings:
The researcher should present findings that are relevant to research objective.
It has to help management in taking decisions. A research report is an effective tool
used to present research findings. It reflects the skills and quality of the researches.
It can be a written or an oral presentation, or both. Visual aids such as line
chart, pie chart, bar chart, pictographs, etc. can be used. A well-presented report
indicates the confidence levels of the researchers in presenting strategies that help
in managerial decision-making.
6. Follow-up:
A researcher should follow-up their studies to determine whether their results
and recommendations are being used. Without a follow-up, the researcher has no
way of knowing if the research has met the management’s requirements. If it has
fallen short of managerial requirement, this is a step that can help in improving
future research projects.
Limitations of Marketing Research
1. Offers suggestions and not decisions: Marketing research is not a
substitute for decision-making process. Ready-made decisions on marketing
problems are not provided by the researcher. Marketing research does not
solve any marketing problems directly. It only aids management in decision-
making and problem solving process.
2. Fails to predict accurately: In marketing research, efforts are made to
predict the possible future situation. For this, certain research studies are
undertaken. However, the predictions arrived at may not be perfect. Future
is always uncertain and exact prediction about the future is just not possible
through marketing research.
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3. Cannot study all marketing problems: Marketing research cannot study

all marketing problems particularly where it is difficult to collect relevant
data. Similarly, research study is not possible where value judgments are
involved. Thus, all marketing problems are not researchable and all research
problems are not answerable. MR is not a 'panacea'.
4. Resistance to research by marketing executives: Researchers study
marketing problems and offer guidance to marketing executives in their
decision-making process. However, some executives are reluctant to use the
solutions suggested by the researchers. They feel that such use will act as a
threat to their personal status. Marketing executives also feel that
researchers give solutions which are academic in character and lack
practical utility.
5. Time-consuming activity: MR is a time-consuming activity. The research
work takes longer period for completion and the findings when available may
prove to be outdated. Even data collected very soon become old due to fast
changing market environment.
6. Costly/expensive activity: MR activity is costly as research work requires
the services of experts. Advanced training in economics, computer
technology, sociology, etc. is also necessary on the part of research staff.
Even giving responsibility of research work to an advertising agency or to a
management consultant is costly.
7. Dearth of qualified staff: For scientific MR, professional marketing
researchers with proper qualifications, experience and maturity are required.
Research work is likely to be incomplete /unreliable in the absence of such
expert staff.
8. Complexity of the subject: MR fails to give complete and correct guidance
to the management on marketing issues. This is because MR is not an exact
science. It is concerned with the study of human behavior which is always
difficult to predict. As a result, the conclusions drawn and recommendations
made are not cent per cent correct.
9. Uncertainty of conclusions: Consumer is the focal point in marketing
research. However, consumer's buying motives are difficult to judge precisely
and accurately. This brings some sort of uncertainty in the conclusions
drawn from the MR.
10. Limitations of data used: MR process solely depends on the data collected
and used for analyzing the marketing problem, for drawing conclusions and
making recommendations. However, the whole process will come in danger if
data collected are inadequate and unreliable.
11. Limited practical utility: MR is mainly an academic exercise. Researchers
take more interest in research work rather than in supplying information
and guidance to marketing managers in decision-making process. Many
research reports are rather bulky and unintelligible. This brings down the
practical utility of marketing research.
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12. Miscellaneous Limitations :

a. Problems developed due to changing marketing environment cannot be
solved quickly through MR.
b. Research report may be bulky, technically worded and difficult. Its
execution is difficult at lower levels.
The limitations of marketing research (noted above) do not suggest that it is a
redundant activity. It only suggests that the marketing research activity should be
conducted with proper care and caution. This will make research activity
meaningful and result-oriented.
21.3.4 TYPES OF MARKETING RESEARCH
The process of research is same for different types of research if systematic
inquiry is targeted at. The three research types are:
Exploratory research- It helps understand a phenomenon and paves way for
deeper inquiry to identify variables and their relationships. It provides preliminary
understanding or a feel of the issue.
Descriptive research – It helps describe the phenomena in terms of
relationships of variables involved in it.
Causal research - It helps measure variables, the extent of their
interrelationships and explains the cause and effect sequence in a phenomenon.
Yet another way of identifying research types is based on the data collected.
Quantitative research – The data collected is hard data expressed in terms of
numbers like days, metric tons, and meters, Example: Time series data of demand
which can be examined for growth and variations.
Qualitative research – The data collected is soft data such as perceptions,
attitudes, values, satisfaction, expectations etc. Example: Study of consumer
attitudes toward different shampoo brands.
21.4 REVISIONS POINT
Researching a foreign market can be done by desk research. Today web
resources provide plenty of information about different nations. Field research is a
waste of time. Discuss.
1. Explain the role of marketing research in new product development .
2. Explain the marketing research process and limitation of marketing
research.
3. What is meant by marketing research? And explain the scope and
objective of marketing research.
4. Explain the types of marketing research.
5. Discuss the importance and need of marketing research.
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21.6 SUMMARY
The lesson has started with a brief introduction about export marketing
research and its importance. Also, various methods of conducting research – such
as desk research and field work are discussed and a check list is provided for the
marketing research to carry out research in export domain
1. Develop a suitable marketing research procedure for a departmental store
for the following problems
a) inability to cope up with large turnover of customers
b) lack of proper stock status
c) stock accounting
d) cash collection and reconciliation.
21.8 SUPPLEMENTARY MATERIAL
1. International journal of research in marketing
1. Explain the use of machines in researching consumer views on
advertisement.
2. Explain the role of marketing research in new product development
1. Boyd, Westfall & Stasch, MARKETING RESEARCH TEXT & CASES, AITBS,
New Delhi
2. B.S.Rathor and J.S.Rathor, EXPORT MARKETING, Himalaya Pub. New Delhi.
3. Costas G. Alexandrides and George P. Moschis, EXPORT MARKETING
MANAGEMENT, Praeger, New York.
4. Donald R. Cooper & Pamela S. Schindler, BUSINESS RESEARCH METHODS,
Tata McGraw Hill, New Delhi
5. Gilbert A Churchill, Jr, MARKETING RESEARCH – METHODOLOGICAL
FOUNDATIONS, Holt- Saunders International Editions.
1. Evaluate the merits of personal, telephone and mail survey method on the
basis of accuracy, speed, cost case of implementation, flexibility and amount
of information obtained.
21.12 KEY WORDS
1. Market research, types of research, research process and limitation of
research process.
❑
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LESSON-22
CONSUMERISM
22.1 INTRODUCTION
Consumerism as a social and economic order and ideology encourages the
acquisition of goods and services in ever-increasing amounts. Early criticisms of
consumerism occur in 1899 in the works of Thorstein Veblen. Veblen's subject of
examination, the newly emergent middle class arising at the turn of the 20th
century, came to fruition by the end of the 20th century through the process of
globalization.
In the domain of politics, the term "consumerism" has also been used to refer
to something quite different called the consumerists' movement, consumer
protection or consumer activism, which seeks to protect and inform consumers by
requiring such practices as honest packaging and advertising, product guarantees,
and improved safety standards. In this sense it is a political movement or a set of
policies aimed at regulating the products, services, methods, and standards of
manufacturers, sellers, and advertisers in the interests of the consumer.
In the domain of economics, "consumerism" refers to economic policies placing
emphasis on consumption. In an abstract sense, it is the consideration that the free
choice of consumers should strongly orient the choice by manufacturers of what is
produced and how, and therefore orient the economic organization of a society
(compare producers, especially in the British sense of the term). In this sense,
consumerism expresses the idea not of "one man, one voice", but of "one dollar, one
voice", which may or may not reflect the contribution of people to society.
Overall, since the end of the 20th century, the burgeoning of consumerism as a
way of life across all domains has remade politics, economics and culture:
In the almost complete absence of other sustained macro-political and social
narratives – concern about global climate change notwithstanding – the pursuit of
the 'good life' through practices of what is known as 'consumerism' has become one
of the dominant global social forces, cutting across differences of religion, class,
gender, ethnicity and nationality. It is the other side of the dominant ideology of
market globalism and is central to what Manfred Steger calls the 'global imaginary'.
22.2 OBJECTIVES
 The meaning and need of consumerism.
 The problems of consumer protection and related legislations.
22.3 CONTENTS
22.3.1 Consumerism-definition and scope
22.3.2 Need for consumer protection
22.3.3 Consumer movement- abroad and in India
22.3.4 The problems of consumer protection
22.3.5 Consumer protection- The Legal Frame work
22.3.6 New avenues of consumer oriented marketing
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22.3.1 CONSUMERISM-DEFINITION & SCOPE.
I would wager that most people, up until a certain age, love celebrating their
birthdays. There are so many wonderful things about having a birthday: the
gathering of loved ones, the cake and, of course, the presents. For children in
particular, I would even go so far as to bet that gifts are the best part about
birthdays. After all, who doesn't love to receive presents?
Of course, as we get older, getting the things that we want is not limited to
birthdays. Being able to buy things that we do not necessarily need, but only desire
is an ability that many people want to have relatively early on. I know that's why I
got a job at age 15. I was desperate to be able to buy my own clothes, my own CDs
and even my own car!
The desire to buy things that we want, apart from what we need to survive, is a
huge part of the subject of today's lesson. We'll be talking about consumerism, or
the ideology that places value upon the excessive consumption of material goods
and services.
“Consumerism is a social and economic order that is based on the systematic
creation and fostering of a desire to purchase goods or services in ever greater
amounts. In economics, consumerism refers to economic policies placing
emphasis on consumption”.
The Nature of Consumerism may be summarized in the following points:
1. Consumer Safety
2. Consumer Information
3. Consumer Choice
4. Environmental Concerns
5. Consumer Privacy
6. Business Response to Social and Ethical Concerns
7. Consumer's Responsibilities
8. Market Responses to Consumers
1. Consumer Safety
The oldest and most controversial of the consumer's rights, the one which both
business people and consumerists agree upon and support. Consumers regularly
complain about shoddy or defective merchandise and poor services. It is one thing
to be cheated or deceived. It is quite another to be physically injured by unsafe
product. Safety always is an issue for consumers, business and government.
2. Consumer Information
Consumers' rights with regard to information relate to the marketer's provision
of adequate information which neither deceives nor misleads. Two areas are
important here:
a. Deception of Consumers:
The deception of consumers is accomplished by deceptive advertisement. While
dealing with deception then it needs not to prove that deception actually occurred
in advertisement but merely that the ad had the capacity to deceive. It is also
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important for the advertisers to learn that they can't escape the liability simply
because they didn't know that the ad's claim was false.
Puffery in Advertisements
Advertisements have long been designed on the basis of accepted approach of
puffery the use of exaggerated praise for an advertised item. The most difficult
point here, however, is that at which point the puffery becomes deception.
On the basis of definition three types of deceptive advertising may exist:
The outright lie: The outright lie occurs where a claim is made that is
completely false, even from an objective point of view. That is it is impossible for
consumers to achieve claimed benefit.
Claim fact discrepancy: The claimed benefit of the advertised product must be
qualified in some way for it to be correctly understood and evaluated but this I not
done in the ad). An advertisement may claim. that 60% doctors recommend "X" if
consumers knew what types of doctors, how many were surveyed, what questions
were asked.
Claim fact interaction: The advertisement claim (while being neither
explicitly or implicitly deceptive) Interacts with the accumulated belief and attitudes
held by consumers in such a way that they are misled or deceived by it. An actor
who played the role of a doctor in a popular play/movie recommends in an
advertisement a certain product, people may think of him as an expert, if
consumers are not told that he is in fact an actor
b. Misleading the consumers:
Misleading statements about the rivals' products are also grounds for a suit
3. Consumer Choice
Some consumer activists argue that consumers have less choice than might be
desirable and possible. Other consumer activists support reduced choice by arguing
that consumers should be given not simply what they want, but what is the best for
them. They support that buyers are not able to adequately determine for
themselves that what is best in their interest and must be provided with right
products.
4. Environmental Concerns
The right to clean environment assures that the environment in which the
consumers live is free from pollution. Large scale pollution seems to be a by-
product of an economically developed society, but it is also an area of great concern
for many consumer
22.3.2 NEED FOR CONSUMER PROTECTION:
Need For Consumer Protection Under the modem philosophy of marketing,
consumer is supposed to be the king and business is expected to provide maximum
possible satisfaction to consumers. But in reality, consumers are often exploited. In
a country like India there is shortage of many products. A few firms enjoy monopoly
powers in the market place.
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Need For Consumer Protection
Under the modem philosophy of marketing, consumer is supposed to be the
king and business is expected to provide maximum possible satisfaction to
consumers. But in reality, consumers are often exploited. In a country like India
there is shortage of many products. A few firms enjoy monopoly powers in the
market place. A large majority of consumers are ignorant and illiterate and do not
know their rights. They are poor and there is lack of unity among them. Due to all
these reasons, consumers are often deprived of their rights. They are often exploited
through misleading advertisements, poor quality goods, fractional weights and
measures, overcharging, etc.
Consumer Protection is necessary due to the following reasons:
1. It gets materials, manpower, machinery and other resources from society.
Therefore, it is obliged to supply the right products at reasonable prices to the
public.
2. It is the moral responsibility of business to protect and promote the interests
of consumers.
3. The basic function of business is to satisfy the needs and expectations of
consumers. It is through consumer satisfaction that business can earn profits and
continue operations in the long run.
4. The Government of India is committed to the welfare of general public by
encouraging fair trade practices.
5. Education and information through newspapers, radio and television has
made people conscious of their rights as consumers.
Methods of Consumer Protection
There are four main methods of protecting the interests of consumers.
1. Business Self-Regulation : Consumer protection can be attained with the
help of the business community itself through self discipline. Higher ethical
standards need to be adopted by the businessman and unfair trade practice used
by some businessman needs to be scrutinized by trade associations and consumer
associations.
2. Consumer Self-Help: Consumer should have knowledge of his rights and
shouldn’t allow unscrupulous traders to deceive him
3. Consumers' Associations: Voluntary associations should be formed by the
consumers. Education of the rights and stopping unfair trade practice by the
businessman should be the main motive of the voluntary organization.
Government Regulations: Consumer protection can be provided by the state
government through legislatives, judicial and executive actions. Strict enforcement
of the law by the executives would create a sense of fear amongst businessman
vulnerable to unfair trade practice.
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22.3.3 CONSUMER MOVEMENT- ABROAD AND IN INDIA
The consumer movement is an effort to promote consumer protection
through an organized social movement which is in many places led by consumer
organizations. It advocates for the rights of consumers, especially when those rights
are infringed by the actions of corporations, governments, and other organizations
which provide products & services to consumers.
Scholars most commonly view the modern consumer movement in India from
two perspectives - that of consumer activism and that of business self-regulation.
There is tradition in India which says that consideration for consumer rights began
in the Vedic Period, and in these narratives, laws encourage merchants to practice
honesty and integrity in business. Most discussion about India's consumer activism
starts with a description of the Indian independence movement. At this time
Gandhi and other leaders protested taxation of basic consumer products, such as
during the Salt March, and encouraged people to make their own goods at home, as
with the Khādī movement to promote spinning thread and weaving one's own
textiles. These actions were to raise awareness that consumer purchase decisions
fund the source of India's political control.
Gandhi promoted the idea that businesses have a trustee role in being
responsible to the customers, workers, shareholders, and their community. In
particular, Gandhi said that "A customer is the most important visitor on our
premises. He is not dependent upon us. We are dependent upon him. He is not an
interruption in our work - he is the purpose of it. We are not doing him a favor by
serving him. He is doing us a favor by giving us the opportunity to serve him".
United States consumer advocate Ralph Nader called Gandhi "the greatest
consumer advocate the world has seen" for advancing the concept that commercial
enterprise should serve the consumer and that the consumer should expect to be
served by business. Vinoba Bhave and Jayaprakash Narayan, two great proponents
of Gandhi's philosophy, and V. V. Giri and Lal Bahadur Shastri, contemporary
Indian president and prime minister, similarly expected the business community to
regulate itself as an expression of responsibility to contribute to society.
These ideas were developed by some business leaders. In July 1966 in Bombay
some people founded the Fair Trade Practice Association, which was later renamed
the Council for Fair Business Practice. This is now seen as a sincere effort toward
promoting business self-regulation, despite consumer activists' criticism that self-
regulation would not provide sufficient protection to consumers.
From the perspective of consumer activism, the Planning Commission backed
the foundation of the Indian Association of Consumers in 1956 in Delhi to be a
national base for consumer interests. For various reasons, it was not effective in
achieving its goals. Other organizations were established in the 1960 in various
places in India but none were effective in achieving community organization.
Leading on past failures, in Bombay in 1966 nine female homemakers founded the
Consumer Guidance Society of India (CGSI) which remains one of India's most
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important consumer organizations. The most powerful consumer organization in

India is the Consumer Education and Research Center (CERC), founded in 1978 in
Ahmadabad as part of the "social action litigation movement". At that time in
society, courts started recognizing social workers and public interest groups as
consultants on behalf of individuals or classes of people whose rights had been
violated but who could not easily speak for themselves. Since its founding CERC
has become among the most successful consumer organizations of the developing
world in terms of its achievements of litigating on behalf of consumers. The
Consumer Protection Act of 1986 was mostly a result of intensive lobbying by CERC
and CGSI.
22.3.4 THE PROBLEMS OF CONSUMER PROTECTION
The Consumer Protection (Amendment) Act, 2014, as made available in the
website of Department of Consumer Affairs, has certain serious flaws, which will
neither benefit the consumer nor the hapless voluntary consumer organisations
that work for consumers.
The Act has proposed certain amendments to the Consumer Protection Act
that would entrust the job of grievance redressal to a new body, Consumer
Protection Authority. In this authority structure, there is neither any place for
consumer organisations nor for consumers and activists. There is even a proposal
to exclude the value of compensation from the pecuniary jurisdiction of the Forum
and Commission, which would restrict consumer litigants to the lowest forums and
prevent them from approaching higher bodies. How is this in the interests of the
consumers or consumer activism? Here are 11 ways in which the new Act will be
regressive step.
1 A. Changing the structure of Consumer Consultations
Consumer Protection Act, 1986 envisages consultations through the Central
and the State Councils consisting of different interest groups such as
representatives of consumer organizations, the government –State and Centre,
trade and industry, consumer for a, especially, the National Commission and
others.
The proposed amendments will eliminate the Central and State Councils.
This is a cynical ploy to keep out the consumer groups from the consultation
process and in a way raises serious questions about their relevance and role in
safeguarding the consumers. So the proposal to convert the Consumer Protection
Councils as existing under section-4 to Consumer Protection Authority is ill
conceived and should be dropped, to save whatever little consumer movement is
prevalent at present.
1 B. Asking District Collectors / District Magistrates, to deal with the consumer issues
This proposal, on the basis of which the Central Consumer Protection
Authority has been envisaged, is practically non-workable. The absurdity is all the
more obvious when one considers that at the state and central levels, fully paid
government officials are expected to discharge the functions of the Central
Authority, while at the district level, where the problems are supposed to emanate
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and be addressed, an already overburdened District Collector is supposed to do it

as a part of his routine.
2. Rechristening Commission as Forum and vice versa
It is being proposed to rechristen the State Commissions and the National
Commission as the State Forums and the National Forum, while all the Forums
(including the District Forums) should be collectively known as Commission. What
an invention? There is no value addition and a source of confusion.
3. Common Forum for multiple districts
The logic is that since District Forums are not being provided with sufficient
presiding officers by the state governments and since they are not able to function,
resulting in delays, an amendment has been proposed for common Forums for
multiple districts. Is this not a ridiculous effort to cover up an irresponsible
administration? It is observed that the State Governments have been found to be
lacking the interest or commitment in establishing the District Forum in each
district and in manning them properly. Any concession to club the Forums of
different districts as proposed will cause more hardship to the consumer litigants
and will be detrimental to their wellbeing. If one has to accept this idea, then, all
the Forums will not function every day and the delays will only increase.
Rather, the efficacy of these bodies to provide faster justice with least
harassment should be aimed at. Instead, a provision can be introduced to make the
State Government liable to compensate the victims for the delays necessitated due
to non-functioning of such District Forums / State Commission.
4. Appointing President and Members of District Forums through the State Public Service
Commission.
This is inherently cumbersome and unworkable, especially for specialized short
service requirements. Instead, a sitting or retired judge of the High Court, as
nominated by the Chief Justice of the high Court would be better placed to head
the Selection Committee.
5. Restrict the consumer litigants to the lowest Forums and prevent them from
approaching higher bodies like the State or National Commissions
It is pertinent to note that but for the exposure to higher bodies like the
National Commission, this author would have lost interest in consumer litigation
long back, as the systems and procedures are far from being professional at the
lower courts, where reason and logic take a back seat.
6. Value of compensation and jurisdiction of the Forum / Commission.
Which forum hears a complaint, is decided by the size of complaint. If the
facility cost is less than Rs20 lakh, then the District Consumer Forum can take up
the case. If the facility cost is higher than Rs20 lakh and up to Rs1 crore, then the
matter is to be heard by the State Consumer Commission. If the value or size of
complaint is more than Rs1 crore, then the National Consumer Forum, New Delhi
can hear it out. A fee is already being collected from the complainant based on the
value of the complaint.
The proposed Amendment says, “The billed value of goods or services in a
complaint shall be the basis to determine the pecuniary jurisdiction of a Consumer
Forum to entertain a complainant.”
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Logically the compensation claimed along with the value of the goods or services
needs to account for the total value of the complaint, dictating whether the complaint
will fall under which one of the three tier quasi-judicial machinery. So, excluding the
value of compensation claimed from the value of the litigation / pecuniary jurisdiction
of the District Forum/ State Commission is irrational.
Further, how will one arrive at the billed value of goods or services in the case of
public utilities like lifts / escalators / elevators, resulting in serious injury? After all,
the Forum / Commission have the powers to dismiss frivolous complaints. Hence, the
billed value of the goods or services alone should not be the basis to determine the
pecuniary jurisdiction of the District Forums and the Commissions.
7. Allowing a complainant to file a dispute case in any Forum / Commission in whose
jurisdiction he / she is residing
Though is provision could appear to be favouring the consumer, is ill-conceived,
irrational and appear to be illegal as to place the seller of goods / service provider in an
unreasonably disadvantageous position vis-à-vis the consumer who avails the good /
service. Further, there is a distinct possibility of outstation shoppers taking the
shopkeeper / service provider to ransom. This is especially true in all major cities
where a good population from outside flocks for shopping. Say, for example, someone
from Rourkela visits Mumbai and purchases a good. Suppose the individual is not
happy with the product, for whatever reason, will it be proper to allow him to file a case
in Rourkela and make the shopkeeper from Mumbai run around? Though, as an
activist I would want the consumer to be protected, but not at the cost of harassing a
genuine shopkeeper.
8. Mediation as a mode of minimising the consumer dispute cases and the load on the Forums
Who stopped the government and their machinery from introducing such an
official mechanism? Voluntary Consumer Organisations had done great work due to
the initial boost given by the government and these served as ADR (Alternate Dispute
Redressal) mechanism. In our Council itself, we had handled and settled hundreds of
complaints every year, that too without any charges. Even today, I am answering
queries of the consumers from across the country, on honorary basis. But putting this
as part of the judicial process is likely to have adverse impact on the consumer litigant,
many of whom are not aware of the law and do not know their right to refuse such
mediation offers; though on paper the law may be clear about it.
Introduction of a provision to promote mediation is likely to frustrate the ends of
justice and harass the consumer litigant on account of further delays and injustice.
Hence, the proposed amendment as a part of the consumer justice system under the
Consumer Protection Act needs to be dropped. Instead, the Consumer Affairs
Department, if funds are available for the purpose, can establish these Mediation
Centres, through the existing Voluntary Consumer Organisations or other means.
9. Enhance the penalty under Sec. 14(1)(hb), when the goods or services affect a large
number of consumers.
This appears to be pure hype. Consumer courts as well as the Supreme Court
are shying away from awarding any penalty even when tailor made cases are brought
before them. (Example: Original Petition No. 224 of 2001, in the NCDRC, Consumer
Protection Council, Rourkela Vs Indian Oil Corporation and Others; Civil Appeal No.
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10126 of 2010, in the Supreme Court, Consumer Protection Council, Rourkela Vs

Indian Oil Corporation Ltd. and Others. In these cases, as per this section, a minimum
penalty of Rs3,250 crore should have been collected from M/s IOCL. But the judiciary
preferred to ignore the provision of the Act.) In this country seeking money by NGOs
are still considered blasphemous – a sin – height of hypocrisy.
Further, why the entire penalty should be diverted to the Consumer Welfare Fund
(as per the Consumer Protection Rules)? If the government and the Department of
Consumer Affairs are serious about eliminating the Unfair Trade Practices, to
encourage such initiatives, a part of the penalty should be awarded to the Consumer
Organisation fighting the case.
10. Delimit the number of members with judicial background, in the State Commissions.
Proposed amendment to delete the provision after 16(1)(b)(iii), which limits the
members with judicial background to fifty per cent (50%), could pave the way for
eliminating the non-judicial members from the State Commissions. This is against the
structure of the quasi-judicial consumer courts, making these Commissions vulnerable
to become an extended arm of the Civil Courts; which should be avoided. This
proposed amendment, which can change the complexion of the Commissions (quasi-
judicial body) is not a step in the right direction.
11. Limit the number of appeals to National Commission
In yet another interesting effort to save the National Commission from
adjudicating unwanted appeals, there is a proposal to restrict the consumer litigant
from not appealing more than once. Such restrictions can materially affect consumer
justice and is ill-conceived. Further, when the orders of the State Commission can be
appealed against, even as per the present amendments, how a distinction can be made
between a case arising from the District Forum and those arising under the original
jurisdiction of the State Commission itself, when both are decided by the same bench?
The proposed amendment is irrational and without any logic.
Having discussed the shortcomings, it will not be appropriate to leave out some
of the positive changes that are being contemplated. These include:
Amendments to prevent members of political parties from being appointed as
Members of the quasi-judicial machinery; Standardization and enhancement of
remuneration of the presiding members of the District Forums, State Commissions
and the National Commission;
Amendment to Sec. 13(2) (c), requiring the Forum to decide the case on merits
based on available records, instead of dismissing it when the consumer fails to
appear before it; Quantification of punitive damages, under Sec. 14(1) (d);
Providing for a sitting judge of the High Court to head the Selection Committee in
place of the President of the State Commission, to appoint the Members of the
State Commission; and Introduction of restrictions on the appearance of advocates.
Consumer Protection Act, as already existing, is one of the progressive pieces of
legislations to have been enacted for the better protection of the consumers.
Unfortunately, the spirit of the Act has been missing in its implementation. The
present government and the department will do well to bridge this gap, even if it is
unable to bring in further amendments to the CP Act. It is imperative that it desists
237
from tinkering with the Act, to reshape it beyond recognition. Why the government
shies away from serious consultation with the stakeholders, especially the consumer
groups who have the hands-on experience and know where the shoe actually pinches?
When the government is in dearth of resources, installing of a Consumer
Protection Authority which is appearing to be an excuse to employ ex-bureaucrats and
others, with the expenditure coming from the consolidated fund of India will only be a
drain on the Tax Payers money without any tangible results coming around. Further,
such bureaucrats as proposed will be provided with an opportunity to go on foreign
trips to participate in international conferences, in the garb of cooperating and working
with consumer protection agencies in foreign countries. This aspect has been
specifically stated in the amendment proposal itself. But till date have the authorities
that be, ever thought on these lines and sponsored any of the consumer activists to
international conferences so that these sinful souls might have got a glimpse of what is
happening around the world. Rather, in the garb of minimising the expenses, even the
Central Consumer Protection Council has been pruned from about 150 members to 35
members, thereby reducing the CCPC to a farce.
22.3.5 CONSUMER PROTECTION THE LEGAL FRAME WORK:
The Consumer Protection Act introduces a single, comprehensive legal framework
for consumer protection which outlines the entitlements of consumers and the
responsibilities of suppliers.
The Act is far-reaching, ambitious and the first legislation of its kind in South
Africa. While the Act aims to protect all consumers, the focus in many instances is on
“vulnerable” consumers, being the previously disadvantaged, uneducated, and
illiterate, among others.
Of special interest to marketers will be Section 9, Marketing and interaction with
consumers, which states: The definition of “advertisement” is wider in the CPA than
the definition which is contained in the Companies Bill. The CPA attempts to convert
best marketing practices into law, which will result in retailers or marketers having to
conduct a complete review of their marketing strategies and processes, especially with
regard to strategies such as bait marketing, negative option marketing, direct
marketing at home, catalogue marketing, trade coupons, promotions, customer loyalty
programmes and referral selling.
The Act provides that the Minister, through regulations, must prescribe a time at
which consumers may be contacted for direct marketing purposes. Regulations should
be in line with business and marketing practices.
The Salient features of major legislations
What Is Constitution? Almost everything we do is governed by some set of rules.
There are rules for games (like- soccer), for social clubs and for adults in the
workplace. There are also rules imposed by morality and custom that play an
important role in telling us what we should and should not do.
We need Laws in Society so our society can regulate and work properly. They are
designed to protect us and our property and to ensure that everyone in society behaves
the way that the community expects them too. Laws tell us what to expect as a
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consequence of our actions. Laws have been the glue that has kept society together.
Without laws there would be complete anarchy.
In General The Constitution is the “Supreme law of the land.” All other laws have
to conform to the Constitution. The constitution contains laws concerning the
government and its relations with the people.
A constitution is concerned with 2 main aspects:- • The relation between the
different levels of government • Between the government and the citizens. Constitution
... …Government The People
It lays down the framework in : ¬Defining fundamental political principles,
¬Establishes the structure, procedures, powers, duties of government institutions,
¬Sets out fundamental rights, directive principles, and the duties of citizens.
The Constitution of every country has certain special features Because the
historical background ,social, economic and political conditions influence the making
of the constitution. All these factors have contributed in the making of the Constitution
of India Constitution is made based on…
The constitution was adopted by the constituent assembly on 26 November 1949,
and came into effect on 26 January 1950. Preamble we, the people of India, having
solemnly resolved to constitute India into a sovereign socialist secular democratic
republic and to secure to all its citizens: justice, social, economic and political; liberty
of thought, expression, belief, faith and worship; equality of status and of opportunity
and to promote among them all; fraternity assuring the dignity of the individual and
the unity and integrity of the nation; in our constituent assembly this twenty sixth day
of November, 1949, do hereby adopt, enact and give to ourselves this constitution.
ARCHITECTS OF INDIAN CONSTITUTION Pt. Nehru signing on the Constitution
BR Ambedkar: The Chief architect of Indian Constitution
SALIENT FEATURES OF INDIAN CONSTITUTION The Constitution of India has
some outstanding features which distinguishes it from other constitutions. The
framers of our constitution studied other constitutions, selected their valuable features
and put them with necessary modifications in our constitution.
They succeeded doing this. The fact that the constitution, for last 59 years, has
been working satisfactorily is a testimony to its quality and utility. Now we will discuss
the salient features of our constitution one by one.
A WRITTEN CONSTITUTION The Constitution of India is a written constitution. It
was framed by a Constituent Assembly which was established for the purpose in 1946.
There are two types of constitutions in the world.
The first modern written constitution was the American constitution. The British
constitution is unwritten, consists of customs and conventions which have grown over
the years. The framers of our constitution tried to put everything in black and white.
On the basis of division of power the center and state the constitution is classified
into : ¬ Federal Constitution ¬ Unitary Constitution FEDERAL and Unitary
Constitution
Federal Constitution: The state has its own power whereas the center only shares
the important powers. Ex: the US constitution ‘Federal’ => They have their own
239
structure of the state and most of the powers are exercised by their own legislatures
and center intervenes only when it comes to national security and other relations
Otherwise all the decisions are taken by the state
Unitary Form of Constitution Most of the power is vested in the union. State are
the immediate delegates of the union Ex: British Constitution. Our constitution? A
kind of mix Has both the features of federal and unitary => ‘Quasi – Federal
Constitution’.
LONGEST CONSTITUTION The Constitution of India is the longest in the world.
Originally it had 395 Articles divided into 22 parts and 8 Schedules. A number of
amendments (98 so far), passed since its enforcement in 1950, have also become a
part of the Constitution.
22.3.6 NEW AVENUES OF CONSUMER ORIENTED MARKETING
To deal with the complexity of the global market, in the 1990s, there has been
increasing attention in the academic literature to a reorientation of the traditional
marketing concept. This new market orientation concept is the outgrowth of a double
dissatisfaction: the weak implementation of the traditional marketing concept
discussed in the previous chapter and, more important, its conceptual shortcomings
which does not provide appropriate normative guidance for the firm in today’s context.
“There is a growing belief that a solely consumer-oriented search for differential
advantages is an unbalanced approach to strategy formulation and that greater weight
must be given to competitive factors and other stakeholders”.
The objective of this section is to propose a revised and updated definition of the
marketing concept that we shall call the extended market orientation concept, called
for short, the EMO concept.
Kohli and Jaworski (1990) use the term “market orientation” to mean the
implementation of the marketing concept, which is viewed retrospectively as an
idealistic business philosophy short of practical value. These authors have proposed an
operational definition of MO where two of the three pillars of the traditional marketing
concept (customer focus and integration) are operationally defined. Kohli and Jaworski
offer the following formal definition,
Market orientation is organizational wide generation of market intelligence
pertaining to current and future customer’s needs, dissemination of the intelligence
across departments and organisational wide responsiveness to it.
Thus, for these authors, the three key elements of MO are: market intelligence
generation, market intelligence dissemination, and responsiveness.
Market intelligence generation is a broader concept than customer intelligence. It
includes monitoring factors like competition, government regulations, technology and
other environmental forces. It pertains not just to customers’ current needs but also to
future needs as well.
Market intelligence dissemination implies that responding to a market need
requires the participation of virtually all departments in an organisation. This means
that market intelligence must be communicated to all the departments, through formal
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and/or informal formal dissemination procedures, or through what is called horizontal

communication (Zeithmal, Berry, and Parasuraman, 1998)
Responsiveness is the action taken in response to market intelligence that is
generated and disseminated. Responsiveness takes the form of selecting target
segments, designing the products or services that cater to current and future needs
and promoting them.
Thus, the K&J model gives a more operational view of the first two pillars of the
traditional marketing concept, customer focus, and integration. It is interesting to note
that, in the K&J model, the profit objective is not part of MO but rather a consequence,
an opinion shared by Levitt, who considers that viewing profit as a component of MO is
“... like saying that the goal of human life is eating”.
From an operational viewpoint, the K&J model remains very general however. For
instance, neither does it specify the type of market intelligence to collect nor the type of
response to be taken by the firm. No direct link is made with the marketing function.
THE EXTENDED MODEL OF MARKET ORIENTATION
Building on these previous works and on their shortcomings in the MO
concept, we adopt the following definition,
Market orientation is a business corporate culture, disseminated in the
organization through inter functional coordination, having the objective to design
and promote, at a profit for the firm, superior value solutions to the firm’s direct
and indirect customers and to the other involved market stakeholders.
Several features have to be noted in this definition.
The term “design” refers to the analysis function performed by strategic
marketing and the term “promote” refers to the firm’s commercial arm articulated
by operational marketing.
 By “superior value solutions”, we mean bundles of products and services
satisfying customers articulated or latent needs which are better than
competitors offerings. Whereas products are about functionality, solutions
are about outcomes or results that make life easier or better for customers.
 This definition recognises the existence of different types of customers,
“direct and indirect” customers and of other stakeholders.
 Interfunctional coordination is the vehicle used to disseminate in the
organisation the EMO culture.
Following Lambin (1986) and Webster (1992), this definition of MO makes a
distinction between the cultural dimension of the MO concept and two dimensions
of the instrumental function: analysis and action.
 Culture refers to the corporate business philosophy at the core of the social
market economy, which places the emphasis (a) on the process of value
creation for the market participants, (b) in a way compatible with the
objective of sustainable development, (c) as the best mean for firm to achieve
its profitability objective.
 Analysis refers to the firm’s strategic brain or to its strategic capabilities (a)
to develop market sensing tools to understand the market structure and to
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anticipate current and future customer’s needs, (b) to design sustainable

value solutions to customers’ problems, and (c) to differentiate these
solutions from competition.
 Action refers to the commercial arm of the firm and to its operational
marketing instruments (the 4 or 7Ps) used to make the value proposition (a)
known, (b) conveniently accessible, and (c) at price affordable by the target
customer group.
Figure 1. The extended model of market orientation.
In the scale designed by Lambin D Chumpitaz (L&C) to measure the extended

market orientation model, each sub-orientation is described by four propositions,
two for “analysis” (AL) and two for “action” (AT). In addition, four propositions are
used for the inter functional coordination variable and one proposition to measure
the intensity of each of five environmental turbulences: technology, economy,
distribution, competition and ecology.
Thus, in the most general case, we have six sub-orientations, and a total of 33
(24+4+5) propositions to be evaluated by the respondent. The performance
indicators (maximum five) can be expressed in quantitative terms or in subjective
evaluation terms. Respondents are required to comment on the degree to which
each indicator of MO is present in their company, using a Likert-type scale
The L&C model has been implemented in several empirical studies in Europe,
using either subjective or objective measures of performance. In the private
insurance sector (Lambin, 1996), in the metallic sector (Lambin and de Moreau
1996), and in the European manufacturing sector (Lambin and Chumpitaz, 2000
and 2006). In each study, the results have evidenced a positive effect of MO on
business performance, thereby confirming the results of Narver and Slater in 1990.
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In addition to the interfunctional coordination, there are several similarities

between the K&J and N&S models. In the EMO model, “analysis” and “action”
correspond in the K&J model respectively to “market intelligence generation” and to
the “firm’s responsiveness”. In the N&S model, two sub orientations (customer and
competitor) are included. In the three models, business performance is viewed as a
consequence of the intensity of the MO. The results also demonstrate that
environmental turbulences affect the MO-Performance relationship.
22.4 REVISION POINT
1. Market orientation concepts consumer protection
22.5 INTEXT QUESTION
1. What are the problems of consumer protection?
22.6 SUMMARY
Since consumerism began, various individuals and groups have consciously
sought an alternative lifestyle. These movements range on a spectrum from
moderate "simple living", "eco-conscious shopping", and "local ore"/"local”, to
Foreignism on the extreme end. Building on these movements, ecological economics
is a discipline which addresses the macro-economic, social and ecological
implications of a primarily consumer-driven economy. In many critical contexts,
consumerism is used to describe the tendency of people to identify strongly with
products or services they consume, especially those with commercial brand names
and perceived status-symbolism appeal, e.g. a luxury car, designer clothing, or
expensive jewelry. Consumerism can take extreme forms such that consumers
sacrifice significant time and income not only to purchase but also to actively
support a certain firm or brand.
Opponents of consumerism argue that many luxuries and unnecessary
consumer products may act as a social mechanism allowing people to identify like-
minded individuals through the display of similar products, again utilizing aspects
of status-symbolism to judge socioeconomic status and social stratification. Some
people believe relationships with a product or brand name are substitutes for
healthy human relationships lacking in societies, and along with consumerism,
create a cultural hegemony, and are part of a general process of social control in
modern society. Critics of consumerism often point out that consumerist societies
are more prone to damage the environment, contribute to global warming and use
up resources at a higher rate than other societies. Dr. Jorge Majfud says that
"Trying to reduce environmental pollution without reducing consumerism is like
combatting drug trafficking without reducing the drug addiction."In 1955,
economist Victor Lebow stated:
“Our enormously productive economy demands that we make consumption our
way of life, that we convert the buying and use of goods into rituals, that we seek
our spiritual satisfaction and our ego satisfaction in consumption. We need things
consumed, burned up, worn out, replaced and discarded at an ever-increasing
rate.“
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Critics of consumerism include Pope Emeritus Benedict XVI, German historian

Oswald Spengler (who said, "Life in America is exclusively economic in structure
and lacks depth"), and French writer Georges Duhamel, who held "American
materialism up as a beacon of mediocrity that threatened to eclipse French
civilization". In an opinion segment of New Scientist magazine published in August
2009, reporter Andy Coghlan cited William Rees of the University of British
Columbia and epidemiologist Warren Hern of the University of Colorado at Boulder,
saying that human beings, despite considering themselves civilized thinkers, are
"subconsciously still driven by an impulse for survival, domination and expansion
... an impulse which now finds expression in the idea that inexorable economic
growth is the answer to everything, and, given time, will redress all the world's
existing inequalities." According to figures presented by Rees at the annual meeting
of the Ecological Society of America, human society is in a "global overshoot",
consuming 30% more material than is sustainable from the world's resources. Rees
went on to state that at present, 85 countries are exceeding their domestic "bio-
capacities", and compensate for their lack of local material by depleting the stocks
of other countries, which have a material surplus due to their lower consumption.
Furthermore, some theorists are concerned with the place commodity takes in the
definition of one’s self. Media theorists Straut Ewen coined the term “commodity
self” to describe an identity built by the goods we consume.
For example, people often identify as PC or Mac users, or define themselves as
a Coke drinker rather than Pepsi. The ability to choose one product out an
apparent mass of others allows a person to build a sense “unique” individuality,
despite the prevalence of Mac users or the nearly identical tastes of Coke and Pepsi.
By owning a product from a certain brand, one’s ownership becomes a vehicle of
presenting an identity that is associated with the attitude of the brand. The idea of
individual choice is exploited by corporations that claim to sell “uniqueness” and
the building blocks of an identity. The invention of the commodity self is a driving
force of consumerist societies, preying upon the deep human need to build a sense
of self.
Not all anti-consumerists oppose consumption in itself, but they argue against
increasing the consumption of resources beyond what is environmentally
sustainable. Jonathan Porritt writes that consumers are often unaware of the
negative environmental impacts of producing many modern goods and services, and
that the extensive advertising industry only serves to reinforce increasing
consumption. Likewise, other ecological economists such as Herman Daly and Tim
Jackson recognize the inherent conflict between consumer-driven consumption and
planet-wide ecological degradation.
1.Write notes on
a) essential commodity act
b) prevention of food adultertaion act.
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African journal of Marketing Management
1. What do you mean by “Consumerism”?. Examine its scope.
2. Define consumerism. Do you feel a need for consumer protection in
India? Why?.
3. Describe the problems that you face in the market place as a consumer
and suggest how can you protect your interest.
1. Majfud, Jorge (2009). "The Pandemic of Consumerism". UN Chronicle.
Retrieved 7 January 2012.
2. Coghlan, Andy. "Consumerism is 'eating the future'".
3. Ryan, Michael T. (2007) "consumption" in George Ritzer (ed.) The
Blackwell Encyclopedia of Sociology, Blackwell Publishing, 2007.
1. A)Point out the rights guaranted under the consumer protection act, 1986
B)Point out the salient features of c.p act, 1986
22.12 KEY WORDS
Consumerism, Central Consumer Protection council, SSPC, Consumer
redressal
❑
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LESSON-23
GOVERNMENT AND MARKETING
23.1 INTRODUCTION
A government market is a market where the consumers are federal, state, and
local governments. Governments purchase both goods and services from the private
sector. Governments buy the same types of products and services as private sector
consumers, plus some more exotic products such as aircraft carriers, fighter jets,
tanks, spy satellites, and nuclear weapons. A growing trend in the past decades has
been the outsourcing of traditional government services to private firms, such as
prisons.
A Government market can be very easily understood in the context where
government is a buyer. In case the government purchases any such products as
food, medicine, industrial supplies etc., it’s a government market.
23.2 OBJECTIVES
 The need for government intervention in marketing.
 The important aspects of ISI and AGMARK.
 The salient feature of public distribution of essential commodities.
23.3 CONTENTS
23.3.1 Need for Government Intervention in Marketing.
23.3.2 Public distribution system
23.3.1 NEED FOR GOVERNMENT INTERVENTION IN MARKETING.
Governments intervene in markets to address inefficiency. In an optimally
efficient market, resources are perfectly allocated to those that need them in the
amounts they need. In inefficient markets that is not the case; some may have too
much of a resource while others do not have enough. Inefficiency can take many
different forms. The government tries to combat these inequities through
regulation, taxation, and subsidies. Most governments have any combination of
four different objectives when they intervene in the market.
Maximizing Social Welfare
In an unregulated inefficient market, cartels and other types of organizations
can wield monopolistic power, raising entry costs and limiting the development of
infrastructure. Without regulation, businesses can produce negative externalities
without consequence. This all leads to diminished resources, stifled innovation, and
minimized trade and its corresponding benefits. Government intervention through
regulation can directly address these issues.
Another example of intervention to promote social welfare involves public
goods. Certain depletable goods, like public parks, aren't owned by an individual.
This means that no price is assigned to the use of that good and everyone can use
246
it. As a result, it is very easy for these assets to be depleted. Governments intervene
to ensure those resources are not depleted.
Macro-Economic Factors
Governments also intervene to minimize the damage caused by naturally
occurring economic events. Recessions and inflation are part of the natural
business cycle but can have a devastating effect on citizens. In these cases,
governments intervene through subsidies and manipulation of the money supply to
minimize the harsh impact of economic forces on its constituents.
Socio-Economic Factors
Governments may also intervene in markets to promote general economic
fairness . Government often try, through taxation and welfare programs, to
reallocate financial resources from the wealthy to those that are most in need.
Other examples of market intervention for socio-economic reasons include
employment laws to protect certain segments of the population and the regulation
of the manufacture of certain products to ensure the health and well-being of
consumers.
The role of government interventions in markets
Government policies and interventions must address more than the objective of
"rationalising" trade, which often results in efforts to make marketing practices
conform mechanically to a modern model. Marketing interventions should take into
account the proven capability of the marketing network. Policies should be aimed at
working with the existing system, not at replacing it. Government attempts to
replace free market systems have often raised the costs of marketing, thereby
hurting consumers, distorting resource allocations and damaging the economy. It is
important that policy makers view trading as a necessary and socially desirable
activity carried out in an environment of risk.
The questions to be asked in considering any intervention are: is it really
necessary or is it simply for the sake of government control? What would happen if
the intervention wag removed? Studies of cattle marketing systems in Africa have,
in fact, shown that markets often perform well when left to private entrepreneurs.
It is generally recommended that governments play a facilitating rather than a
direct role in markets. Regulatory interventions should be limited. Appropriate
interventions are thus indirect in nature and have three general aims:
· to improve market infrastructure
.to improve information
· to improve institutional infrastructure.
ISI Certification:
ISI mark is a certification mark for industrial products in India. The mark
certifies that a product confirms to the Indian Standard, mentioned as IS: xxxx on
top of the mark, developed by the Bureau of Indian Standards (BIS), the national
standards body of India. The ISI mark is by far the most recognized certification
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mark in the Indian subcontinent. The name ISI is an abbreviation of Indian

Standards Institute, the former name of the Bureau of Indian Standards. The ISI
mark is mandatory for certifying products to be sold in India, like many of the
electrical appliances viz; switches, electric motors, wiring cables, heaters, kitchen
appliances etc., and other products like Portland cement, LPG valves, LPG
cylinders, automotive tyres etc. But in the case of most other products it is
voluntary.
The Bureau of Indian Standards (BIS) is the national Standards Body of India
working under the aegis of Ministry of Consumer Affairs, Food & Public
Distribution, and Government of India. It is established by the Bureau of Indian
Standards Act, 1986 which came into effect on 23 December 1986. The Minister in
charge of the Ministry or Department having administrative control of the BIS is the
ex-officio President of the BIS.
The organisation was formerly the Indian Standards Institution (ISI), set up
under the Resolution of the then Department of Industries and Supplies No. 1
Std.(4)/45, dated 3 September 1946. The ISI was registered under the Societies
Registration Act, 1860.
As a corporate body, it has 25 members drawn from Central or State
Governments, industry, scientific and research institutions, and consumer
organisations. Its headquarters are in New Delhi, with regional offices in Kolkata,
Chennai, Mumbai, Chandigarh and Delhi and 20 branch offices. It also works as
WTO-TBT enquiry point for India.
ABUSES
It is very common in India to find products with fake ISI marks, that is, affixing
ISI marks on the product without actually getting certified. Fake ISI marks usually
do not carry (i) the mandatory 7-digit license number(written as CM/L-xxxxxxx)
required by BIS; and (ii)IS number on top of the ISI mark which signifies the
number of the Indian Standard for the particular
product. This is a punishable offense
https://en.wikipedia.org/wiki/ISI_mark - cite_note-7
by the law, but the practice is common.

AGMARK
AGMARK is a certification mark employed on agricultural products in India,
assuring that they conform to a set of standards approved by the Directorate of
Marketing and Inspection, an agency of the Government of India. The AGMARK is
legally enforced in India by the Agricultural Produce (Grading and Marking) Act of
1937 (and amended in 1986). The present AGMARK standards cover quality
guidelines for 213 different commodities spanning a variety of Pulses, Cereals,
Essential Oils, vegetable oils, Fruits & Vegetables, and semi-processed products
like Vermicelli.
23.3.2 PUBLIC DISTRIBUTION SYSTEM
Public distribution system (PDS) is an Indian food security system.
Established by the Government of India under Ministry of Consumer Affairs, Food,
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and Public Distribution and managed jointly with state governments in India, it
distributes subsidized food and non-food items to India's poor. This scheme was
launched in India on June 1997. Major commodities distributed include staple food
grains, such as wheat, rice, sugar, and kerosene, through a network of fair price
shops (also known as ration shops) established in several states across the country.
Food Corporation of India, a Government-owned corporation, procures and
maintains the PDS.
In coverage and public expenditure, it is considered to be the most important
food security network. However, the food grains supplied by the ration shops are
not enough to meet the consumption needs of the poor or are of inferior quality.
The average level of consumption of PDS grains in India is only 1 kg per person /
month. The PDS has been criticised for its urban bias and its failure to serve the
poorer sections of the population effectively. The targeted PDS is costly and gives
rise to much corruption in the process of extricating the poor from those who are
less needy. Today, India has the largest stock of grain in the world besides China,
the government spends Rs. 750 billion ($13.6 billion) per year, almost 1 percent of
GDP, yet 21% remain undernourished. Distribution of food grains to poor people
throughout the country is managed by state governments. As of date there are
about 500,000 Fair Price Shops (FPS) across India.
A below poverty line (BPL) card holder should be given 35 kg of food grain and
the card holder above the poverty line should be given 15 kg of food grain as per the
norms of PDS. However, there are concerns about the efficiency of the distribution
process
Government inventory, Certifications public distribution system
1. State the need for Government intervention in marketing in India.
2. What is ISI certification mark? Who confers it and why?
(a)AGMARK (b) Activities of the BIS.
23.6 SUMMARY
The biggest difference between private sector market transactions and
government market transactions is the process you must go through to obtain the
government as a customer. This process is known as government procurement.
Let's take a quick look at the government procurement process.
The central and state governments shared the responsibility of regulating the
PDS. While the central government is responsible for procurement, storage,
transportation, and bulk allocation of food grains, State Governments hold the
responsibility for distributing the same to the consumers through the established
network of Fair Price Shops (FPSs). State governments are also responsible for
operational responsibilities including allocation and identification of families below
249
poverty line, issue of ration cards, supervision and monitoring the functioning of
FPSs. Under PDS scheme, each family below the poverty line is eligible for 35 kg of
rice or wheat every month, while a household above the poverty line is entitled to
15 kg of food grain on a monthly basis.
1. Find out the purpose and scope of BIS
1. African journal of marketing
23.9 ASSIGNMENT QUESTION
What is the importance of Public Distribution System? What major problems
exist in the present system? What measures do you suggest for better
implementation of the PDs?.
23.10 REFERENCES BOOKS
1. Bevir, Mark (2013). Governance: A very short introduction. Oxford, UK:
Oxford University Press.
2. Hufty, Marc (2011). "Investigating Policy Processes: The Governance
Analytical Framework (GAF). In: Wiesmann, U., Hurni, H., et al. editors.
Research for Sustainable Development: Foundations, Experiences, and
Perspectives.". Bern: Geographica Bernensia.
3. David Levi-Faur, "Regulation & Regulatory Governance", in David Levi-
Faur, Handbook on the Politics of Regulation, Edward Elgar, Cheltenham,
2011.
1. Study about FACP
23.12 KEYWORDS
ISI, Agmark, PDS
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LESSON-24
THE INDIAN MARKETING ENVIRONMENT
24.1 INTRODUCTION
The market environment is a marketing term and refers to factors and forces
that affect a firm’s ability to build and maintain successful relationships with
customers. Three levels of the environment are 3: Micro (internal) environment -
small forces within the company that affect its ability to serve its customers. Meso
environment – the industry in which a company operates and the industry’s
market(s). Macro (national) environment - larger societal forces that affect the
microenvironment.
Marketing activities are influenced by several factors inside and outside a
business firm. These factors or forces influencing marketing decision-making are
collectively called marketing environment. It comprises all those forces which have
an impact on market and marketing efforts of the enterprise. According to Philip
Kotler, marketing environment refers to “external factors and forces that affect the
company’s ability to develop and maintain successful transactions and
relationships with its target customers”.
The marketing programme of a firm is influenced and shaped by a firm’s
inwardly need to begin its business planning by looking outwardly at what its
customers require, rather than inwardly at what it would prefer to produce. The
firm must be aware of what is going on in its marketing environment and
appreciate how change in its environment can lead to changing patterns of demand
for its products.
It also needs to assess marketing opportunities and threats present in the
surroundings. An environment can be defined as everything which surrounds and
impinges on a system. Systems of many kinds have environments with which they
interact. Marketing can be seen as a system which must respond to environmental
change.
Just as the human body may have problems, it fails to adjust to environmental
change. Similarly, businesses may fail if they do not adapt to external changes such
as new sources of competition or changes in consumers’ preferences.
24.2 OBJECTIVES
 The salient features of the marketing environment and ethics in
marketing.
24.3 CONTENTS
24.3.1 Marketing Environment
24.3.2 Ethics in Marketing
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24.3.1 MARKETING ENVIRONMENT
The market environment is a marketing term and refers to factors and forces
that affect a firm's ability to build and maintain successful relationships with
customers. Three levels of the environment are 3: Micro (internal) environment -
small forces within the company that affect its ability to serve its customers.
Marketing Environment
The term Marketing Environment refers to the forces and factors that affects
the organisation ability to built and maintain good relationship with its customers.
Marketing environment surrounds the organisation and it impacts upon the
organisation. 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 :-
1. Internal Environment,
2. Micro Environment, and
3. Macro Environment.
Internal Environment
Internal factors like men, machine, money, material, etc., on which marketing
decision depends consists internal marketing environment. The internal
environment refers to the forces that are within the organisation and affects its
ability to serve its customers. It includes marketing managers, sales
representatives, marketing budget, marketing plans, procedures, inventory,
logistics, and anything within organisation which affects marketing decisions, and
its relationship with its customers.
Micro Environment
Individuals and organisations that are close to the marketing organisation and
directly impacts its ability to serve its customers, makes Marketing Micro
Environment. The micro environment refers to the forces that are close to the
marketing organisation and directly impact the customer experience. It includes the
organisation itself, its suppliers, marketing intermediaries, customers, markets or
segments, competitors, and publics. Happenings in micro environment is relatively
controllable for the marketing organisation.
Macro Environment
Macro environment refers to all forces that are part of the larger society and
affects the micro environment. It includes demography, economy, politics, culture,
technology, and natural forces. Macro environment is less controllable.
24.3.2 ETHICS IN MARKETING
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Ethical marketing is less of a marketing strategy and more of a philosophy that

informs all marketing efforts. It seeks to promote honesty, fairness, and
responsibility in all advertising. Ethics is a notoriously difficult subject because
everyone has subjective judgments about what is “right” and what is “wrong.”
Ethics are explained as the moral principles and values that oversee the
actions and decisions of a person or group. They serve as guidelines to act rightly
and justly when faced with ethical problem. Ethics in marketing denotes to the
practice of marketing in business in an ethical and moral way. It means
intentionally applying standards of justice and represents the company to others.
While the objective of any business is to be money-making, if a company has to use
counterfeit advertisement, or misleading or objectionable marketing tactics to attain
it, it's really not running a successful marketing campaign. There can be short term
gain in doing something unethical. Researchers stressed on the fact that acts in an
ethical manner will get in long-term rewards for their actions. Doing business in
ethical way can build loyal customers, get more referrals, and will be building a
positive image about their business. Marketing has the potential to influence beliefs
and behaviours. It is important to maintain high ethical standards to protect the
interests of customers and the public, and the reputation of clients. Marketing
ethics has been developed with reference to business ethics that reflect interest of
various stakeholders. These ethics describe principles that are acceptable in
marketplace. Marketing is an activity which is at the front of business activities
with regular interfaces with customers and general public (Chonko 1995). The non-
adherence to moral practices in marketing has paved way for two major movements
such as consumerism and environmentalism (Kotler and Armstrong 1996). These
groups have started exerting pressures on marketers to consider and act in an
ethical manner. Interest in ethical concerns in marketing has, considerably
heightened (Hunt et al.1984). There is no overstatement in mentioning that
researches in marketing ethics have become a precursor of researches in ethics in
other areas.
Murphy and Laczniak (1981) in theoretical analysis stated that "the function
within business firms most often charged with ethical abuse is marketing."They
recognized several areas where research in marketing ethics was essential. In 1989,
Tsalikis and Fritzsche (1989) reviewed the literature on marketing ethics. Later,
Gaski (1999) conducted thorough research of marketing ethics and categorised the
marketing ethics literature as falling into (a) introduction to ethical problems, (b)
questioning the inherent ethics of marketing activity, (c) empirical studies of ethical
beliefs and (d) direction and advice for making marketing more ethical.
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Fig – Factors impact ethical decision making process
Ethics in marketing: utilitarian approach

"Marketing is human activity directed at satisfying needs and wants through
exchange process" (Kotler and Turner, 1981). Attribute of marketing is to give the
satisfaction of the needs of consumers. Since the fulfilment of consumers' needs is
the major goal of marketing, it is considered that the principled approach which
dominates is, for the most part, utilitarian. Additionally, since the satisfaction of
the needs of one's fellow man is in itself nearly undeniable ideal, marketing
managers tend perhaps to concern themselves less with the way in which this ideal
is attained, thereby neglecting the deontological facet of their actions. This image of
marketing has already been suggested by Fritsche and Becker (1983) and by
Fraedrich et al. (1991). Briefly, since the propensity in marketing is basically
utilitarian, one is often inclined to believe that, on this level, it is highly ethical.
A certain inconsistency emerges from the research of ethics in marketing. On
the one hand, it is dominated by utilitarian perspective, assures managers of a
clear principles since they can consider the consequences of their conduct as
ethical. Alternatively, a utilitarian viewpoint does not necessarily mean that
marketing is ethical. As for marketing's deontological aspect, this does not seem to
be a major concern for the majority of practitioners. Codes of ethics have also been
proposed as a means to accomplish high ethical standards in business. The
American Marketing Association has a general code of ethics for marketers.
Similarly, many major companies have also developed codes of ethics. Murphy and
Laczniak stated that "corporate codes are somewhat controversial", as to their
effectiveness in resolving ethical conflict.
Issues in ethics of Marketing
Marketing has gripped with ethical mistreatment because marketing manager
face some of the most difficult ethical problems in business. Ethical problems occur
only when an individual interacts with other people. Ethics can be viewed in terms
of the needs of' the individual and the needs of applicable others. The value system
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of each individual consists of perceived sets of obligations toward others. Baumhart

(1961) recognized the major ethical problems that must be removed from business
process such as 1. Gifts, gratuities, bribes, and "call girls," 2. Price discrimination
and unfair pricing, 3. Dishonest advertising, 4. Miscellaneous unfair competitive
practices, 5. Cheating customers, unfair credit practices, and overselling, 6. Price
collusion by competitors, (7) dishonesty in making or keeping a contract, and (8)
unfairness to employees and prejudice in hiring.
Ethical conflict occurs when people perceive that their duties toward one group
are inconsistent with their duties and responsibilities toward some other group
(including one's self). They then must attempt to resolve these opposing obligations.
Basically, Ethical conflicts in marketing can mainly arise in two contexts; firstly the
difference between the needs of company, industry, and society. Secondly, the
conflict arises when the interest of individual and organization vary (England,
1998). Bartels succinctly states "the nature of ethical conflict: In a pluralistic
society not one but many expectations must be met. Therefore, resolution of what is
right to do produces a balance of obligations and satisfactions. Ideally, full
satisfaction of the expectations of all parties would constitute the most ethical
behaviour. This is impossible for expectations are often contradictory and
sometimes exceed social sanction. Therefore, skill and judgment must be used to
guide one in determining the point at which his own integrity can be best
maintained." Marketing ethics denotes morals and standards relating to marketing
practices, including those related to 'four P's of marketing' and 'marketing
research'. The first few editorials on ethical issues in marketing published in the
1960s.
Criticism Against Marketing:
While marketing is viewed as offering significant benefits to organizations and
to society, the fact that marketing is a business function operating in close contact
with the public opens this functional area to extensive criticism.
Among the issues cited by those who criticize marketing are:
Marketing Encourages People to Purchase What They Do Not Need
Possibly the criticism most frequently made about marketing is that marketers
are only concerned with getting customers to buy whether they want the product or
not. The root of this argument stems from the belief that marketers are only out to
satisfy their own needs and really do not care about the needs of their customers.
As we will discuss, while many marketers are guilty of manipulating customers
into making unwanted purchases, the vast majority understand that undertaking
such tactics will not lead to loyal customers and, consequently, is unlikely to lead
to longer term success.
Marketers Embellish Product Claims
255
Marketers are often criticized for exaggerating the benefits offered by their
products. This is especially the case with the part of marketing that engages in
customer communication, such as advertising and salespeople. The most serious
problems arise when product claims are seen as misleading customers into
believing a product can offer a certain level of value that, in fact, it cannot.
But sometimes there is a fine line between what a rational person should
accept as a “reasonable exaggeration” and what is considered downright
misleading. Fortunately, many countries offer customers some level of protection
from misleading claims since such business practices may subject the marketer to
legal action. Again, using such tactics is likely to lead to marketing failure as
customers will not be satisfied and will likely not return.
Principles Of Public Policy Towards Marketing:
Certain public policy principles can be used to make the marketing more
effective these principles include full consumer and producer freedom, potential
harms should be eliminated, producers should meet the basic needs of the
consumers, there should be economic efficiency consumers and producers both
should be on beneficent in practicing the exchange process, producer should
ensure the innovation , consumer should be provided full knowledge about the
products and should be protected against any sort of unethical and illegal practices
by the producers,
24.4 REVISION POINT

Marketing environment.
1. Examine the recent changes in the Indian marketing environment.
2. What a changes do you observe in the demographics and
psychographics of the India consumer.
3. What changes do you witness in the Indian Market so far as products
are concerned.
256
24.6 SUMMARY
Marketing activities do not take place in a vacuum, isolated from all external
forces. In fact all marketing operations are conducted in a highly complex, dynamic
and changing environment. According to Philip Kotler, “A company’s marketing
environment consists of the factors and forces outside marketing that affect
management’s ability to build and maintain successful relationships with target
customers”.
The marketing environment offers both opportunities and threats. Successful
companies know the vital importance of constantly watching and adapting to the
changing environment. A company’s marketers take the major responsibility for
identifying significant changes in the environment.
More than any other groups in the company, marketers must be the trend
trackers and opportunity seekers. Although every manager in an organisation
needs to observe the outside environment, marketers have two special aptitudes.
They have disciplined methods – marketing intelligence and marketing research –
for collection of information about the marketing environment.
They also spend time in the customer and competitor environment. By
conducting systematic environmental scanning, marketers are able to revise and
adapt marketing strategies to meet new challenges and opportunities in the market
place.
Marketing as a function is basically all about matching the offerings of the
organisation to the outside world, in particular, the market-place. Not surprisingly,
many functions within marketing, such as selling, product development and
market research, concern themselves with issues, problems and opportunities
outside the organisation, and focus on responding to outside events and
circumstances. Kotler identifies in this external role the need for marketers to
develop an ‘outside- in’ perspective, an ability to work on external cues and stimuli
to the profit of the whole organisation.
Environment scanning is a constant, important activity of successful
companies. This process includes gathering, filtering and analyzing information
related to the marketing environment. It also includes monitoring the changes
taking place in the environment and forecasting future status of each factor.
Such analysis helps to spot opportunities and threats in the environment, and
pinpoints the ones that are specifically relevant to the company. The company’s
marketing people have the responsibility for scanning and identifying significant
changes or trends in the marketing environment.
As we know that marketing research and marketing intelligence system are the
methods used by companies for environment scanning and gathering vital
information about changes. Customers’ behaviour and competitors’ activities are
257
also important factors to be watched in the environment. Successful companies

know the vital importance of constantly scanning and adapting to the changing
environment. The environment continues to change at a rapid pace.
If you were the marketer for a new brand of cooldrink to be on troduced in
India. What information on competition will you collect and how will you go about
searching for this information?
The Indian marketing environment
1. What factors would influence the willingness and ability of consumers to buy
each of the following products (a) Mobile Phone (b) DVD Player (c) Air Cooler.
24.10 REFERENCES BOOKS
1. Kotler, Armstrong, Philip, Gary. Principles of Marketing. Pearson education.
2. Kotler, Phillip and Gary Armstrong (2006), Principles of Marketing (Version
12/E). Pearson Education Inc. New Jersey
1.What is ethics in marketing? What criticisms are leveled against it?
24.12 KEY WORDS
Impact of proce, Psychographics.
1
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346E1120

Master of Business Administration (M.B.A)

MASTER OF BUSINESS ADMINISTRATION (M.B.A)

MASTER OF BUSINESS ADMINISTRATION (M.B.A)

Unit–IV Pricing and Distribution

MASTER OF BUSINESS ADMINISTRATION (M.B.A)

1.3.3 Importance of Marketing

maintained only when there is a balance of supply and demand. If production is

essentially a change in orientation on the part of managements towards business.

3.3.4 Developmental Marketing

wastelands are in negative demand by tourists. Atheism, exconvicts, military

to be excessive because of undesirable qualities associated with the offering. Classic

plans and policies. Consumer legislation tries to protect consumer interests.

change in our life-styles, in our consumption pattern as well as in our economic

3. Many organisations make conscious change in their objectives; and

Forward integration: Forward integration of a company’s seeking ownership or

Some companies prefer to achieve most of their growth through internal

to chalk out a strategy of sheer survival. It is essential to understand that there is

3. Based on the above steps, disaggregating the customers into suitable

• Buyer behaviour is reflected by post-purchase evaluation which

and window-displaying. Mass-media like newspapers, radio and television provide

forecasts. Thus a comprehensive and integrated business planning (strategic as

iii. It will be different from what we expect

Next year's sales =

Absence of sales history also creates difficulty in accurate forecasting in case of

vi. Personality traits and attitudes.

in a given situation? Which line of products, or which individual product should be

Bajaj Electricals produce varieties of electrical appliances such as fans,

e. Company Objective: The company objective may be to stabilize or increase

INTRODUCTION GROWTH MATURITY DECLINE

Some technologist think there is shortage of fundamentally new technologies

o It should suggest something about the product’s benefits.

can impair commercialisation seriously. The following activities are usually

4. Poor/Bad timing of introduction: The basic principle to be followed in product

2. A branded product indirectly denotes the quality or standard of a

6. It helps in advertising and display programmes. Brand name or brand mark

gradually creating a brand loyally to the products in the minds of the

9. What are the limitations to branding?

What colours, designs, shapes and sizes of packages should be preferred?

the cost of packaging. Whenever possible containers should be so designed that

packaging, but in the bulk transportation of commodities also, flexible containers

2. It avoids price variations by publishing the price on the label.

4. Sales campaign will achieve remarkable success if after-sales service is

Quality leadership - use price to signal high quality in an attempt to position

Discounts and allowances dealing with trade

In 2005, the American automakers ran an "employee discount" for all

5000 + (20% X 10,000)/ 7000

6. To attract new customers.

channel within the communication process, so it is a more accurate representation

Sender and Receiver – In marketing communications, there are two main

It is an impersonal presentation where a standard or common message

16.3.7 PURPOSE OF PROMOTION

The term promotion is usually an "in" expression used internally by the

Figure 2: Push-pull strategies.

Jobber (2010 p 469) looks at the process of developing and planning

Figure 3. Developing advertising strategy

Marketers generally agree that advertising is essential in positioning a brand

This demand is for a particular brand such as Charminar cigarettes, Surf

The process of budgeting is therefore a decision making process that divides