LESSON -1

MARKETING: DEFINITION AND IMPORTANCE

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 on environment in which the resources, activities and attitudes of buyers
and sellers affect the demand for 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 but 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 of consumption". In
this journey of goods from the manufacturer's warehouse or producer's granary or
miner's yard to the ultimate consumers, several difficulties have to be removed. Firstly
goods 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 deal that there are varying perceptions
and view-points on the meaning content of marketing.
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 goods and services are
exchanged between the maker and the user and their values determined in terms
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 is 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 hallmark of marketing. That is, once the price fixation is done,
the journey is to start from sellers to buyers.
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
needed 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 marketing practices and the
influences in marketing situations.
ii) Developing a broader framework for thinking about marketing.
iii) Providing guiding policies regarding marketing procedures ant their
implementations.
iv) Intensifying one's feeling 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 judgment necessary for dealing
with marketing problems.
viii) Helping oneself to decide whether his career shall be marketing.



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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 the 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. 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:
I. 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 and make his living decent and
gracious. Therefore 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 snow 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 proves 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 nation'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 consumer's
purchasing power increases. This will increase 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 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 items to retail shops from where the consumers
can have them.
6. Marketing removes the imbalances of supply by transferring the surplus to deficit
areas, through better transport facilities.



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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.
II. 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 develop 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, today the producer does not have any direct contact with the consumers.
Therefore, the problems of the producer become very acute and complicated.
Nowadays, these problems are solved by the marketing departments. The marketing
department collects all information regarding what, how, when, how much and for
whom to produce and these information are passed on to the top management. The top
management uses all this information 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. Today the minds of the consumers are not
firm, but fluctuating or changing very often. The behaviour and demand of consumers
keep on 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.
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 an important role in the economic stability of a country.


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LESSON-2
CONCEPTS OF MARKETING


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:
1. The exchange concept
2. The production concept
3. The product concept
4. The sales concept
5. The marketing concept
We shall now discuss each of the five distinct concepts of marketing.
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 important 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.
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 unit
cost of production; and in quite a few cases they also do well with the distribution task
and make the products widely available. Yet, 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.

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3. THE PRODUCT CONCEPT
The Product Concept is somewhat different from the Production Concept. The
Production Concept seeks to win markets and profits via high volume of production and
low unit costs of production, where as the Product Concept seeks to achieve the same
result via product 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, many of them also spend considerable energy,
time and money on 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 what they would gladly accept.
4. THE SALES CONCEPT
The Sales Concept became 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
organisations 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 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 feel that the Sales Concept
is a flawless idea. They think selling it synonymous with marketing. The general public
too perceives 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 quite relevant and
useful to analyse the difference between 'marketing' and 'selling' before we discuss the
Marketing Concept.
Marketing is much wider than selling, and much more dynamic. There is a fundamental
difference 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 and 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, on 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 does not unwisely limit its role to persuading the customers to accept what
the corporation already has or what it can offer readily.
5. 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 succeed 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 and retain a
customer. Marketing concept represents essentially a change in orientation on the part
of management 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 form 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.
FEATURES OF THE MARKETING CONCEPT
The Marketing Concept has four major distinguishing features:
a. 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 or those who
owned the business.
b. 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 have
to be property aligned with marketing.
c.Consumer satisfaction: Integrated management action as 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 feature 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 an 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 its growth. It believes that no firm can afford to ignore
the satisfaction of the consumer, and if any firm does ignore the consumer, it does so at
its peril. The concept effectively counteracts the temptations of short-sighted
management attitudes, by its emphasis on consumer satisfaction.



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d. Realising organisational 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 all
the other goals of the organisation. Instead, it treats consumer satisfaction as the
pathway to all the goals of the organization. The underlying approach is: if a firm has
succeeded in generating consumer satisfaction, it basically implies 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 climate. Only when all these factors act and interact complementing and
supporting one another, will a product with all the attendant features necessary to
satisfy the consumer emerge. And in this process, the organisational goals including
profits are automatically realised. The Marketing Concept never suggests that profit is
unimportant to the firm. On the other hand most fascinatingly, the concept considers
the creation of profits or surpluses as an essential requirement of any business firm. The
concept is against profiteering, but not against profits. It appreciates that reasonable
returns or surpluses are essential for the survival and growth of any business. And this
if, ensured by the Marketing Concept 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.
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 recognizes 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 planning 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.


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LESSON - 3
MARKETING MANAGEMENT TASKS


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 objectives. Marketing management involves planning, implementation
and control of marketing programmers.
Marketing management represents an important 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
appropriate marketing plan or marketing mix to fulfill the set goals of the business. It
has to formulate sound marketing policies and programmers. 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.
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 the task of regulating the level, timing, and character 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
I. Conversional Marketing
Conversional marketing grows out of the state of negative demand. Negative demand is
a state in which all or most of the important 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 all kinds. People have a negative
demand for vaccinations, dental work, vasectomies, and gall bladder operations. Many
travellers have a negative demand for air travel; others have a negative demand for rail
travel. Places such as the North Pole and the desert wastelands are in negative demand
by tourists. Atheism, ex-convicts, 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.
II. Stimulational Marketing
There is a whole range of products and services for which there is no demand. Instead of
people having negative or positive feelings toward the offering, they are indifferent or
disinterested. No demand is a state in which all or important 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 no
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 boats in a lake-less community by
building an artificial lake. The third is to 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.
III. 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 does 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 have been wanting.
Examples of products and services in latent demand abound. Many cigarette smokers
would like a good-tasting cigarette that does not yield nicotine and tars damaging to
health. Such a product breakthrough would be an instant success, just as the first filter-
tip cigarette 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, and good television programmes.
The process of effectively converting latent demand is that of development marketing.
The marketer must be an expert in identifying those prospects who have the strongest
latent demand and in coordinating all the marketing functions to develop the market in
an orderly way.



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IV. 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 absence 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 out 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 it 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.
V. Synchromarketing
Very often an organization 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 synchromarketing
because the effort is to bring the movements of demand and supply into better
synchronization. Many marketing steps can be taken to alter the pattern of demand. For
example, a museum that is under-visited 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.
VI. Maintenance Marketing
The most desirable situation that a seller faces is that of full demand. Full demand is a
state in which the current level and 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 tastes
in the market place. The demand for barber services, as well as the demand for mass
magazines and college education, has undergone an unexpected decline because of
changing market preferences. The other force is active competition. When a product is
doing well, competitors quickly move in and 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 forces 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.
VII. Demarketing
Sometimes the demand for a product or service may outpace the supply. Known as over
full demand, it is defined as a state in which demand exceeds the level at which the
marketer feels able or 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 many people were moving to Oregon and spoiling its
nature/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 discourage customers in general or a certain class of customers in particular
on either a temporary or a permanent basis. Demarketing largely calls for marketing in
reverse. Instead of encouraging customers, it calls for the art of discouraging them.
Prices may be raised and product quality, service, promotion, and convenience may be
reduced. The demarketer must have a thick skin because he is not going to be popular
with certain groups.
VIII. Countermarketing
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 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 destroy the demand for something is called counter-marketing, or
unselling. Whereas demarketing tries to reduce the demand without impugning the
product itself, counter marketing 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 parry's product which is regarded as
socially undesirable.



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- End of Chapter -
LESSON-4
MARKETING ENVIRONMENT


Marketing Environment comprises of external factors over which the organisation and
management has little control. The relatively uncontrollable external forces are:
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 there is reduction in
the birth rate and lower rate of growth of population, many companies specializing in
baby products will have to adjust their marketing programme accordingly. Population
forecast 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 such as census of population are provided by demography, whereas
qualitative aspects of consumer demand such as personality, attitudes, motivation,
perception, etc. are provided by behavioural analysis. Good demographic analysis
combines several factors such as population rate of growth or decrease, income or
economic power, life cycle analysis of consumer, occupation, education, and geographic
segmentation. Both demographic and behavioural analyses 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 crossed the 100 crore mark. The life expectancy of the people in the country
had gone up to 56 years by 1984. About 40 percent of the total population is below 14
years of age.



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The people of India are widely scattered over the length and breadth of the vast country
which covers an area of 3.3 million square kilometers. The average density of population
in the country is 260 per sq km (mid-1988 estimate). The density, however, varies
widely from State to State, from 655 persons per sq km in Kerala, 45 persons per sq km
in Sikkim, to 8 persons 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 speak different languages. As many as
seven different religious groups Hindus, Muslims, Sikhs, Christians, Zoroastrians,
Buddhists, and Jains - form part of the Indian society. The language scenario is even
more diverse with 16 major languages specified in the Constitution 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 supply, price level, consumer credit, etc. Higher interest
rates adversely influence real estate market and markets of consumer durables sold on
installment basis. Exchange fluctuations, currency devaluation, and changes 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 important economic indices.
Since 1974, i.e., after the energy (oil) crisis all over the world, we have inflationary
trends and general level of prices is continuously rising. Inflation coupled with scarcity
conditions can radically change consumer buying habits. Many purchases may be
postponed or even eliminated. Higher petrol prices created a trend 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 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,
vegetables, meats, fruits, eggs, and fish. Similarly, within the non-food consumer goods,
the share of durables increased substantially.
India's per capita income, however, continues 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 important implications for
future standards of living. In 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 century, provided the
technological aspect of the nation's economy is appropriately stepped up.
The growth of the corporate sector is an important indicator of the sophistication and
growth of an economy. During the last two decades. India's corporate sector has grown
phenomenally. By 1984, there were 96,144 joint stock companies in India, government
and non-government put together. Of these, 94,264 companies which were limited by
shares had a paid up capital of Rs.21,929 crore. In 1951, the number of joint stock
companies was only 28,532 with a paid-up capital of just Rs.775 crore. 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 depreciation provisions for its capital
formation, cast away this 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 depends 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 is 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 agriculture growth would be a main indicator of the level of buoyancy of the
nation's markets.
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 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 have 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 in 1950.
India's engineering industry can today supply the entire requirements of the country in
respect of power generation equipment, equipment 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:
Social and cultural forces influence the business concern in a significant way. New
demands are created and old ones are lost in due course. Marketing management is
called upon to make necessary adjustments in marketing plans in order to fulfill new
social demands.
There are three aspects of social environment:
1. Changes in our life-style and social values, e.g., changing role of women, emphasis on
quality of goods instead of quantity of goods, greater preference to recreational
activities, etc.
2. Major social problems, e.g., concern for pollution of our environment, socially
responsible marketing policies, need for safety in occupations and products etc.
3. Consumerism is becoming increasingly important to marketing decision process.
Societal marketing concept, demanding not only consumer welfare but also citizen
welfare is very much emphasized. Marketers are now called upon not only to deliver
higher material standard of living but also assure quality of life, i.e. environment free
from pollution.
From the marketing point of view, the emergence 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 or self-employed, pursuing varied
vocations. The middle class households in all these categories together could, on a
conservative basis, be reckoned at 25 million. If on an average we have four members in
each household, 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
became 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 stratum 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 in 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 a cumulative effect of the quantitative expansion of the class, increase in its income
levels, and changes 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 governments' monetary and
fiscal policies, import-export policies, customs duties. Legislation controlling physical
environment, e.g. anti-pollution laws, also influence marketing plans and policies.
Consumer legislation tries to protect consumer interests. Marketing management
cannot ignore the legislation regulating competition and protecting 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 and 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 measures 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 primarily 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
freer 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, physical movement of the product, channel
arrangements, and stipulations on 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 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 fields
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 the 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 fiber cloth
has almost knitted the pure cotton textile industries in many countries. Television has
adversely affected radio and cinema industries. Seven 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 countries. It has the responsibility of relating changing life-style
patterns, values, and technology to market opportunities for profitable sales in
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, choice 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 important part of the marketing environment. The
distribution environment in India has been undergoing significant changes in the past
few years. And presently, the pace of change is getting further accelerated.
In the first place, as a rule, the distribution channels have beer getting shorter. The gap
between the producer and the consumer is becoming narrower. Secondly, 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 has improved despite the hike in various cost
elements. In fact, in quite a few sectors, retailing has grown into a prestigious activity.
The distributive trade has also been growing in size in 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 methods and channels of distribution. They 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, 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
marketing environment, and the extent of competition prevailing in the 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 sizeably 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 succeeded 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, the two-in-ones have become a common
sight in the rural areas. The spread of bicycles has 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 units per annum and a major part of this is absorbed by rural India.
Two-wheelers have also become a common sight in the villages. In clothing, there 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
kitchenware. 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 tempo and style
of marketing which proved a success in the urban 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 manufactures, 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 now has 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 the balance in our ecological environment. Economic use of
energy and natural resources 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 have made a profound impact on the size and structure of 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 reasonable to expect that in the coming
years, the economic and industrial situation in India would move further towards
growth and away from controls and regulations. Similarly, the change already witnessed
in the social scenario too is likely to get accelerated further in the coming year. In short
the marketing environment of the country provides a great opportunity for the
marketing man to work on.



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- End of Chapter -
LESSON-5
MARKETING STRATEGIES



I. 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:
Many organisations get their start because they recognize an important
opportunity. They echo Sir Edmund Hillary's reason for climbing Mount Everest:
"Because it is there".
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.
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:
Many organisations start with an overriding objective, such as to make high
profits, and look for the opportunities that will achieve this objective.
A company cannot simply look for opportunities without a set of objectives. The
world is too full of opportunities.
Many organisations make conscious changes 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
integrative growth opportunities. The third level discerns those opportunities present
completely outside of the core marketing system; we call these diversification growth
opportunities.
1. 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...
a. Market Penetration consists of the company's seeking increased sales for its
present products in its present markets through more aggressive marketing effort.
b. Market Development consists of the company's seeking increased sales by
taking its present products into new markets.
c. Product Development consists of the company's seeking increased sales by
developing improved products for its present markets.
2. 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 its
profitability, efficiency, or control by moving backward, forward or horizontally within
the industry. The three integrative growth possibilities are...
a. Backward Integration happens when a company seeks ownership or increased
control of its supply systems.
b. Forward Integration happens when a company seeks ownership or increased
control of its distribution systems.
c. Horizontal Integration happens when a company seeks ownership or increased
control of some of its competitors.
3. 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 competencies 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:
a. Concentric Diversification consists of a company seeking to add new products
that have technological and/or marketing synergies with the existing product line;
these products will normally appeal to new classes of customers.
b. Horizontal Diversification consists of a company seeking to add new products
that could appeal to its present customers though technologically unrelated to its
present product line.
c. Conglomerate Diversification consists of a company seeking to add new
products for new classes of customers because this (a) promises to offset some
deficiency, or (b) represents a great environmental opportunity; in either case,
these products have no relationship to the company's current technology,
products, or markets.
II. 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 In particular, they should be hierarchical, quantitative, realistic, and
consistent.
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 on investment to 7.5 percent by the end of second year" is
a still better statement. The more specifically the objective is stated in terms of
magnitude, time, and place, the more useful it is for developing plans and implementing
controls.
The company has to be careful in choosing the target rate of return. Not any rate will do.
It wants to set the highest rate that is reasonable to seek. This should come out of an
analysis of its opportunities and resources, not out of wishful thinking.
The company is likely to pursue at any time a number of important 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 product
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 a point, are likely to reduce profit. A
statement involving two basic objectives in a trade-off relationship is of no help as a
management guide without further specification.
III. 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 tell 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 aim - to cope with
competition. There are five major and vital forces that decide the nature and intensity of
competition - the threat of new entrants, bargaining power of customers, bargaining
power of suppliers, threat of substitute products, and the jockeying among the existing
contestants. The collective strength of these forces determine 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".
Marketing strategy is the instrument leading to the attainment of the marketing
objectives. It means that the burden of attaining the marketing objectives rests on
marketing strategy. It is only logical then, that marketing strategy takes its direction and
cue from the objectives and goals of the firm.
Formulating the Marketing Strategy
Formulation of marketing strategy consists of five main steps:
1. Market Segmentation: Market segmentation is the basic recognition that every
market is made up of distinguishable segments consisting of buyers with different
needs, buying styles, and responses to offer variations. No one approach to the market
will satisfy all buyers. Each segment of the market represents a somewhat different
opportunity. The firm has to study the opportunities in 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 principle 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 be everywhere. It
must go after viable positions. It must 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 investments 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 alone can take the firm to the concluding point or final
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.



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3. Market Entry: 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.
Some companies prefer to achieve most of their growth through internal development.
They may feel that true leadership is only achieved by running their own research and
development laboratories. They may 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 itself. In the best joint-
venturing combinations, there is not only complementarity but synergy.
4. Marketing-Mix: The next element in marketing strategy is for the company to
determine how it will profile 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 qualify 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.



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5. Timing: 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 lose by moving in too soon or too late.
The proper sequencing and timing of its moves are a key component of the strategy.
Kinds of Marketing Strategies
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 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/offense. The firm is ready for
a direct frontal attack 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 to frontal attack as Flanking attack, Encirclement attack, Bypass attack and
Guerrilla warfare.
2. Defensive Strategy: Here the firm wants to avoid any possible direct confrontation
with leading competitors. 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. De-marketing Strategy: When for certain reasons, a firm wants to withdraw a
product that is enjoying good demand, it de-markets 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. Re-marketing Strategy: Through this strategy, a product with losing demand is
brought back of life and re-marketed 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.
MODEL QUESTIONS
1. Define marketing. Discuss the importance of marketing.
2. Discuss the five distinct concepts of marketing.
3. Explain the feature of marketing concept.
4. What is marketing management? What are its responsibilities?
5. Critically examine marketing management tasks.
6. What is the composition of marketing environment?
7. Briefly narrate the Indian marketing environment.
8. How would you formulate a marketing strategy?
9. Explain the different kinds of marketing strategies.
CASES
1. In the face of fuel shortage, many petroleum companies have sought to reduce their
customers' use of oil. Propose a demarketing plan that will bring down the level of
demand for oil. (Refer Lesson 3)
2. Leading cigarette manufacturers in India have launched cheaper varieties to have an
eye over bidi segments mostly concentrating in rural parts of the country. Do you think
that the Indian marketing environment is a boon to their strategy? (Refer Lessons 4 and
5)
REFERENCE BOOKS
MARKETING MANAGEMENT - Philip Kotler
MARKETING MANAGEMENT - V.S. Ramaswamy and S. Namakumari
FUNDAMENTALS OF MARKETING - William J. Stanton
STRATEGIC MARKETING - A. Robertson
BASIC MARKETING - McCarthy


- End of Chapter -
LESSON-6
MARKET SEGMENTATION, MARKET TARGETING AND PRODUCT
POSITIONING



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 demands 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 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.
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 prosper through
creatively serving specific market segments whose needs are imperfectly satisfied by the
mass-market offerings".
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 efficiency 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 straightforward. 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:
1. He can introduce only one product, hoping to get as many people to want and
buy it as possible. We call this undifferentiated marketing.
2. He can go after one particular market segment and develop the ideal product for
them. We call this concentrated marketing.
3. He can introduce several product versions, each appealing to a different group.
We call this differentiated marketing.
Thus the determination of market segments and the determination of market targets are
separate questions. Market segmentation is the process of identifying groups of buyers
with different buying desires or requirements. Market targeting is the firm's decision
regarding which market segments to serve.



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BENEFITS OF SEGMENTATION
1. 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 and/or assess the
resistance to his product.
2. The result obtained from market segmentation is an indicator to adjust the
production, using men, materials and other resources in the most profitable manner. In
other words, organisation could allocate and appropriate its efforts in useful manner.
3. 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
diversified or even discontinued.
4. It helps in determining the kinds of promotional devices that are effective and also
their results.
5. 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 versus 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.
BASES FOR SEGMENTING CONSUMER MARKETS
Geographic Factors:
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 Factors:
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 Factors:
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, 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 variables 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, seeking bright teeth as sociable, seeking good taste as sensories,
and seeking low price as independents.
User Status:
Many markets can be segmented into non-users, ex-users, potential users, first-
time users, and regular users of a product. High market-share companies such as
Kodak (in the photo 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 / Volume:
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 loyals 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 loyals seeking that factor or benefit.
BASES FOR SEGMENTING INDUSTRIAL MARKETS
Industrial markets can be segmented using many of the variables 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 are sold, the size of the companies and
geographical area 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 sometimes 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 on 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 or 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 the requirements.
Personal Characteristics:
The industrial customer may have similar or different values than the marketer. Some
industrial customers may be enterprising and risk-taking, whereas 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 be 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 further segment on
the basis of purchase criteria. Government industries may require products at a
lower price, whereas 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:
i) Assessing the difference between one customer group and the other. This may be
in terms of needs, likely response, market inputs etc.
ii) Finding out the factors or characteristics on the basis of which consumers can
be appointed to a specific segment.
iii) Based on the above steps, de-segregating the customers into suitable segments.
iv) Analysing and establishing whether it is possible to formulate separate
marketing programmes and marketing mixes for the different segments.
v) 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.
vi) Estimating the likely levels of purchase by each segment, especially the
significant and relevant ones.
vii) 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 and
if so, how many and which ones. 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 took 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 the soap
business, market analysis would readily indicate that the premium segment happens 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 analyze 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;
although 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.,
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 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 lower 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, and 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 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 grapefruit 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 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 soya milk, 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.



Please use headphones


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 are normally isolated and around those features the product is placed in the
market. Positioning comes out of 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 them 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 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 of
capturing a place in the mind of the prospect.
Quite often, products undergo 'respositioning' 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 or 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 man 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.


- End of Chapter -
LESSON-7
BUYER (CONSUMER) BEHAVIOUR


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 the general human behaviour.
THE BUYER
1. 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.
2. 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.
3. 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 be 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:
1. Buyer behaviour involves both individual (psychological) processes and group
(social) processes.
2. Buyer behaviour is reflected by post-purchase evaluation which indicates
satisfaction or non-satisfaction.
3. Buyer behaviour includes communication, purchasing and consumption behaviour.
4. Buyer behaviour is shaped by social environment.
5. Buyer behaviour includes both consumer and industrial buyer behaviour.
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 choose that alternative which would provide him with the highest
utility at the 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 uni-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 that 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 pain avoidance) and learned drives
(such as fear, guilt, pride, 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 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 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 favourite 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 counter tendency 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:
a. Learning refers to a change in behaviour brought about by practice or
experience. Almost everything one does or thinks is learned.
b. Product features such as price, quality, service, brand, package etc., act as cues
or hints influencing consumer response.
c. Marketing communications such as advertising, sales promotion, also act as
guides persuading buyer to purchase the product.
d. 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 an enjoyable act; the super ego presents the moral issues
involved and the ego acts as the arbitrator in determining whether to proceed or not.
This has led to motivation research and has proved to be useful in analysing buyer
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 behaviours 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 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, and 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 an indelible imprint on his
needs and wants. These social forces deserve the most careful study by marketers
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 - consumer's attributes and 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 variables 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.
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-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. Maslow, in a
pyramid form known as 'Hierarchy of Needs'.
Satisfaction proceeds through each of the five stages viz., psychological --> safety -->
social --> self-esteem --> 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 would turn to be a want.
Once such wants are generated, they are conditioned by certain motives. These are
termed as buying motives.
Buying motives are defined as "those influences or considerations 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:
1. 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 - Emotional product motives are those
impulses which persuade the consumer on the basis of his emotion. The buyer
does not try to reason out or logically analyse the need for purchase. He makes a
buying to satisfy: pride, sense of ego, urge to imitate others, desire to be
distinctive.
b) Rational Product Motives - 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 as...
i) 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.
ii) 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 place.
2. Rational Patronage Motives are those which arise when selecting a place
depending on the buyer satisfaction such that...
i) it offers a wide-selection
ii) it has latest models
iii) it offers good after-sales service etc.
FACTORS INFLUENCING BUYER BEHAVIOUR
1. Information:
The buyer today is exposed to a veritable 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
salesman's suggestions
2. Socio-Cultural Environment:
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. Groups:
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 of 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.
Influence of broad 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 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 from a proper
study of group influence on individual buying behaviour. It will help them to develop
proper marketing strategies for different customer segments.
4. Religion, Culture, Language:
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 dos and don'ts listed out by
religion and culture control significantly the individual's life style and buying behaviour.
5. Status:
People are becoming more and more concerned about their image or their status in
society. This concern is a direct outcome of the material prosperity of the society. The
desire to be somebody, to feel that you are somebody, or 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.



Please use headphones


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.
A. Convenience Goods
There are certain products 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 toothbrush, toilet soap, 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.
B. 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 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. There are a smaller number of selling points, and the manufacturers
normally sell directly to the retailers without routing the supplies through a wholesale
tier.
C. Specialty Goods
Specialty goods are high-priced goods - cars, 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 even shopping goods. Specialty
goods are not purchased out of instant decisions. The various aspects of the purchase -
the cost, the utility, the prestige, the alternatives available, the experience of others who
have purchased the product - all are analysed before deciding on the purchase. Normally
the entire family takes 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:
Step 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.
Step 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
salesmen, advertisements, dealers, packaging, sales promotion 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.
Step 3. Evaluation of Alternatives: This is the critical stage in the process of
buying. There are several important elements in the process of evaluation:
1. A product is viewed as a bundle of attributes. These attributes or features are
used for evaluating alternative brands. For example, a product is like it has
certain common attributes such as taste, flavour, strength, aroma, colour,
number of cups per packet, and price.
2. Information cues or hints about a set of characteristics of the product in brand
such as quality, price, distinctiveness, availability etc.
3. Brand images and brand concepts can help in the evaluation of alternatives.
4. In order to reduce the number of alternatives, some consumers may consider
more critical attributes and mention the level for those attributes.
5. Occasionally, consumers may use evaluation process permitting trade-off among
different alternatives.
Marketers should grasp thoroughly the process and utility functions for designing and
promoting the product.
Step 4. Purchase Decision: While the consumer is evaluating the alternatives, he
may develop some likes and dislikes about the alternative brands. This attitude towards
the brand influences 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.
Step 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 may 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.



- End of Chapter -
LESSON - 8
SALES FORECASTING


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:
i) The outside uncontrollable forces likely to influence the company's sale, such as the
weather, government activity and competitive behaviour.
ii) 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 a 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 needs is based on anticipated sales.
Scheduling of all production as setting manpower needs, purchasing raw material
requirement, and determining the rate of production output, depends upon sales
forecast.
USES OF SALES FORECAST
Sales forecasting serves the following purposes:
1. 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.
2. It is a useful tool for measuring the efficiency of sales department. Sales forecasting
may be said to occupy a forefront seat in management.
3. 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.
4. It aids in reallocation of sales territories.
5. It mitigates the twin evils of under-stocking and over-stocking.
6. It acts as a tonic for financial departments which may make sales forecast.
7. It acts as a friend, philosopher and guide in so far as plant layout, warehousing and
transportation facilities are concerned.
8. Seasonal or timely fluctuations may be easily met with by averaging out production
and employment over the year.
9. 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 sales 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
costs, (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 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:
1. Short range forecasts
2. Long range forecasts
3. 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 facilitate investment decisions at the time of starting a new
industry or while attempting an 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, is essential for investment decisions. The
margin of error may be high in such long-term forecasts. Yet, they are 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,
iii) It will be different from what we expect it to be.
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 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' respectively, 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'.
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 from 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 quotas or allocating the advertising
expenditure.
Some of the most common techniques used for sales forecasting are discussed below:
1. Jury Method or Executive Opinion Method:
Under this method, opinions of the top executives (from marketing, production, finance
and other departments) regarding future sales volume are obtained. This method
provides forecasts easily and quickly; does not require elaborate statistics; permits
combining and averaging the specialised opinions 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 from the Jury Method and the Sales Force Composite Method, in which
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
customers 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 requires 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 at by simply adding a certain percentage to
last year's sales. Some firms use the formula...
Next year's sales = (This years sales)
2
/Last years 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 for the
projection.
7. 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 tile 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 the moving averages method 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:
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. The association between 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:
Econometrics basically attempts to express economic theories in mathematical terms so
that they can be 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.



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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 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:
1. Determining the objectives for which the sales forecasts are to be used.
2. Dividing company's products into homogeneous groups.
3. Determining the relative importance of the factors which affect sales of each such
group.
4. Selecting the appropriate sales forecasting method.
5. Collecting and analysing the sales and drawing conclusions there from.
6. Converting the conclusions into specific forecasts relating to the products and
territories involved.
7. Applying these forecasts to company's operations; and
8. 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:
1. Industry sales for the past few years; product-wise, territory-wise, customer class-
wise, month-wise and dealer-wise.
2. Past sale of the company.
3. Production data - industry and company.
4. Market share of each firm in the industry with break-up of sales by
markets/territories/channel types.
5. Sales of substitute products.
6. Usage pattern of the product.
7. Economic, technological and environmental data relevant for the product's
consumption.
8. Strengths and weaknesses of the firm in the market.
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.
> 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 sales
history the sales forecasts may be based on mere guess work.
> Anticipated growth rate for the product cannot be calculated precisely, because the
rate of growth never remains uniform; the same growth 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.
MODEL QUESTIONS
1. What is market segmentation? What is the rationale behind market segmentation?
2. What are the benefits of market segmentation? Identify the requirements for effective
market segmentation.
3. Distinguish between the base for segmenting consumer markets and industrial
markets.
4. Explain the steps involved in the segmentation process.
5. What is market targeting? As a marketer of two-wheeler, how would you select the
target segment?
6. Explain target market strategies with illustrations.
7. What is product positioning? Distinguish between product positioning and product
repositioning.
8. Explain the features of a good product positioning technique.
9. What do you mean by buyer behaviour? Discuss different theories of buyer behaviour.
10. Explain the factors influencing buyer behaviour.
11. How would you classify consumer goods on the basis of buying habits? Express the
impact of your classification on the marketer.
12. Narrate the buying process.
13. Explain the components of marketing mix.
14. Explain the environmental factors influencing the marketing mix of a marketer.
15. Define sales forecasting. State the importance of sales forecasting.
16. Explain the techniques of sales forecasting.
17. Emphasize the role of MIS in sales forecasting.
18. Design a sales forecasting procedure by bringing out its components.
CASES/PROBLEMS
1. Suma Limited has a product range of steel furniture, cosmetics, drugs, cattle feed,
refrigerators and typewriters. The company has market potential throughout India. How
would you segment the market for Suma Ltd? (Refer Lesson 6)
2. Bata shoes are gradually losing their position in the market. Suggest a strategy to
reposition them. (Refer Lesson 7)
3. State the factors influencing the TV buyers. The extent of their influence and the
appropriate approach of marketers have also to be highlighted. (Refer Lesson 8)
4. You are making and marketing mosquito nets. Now the market is flooded with
mosquito repellents. How would you manipulate your marketing mix to face the market
situation? (Refer Lesson 9)
REFERENCE BOOKS
FUNDAMENTALS OF MARKETING - William J Stanton
MARKETING MANAGEMENT - Philip Roller
MARKETING MANAGEMENT - V.S. Ramaswamy, S. Namakumari
PRINCIPLES AND PRACTICE OF - Dr. C.B. Mamoria
MARKETING IN INDIA - R.L. Joshi
PRINCIPLES OF MARKETING - S.A. Sherlekar, S.J. Salvadore Victor, Dr. K.
Nirmala Prasad


- End of Chapter -
LESSON-9
MARKETING MIX


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-a 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 four 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:
PRODUCT VARIABLES
Product line and range.
Design, quality, features, models, style, appearance, size and warranty of product.
Packaging, type, materials, size, appearance and label.
Branding and trade mark.
Service, pre-sale and after-sale.
New products.
PLACE VARIABLES
Channels of distribution, types of intermediaries, channel policy and design, location of
outlets, channel remuneration and dealer-principal relations.
Physical distribution, transportation, warehousing, Inventory, levels, order processing
etc.
PRICE VARIABLES
Pricing policies, levels of prices, levels of margins, discounts and rebates.
Terms of delivery, payment terms, credit terms and installment facilities.
Resale price maintenance.
PROMOTION VARIABLES
Personal selling, objectives, level of effort, quality of sales force, cost level, level of
motivation.
Advertising, media mix, budgets, allocations and programmes.
Sales promotional efforts, display, contests, trade promotions.
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:
CUSTOMER VARIABLES
Number of customers.
Location of the customer.
Purchasing power of the customers.
Buying behaviour.
Habit of purchase.
Personality traits and attitudes.
Lifestyles and needs.
COMPETITION VARIABLES
Structure of the industry.
Nature and intensity of competition.
Products and services offered by the competitors.
Number of competitors, their size, capacity and territory of operation.
Competitors sales levels in each market segment/product.
Competitors' strengths and weaknesses.
Competition from substitute products.
TRADE VARIABLES
Structure of the trade.
Types of intermediaries, their number and strength.
Trade practices.
Service provided by the trade.
Motives and attitudes of the intermediaries.
Extent of sophistication of the trade.
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 variables to suit the environmental variables.



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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 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 maneuvers 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 maneuvers 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.
To sum up, 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
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-ordinated and balanced
in order to achieve an optimum marketing mix.


-End Of Chapter-
LESSON - 10
PRODUCT



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
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 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 of
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
-- Tthe differentiated product
-- The customised 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 Modem bread are branded products. The marketing implication of the Brand has
already been dealt with earlier in detail.
THE DIFFERENTIATED PRODUCT
The differentiated product enjoys a further distinction from 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 seasons 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 customised 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 arid the user are in direct contact and the product
gets customised to the requirements of the customer. When an engineering and
fabrication firm like Larsen and Toubro undertakes to supply oil rigs to the Oil and
Natural Gas Commission, it is offering a customised 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 customised
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 moulded 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
finesse 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.




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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 Dimension: 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.
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
connotes 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
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
1. 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.
2. 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 are fulfilled to a group of products manufactured by a
concern, then it is a product line.
3. 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, 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 all come under 'Electrical Appliances'. At the same time, Godrej Company goods are
inconsistent. They produce various lines of products. But these goods are not united by a
common factor.
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 diversification.
(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 ink 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.
(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 products to its product line. The elimination of obsolete products and
unsuccessful product also bring changes in product line and product mix of the
companies.


-End Of Chapter-
LESSON -11
PRODUCT PLANNING AND DEVELOPMENT


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 marking
out and supervising the research, screening, development, and commercialisation 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:
(a) the development and introduction of new products;
(b) the modification of existing lines to suit the changing consumer needs and
preferences; and
(c) the discontinuance or elimination of unprofitable or marginal products.
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:
1. Which product should the firm make and which should it buy?
2. Should the company expand or simplify it's line?
3. How each new item could be more useful?
4. Is the quality right for the intended use and market?
5. What brand, package and label should be used for each product?
6. How should the product be styled and designed, and in what sizes and colours, and
what materials should it produce?
7. In what quantities should each item be produced, and what Inventory control should
be established?
8. 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 then paint, polish, or otherwise
finish the end product.
The decision to "make or buy" a product depends upon the managements' analysis of
several issues, such as the following.
1. Relative cost of making or buying.
2. Extent to which specialized machinery techniques, and production resources are
needed.
3. Availability of production capacity.
4. Managerial time and talents required-the amount of production supervision needed.
5. Secrecy of design, style and materials-the extent to which the company wants its
processing methods kept secret.
6. Attractiveness of the investment necessary to make a product.
7. Willingness to accept seasonal, cyclical, and other market risks.
8. Risk of depending upon outside resource-will they raise the price cut off
relationship?
9. Extent of reciprocity present-is the supplier of item also a customer of the firm's other
products?
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 up to the time, it is launched in the market, a product goes through
the various phases of its development. Its 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 its market declines and finally the product dies. It is
worth noting that the duration of each stage is different among products. Some takes
years to pass through the introductory stage, while others may be accepted in a few
weeks. Further, not all 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.
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 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-profile strategy consists of launching the new product with a high price and 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 who become aware of the product are eager to have it and pay the asking price;
(3) the firm faces potential competition and wants to built 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 largest market share for the company.
This strategy makes sense under the following assumptions:
(1) the market is large in size;
(2) the market is relatively unaware 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 aware of the product;
(3) the market is price-sensitive; and
(4) there is some potential competition.
2. Growth or the Market Acceptance Stage: In this stage, the product is produced
in sufficient quantity and put in the market without delay. The demand generally
continues to outpace the supply. The 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 is
introduced and prices may come down slightly. Sellers shift to "buy-my-brand" rather
than "try-my-product" promotional strategy.


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MARKETING STRATEGIES IN THE GROWTH STAGE
During this stage, the firm tries to sustain rapid market growth as long as possible. This
is accomplished through such actions as:
1. The firm undertakes to improve product quality and add new-product features and
models.
2. It vigorously searches out new market segments to enter.
3. It keeps its eyes open to new distribution channels to gain additional product
exposure.
4. It shifts some advertising from building product awareness to trying to bring about
product conviction and purchase.
5. It decides when the time is right to lower prices to attract the next layer of price-
sensitive buyers into the market.
3. Market Maturity:
During this stage, sales continue to increase but at a decreasing rate, while the sale curve
is leveling off, the profits of both the manufacturer and the retailers are starting to
decline because of rising expenditure and lowering of prices. Marginal producers,
therefore, are forced to drop out of the market. Price competition becomes increasingly
severe, and the producer assumes a greater share of the total promotional efforts in
order to retain his dealers.
MARKETING 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 modification, 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.
Second, the manager looks at ways 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 not affect total industry sales. For example, a
manufacturer of a chocolate drink mix may find that its heavy users are mostly older
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 re-launch, and
it can take several forms.
A strategy of quality Improvement aims at increasing the functional performance of the
product-such traits as its durability, reliability, speed, arid taste.
A strategy of feature improvement aims at adding new features that expand the
product's versatility, safety, or convenience. For example, the introduction of power to
hand lawn mowers increased the speed and ease of cutting grass.
A strategy of style improvement aims at increasing the aesthetic appeal bf the product in
contrast to its functional appeal. The periodic introduction of new car models amounts
to style competition rather than quality or feature competition.
Marketing-mix modification:
As a final source of mature product strategy, the product manager considers the
possibility of stimulating sales through altering one or more elements of 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 and
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 consider moving into
higher-volume market channels, particularly discount channels, if it is in a growth stage.
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 becoming 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 thus 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.
Identifying the weak product The first task is to set up an 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:
1. A product review committee is appointed with the responsibility for developing a
system for periodically reviewing weak products in the company's mix. This committee
includes representatives from marketing, manufacturing and the controller's office.
2. This committee meets and develops a set of objectives and procedures for reviewing
weak products.
3. 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.
4. 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.
5. 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.
6. The product review committee examines the product rating form for each dubious
product and makes a recommendation (a) to leave it alone, (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 issue of whether it should be the one to stay in the market until
the end. For example, Protector & 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 continues its past marketing strategy;
same market segments, channels, pricing, promotion, and so on. The product simply
continues 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 at the old or
even a higher price, both of which mean good profits.
The drop decision:
When a product has 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 farmer because this will bring in
some cash and will minimize the hardship to customers 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 and reverse
the decision. Or it could be discontinued gradually with a timetable 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 mean 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 a 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.

-End Of Chapter-
LESSON-12
NEW PRODUCT DEVELOPMENT



SIGNIFICANCE OF NEW PRODUCT DEVELOPMENT
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 arid 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.
NEW PRODUCTS BECOME NECESSARY FOR MEETING THE CHANGES IN
DEMANDS
Innovation is the essence of all growth. This is especially true in marketing. In an age of
scientific and technological advancements, change is a natural outcome-change in food
habits, change in comforts and conveniences of life, change in social customs and habits,
change in expectations and requirements. Any business has to be vigilant to these
changes taking place in its environment. People always seek better and better products
more convenience in 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 ton. 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
only 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 a more 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 out new products. New products offer new avenues of growth and thus
secure the 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.
Some technologists 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 increasingly 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.
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 'skunk works' where
small 'unauthorized' teams of executives/workers spend company's time and money to
work on 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.
Creativity 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 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
increase 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:
Is there a felt need for the new product?
Is it an improvement over an existing product?
Is it close to our current line of business?
Does it take us to a totally new line of business?
Can the existing marketing organisation handle the product?
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
developments 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. One the management decides to go forward with the product idea, the following
activities are undertaken:
1. Establishing development projects for each product
2. Building the product with the changed specifications, If necessary, and
3. 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 the 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 it la 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 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 is 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 most 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:
1. It should suggest something about the product's benefits.
2. It should suggest product qualities such as action colour, or whatever.
3. It should be easy to pronounce, recognize and remember.
4. It should be distinctive.
The two traditional packaging concerns of manufacturers 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 consumers' 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 prospects 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, test 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 new 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 can impair
commercialisation seriously. The following activities are usually undertaken during this
stage:
1. Completing final plans for production and marketing
2. Initiating coordinated production and selling programmes.
3. 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 it 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:
(a) Awareness stage, where the individual is exposed to innovation-product, service.
Idea-but knows very little about it.
(b) Interest information stage, where the prospect becomes interested to ask for
and know specific information about the new concept.
(c) Evaluation stage, in which the prospect mentally measures the relative merits and
demerits 'of the innovation.
(d) Trial stage, when the prospects actually adopt the innovation on a limited basis.
(e) Adoption stage, in which the individual decides whether or not to use the
innovation on a full scale basis.
(f) Post-adoption stage, in which the prospect continues to seek assurance that he
made the right decision.


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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 failures.
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 estimates often also go wrong when the products are finally introduced into the
market.
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 competition, Price cuts or 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 environments.
9. Failure of the 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:
1. 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.
2. By making a product that is acceptable to the society.
3. By selecting a product that would exactly fit into the existing market structure of a
company.
4. By using continuous and efficient demand creation methods and
5. By selecting a product that should reflect the company's image already created in all
respects, especially with regard to quality arid 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".

-End Of Chapter-
LESSON-13
PRODUCT RELATED STRATEGIES: BRANDING


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.
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 cpmpetitors. In otherwords, 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:
Where 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 trade marks. Trade Mark is defined as "a brand or part of a brand that
is given legal protection because it is capable of 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 it serves
two separate purposes. It brings out the identity of the "manufacturer and the product.
TATAS is solely a trade name of the maker of various brands of cosmetics. GODREJ is
both a trade name and a brand name for most of their products.
Patents:
Patents are public documents conferring certain rights, privileges, titles or 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
"Liption" 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 hot 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.


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FUNCTIONS OF BRANDING
1. It helps in product Identification and gives 'distinctiveness' to a product.
2. Branded products indirectly denotes the quality or standard of a product.
3. It eliminates imitation products.
4. It ensures legal right on the product.
5. Brands differentiates the product and facilitates 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 manufacturer may be used
in the abbreviated form to name the product. Example- Bata, Remington.
ii) Special names: The-products may be given special name which may be coined
especially to be used as the brand name. Examples- 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 of the same class. Examples-Scissors cigarettes, Camel ink.
TYPES OF BRANDS
1. Individual Brand:
A firm may decide upon a policy of adopting distinctive brands for each of its products.
For example ITC Ltd., gives different brand names for its products.
2. Family Brand:
When a firm is making many lines of product and each line of product is given a
particular brand name it is called family brand. A company may produce different lines
like Milk food, soft drinks, cosmetics and so on. If each line is given a separate brand
name it is known as family brand.
3. Umbrella Brand/Company Brand:
When all the products of company have the name of the company as a brand name, such
brand name is known as umbrella brand or company brand. All the product of Godrej
Company - Soap, Furniture, Typewriter, Refrigerator etc. ha: only one brand name
"Godrej".
4. 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.
5. Private or 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 over 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 marking.
3. The brand must carry 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 hands of manufacturer or seller for the creation
of consumers' preference or "product differentiation" must possess the following
essential qualities:
Firstly, it should be 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 and economical to reproduce.
Sixthly, it should be effectively illustrative.
Finally, its owner should be able to protect the brand or trade mark in the law court.
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 manufacturer to maintain
contact with the consumers.
9. Branding insures steadier demand which leads to economies of planned and
continuous production.
(b) ADVANTAGES TO WHOLESALERS AND RETAILERS
1. No efforts for promoting 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 is involved 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 may 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. Branding aids in the standardization of quality and saves the retailer much
trouble in choosing and buying his stock.
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 "motivate him into buying action". A product sold on
self-service basis has to rely heavily on brand appeal so that it can be immediately
recognized and selected by the customer out of the mass of products displayed on
shelves and counters.
7. It helps 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 facilitates introduction of a new item. A firm selling one or more lines of
branded products can add a new item to its line of products 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 branded 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 severe criticism levelled against branding is that it leads to some kind of
monopoly known as "Brand monopoly". The brand monopoly is created by gradually
creating a brand loyalty 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 stages 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 to develop a logical order of action in developing
brand awareness and ultimately leading to brand loyalty. These steps may be as follows:
1. Non-recognition - Consumers are unaware of the availability of a particular
brand
2. Brand recognition - Making the consumers to realise the availability of a
particular brand
3. Brand preference - Making the consumers buying out of habit a particular
brand
4. Brand insistence - In this stage consumers will not accept any substitute
product
5. Brand loyalty - Last stage in the Branding process - when consumers make
repeat purchases of the same brand.


-End Of Chapter-
LESSON -14
PRODUCT RELATED STRATEGIES: PACKAGING AND LABELLING


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 goods 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 consumers. Fragile goods are often packed in special containers.
Packaging is the sub-division of the packing function of marketing. It means placing of
goods in small packages-boxes, bottles of 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.
NEED OF PACKING AND PACKAGING
1. Protection from damage: Goods are likely to get damaged in transit or while in
store. Therefore they must be kept in suitable containers.
2. Prevention of Evaporation: Products like gas, spirit etc., are volatile In nature. If
they are not properly packed they will evaporate.
3. 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.
4. Protection against pilferage: To protect goods from getting stolen also packing
becomes essential.
5. 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.
6. 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.
7. Convenience of consumers: Goods are packaged in convenient sizes and units
which are easy to handle by the consumers.
8. Economy: Package should provide various economies both to the producers and to
the consumers. Well packed products are fresh, clean and intact. 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.
9. Promotional 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 overall 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 of a product the innovative package design'-comes to
their minds arid they will buy only that product.
d) Effective Sales Tool:
A good package stimulates sales. A well designed and attractive package invites
customers. Many 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:
1. Which of the numerous materials available for packaging will serve the purpose of
enhancing the appearance of the product best?
2. What colours, designs, shapes and sizes of packages should be preferred? '
3. How to design a package which will be convenient for the consumers to handle?
4. Can a package be so designed that it can be used by the consumer even after the
product it contains has been consumed?
5. Should special gifts and such other packages be designed for Diwali, Christmas,
marriage and such other selling seasons?


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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 the 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 feelings 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 deterioration 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 that it must be as inexpensive as
possible. For this purpose special efforts should be made to reduce 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.
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 in 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 packings, 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 examples 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 dispersal
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 them from breakage.
Different materials are used for the purpose of packaging. Earthenware is porous and
helps in retaining the freshness of the products kept in it. China jars are becoming
popular and replacing the old earthenware containers. They can protect a product
against light and corrosive action of acid. Their defect is that they are fragile.
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 cardboard containers
have certain advantages over wooden boxes. Firstly, cardboard is cheap, though
sufficiently, strong and rigid to protect fragile goods. Secondly, it can be manufactured
in varying thickness and different colors. 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, protection against damage is not possible.
Glass is another popular packing material. Its main advantages are that it is attractive; it
can be given any shape and colour and it offers 'protection against the action of most of
the chemicals. Its demerit is that it is fragile.
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 moisture 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 bottles.
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.
Tetra packs:
One of the latest among these innovations is the tetra pack 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 arc sterilized and human handling is dispensed with.
The package consists of several thin layers of polyethylene foil and paper. Several
manufacturers 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. Tetra packs have an edge over
cans since their contents have a 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 wherever the products lend themselves
to such package. Not only in consumer goods 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 polyamide 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.
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 protects the quality of the products.
6. It ensures the supply of goods of right quality in desired quantity to 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 "some 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 salesman' 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.
Thus, packaging is important not only for the purpose of protection a. id convenience
but also for product-differentiation and stimulation of demand.
CONSUMER PROBLEMS WITH PACKAGING
In spite of its various advantages, packaging has been subjected to many criticisms. One
among them is 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 steels 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 godowns 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. Resource Scarcity: Resource scarcity is another problem. Some precious natural
resources are being wasted on non- returnable (disposable) containers e.g. soft drink
bottles. Later on these disposable 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.
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 a 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 manufacture, 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.
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 names for their products.
ii) Grade labels: These labels 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 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.
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.
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 a 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 avoid, confusion.
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 popularising the product rather than giving Information to the
consumers.
5. It enables the 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,
the victimized party, i.e., the buyer will have a right to repudiate the contract.
Warranty is a stipulation collateral to the main purpose of the contract. If it is broken,
victimized party, ie., 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 statements made by the seller. For example a
manufacturer may warrant that his product 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 warranties to consumers depends upon the reliability of the warrantor and
the person who has specific responsibility of making good on the warranty. This is true
because in practice and in law, the consumer has little recourse. 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 promises 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 not go give deceptive advertisement of warranties or
guarantees as they will defeat 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 typewrites, 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 machines and equipment.
BENEFITS OF AFTER-SAUES 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.
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.
MODEL QUESTIONS (UNIT III)
1. What is a product? What are its components?
2. How would you classify products?
3. Explain product concept.
4. Discuss the implications of product policy.
5. What is product mix? Explain the factors influencing product nilx.
6. What is product planning? How would you distinguish it from product development?
7. Explain the different stages in the product life cycle.
8. Discuss the marketing strategies to embark to face the challenges in different stages
of the Product Life Cycle.
9. Explain the significance of new product development
10. New produce development is not an easy task* - Elucidate.
11. Explain the different stages associated with new product development
12. Why new products fall? Suggest measures to overcome this problem.
13. What is branding? Differentiate brand name from brand mark.
14. Write notes on:
(a) Trade Mark
(b) Trade Name
(c) Patents
(d) Copyright
15. State the importance of branding.
16. Explain the functions of branding.
17. What are the essentials of a good brand?
18. Explain the different methods of branding.
19. Narrate the features of different types of brands.
20. State the conditions favouring branding.
21. Discuss the advantages of branding to manufacturers, wholesalers/retailers, and
consumers.
22. What are the limitations of branding?
23. How would you make a branding decision?
24. What is packaging? What is the need for packaging?
25. How would you make a good packaging decision?
26. Explain the requisites of good packaging?
27. What are the different kinds of packaging?
28. What are packaging materials?
29. Discuss the advantages of packaging?
30. State the problems of consumers associated with packaging.
31. What is labelling? What are its functions?
32. State William J. Stanton's classification of labelling.
33. What are the advantages and disadvantage of labelling?
34. 'Product warranty la a seller aid' - Elucidate.
35. Highlight the importance of after sales service in marketing the durable goods.
CASES/PROBLEMS (UNIT III)
1. Develop a long range plan for marketing a new line of electric gas lighter indicating
for each stage in the product's life cycle the major objective and the likely policy on
price, quality, advertising, personal selling and channels.
(Refer Lesson: 12)
2. Following two ideas are generated by your subordinates:
a) Fountain pen with eraser mechanism.
b) Ball point pen with eraser technology.
Evaluate both the ideas and select one for commercialisation. Justify your selection.
(Refer Lesson: 13)
3. You have a product mix of multiple items like edible oil cosmetic items, drugs,
Writing materials, and biscuits. Th whole of India is your market. You have to
channelise you products through dealers. Do you recommend umbrella brand or
combination device while branding? Assign reasons for you answer.
(Refer Lesson: 14)
4. You are using polythene bags as packing material on a massive scale. Consumer
activists protest against you to replace polythene bags by Jute sacks. How would you
react to this demand?
(Refer Lesson : 15)
5. You are marketing seedless dates in packages. State the information to be
incorporated while labelling such packages.
REFERENCE BOOKS (UNIT III)
FUNDAMENTALS OF MARKETING William J. Stanton
PRINCIPLES OF MARKETING AND SALESMANSHIP J.C. Sinha
MARKETING MANAGEMENT Philip Kotler
PRINCIPLES AND PRACTICE OF MARKETING IN INDIA Dr. C.B. Memoria - RL.
Joshi
QUESTIONS TO RESPONSE SHEET I (UNITS I TO III)
Instructions to learner:
Answer all questions.
Answer for a question should not exceed five pages
Do not copy from course materials.
Stretch your imagination as a student of marketing.
1. Assess the Indian marketing environment.
2. Critically examine the different kinds of marketing strategies.
3. Discuss the bases meant for segmenting consumer and industrial markets.
4. Explain the factors influencing the buyer behaviour.
5. Narrate the different stages in the product life cycle.
6. Explain the process of new product development.



-End Of Chapter-
LESSON -15
PRICING

OBJECTIVES
After reading this lesson, you will understand
The concept of price and pricing,
The objectives and role of pricing,
The pricing policy and various pricing strategies & the different methods of
pricing.
PREAMBLE
1. Introduction
2. Pricing-meaning and Objectives
3. Pricing Policies and Strategies
3.1 Policies Involving Price Variations
3.2 Geographical Pricing
3.3 Psychological Pricing
3.4 Promotional Pricing
3.5 Pricing Strategies for New Products
3.6 Policies Involving Price Differentials
4. Pricing methods
4.1 Pricing methods Based on Cost
4.2 Pricing Methods Based on Market Conditions
5. Summary
1. INTRODUCTION
Pricing decisions have strategic importance to all organisations-profit as well as non-
profit organisations. Price is the only element in the marketing mix that produces
revenue, the other elements produce costs. Price exists all around us. You pay interest
for use of money, a student pays tuition fee for education, rent for use of living quarters
or a piece of equipment for a period of time; fare for a taxi ride or airline flight, toll for
travel as some highways, dues for membership in an union or a club, and so on.
2. PRICING - MEANING AND OBJECTIVES
Price is the device for translating (into quantitative terms i.e. rupees and paise) the
perceived value of the product to the customer at a point of time. The buyer is interested
in the price of the whole package consisting of the physical product plus a bundle of
expectations or satisfactions. These may inter alia include after sale service, replacement
parts, technical guidance, credit, etc. To the ultimate consumer, the price he pays for a
product or service represents a sacrifice of purchasing power. It is the only objective
criteria (might be an imperfect measuring rod) for the consumer for comparing
alternative items and making the final choice.
Pricing is the process of setting objectives, determining the .available flexibility,
developing strategies, setting prices, and engaging in implementation and control.
(Marketing Management, David W. Cravens, Gerald'E. Hills and Robert B. Woodruff,
Richard D. Irwin, Inc. Illinois 1988, P.455). Pricing as a marketing function has an
important role to play both at the macro and micro-levels. In this lesson, we are
concerned with the role of pricing at the micro-level i.e. a firm's level. Pricing plays a far
greater role in the marketing mix of a company and contributes significantly to the
effectiveness and success of the marketing strategy. Price is said to be the demand
regulator, a competitive weapon, a profitability determinant, etc. It is an important
decision input in a variety of marketing decisions. For example, when product planning
or modification programmes are undertaken, the price that the product would fetch
relative to the cost provides an important decision base to approve or discard a product
idea. Pricing begins with an understanding of the corporate mission, target markets, and
marketing objectives.
Pricing objectives are specific quantitative and qualitative operating targets that reflect
the basic role of pricing in the marketing plan. The pricing objectives should be clear,
concise, and understood by all involved in making pricing decisions. These should be so
stated as to enable those charged with pricing responsibility to compare performance
with them. We may discuss the following pricing objectives:
PROFIT-ORIENTED OBJECTIVES
1. To achieve a target return
2. To maximize profit
SALES-ORIENTED OBJECTIVES
1. To increase sales volume
2. To maintain or increase market share
STATUS-QUO ORIENTED
1. To stabilize prices
2. To meet competition


Please use headphones

TO ACHIEVE A TARGET RETURN
An adequate rate of return on the investment involved is the principal objective of any
pricing policy. The rate of return may be a specified percentage return on its sales or on
its investment. The idea here is to secure a sufficient return on investment from specific
products or divisions so that the sales revenue will ultimately yield a pre-determined
average return for the whole company. Many retailers and wholesalers use a target
return on sales as pricing objectives. They add an amount to the cost of the product
called mark up, to cover anticipated operating experts and provide a desired profit for
the period
TO MAXIMIZE PROFITS
Stanton, Etzel and Walker have rightly observed, "the pricing objective of making as
much money as possible is probably followed more than any other goal." (Fundamentals
of Marketing, Mcgraw-Hitt, 1994, P. 301). It may be pointed out here that profit
maximization should not be equated with profiteering, high prices, and monopoly. The
objective of profit maximization implies in a given set of market conditions,
management attempts to maximize profits through the instrument of price. Stanton and
others further observe that a profit maximization goal is likely to be far more beneficial
to a company if it is pursued, over the long term. To do this, however, firms may have to
accept modest profits or even losses over the short term. For example, a firm entering a
new geographic territory or introducing a new product thinks best by initially setting
low prices to build a customer base. Repeat purchases from this large group of
customers may allow the firm to maximize its profits over the long term.
TO INCREASE SALES VOLUME
This is one of the sales oriented objectives. This objective is adopted to achieve either a
rapid growth or to discourage potential competitors from entering a market. The
increase in sales is usually stated as a percentage Increase in sales volume over a certain
period say, 1 year or 3 years or 5 years. Management may seek higher sales volume by
discounting or by some other aggressive pricing strategy. Sometimes companies are
prepared to incur a loss in the short run to expand sales volume. Cloth Merchants,
Garments Dealers, Electrical Appliances Dealers run end of season sales. In hotel
industry reduction to prices in tariff for accommodation is seen during off-season to
increase sales volume.
TO MAINTAIN OR INCREASE MARKET SHARE
Another important pricing objective is to maintain or enlarge market share. A firm may
aim to secure a target market share by employing price as an input. The market share as
a pricing objective is especially relevant for companies in developing countries like
India, where market expansion is a phenomenon of economic development.
TO STABILIZE PRICES
This is a long-range objective which aims at preventing frequent and violent fluctuations
in prices. It also aims at preventing price war amongst competitors. Price stabilization
often is the goal in Industries where the product is highly standardized such as steel or
bulk chemicals. Many public sector companies aim at achieving this objective so as to
impart a sort of stability to economic conditions.
TO MEET COMPETITION
To meet or prevent competition may be another pricing objective of no less importance.
The object to meet competition is appropriate when a company is not a price leader and
does not want to initiate price changes. In such a situation it only aims to neutralise the
impact of competitive maneuvers by appropriate pricing moves.
Besides these, the other pricing objectives may be to expedite cash collection, to
mobilize resource, to promote developmental activity, etc.
Expediting cash collection may be resorted to as a pricing objective to accelerate cash
inflow for developmental projects or for debt-servicing or repayment. In times of credit
squeeze this pricing objective is of special relevance. The price structure may be so
designed that it encourages cash sales and discourages credit sales. Besides, it may
expedite realization of bills receivables.
A firm may set pricing objective so as to promote developmental activity in those sectors
or areas of the economy which are weaker. The price may be so designed as may favour
the weakest and be affordable by the weaker. In such circumstances Government
subsidy is usually available to prevent losses. The National Small Industries Corporation
(NSIC) assists small firms to grow by availing of its nominally priced services.
Resource mobilization as a pricing objective may be adopted by companies through
higher resale prices which have a strong demand in the market so that adequate
resources are made available either for their own expansion or for the developmental
investment elsewhere in the country
3. A price policy is the standing answer of a company to recurring problem of pricing. It
provides guidelines to the marketing manager to evolve appropriate pricing decisions.
3.1. Policies Involving Price Variations
Under these, we can discuss:
(a) One-price Policy and
(b) Variable price policy
Under One-price policy, a seller charges all similar types of buyers exactly the same
price and there shall be no discrimination or difference among the buyers of the same
commodity. There is no chance for negotiations, bargaining or higgling. Terms of sale
are the same for similar quantities of the product. The merits of one price or single-price
policy may be enumerated as follows:
1. It is fair and builds goodwill among buyers owing to its non-discriminatory character.
2. It is easy to administer and saves the salesman's time.
3. Uniform return on each sale and a certain profit is assured.
However, this pricing policy does not allow company to match price to buyer needs. It
particularly does not appeal to large buyers who want variable price on account of bulk
transactions. In the absence of a strong brand, it is likely, that a company may lose bulk
buyers.
Variable price policy may be defined as one in which a company charges different prices
for sale of its similar goods at a given time to similar buyers purchasing in comparable
quantities under similar conditions of sale.
The variable price policy is relevant in small businesses and where products are not
standardized. It can be adopted where the individual sale transactions involve large
sums and bargaining power of individual buyers varies with the size of the transaction.
Flexible character in use as a promotional weapon is its strength. It can be used to
match price with Individual consumer needs and demand elasticity. However, such
pricing policy often produces friction and dissatisfaction among consumers who feel
unfairly discriminated against when charged higher prices relative to others. 3.2
Geographical Pricing
Geographical pricing involves the company in deciding how to price its products to
customers in different locations. We find transportation expenses on the distribution of
goods to different regions or zones. Hence, the firms adopt two policies, viz, f.o.b factory
or f.o.b. destination. In the former, the transport cost from seller's dock is met by the
buyers. In the f.o.b. destination, the cost of transportation is borne by the sellers. On the
basis of geographical condition, the pricing policies may be any one of the following:
a) Uniform delivery pricing policy.
b) Zone pricing.
c) Basing point pricing.
d) Production point pricing policy.
e) Freight absorption pricing policy.
In Uniform delivery pricing policy, the sellers charge equal prices from all consumers. In
other words, the consumer belonging to the different regions or zones pay similar prices.
In such pricing policy the seller's price Includes cost of goods and the transportation
charges. This pricing Is also called postage stamp pricing policy. It is suitable to the
products covering the least transportation charges.
Under Zone pricing policy different prices are charged to the different zones. Buyers are
classified into, different zones and equal prices are charged for the consumers coming
under the particular zone.
In the Basing point pricing policy, the sellers or the producers charge vices to a given
destination. A basing point is a geographical location from which all sellers of a given
commodity compute transportation charges to a given destination. The basing point for
a given transaction may be the location of the mill nearest to the buyer or it may be
some arbitrary location. The ultimate aim of this pricing policy is to allow all
competitors to quote identical transportation charges to any one buyer. This pricing
policy is seen in industries producing the standardized industrial products.
Production - point pricing policy is adopted by majority of the firms. The firms adopting
this pricing policy make delivery of the goods at the gate of the factory or the
warehouses. The transportation cost there from is borne by the buyer. The price is
known as factory price or f.o.b. factory price.
Freight absorption pricing policy is generally adopted when market for a product
expands. In this policy, the sellers or producer's bear a portion of freight. Hence the
name freight absorption pricing policy. This pricing policy is found suitable only for
such firms whose fixed cost or production is high but the marginal cost is low. It may
also be adopted to protect the interest of the producers from the nearest rival
competitors. This may also be followed by firms offering the same quality product at the
same price being located at differing distance. Let us take an example. There are two
cement factories A & B. A is located at the distance of say 250 Km. from customer C and
B at the distance of say 350 Km. Here the customer will prefer naturally from factory A
since the cost of freight is likely to be low. But if factory B agrees to pay excess freight on
100 Km, the customer in question would not have any objection to make purchase.
3.3. Psychological Pricing
Psychological pricing is based on customer price perceptions so as to have special appeal
in certain target markets. It is used to create an Illusion of a bargain. It is the practice of
setting the prices at odd points e.g. Rs.99, Rs. 199, Rs. 190.95 etc. Bata shoe company
adopts psychological pricing. Prices of consumer durables such a care, refrigerators, etc.
are usually fixed in odd amounts.
3.4. Promotional Pricing
Under certain situations, companies price their products below the list price, of course,
for a temporary period and sometimes even below the cost. Such pricing policy is known
as Promotional pricing. It. takes various forms, viz. Loss-leader pricing, Special-Event
pricing. Low-interest Financing, etc.
Loss-leader pricing policy helps in raising the sales volume or make possible the
generation of profits at an increased scale. For example, if manufacturer has been able
to create a positive image for its product(s), he may attempt at encashing the goodwill or
reputation. He then brings down the prices of a particular product and takes help of
advertising. Ultimately, the consumers realize that the producers have been showing
their good gesture by minimizing the price. Supermarkets and department stores at
times drop the price on well-known brands to stimulate additional store traffic.
The notable examples of Special-event pricing are pricing ' followed when a new show
room is opened, e.g. Titan show Room, Bombay Dying, or any other retail outlet. During
exhibitions also, the stalls price their products at lower than the market price.
Low-Interest Financing as a form of promotional pricing is being followed by some of
the automobile manufacturers, e.g. Telco and Premier Automobiles, instead of lowering
the price, the companies offer customers low-interest financing.
3.5. Pricing Strategies for New Products
The introduction stage of the product life cycle (PIC) is characterised by product
distinctiveness. This distinctiveness gradually perishes during the product's travel
through the subsequent stages. During its introduction stage, the product is offered to
consumers at a basic price which may be set on the basis of cost or demand or both. Two
common price strategy options are available to a manufacturer during the introduction
stage of new products, they are:
a) Skimming pricing.
b) Penetration pricing.
Skimming pricing is also known as Skim-the-cream pricing. It is characterised by high
initial price of the product when it is introduced in the market resulting in enormous
profits in the product's Initial on the market period and then allows the price to fall as
competitors enter the field. This is a strategy of recovering rapidly the investment made
in the product. This policy is followed where it is felt that there will be rapid competitive
in roads and the company wants to take the cream before this happens. The principal
object underlying this pricing strategy is to fully exploit the product distinctiveness by
offering the product to consumers in the higher income level group so as to skim the
milk of the market.
An important advantage of keeping the price high in the initial stage is that if the market
does not respond satisfactorily, the price can be lowered. Secondly, the initial high price
generates more profits which can be used subsequently for further market development
and expansion.
As opposed to skimming pricing strategy, penetration pricing strategy is characterised
by low initial price of the product when product is introduced in the market. The
principal object underlying this pricing strategy is to attain a large volume and reduce
cost by stimulating rapid and widespread market acceptance. Penetration pricing is
desirable in the following situations.
Existence of a high short-run price elasticity of demand.
Substantial economics of large-scale production are possible.
Possibility of rapid competitive imitation.
Market generation pricing strategy may also be adopted to capture a share of a market
from a competing product which the new product is likely to replace. It also discourages
competitors from entering the market in view of the fact that the low-price policy allows
a small margin.
3.6 Policies Involving Price Differentials
Price differential may be defined as the difference between the quoted price and the net
price charged to the buyer. Price differentials are designed to accommodate various
situations such as meeting competitive pressures, encouraging early payments,
compensating buyers for the loss of some value satisfaction, providing incentives to buy
in bulk. Some of the important differentials involving reduction in quoted price include
discounts and rebates. A brief mention may be made on each class of discount.
Trade Discount:
It is also known as functional discount and is offered by the manufacturer to channel
members such as distributors, wholesalers, retailers for performing certain functions
viz; selling, storing and record keeping. Functional discount is allowed as a certain
percentage of the quoted price and its rate varies among different classes of middlemen.
For example, a company may quote Rs. 2,000.00 as the price of a product and offer 20
per cent and 5 per cent trade discount from the channel end to retailers and wholesalers
respectively. It implies 20 retailers buying from a wholesaler would pay (Rs. 2000 x 20=
400)
100
Rs. 1.600/- (Rs. 2000/- Rs. 400/-). Thus the wholesaler is given 25 per cent keeps 5
per cent and possess 15 per cent to the retailers.
Cash Discount:
A cash discount is a price reduction to buyers who promptly pay their bills. It amounts
to a reduction from the invoice price. This is in addition to trade discount. Such discount
is best used when money market is tight and company needs to augment liquidity. It
serves not only the purpose of improving the seller's liquidity but also helps in reducing
credit collection costs and bad debts.
Quantity Discount:
A quantity discount is a price reduction to buyers who buy large quantity of a
product(s). It may be allowed on the aggregate of all or specific class of product
purchases measured in rupee value or physical units, in terms of purchases at a time or
over a period of time (cumulative), or beyond a specific flow volume (incremental
purchases) or absolute volume. In India, such discounts ire allowed by a number of
companies in order to stimulate their sales (J.C. Gandhi, Marketing -A Managerial
Introduction, TMH, New Delhi, 1990, P. 244). .
Quantity discount is being allowed because of some benefits that accrue from it. It
stimulates larger orders especially in case of slow moving items. It is possible to force
full line on buyers by so structuring the discount schedule that slow moving items
attract more discount. Despite these, one major difficulty that arises in structuring the
discount schedule which is not discriminatory and anticompetitive so that it does not
attract provisions of MRTP Act, 1969. According to the judgement given in the case of
Carona Sahu Company Limited "the practice of allowing discriminatory or differential
incentive bonuses based on larger turnover is a trade practice within the meaning of Sec.
2 (c) of the MRTP Act and therefore, restrictive trade". (Restrictive Trade Practices in
India, Vol. I, 1978, p. 228)
Seasonal Discounts:
A seasonal discount is a price reduction to buyers who buy merchandise or services out
of season i.e. during the slack/off-season. The purpose of this pricing policy is to enable
the manufacturer to level his production throughout the year. This policy if-generally
found in the consumer durables of seasonal uses, e.g. refrigerators, electric fans, coolers,
etc.
Rebate:
It is a deduction from the quoted price. It is designed xo accommodate different claims
of buyers arising out of loss of some value satisfaction, e.g. making of defective or
delayed deliveries of goods and deterioration in the quality of products on shelf or in
transit, etc. The rate of rebate or its quantum is seldom fixed. It varies from situation, to
situation depending on the loss of value satisfaction.
Allowances:
These are also a type of reductions from the list price. Promotional allowances are
payments or price reductions to reward dealers for participating in advertising and
sales-support programmes. Trade-in allowances are price reductions granted for turning
in an old item when buying a new one. These are found in durable-goods markets.
4. PRICING METHODS
A number of methods are available for setting prices. The price setting may be either on
the basis of cost or on the basis of market conditions.
4.1 Pricing Methods Based on Cost
Cost plays an important role in making the pricing decisions. The cost based method of
price determination is one in which the cost of manufacturing a product serves as the
base for price fixation. The important pricing methods falling under this broad head are:
a) Cost-plus pricing method
b) Marginal or Incremental Cost
c) Break-even Pricing Method
4. 7. 7. Cost-Plus Pricing Method
It is a simple method of price setting. In this method, the cost of manufacturing -a
product serves as the base for price fixation. However, in order to cover, an anticipated
profit on the product being sold, management usually adds to this cost some amount
referred to as mark-up. This mark-up may be a certain per cent of the cost. It is for this
reason that this method is also called Cost-plus or Target pricing method. It is also
called flow price since it provides the flow below which any sale would loss to the
company.
The mark-up when based on cost is arrived at as follows:
Mark-up % based on cost = Markup in Rs. x 100
Cost price
When the mark-up is based on selling price the formula adopted is:
Markup % based on sale price = Markup in Rs. x 100
Selling price
It is ax simple method of price selling since the calculation stands like:
Selling Price = Unit Total Cost + Derived -Unit Profit.
This method is a weak and unrealistic one since it completely ignores the influences of
competition and market demand. It is suitable only to such producers who maintain the
minimum possible cost of ' production.
Cost-plus pricing is generally preferred by the middlemen. A middleman includes in it
acquisition cost, the selling expenses, the interest, depreciation, expected profit margin
mark-up.
4. 7.2. Marginal or Incremental Cost Pricing Method
In this method, the price is fixed on the basis of the additional variable cost associated
with an additional unit of output. The cost of producing and selling one more unit, i.e.
the cost of the last unit, is taken as the price of the final article. This method of setting
prices is found useful, particularly while introducing a new product. It is also useful for
keeping labour employed during slack seasons and to prevent a shut-down. Despite all,
the method cannot be followed for long. Because we do not find the relevance of fixed
cost in this method.
4. 7.3. Break-Even Pricing Method
This is the most sophisticated pricing method which takes into account both fixed costs
and variable costs. Breakeven analysis is a managerial tool that emphasizes the
relationship among decision variables such as price, costs and volume of sales. Sales
Volume if a function of prices charged and the amount of products sold. (Price per unit
multiplied by quanity sold). Any marketing plan is based on the sales budget and the
sales budget is itself based on the sales forecasts, i.e. estimated sales volume.
As regards costs, we know that there are broadly two categories of cost viz. fixed costs
and variable costs. Fixed costs remain constant for a given range of operations.
Variable costs vary with the output or number of units produced.
The concept of contribution is important in breakeven analysis. Unit contribution to
fixed costs is foundout by subtracting variable costs per unit from the selling price per
unit. Mathematically:

Break-even point is the point at which the firm has neither gains nor losses. The firm
just manages to cover its total costs. When the sales revenue exceeds total costs, the
result or difference is profit and when the sales revenue is less than total costs, the result
or difference is loss. Thus, break even point is that point at which sales revenue is just
equal to total costs. The equation for arriving at BEP is:

A diagrammatic representation of the break-even point has been depicted in Fig. 1

In Figure 1, OX axis indicates the quantity of production and OY the cost and revenue
in rupees. With a rise in production, we find a rise in the variable cost. But the fixed cost
remains static. The point where the total cost is equal to the revenue is the break-even
point. In Fig. 1 this -point is B. The assumption that fixed costs remain static is not true
in the long run. Again, the demand estimate would also vary. Hence, it is doubted
whether this method of pricing is perfect. Especially in a firm where we find fluctuation
in costs, this method would not be suitable.
4.2. Pacing Methods Based on Market Conditions
Besides costs, the market condition is also a reliable basis for the setting of prices. The
stage of competition determines the market condition. Usually three methods exist
which are based on market condition or demand viz;
Pricing to meet competition
Pricing above competition
Pricing below competition
4.2.7. Pricing to Meet Competition
This is the simplest method of price setting. Here, each company or firm prices its
products the same as rival competitors. Competitive price is the basis of this method of
price setting. It is found applicable in a perfect market situation. In such a market, the
buyers have details of the prices adopted by the competitors. The standardized products
prefer to adopt this pricing method. This pricing method is also found suitable for
products having inelastic demand.
4.2.2. Pricing Above Competition
In this method of price setting, the seller may set higher than average prices for the
product. The main object is to give an impression that his product(s) is superior to that
of the competitors. At times, the producers set more than average prices, particularly to
give some share to the middlemen. Above competition pricing is suitable to the
producers who have established fair image among the consumers at large.
Despite the above, the method is criticized on the ground that the producers charge high
prices not only to make high profits but also to give a chance to middlemen to get
handsome pay offs. In the process it is alleged that the ultimate consumers suffer. The
Hindustan Lever Ltd (HLL) follows this method of pricing.
4.2.3. Pricing Below Competition
In this method the firms price their product(s) below the prevailing competitive price, it
is observed, the price of a product is usually low when the quality of product is low. The
firms following, this method of price setting must either have very low costs or be willing
to accept a very low profit per unit in the hope of radically increasing sales volume.
This method of pricing is found suitable to the firms, particularly new and interested in
penetrating the new market. The products having elastic demand may go through this
method of pricing.
5. SUMMARY
Price is an important element in the marketing-mix. Price exists all around us. It is a
link that binds consumers and the company. Pricing management begins with an
understanding of the corporate mission, target markets and marketing objectives.
Pricing objectives can be grouped under three broad categories, viz, profit-oriented
objectives, sales-oriented objectives and status-quo oriented objectives. Of the
objectives, achieving a target return, increasing market share, and meeting competition
are the principal ones'.
Every company follows a particular pricing policy or a combination of two. Pricing
policy may either be one-price policy or variable price policy. One-price policy is fair and
builds goodwill, easy to administer etc. Geographical pricing policy may be of uniform
delivery pricing policy, zone pricing, basing point pricing/production point pricing and
freight absorption pricing policy. Some companies also follow psychological pricing or
odd pricing policy. Promotional pricing takes-the form of Loss-Leader Pricing, Special-
Event Pricing, Low-Interest Financing, etc. For new products two principal pricing
strategies are:
(a) skimming pricing and
(b) penetration pricing.
The former is characterized by high initial price of the product and the later is
characterized by low initial price.
Discount is an element in the price-mix. Trade discount, Quantity discount, Cash
discount, Seasonal discounts are the most popular forms of discount allowed by the
marketers. Besides, rebate and allowances are also given.
The pricing methods inter alia include Cost-plus pricing method, Marginal or
Incremental cost pricing method and Breakeven Pricing method. Cost-plus pricing is
generally preferred by the middlemen. In case of marginal cost pricing the cost of the
last unit is taken as the price of the final article. Breakeven pricing is said to be the most
sophisticated pricing method which takes into account both fixed costs and variable
costs. Break-even analysis is a managerial tool.
Thus, price policies and strategies are guidelines and frameworks within which
management of a company administers prices so as to match them with the market
needs.
KEY CONCEPTS
Mark-up
Promotional Pricing
Rebate
Trade-in Allowances
Contribution
MODEL QUESTIONS
1 Describe the major pricing objectives which a company may set out to achieve.
2 Describe the cost-based methods of pricing and outline its strengths arid limitations.
3 "The break-even pricing method overcomes the weaknesses of both the cost-based
and demand-based
pricing methods"-Discuss.
4 What is the rationale of following policies involving price-differentials? Describe the
kinds of differentials usually allowed by the marketers.
5 Write short notes on:
a) Variable Pricing
b) Zone Pricing
c) Loss-Leader Pricing
d) Promotional Pricing
6 Distinguish between
a) Skimming Pricing and Penetration Pricing.
b) Trade Discount and Quantity Discount.
c) Break-even Pricing and Incremental Cost Pricing.
REFERENCES
1. Crevans, W. David et al. Marketing Management, Richard D. Irwin, Inc. Illinois,
1988.
2. Dean Joel, Managerial Economics, PHI, New Delhi, 1977.
3. Gandhi, J.C. Marketing - A Managerial Introduction, TMH, New Delhi, 1990.
4. Kotler, P. Marketing Management (Analysis, Planning, Implementation and
Control), PHI, New Delhi, 1992.
5. Lynn, R.A. Price Policies and Marketing Management, Richard D. Irwin, Inc. Illinois
1967.

-End Of Chapter-
LESSON-16
PROMOTION


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.
PREAMBLE
1. Introduction
2. Promotion-Meaning, Nature and Scope
2.1 Meaning
2.2 Nature and Scope
3. Need for Purposes of Promotion
4. Sales promotion
4.1 Objectives of Sales Promotion
4.2 Sales Promotion Vs. Advertising
4.3 Classification of Sales promotion
5. Promotion Strategy
5.1 Push Strategy
5.2 Pull Strategy
6. Summary
1. INTRODUCTION
In an exchange activity such as marketing, communication is vital. A manufacturer may
have the best product, reasonable price, an efficient distribution system. But it is a fact
that people will never buy the product unless they have heard of it. They must know that
the right product is available at the right place and at the right price. This is the job of
promotion. It is an important element in the marketing-mix.
2. PROMOTION - MEANING AND SCOPE
2.1. Meaning
Basically, promotion is an attempt to influence. More specifically, promotion is the
element in organisation's marketing-mix that serves to inform, persuade, and remind
the market of a product and/or the organisation selling it. (Stanton, et al, Fundamentals
of Marketing, Mc Graw Hill. New York, 1994, P. 456). It has also been defined as "the
coordinated 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 or points of
view". (quoted in S.A. Sherlekar, Marketing Management, Himalaya, New Delhi, 1993,
P.264).
Since the promotion-mix is also known as the markeitng communication-mix, let us at
this stage have an idea about the communication process and the various elements
(Fig.1) involved in it.

A glance at the figure indicates nine elements which may be explained as follows:
Sender : It is the source or communicator, a marketing company. In other words,
he is the party sending the message to another party.
Encoding : The process of putting thought into symbolic form.
Message : The set of symbols that the sender transmits. ( may be sales story, the
copy theme).
Media : The communication channels through which the message moves from
sender to receiver. (may be a salesman, man ad.. telephone, postcard, newspaper, etc.).
Decoding : The process by which the receiver assigns meaning to the symbols
transmitted by the sender.
Receiver : The party receiving the message sent by another party, (the
target customers, purchase influencer, etc.)
Response : The set of reactions that the receiver has after being exposed to
the message.
Feedback : That part of the receiver's response that the receiver communicates back
to the sender.
Noise : Unplanned static or distortion during the communication process.
2.2 NATURE AND SCOPE
The nature and scope of promotion-mix can be studied under five heads, viz; Personal
Selling, Advertising, Sales Promotion, Packaging, Public Relations, and Publicity. These
can be said to be the elements of the promotion-mix.
Personal Selling:
It is the direct presentation of a product to a prospective customer by a representative of
the selling organisation. Personal selling takes place face to face or over the phone, and
it may be directed to an intermediary in the distribution channel or a final consumer.
Advertising:
Any paid form of non-personal presentation and promotion of ideas, goods, or services
by an identified sponsor. (The American Marketing Association) The key words are
"non- personal" and "paid by an identified sponsor".
Publicity:
It is non-personal stimulation of demand for a product, service or a business unit by
placing commercially significant news about it in a publication or obtaining favourable
presentation of it upon radio, television, or stage that is not paid for by the sponsor.
Public Relations:
A variety of programme designed to improve, maintain or protect a company or product
image.
Sales Promotion:
It embrasses those marketing activities other than advertising, publicity and personal
selling that induce consumer purchasing and dealer effectiveness. Sales promotion aims
at complementing other means of promotion.
Packaging:
Packaging has become increasingly important as a promotional tool. With the
introduction of new packaging technology, the value of packaging especially in
consumer products has assumed a fascinating communication channel. The polypacking
is an .example. Marketers have designed their communication message around new and
innovative packaging (Dalda Refined Oil, Cosmetic, Pan Masala, etc.) Service industry
e.g. catering, courier too have begun to use packaging as a promotion.

A mention may be made at this stage about the suitability of promotion elements.
Advertising is the most efficient tool in obtaining customer awareness of new products
and services, whereas customer comprehensing is influenced about equally by
advertising and personal selling. Fig. 3 shows, personal selling is considered the most
important of the promotion tools in the marketing of industrial goods, but advertising is
most important in the marketing of consumer goods.

3 NEED FOR/PURPOSES OF PROMOTION
someone has rightly said, "nothing happens until somebody promotes something".
Promotion is said to be the spark plug in the marketing-mix. Sales do not take place
automatically without promotion, even though the product is superb. Essentially
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. The promotion message has two basic purposes viz; persuasive
communication, and tool of competition.
Promotion is responsible for awakening and stimulating consumer demand for a
product. It can create and stimulate demand, capture demand from rivals and maintain
demand for one's products even against keen competition.
The main purpose of promotion is to influence buyer behaviour and alter the location
and shape of the consumer demand curve in favour of the products. Figure-4
demonstrates the effect of promotion on the demand curve.

Thus promotion tries to alter demand curve to the right (from D1 to D2). It is employed
to retain the price and secure increasing sales at the same price. Promotion can also
raise the price but retain the sales level by making the demand relatively inelastic e.g.,
through creating brand loyalty and patronage by intensive advertising and sales
promotion. Either through shifting the demand to the right or making the demand more
inelastic, the object of higher sales revenue can be accomplished with the help of
persuasive marketing communication. In brief, all forms of promotion can act as the
best means of non-price competition.
4. SALES PROMOTION
Sales promotion is an integral part of promotion-mix. It is referred to those marketing
activities other than personal selling, advertising and publicity that stimulate consumer
purchasing and dealer effectiveness such as display, shows and exhibitions,
demonstrations and various non-recurrent selling efforts not in the ordinary routine.
Sales promotion also means "any steps that are taken for the purpose of obtaining or
increasing sales".
4.1 Objectives of Sales Promotion
1. The primary objective of sales promotion is to introduce new productS. The basic
purpose is to expand market for the new product by influencing or motivating the
potential buyers, actual users, re-sellers or middlemen.
2. Sales promotion activities are also undertaken with a view to attract new customers.
The potential buyers or the actual users are motivated by paying to them different
incentives. They are induced by free samples, gifts, premium, etc.
3. To reduce seasonal fluctuations in sales is another important objective of sales
promotion. The demand for electric fan, air cooler, refrigerator or so is reduced,
particularly in the winter season. To maintain their normal demand, we find the
provision of off-season discount/concession/gifts.
4. The sales promotion activities also aim at influencing or inducing the middlemen.
Hence dealers-promotion is as important as consumer promotion.
5. To counter-attack the competitors in some cases is also the objective of sales
promotion activities. As and when a competing firm provides promotional benefits, the
rival competitors are also forced to adopt the same.
4.2. Sales Promotion Vs Advertising
Sales promotion is the temporary offer of a material reward to the customer. Whereas
advertising is the communication of information. More specifically the points of
distinction between the two are as follows.
a) Advertising is a day-to-day matter of the business. But sales promotion is an
occasional tool.
b) Advertising is a necessity for any marketer/manufacturer, but the sales promotion
can be dispensed with.
c) Advertising is impersonal communication or we can say it is a media of information
transmission. The sales promotion is a persuasive communication.
4.3 Classification of Sales Promotion Activities
Sales promotions are targeted at consumers, dealers and sales force of the organisation.
Hence we can classify the sales promotion activities into three broad groups viz;
Consumer Promotion, Dealer Promotion and Sales-force Promotion. 4.3.1. Consumer
Promotion
Consumer Promotion activities are those incentives which are intended to educate or
inform the consumers and at the same time stimulate the product/service usage at the
consumer level. A few consumer promotional tools may be mentioned here.
Free samples are given to consumers with the object of introducing a new product in the
market as well as to enlarge the market for the product. The free samples accelerate sale
by motivating the consumers as they get an opportunity of using the product before
making the buying decisions. Free samples are prevalent in consumer non-durables
market.
Price-off is a consumer-oriented sales promotion device which provides an opportunity
to the buyers to get the product at a reduced price. The chief objective of price-off or
money-off is to boost sales. It is available in two forms, first, the reduction in price and
the second, more than one item is packed and made available at a reduced price. Price-
off label is printed on the package. This is common.
Premium is the product which is given free of cost to the purchaser. This is introduced
to attract new customers or actual users or to improve off-season sales or to introduce a
new product or to discourage price competition. The premium is of four types, viz; in-
pack or on-pack premium, free in the mail premium, self-liquidating premium and re-
usable container premium.
In the in-pack premium, the goods are packed with premium. One finds its description
on the package of goods. In the mail premium, the purchasers get the premiums after
producing a certificate regarding the purchase of goods. The premiums are sent to the
concerned purchasers free of cost by mail. In the self-liquidating premium, the
purchasers get the goods at the reduced prices. In the container premium, the
purchasers get a container of domestic use.
Key chains, artificial flowers, ball pens, combs, blades, toilet soaps, etc, were given as
inpack premiums. Attractive reusable jars costing separately Rs.8.00 or so may be given
at an extra charge of Rs.4.00 or Rs 5.00 only. Recently Brooke Bond Tea gave sugar in a
separate pack weighing 50 grams for each pack of 250 Gms, of tea.
Sweepstakes are some sort of lottery. In this device, a consumer who buys the product is
given a coupon containing a serial number. All the coupons received from the
consumers are kept in a place, lots are drawn and names of winners are declared.
Consumer contests are competitions wherein individuals are invited to compete on the
basis of creative skills/ Consumer contests are indirect manner of introducing a new
product or attracting new users. The contests remain open for a period of five weeks or
more and among others aim at generating greater degree of awareness and enthusiasm
in the sponsor and/or his brand. Being capable of meeting diverse objectives the
popular types of contests include: reason why, sentence completion, brand
name/slogan/essay writing contests, special skills, sewing, knitting, cookery contest,
etc., each capable of delivering the purpose with which a contest is organized. The
contest should be easy and fun in order to attract greater participation.


Please use headphones

4.3.2. Trade or Dealer Promotion
Trade promotions are incentives which are offered to wholesalers, distributors, retailers,
etc. and aim at motivating them to back up the sponsored brand by giving more than
their usual push. The dealer promotions thus are introduced to induce the dealer to keep
a larger stock of the manufacturer's product. The middlemen are interested in profits.
Hence, the forms of promotion which attract them may include:
(1) offer of cash discount on various bases i.e. percentage, quantity bought/ordered,
(2) advertising or display allowances.
(3) prizes and gifts, etc
Quantity discounts and higher rate of cash discounts/trade discount induce the dealers
to stock larger quantities. These are also known as buyer allowance. This device is used
for the new products intended to be penetrated in the market. But the manufacturers
can also use it for the existing goods.
Retail demonstrators are supplied by manufacturers for preparing and distributing the
product as a retail sample. For example, Nescafe Instant Coffee and Rasna use this
device by trying the sample with visitors to the retail outlets on the spot. Even Surf at
times shows on the spot demonstration regarding the method of using the product.
Dealer and distributor training for salesmen which may be provided to give them a
better knowledge of a product and how to use it.
Display and advertising allowances otherwise known as merchandising allowance are
also offered to the dealers. A merchandise allowance may be defined as a short-term
contractual agreement through which a manufacturer compensates wholesalers or
retailers for advertising or instore display of his product. The advertising allowance is
paid to them for making advertisements. The payment of display allowance is for
displaying the goods and the merchandise allowance combines both.
Free goods are an important sales promotion device meant for the middlemen. In this
method, the middlemen get few goods free of cost, especially after crossing the
minimum limit.
While organizing trade/dealer promotional activities some of the following points
should be borne in mind.
Trade promotion schemes should match with the capability of the different members
of trade. The wholesalers might be put at primary demand creation of the product and
the retailers in administration of complete schemes. Hence the sponsors of trade/dealer
promotion schemes should perform these tasks for them instead of expecting them to
carry them out.
Regular availability of product supplies and gifts must be ensured during the period
of the promotion scheme-.
In case gifts are offered as incentives to trade members, these articles should be of
reputed brand and of household or personal use.
4.3.3. Sales Force Promotions
Sales promotion schemes can be aimed at a company's own sales-force. These include
broadly incentive programmes and sales contests. The sales incentive awards may be
computed for the sales-force by following any one of the four methods, viz;
Awards are tied to unit sales on an annual basis.
Awards are given to those who achieve more than a specific percentage of their sales
quota performance.
Awards are given to those who perform best in relation to their individual quota.
Awards are given on account of special achievements as notified by the organisation
from time to time.
Besides sales contests the other promotional tools used for motivating sales force are
bonus, meetings, sales aids, training material, etc. All these lead to increase sales
productivity, to increase average sales per account, to promote dealer activity, to revive
old product, to boost recession period sales, etc.
A sales contest is a competition among members of the sales-force of a firm. It aims at
fulfilling the needs of the sales person for achievement, esteem and self-actualisation.
Contests are employed to increase sales on an entire product line, to launch and
introduce new products, to obtain new customers, and to evaluate the real capacity of
salesmen. However, sales contest suffer from limitations. They may lead to jealousy
among salesmen. They may also lead to overstocking or underservicing of customers. If
contests are wisely used, they can remove many disadvantages. Contest awards must be
cash prizes or merchandise prizes or a combination of both.
Sales meetings/Convention/Conferences are the devices of group motivation. They
promote team work, dissolve social barriers, inspire and raise salesmen's morale.
The sales promotion activities now can be summarised and put in Figure - 5.

Fig. 5: Sales Promotion Activities
5. PROMOTION STRATEGY
Promotion strategies are influenced by the life cycle stages of a product. During the
introduction stage, the prospective buyers must be informed about the product's
existence and its benefits, the middlemen must be convinced to carry it. In such a
situation both advertising (to consumers) and personal selling (to middlemen) are
critical in a product's introductory stage. Later, if a product succeeds in the markets
competition is seen which gradually intensifies. Hence, more emphasis is placed on
persuasive advertising.
Promotion strategies may also be studied under:
(a) push strategy,
(b) pull strategy, and
(c) push and pull strategy.
A promotion programme aimed primarily at middlemen is called a push strategy and
promotion programme directed primarily at end users is called a pull strategy. Figure - 6
gives an idea about both the promotion strategies.

5.1. Push Strategy
It is also called a pressure strategy. A channel member directs its promotion primarily at
the middlemen that are the next link forward in the distribution channel. The product is
pushed through the channel. The producer promotes heavily to wholesalers, which then
also use a push strategy to retailers. In turn, the retailers promote to consumer. A push
strategy usually involves a lot of personal selling and sales promotion, including contests
for sales people and displays at trade shows. Advertising plays a minor role. This
promotional strategy is appropriate for many manufacturers of business products and
for various consumer goods.
The conditions favouring push strategy are:
Quality product with unique product features and talking points of salesmen.
High priced product.
Higher profit margins to resellers.
5.2 Pull Strategy
A pull strategy involves marketing activities primarily advertising and consumer
promotion directed at end users to induce them to ask intermediaries for the product
and thus induce the intermediaries to order the product from the manufacturer. This
strategy is also known as suction strategy. The product is literally pulled through the
marketing channel by consumer.
It may be observed here that companies in the same industry may differ in their
emphasis on push or pull. For example, Lever Brothers relies more heavily on push and
Procter & Gamble on pull.
6. SUMMARY
Promotion is one of the important elements in the marketing-mix. Personal selling,
advertising, publicity, public relations and sales promotion constitute the promotion-
mix. In the present day competitive business world promotion in general and sales
promotion in particular plays a key role. These elements vary in their relative
importance depending on whether the product is a consumer one or industrial one. The
principal objective of promotion is to influence the behaviour of the buyer and increase
demand. It is a persuasive communication. Sales promotion activities are necessary
while introducing a new product, to attract new customers, to reduce seasonal
fluctuations, to counter-attack the competitors' promotion strategy.
Sales promotional activities can be broadly divided into:
(a) Consumer Promotion,
(b) Dealer Promotion,
(c) Sales Force Promotion.
Broadly two promotion strategies exist viz. Push Strategy and Pull Strategy.
KEY CONCEPTS
Encoding
Contests
Decoding
Buyer Allowance
Identified Sponsor
Push Strategy
Premium
Pull Strategy
Sweepstakes
MODEL QUESTIONS
1. Explain in brief the process of communication in marketing. Give illustration.
2. Define Promotion and give its classification. Also describe the purposes of promotion.
3. How does sales promotion differ from Advertising? State the importance of sales
promotional activities.
4. Write notes on:
(a) Sales Contests (c) Premium
(b) Push Strategy (d) 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 force promotion.
REFERENCES
1. Aaker, et. al. Advertising Management PHI, New Delhi, 1992.
2. Anderson, Rolph E. et. al. Professional Sales Management. McGraw Hill,
International Edition, New
York, 1988.
3. Kotler Philip, Marketing Management, Prentice Hall of India, New Delhi, 1992.
4. Stanton, J. William, et al. Fundamentals of Marketing, Me Graw Hill, International,
New York, 1994.



-End Of Chapter-
LESSON -17
ADVERTISING

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-
mix.
Kinds of advertising
Ad. budgeting/appropriation for advertising
Evaluation of advertising effectiveness.
PREAMBLE
1. Introduction
2. Advertising-Meeting and Nature
3. Role / Functions of Advertising
4. Classification of Advertising Media
4.1 Indoor Advertising
4.2 Outdoor or Mural Advertising
4.3 Direct Mail Advertising
4.4 Promotional Advertising
5. Advertising Budget
5.1 Factors to be considered in setting ad budget
5.2 Methods of ad. Budgeting
6. Evaluation of Ad. effectiveness
6.1 Pre-Testing Technique
6.2 Post-Testing Techniques
7. Summary
1. INTRODUCTION
In the preceding lesson promotion in general and sales promotion in particular were
discussed. In this lesson an attempt is made to explain advertising and its various
important aspects as another important element in the promotion-mix.
2. ADVERTISING - MEANING & NATURE
Several authors have defined advertising in various ways. However, the theme has more
or less remained the same. According to W.J. Stanton and others advertising consists of
all the activities involved in presenting to an audience a non-personal, sponsor-
identified, paid -for message about a product or organisation. (Fundamentals of
Marketing Mc Graw Hill, New York, 1994, p 502). One of the most representative and
widely accepted definition is that of the American Marketing Association. According to
it, advertising is, "any paid form of non-personal presentation and promotion of ideas,
goods, or services by an identified sponsor". This definition indicates that advertising is
a paid, non-personal communication. It lays emphasis on presentation, and promotion.
The presentation of the sales message may be visual as well/ as oral. Importance is also
attached to the sponsor. Wright, Winter and Zeigler say "advertising is controlled,
identifiable information and persuasion by means of mass communication media".
(Advertising, TMH. New Delhi, 1984, p. 10). It is considered controlled information
because it has to use the time, space and content of the message effectively and
economically. It is controlled again because, it is directed at a particular group.
The field of advertising management is made up of a system of interacting organisations
and Institutions, all of which play a role in the advertising process. At the core of this
system are advertisers, the organisations that provide the financial resources that
support advertising. Advertising management is heavily focused on the analysis,
planning, control, and decision-making activities of this core institution i.e. the
advertiser (David A. Aaker et al. Advertising Management, PHI, New Delhi, 1992,
P. 1).
The nature or characteristics of advertising may be enumerated as follows:
1. It is an essential element in the promotion-mix. Personal selling, sales promotion and
publicity are the other elements.
2. Moss communication is the basic purpose of advertising. It informs not one person
but a group of persons who are the prospective buyers of the product. The mass
communication media such as radio, television, newspapers, bill boards and magazines,
etc., are used for advertising purposes.
3. Advertising activity is undertaken by some advertising agencies which charge the
price of advertising. Space, time, language, etc., are sold by advertising agencies.
4. An advertisement is sponsored by some identified advertiser, disclosing ideas,
messages and information.
5. The advertising message is persuasive & informative enough to motivate potential
customers. It has been said that success in business depends on persuasion. Advertising
informs, entertains and ultimately persuades a group or society to purchase the
advertised products.
The distinction made between advertising and sales promotion in the preceding chapter
helps us in further understanding the nature of advertising. Advertising may here be
differentiated from publicity.
1. Publicity may or may not be paid for, whereas advertising is always paid for.
2. Publicity may or may not be openly sponsored or initiated by any party, but
advertising is openly sponsored by the party or manufacturer concerned.
3. ROLE/FUNCTIONS OF ADVERTISING
Advertising is a communication which informs, persuades and reminds. It performs a
number of functions. The role of advertising can be traced from the functions it
performs.
1. Introduces New Product
Advertising introduces a new product to potential customers. The prospective buyers
are given information on the attributes, qualities and prices of the product. New
products are advertised first before production commences. Such advertising gives an
edge to the new product over the existing products.
2. Stimulates Demand
Advertising as a communication medium informs consumers about the presence of a
product in the market. The knowledge so gained about the advertised product works in
two ways. First, it aroused latent needs and secondly, it reinforces and strengthens the
aroused needs. Promotional activity has definite impact on aggregate consumption.
3. Increases Sales Volume
By stimulating demand, supplementing other selling efforts, and creating a brand
preference, advertising influences in a positive way a company's sales volume. It
ultimately increases the share of market.
4. Reinforces Middlemen's Promotional Efforts
Advertising helps middlemen to achieve better performance. They are informed about
the prices, qualities, etc., so that they may pass on the information to customers. News
letters, coupled with newspaper advertisement, may give information on the names of
shops and retailers where the advertised products would be available at a lower cost.
Distribution is accelerated by extensive advertising by the manufacturers which .acts as
the dealer support.
5. Develops Brand Preference
Consistent advertising, coupled with other selling efforts, makes consumers to buy
company's product. It also tries to create and retain brand preference and brand loyalty.
Once a brand preference is developed, advertising goes on to reduce the post-purchase
consumer dissonance and the influence of competitive advertising so as to sustain
consumer's brand preference.
6. Makes Demarketing Possible
Advertising is the prime instrument of a company's demarketing strategy. Its
distribution is particularly relevant in a country like India where demand for goods has
to be regulated so as to check the adverse effects of the demand-supply disequilibrium
(J.C. Gandhi, Marketing -A Managerial Introduction, TMH. Delhi, 1985, P.298).
7. Miscellaneous Role
Advertising helps in cutting costs both production and selling. When sales go up on
account of advertising, there is a greater spread of over head production cost as a result
of which unit cost also goes down (when variable cost remains constant). When unit cost
of a product goes; down there are both internal and external environmental pressures
which compel companies to lower their prices to the advantage of consumers
The major contribution of advertising is in maximizing profits under a given set of
constraints. The collective and cumulative effect of demand stimulation, brand
preference and cost reduction is better price realisation on the product sold. Besides, the
product differentiation created by advertising enables a company to maximize its profits
or sales of those who value product distinctiveness.


Please use headphones

4. CLASSIFICATION OF ADVERTISING MEDIA
In advertising, media refer to those through which the message ol an advertisement is
presented. The message may appear in newspapers, magazines or calendar, or may be
heard in a ratio or shown on a screen in a cinema hall or displayed on posters or in
neonsign. A classification of advertising media is presented below:
I. Indoor Advertising
Press Media
News papers
Magazines
Radio
TV
Film
II. Outdoor Advertising
Mural (posters)
Hand Bills
Advertising Board
Painted Displays
Vehicular
Electric Displays
Sky advertising
Sandwichman
III. Direct Advertising
Sales Letters
Booklets & Catalogues
Circular Letters
Package Inserts
Folders
Store Publications
IV. Promotional Advertising
Window Display
Interior Display
Showrooms
Exhibitions
4.1. Indoor Advertising
4.1.1. Press Media:
Press media are broadly divided into News paper and Magazines.
There are mainly three types of news papers viz; Morning Newspapers, Evening
Newspapers, Sunday Newspapers. A Newspaper is suitable for any type of
advertisement. Newspapers have wide circulation, the appeal in such advertisement has
a very extensive coverage. Effectiveness of the advertisements can be tested quickly.
Compared to the cost in other media like radio or film, the cost of newspaper advertising
is cheaper.
Magazines/periodicals are published monthly, quarterly, even fortnightly/and weekly.
Now-a-days magazines are published practically on every discipline viz. agriculture,
banking, astrology, trade and commerce. There are magazines for men and women,
children and so on. Trade journals or industrial magazines are also published.
Advertisements in magazines look more attractive compared to newspapers because of
the quality of paper. Magazines enjoy longer life than newspapers. Production can be
illustrated through advertisements in magazines. Different magazines have different
classes of readers. A suitable magazine may be selected to make an appeal to a particular
class or section of the society.
4.1.2. Selecting Press Media:
The following are the important considerations which must be taken into account while
selecting the press media.
1. Circulation: News papers and magazines having more circulation in a particular
area or all over the country is a major consideration.
2. Frequency: If the demand for the product to be advertised is seasonal,
advertisement must appear in a number of newspapers, magazines during and before
that season.
3. Appeal: If appeal is to be made through illustrations, magazines are to be selected in
preference to newspapers. But if only general appeal is to be made over a wide area,
newspapers shall be better than those of magazines. If appeal is to be made to a specific
group of persons, specific magazines are to be selected.
4. Cost: The amount which can be spent towards advertisement is another
consideration. The higher the circulation of newspaper or magazine, the higher will be
the cost of advertisement. The space and position of advertisement also decide its cost.
4.1.3. Radio Advertising:
Radio advertising is advertising by sound and voice and not by illustration. Broadcasting
stations in several parts of the country are selling time for the purposes of commercial
advertisements. Commercial broadcasting is a good source of income to broadcasting
stations. Radio advertising comprises two methods, viz; Spot Announcements and
Sponsored Programmes. The former are made by the broadcasting stations where they
charge on the basis of words contained in the announcement. On the other hand,
sponsored programmes are relayed by purchasing the time. Usually longer time is
purchased for making the programmes interesting.
4.1.4. Film Advertising:
Cinema or film advertising is an indoor medium of advertising where customers are
approached indirectly. Cinema advertising is of two types viz; feature films for products
and slides for products. Feature films contain advertisement of products. Many
advertisers take the help of advertising agency for the purpose on payment. These films
are exhibited in cinema halls or outside. Slides are the simplest form of cinema
advertising. Here, a slide is made for the product to be advertised. The final design is
handled over to a photo-engraver who transfers the design to a small square glass
plates. These slides are shown in the cinema usually before the commencement of the
main film or during the interval.
Film advertising has good demonstrative value. People can see as well as hear the salient
features of products. Hence, the attention of audiences is not diverted. Both educated
and uneducated sections of people can understand the message of advertisement
through films. The films or slides can be prepared in the regional language of the area
where they are to be exhibited. This ensures easy understanding of products by people.
4.1.5. Television:
Television uses both video (vision) and audio (sound) signals. Television has all the
advantages of radio, namely, sound and explanation, plus the additional advantage of
sight. Advertising through television is a powerful medium. Television reaches the
audience almost like personal face-to-face contact. T.V. combines all of the elements of
communication viz. illustration, music, spoken word, written words. We can have short
commercials as well as sponsored programmes confining entertainment with
advertisement. In fact, it represents typical combination of salesmanship and
advertising.
4.2. Outdoor or Mural Advertising
The outdoor or mural advertising is suitable for the outdoor readers. Outdoor
advertisements are displayed on the walls. The outdoor advertising includes the
following forms:
1. The Posters are placards displayed in public places like street corners, junction
areas, railway station, etc. The message conveyed in posters is very brief. It
contains in brief the attractive feature of articles, name of manufacturers, etc.
Posters are less expensive than many medial of advertising.
4.2.2. The Advertising Board is generally displayed at the focal points of big cities
where the potential buyers are expected. Such advertisements are displayed on the big
boards.
4.2.3. Electric and Neon-signs: These are glass tubes or signs with electric wiring
made in the form of letters or designs to represent the advertisement message. Like the
advertising board, this form of advertising is also reminds the consumers. They are
lighted with attractive coloured lights after sunset and therefore are very effective in
attracting the attention of the people.
4.2.4. Sandwitch Board Advertising: These are two advertisement boards
connected at the top having space in the middle. A man with fancy dress carries or
pushes these boards and attracts the attention of people sitting or walking on both the
sides of roads. He goes on repeating some slogans.
4.2.5. Vehicular Advertising also constitutes an important place, specially among
the outdoor advertisements. The advertisements are displayed on the bus, tram and
trains where general passengers view the advertisement. One can see the display of
posters on the different modes of transportation either inside or outside.
Some manufacturers possess their own vans and they display posters, sign boards, etc.
inside the vehicles. Such vans carry messages of the advertiser over a wide area. Vans
owned by Coca-Cola. Double Seven, Parle Products, Britania Biscuits etc., are the
examples of this medium of advertising.
4.2.6. Sky Advertising is generally found in the advanced countries where
aeroplanes are used for advertisements. We find use of colourful smokes designing the
map or shape of products to be advertised. No doubt, it is a costly advertising media
which is suitable for the big business houses.
4.2.7 Sticker Advertising is also a suitable form of outdoor advertising. In the
Indian context, such type of advertising is found at the very nascent stage. Of late a good
number of big business houses have started sticker advertising.
4.3. Direct Mail Advertising
Direct mail advertising includes circular letters, business reply envelopes/cards, price
list, catalogue, leaflets and folders, booklets, novelty gifts, etc. Direct mail is considered
the most personal and selective media. It reaches only the desired prospects. It has
maximum possible personal features even without personal contact. It provides detailed
information about the product or service, creating lasting impression. The results of
direct mail advertising can be checked by .
Some of the strengths of direct advertising are:
The impact of direct advertising can be tested.
Catalogues, booklets, etc. have educative value.
Explanations of product become more elaborate and illustrations more distinct
and pleasant through these media.
There exists a more personal touch in direct advertising.
4.4. Promotional Advertising
Promotional advertising consists of window display, interior display, show rooms,
exhibitions, etc.
4.4.1. Window Display: It is otherwise called Window Dressing. It is the art of
dressing windows by an attractive display of articles inside shop windows. The object of
the window display is to bring the store to the notice of the likely customers and induce
them to enter into it by creating a favourable impression and interest in the goods
displayed by an appeal through the eye to some emotion or instinct.
Attractive window display is an important factor in effecting sales. Just as the face is the
index of mind, so also the window display is the indicator of shop contents. Window
displays with a good combination of light and colour can have an impelling effect on the
prospective buyers.
4.4.2. Interior Display: Display made in the interior portion of a shop is known as
interior display. It includes within itself display of articles on counters in front of the
selling personnel, displays on the floor, on walls, in show-cases and show-boxes.
Effective interior display holds on the attention of the customers who have been
attracted into the shop by outside display. It makes easy the selection of the goods by the
customers. With proper use of light and colour, it makes the store's atmosphere
congenial, cheerful, etc.
4.4.3. Showrooms and Show Cases: Show rooms are specially designed rooms in
which products of a concern are displayed and where people can go near the products
and see them from a close quarter. Show cases are the glass boxes, or cup-boards
containing the displayed articles depicting the wide range of products of a particular
firm. The purpose is to exhibit a sample of an article for show purpose. Show-cases form
an important part of interior display. The leading textiles mills like DCM, VIMAL,
BOMBAY DYEING and TITAN & HMT watches have their show-rooms in urban areas.
Show rooms and show cases have more than one use. Show rooms act as places to get
orders from the prospective customers who visit them. They provide an opportunity to
the customers to examine the displayed commodities for their satisfaction. Recently
show rooms have offered the 'after-sale services particularly in case of T.V.,
Automobiles, Watches, etc.
4.4.4 Exhibitions:
An exhibition is a huge fair, where many manufacturers get together to display their
products to the dealers and the general public. The Importance of exhibitions is
increasing in modern days. The principal object of advertising at exhibitions is to keep
the product before the public and to demonstrate its uses and merits. Exhibitions are
also a good means of Introducing new products and educating the public about their
uses. Besides displaying their products, the manufacturers who organize the exhibitions,
distribute sales literature to the visitors and at times samples to the dealers and
stockists.
5. ADVERTISING BUDGET
The most important aspect of the management of advertising is budgeting. Advertising
budgeting is also known as advertising appropriation. Budget Is a detailed plan of the
amount to be spent within a specified time. The advertising budget sets the limit of
amount to be spent on various promotional measures.
5.1. Factors to be considered in setting advertising budget: (Schultz, Martin &
Brown, Strategic Advertising Campaigns, Grain Books, Chicago, 1984. p. 192 - 97)
The following specific factors are taken into account while setting the advertising
budget.
1. Stage in the PLC
New products typically receive large advertising budgets to build awareness and to gain
consumer trial. Established brands usually are supported with lower budgets as a ratio
to sales.
2. Market Share & Consumer Base
Higher-market-share brands usually require less advertising expenditures as a
percentage of sales to maintain their share. To build share by increasing market size or
market share requires larger advertising expenditures.
3. Competition
In a market with a large number of competitors and high advertising spending, a brand
must advertise more heavily to be heard above the noise in the market.
4. Advertising Frequency
The number of repetitions needed to put across the brand's message to consumers also
determines the advertising budget.
5. Product Substitutability
Brands in a commodity class e.g. cigarettes, beer, soft drinks require heavy advertising
to establish a differential image. Advertising is also important when a brand, can offer
unique physical benefits of features.
5.2. Methods of Ad. Budgeting
The following are the principal methods for determining the advertising budget.
5.2.1. Percentage and Sales Method:
In this case a pre-determlned percentage of sales value is earmarked for advertising
purposes. The previous year's (years') sales are taken as the yardstick for the allocation
of the Budget. At times the estimated sale of the coming year is also taken as the basis
for budget allocation. This method may be explained as follows:
Advertising Appropriation = Rupee Sales X %
The main advantage of this method is its simplicity. The budget varies with what the
firm can afford on the basis of its sales. Further, this method provides ample
opportunity to the management to maintain optimum relation between the advertising
cost, selling price and profit. However, .the fundamental drawback of this method
relates to the fixation of the percentage itself. There are firms which spend 10 percent or
more of their sales on advertising while there are many others who spend possibly less
than 1 per cent.
5.2.2. Affordable Method:
This method is based on the capacity of a firm in a given business situation. Since a
company seldom spends more than it can afford there is an element of financial
discipline. On the contrary, advertising opportunities are usually overlooked and get
neglected because advertising expenses are deemed to be unaffordable.
5.2.3. Competitive Parity Method:
This method envisages determination of advertising appropriation in such a way that a
company maintains parity with its competitors' advertising outlays. This method is
explicitly out-ward looking. The procedure is to estimate as accurately as possible what
the other competitors in the Industry are spending and to fix own appropriation at the
same level.
Despite the fact that this method is more market oriented than any other method, it is
extremely difficult to estimate very accurately what other competitors are spending on
advertising. For example, while the amount spent on print media or TV can be easily
found out, it is very difficult to estimate what a firm is spending on direct mail or out-
door advertising. Secondly, competitors in general would not have identical product line
and to that extent direct comparability would not be justified. Finally, there is no reason
to assume of that what the competitors are spending is optional and therefore should be
followed.
5.2.4. Objective and Task Method:
This method is based on the relationship between the objective and task. At the outset,
the objectives are determined and there after the media and frequency are determined.
Finally, the cost on advertisement is computed.
This method is more realistic. It compels management to think in terms of advertising
objectives and awakens it to the need for their achievement. It is flexible and may be
adopted to changing company needs. Of course, some of the critics feel that this method
lacks a correlation between the cost and objectives of advertising.
6. EVALUATION OF ADVERTISING EFFECTIVENESS
Advertising effectiveness is measured by pre-testing and post-testing. 6.1. Pro-testing
Techniques
Pre-testing is preferred because it enables one to know how effective an advertising is
likely to be, before spending the budget and adopting advertising actions. Pre-testing
may involve a consumer Jury, story board tests, laboratory tests, tachistoscope,
psychogalvanometer, eye camera, pupil dilation, attitude test and depth interviewing.
6.1.1. Consumer Jury:
The consumer-jury test involves persons most likely to be exposed to the advertisement.
Consumer reactions have greater validity than the reactions of non-consumers.
Consumers can provide true and correct information on reaction to and adaptability of
products following an advertising campaign. The copy, illustrations, filming techniques,
layout, etc., can be properly evaluated by the consumers concerned with the product.
The message of the print media's should be evaluated before its publication. Similarly,
the other media's messages should be evaluated before their presentation. The
consumer jury technique is adopted for print media, broadcast media and direct mail.
6.1.2. Story-board Tests:
The story-board prepared for television advertising is tested before it is used. The story
board pictures are transferred to a film strip and the audio section on to a tape. Vision
and sound are synchronized and shown to an audience for evaluation. The costs
involved can be cut by reducing the unnecessary part of the story board. This test
uncovers the unnecessary part for deletion. The important part of advertising is
accepted for telecasting.
6.1.3. Laboratory Tests:
Laboratory tests have been an important method of pre-testing advertisements. The
respondents' responses are recorded and special laboratory tests are conducted to
examine the effect of the advertisements. Important means are developed to measure
the stimuli. Laboratory conditions offer a controlled environment that excludes the
variables which may invalidate the test. The laboratory test is used to measure
awareness, attention, desire, retention, etc. The respondents are placed in laboratory
situations.
6.1.4. Tachistoscope:
Tachistoscope is a projector that can project objects into a screen at rates so fast that the
viewer cannot detect the message. It is slowed down to a level where the message can be
perceived easily. The respondents should understand and appreciate the message,
interesting words, slogans, headlines, etc. They can be easily segregated from the less
interesting message. This process can separate the messages which are more effective
from those which are less effective.
6.1.5. Psychogalvanometer:
It is a mechanical device that measures the amount of perspiration. The change in
perspiration rate in a respondent is supposedly indicative of a change in emotional
reaction. The psychogalvanometer measures a respondent's reactions to new records
and slogans. Electrodes are attached to his palms to detect changes in electrical
resistance arising from perspiration. If the machine registers lower electrical resistance,
it is stated that a tension exists as a result of advertisement. The main objective of an
advertising is to attract attention to the product which is reflected by the galvanic skin
response. However, it should not be concluded that greater tension reflects the treater
success of the advertisement.
6.1.6. Attitude Test
A number of techniques for measuring the attitudes of respondents are available. These
are known as psychological techniques. The semaetic differential is a rating scale which
has been used extensively to measure advertising effectiveness. Respondents are asked
the questions to be answered on a seven-point bipolar scale about their feelings about a
particular advertisement. The psychological technique is characterized by a
predisposition or state of readiness to act or react in a particular way to some stimuli.
The attitude is closely related to advertising effectiveness. If the attitudes of potential
customers are changed towards the products, the advertisement is considered effective.
.Consumer behaviour towards an advertisement can be measured on the attitude scale.
This scale measures the position of the consumers' attitudes on a continuum, varying
from favourable at one end and to unfavourable at the other end with the neutral point
in the middle. The degrees of variation on the left side and the right sicle of the neutral
point indicate the favourable and unfavourable attitudes respectively. This
measurement is applied before the use of the advertising media, message and campaign
to find out how far they would influence consumer attitudes.
6.2. Post-Testing Techniques
Post-testing techniques are applied after the advertisement has ended. These techniques
are used to find out how far advertising has been successful. The immediate objective of
advertising is to arouse consumer awareness, his interest, desire and develop his
attitude to the product. Hence, the post-testing techniques are in the nature of
recognition tests, recall tests, attitude change, sales tests, enquiry tests, etc. The most
important ones may be elaborated at this stage.
6.2.1. Recognition Tests:
Recognition test is also known as readership test. This test in relation to print media
provides information regarding the percentage of readers who have seen the
advertisement and remember it, who recall seeing or reading any part of it, identifying
the product and brand, and who reported reading at least one half of the advertisement.
Recognition tests have been helpful in determining the actual percentage of persons who
'recognised' the advertising. A recognition test is based on the assumption that there is a
high correlation between the reading of the advertising and the purchase of the product.
The advantage of the recognition test is that it measures something which has been
realised under normal conditions. The recognition tests show the importance of each
type of advertisement on the basis of the readership test. It is a simple test and does not
require any specialized knowledge.
6.2.2. Recall Tests:
A recall test depends on the memory of the respondents. This test is applied to measure
the penetration of, or the impression made by an advertisement on the reader's mind.
Recall tests have been divided into aided recall and unaided recall
The aided method is used to measure the reading memory of magazine advertising
impressions. This test has a high degree of objectivity which arises from the respondents
attempting to perform at the maximum level of recall without subjectively screening out
the response. The aided test is used mainly to measure television advertising.
Under the unaided recall, little or no aid is given because the purpose is to measure the
penetration of the advertisement. Respondents are asked whether the advertisements
included a particular picture or message. The name of the product is not given to the
audience. They have to recall it themselves. If they do remember, it is established that
there was some impact of the advertisement. The impact may be probed to find out the
attitude, etc., of the audience to the product.
6.2.3. Attitude Test:
Such tests measure advertising effectiveness. It measures the extent to which favourable
opinions have been created about the product, image and company. Loyalty, acceptance,
preference, intent, etc., are measured with this technique. There are several techniques
for the measurement of attitude change after the advertising campaign has ended, viz.
semantic differential, the Likert scale, the ranking techniques and the projective
techniques.
The semantic differential technique is used to measure attitude in the field of marketing
and advertising research. It uses a bi-polar (opposite) adjective statement about the
subject of evaluation. An illustration of semantic differential is given in Fig. 1
Semantic. Differential
Known Unknown
Informative Uninformative
Realistic Unrealistic
Persuasive Not persuasive
Useful Useless
Effective Ineffective
Fig. 1. Illustration of Semantic differential
This technique may be used to determine how far the advertising of a particular brand
has been effective.
The Likert Scale is used to measure audience attitude to advertisements. A series of
statements are described to measure the attributes of the advertisement. Only relevant
statements are used for the purpose.
EXAMPLES
1. Radio advertising has been heard by a majority of the population.
Strongly agree Agree Uncertain Disagree Strongly
disagree
________________ _________ _______________ ___________ ___
_________________

2.BPL advertising has appealed to people who have accepted it.
Strongly agree Agree Uncertain Disagree Strongly
disagree
________________ _________ _______________ ___________ ___
_________________
review of the various methods reveals that no one method is perfect and therefore,
usually a mix of these methods is developed to evaluate the effectiveness of advertising.
However, the selection of appropriate technique depends on the needs of a company, its
resources and information constraints.
7. SUMMARY
Advertising is an important element in promotion-mix. It is any paid form of non-
personal presentation and promotion of ideas, goods, or services by an identified
sponsor. Advertising helps in introducing new products, stimulates demand, Increases
sales volume, reinforces the middlemen's promotional efforts, develops brand
preference, and so on. Advertising may be indoor, outdoor, direct or promotional. A
variety of tools are available under each category. While selecting press media,
circulation, frequency, appeal and cost factors are taken into account. Film and TV
advertising especially the sponsored programmes have gradually assumed increasing
importance.
Of the outdoor advertising the prominent ones are posters, electric and neon signs,
hoardings, vehicular advertising, sticker advertising, Interior display, window display,
participation in exhibitions and fairs have also become popular as promotional tools.
Various methods of advertising appropriation or budgeting such as percentage of sales,
affordable method, competitive parity method etc., are available. Each of these have its
own strengths and weaknesses.
It is important to measure the effectiveness of advertising from time to time. Pre-testing
and Post-testing of advertising are undertaken to ascertain the impact of advertising on
consumer. Consumer Jury, Story Board Tests, Laboratory Tests, Tachistoscope, Attitude
Change Tests are the various devices available for pre-testing. Post-testing techniques
comprise Recognition Test, Recall Tests (aided and unaided), Projective Techniques.
KEY CONCEPTS
Non-personal Presentation
Sponsor
Frequency
Mural Advertising
Promotional Advertising
Consumer Jury
MODEL QUESTIONS
1. Describe the importance of advertising in the marketing strategy of a firm.
2. Expand the following statements:
a) 'Advertising stimulates demand'.
b) 'Advertising reinforces the middlemen's promotional efforts'
3. Examine the suitability of the following media in relation to some product(s) or
service.
(a) TV.
(b) Sticker Advertising.
(c) Folders.
(d) Sandwichman.
(e) Vehicular advertising.
(f) Circular letters.
4. Write short notes on
a) Outdoor advertising
b) Exhibitions
c) Recall Tests
d) Direct Mail Advertising
5. a) What factors are taken into account in setting an advertising budget?
b) Explain in brief the various methods of appropriating for advertising.
6. Why should effectiveness of advertising be evaluated? Describe the various
methods/tools available for the purpose.
7. What media choices would you suggest in the following cases?
(a) Family Planning, (b) Garments, (c) Refrigerators, (d) LPG. Give your reasons.
REFERENCES
1. Aaker, A.David et. al. Advertising Management, PHI, New Delhi 1992.
2. Gandhi, J.C. Marketing - A Managerial Introduction, TMH, New Delhi, 1985.
3. Kotler, P. Marketing Management (Analysis, Planning, Implementation and Control),
PHI. New Delhi, 1992.
4. Stanton, W.H. et. al. Fundamentals of Marketing, McGraw Hill. New York, 1994.
5. Wright, et. al. Advertising, TMH, New Delhi, 1984.


-End Of Chapter-
LESSON-18
SALES MANAGEMENT


OBJECTIVES
After studying this lesson the reader will be in a position to understand the following:
The concept of sales management, its scope and importance.
Salesmanship qualities.
The stages of selling process.
The effective selling.
PREAMBLE
1. Introduction
2. Meaning, Nature and Scope
3. Qualities of a Salesmanship
3.1 Meaning of Salesmanship
3.2 Classification of Salesman
3.3 Qualities of a Good Salesman
4. Selling Process
4.1 Prospecting
4.2 Pre-approach
4.3 Approach
4.4 Presentation & Demonstration
4.5 Meeting Objections
4.6 Closing and Follow-up
5. AIDCA Process of Selling
6. Effective Selling
7. Summary
1. INTRODUCTION
Sales management is an integral part of marketing management. The sales function of a
business is a basic function, especially in a commercial concern i.e. wholesale or retail
trade. In the present lesson an attempt is made to examine some important aspects of
sales management and personal selling.
2. MEANING, NATURE AND SCOPE
Sales management has assumed the position of a challenging profession. Sales
management may be defined as the management of a firm's personal selling function.
All the principles of general management such as planning, organising, direction,
motivation and control are applied to sales management for securing better sales
performance. It is responsible for obtaining sales volume, handling the sales operations
so as to make contributions to profits, and for ensuring continuous growth. Under the
socially responsible marketing policy, sales executives must assure the delivery of
products with satisfying experiences.
The importance of the sales function varies across organisations depending upon its
nature and variety of products, target market, consumer density and dispersion and the
competitive practices. It is the sales management that translates the marketing plan into
action. Sales management is sometimes described as the muscle behind marketing
management. In fact, it does much more than provide muscle, hi a modern organisation,
sales management means the management of the sales effort in toto. (V.S. Ramaswamy
and S. Namakumari, Marketing Management, Planning, Implementation and Control,
Mcmillan, New Delhi, 1990, P. 362).
The following megatrends affect the growing importance of sales management
Intense foreign competition
Rising customer expectations
Increasing buyer expertise
Revolutionary developments in communications
There is an increased integration of marketing and sales functions. The nature and
scope of a sales management functions can be clearly understood from the check list
given below.
CHECKLIST-SALES MANAGEMENT FUNCTIONS I. ADMINISTRATION
Organize sales departments at headquarters and at branches
Arrange for office space, layout, appliances and staff
Establish sales policies and programmes
Explain policies and programmes to the staff
Sell sales programmes to top management
Plan communication channel
Delegate duties to subordinate and assign necessary authority to operate
effectively
Plan current and long-range sales operations
Supervise budgets and quotas
Lay down clear channels for operating procedures
Supervise handling of sales correspondence
Supervise hiring and training of salesmen
Stress professional salesmanship
Supervise allocation of sales territories
Analyse salesmen's reports and expense accounts
Keep customer control-records
Contact important customers and distributors
Participate in activities of trade association
Supervise regional, district and branch offices as well as distribution agencies.
II. CO-ORDINATION
Keep in touch with board of directors' decisions
Co-operate with top management executives
Co-ordinate activities of regional, district and branch managers, as well as
supervisors and salesmen
Co-ordinate area sales activities with headquarters
Co-ordinate all promotional materials and campaigns
Co-ordinate export selling with headquarters operations
Co-ordinate dealer activities with company operations
III. SALES PLANNING
Determine how and where sales can be effected
Plan sales offices, locations, personnel, etc.
Establish regional, district and branch offices
Determine types of sales organization suitable for various branches
Plan for efficient administration at headquarters and in the field
Plan sales strategy
Ascertain types of promotion and advertising provided.
Select distribution channels such as wholesalers, distributors, dealers and
retailers
Plan warehousing facilities throughout the field
Plan packaging, packing and transportation; e.g. branch office deliveries;
transportation from warehouses and time schedules for such transportation.
IV. SELECTING THE SALES FORCE
Build job specifications
Determine suitable sources for recruitment
Prepare application blanks
Arrange interviews and rating blanks
Determine methods of interviewing
Decide who should interview
Decide when and where interviews should be held
Cross-check on interviews
Prepare checking of reference blanks
Arrange for medical reports
V. TRAINING THE SALES FORCE
Develop training plans for new salesmen
Arrange refresher courses for existing salesmen
Emphasize professional, salesmanship
Arrange training for regional, district and branch manager as well as supervisors
and salesmen
Develop and use sales-training tools, such as:
Textbooks
Sales manuals
Sales-training bulletins
Instruction manuals
Modern catalogues
Correspondence courses
Headquarters' schools
Branch office training
Field supervisory training
Special product presentations
Slide films
Motion pictures
Sales meetings
Decide who will do the training
Determine how training is to be done
Follow-up on training programmes
VI. REMUNERATING THE SALES PERSONNEL
Fix base salary scales
Plan commission incentives
Fix rules for submission of expense accounts
Arrange vacation plans
Fix how bonus is to be paid
Arrange contests and award of prizes
Fix pension and retirement plans
VII: MOTIVATION - HUMAN RELATIONS
Determine what motivates salesman
Plan advancements and promotions
Arrange exciting sales contests
Draft enthusiastic letters and bulletins
Arrange interesting sales meetings and conventions
Provide reasonable satisfaction of the security need
Build employee pride
Analyse what motivates distribution channels
Find out what motivates consumers
Provide adequate public relation
Be fair to all i.e. employees, distribution channel and consumers.
Conduct continuing motivation research
Provide emphasis on the dignity of man
VIII. QUOTA SETTING
Use sales forecasting as an aid to quota setting
Determine methods of arriving at quotas
Fix overall quota
Break down overall quota into quotas for territories, etc.
Determine special quotas for large users
Sell quotas to salesmen
IX. TERRITORY ALLOCATION
Analyse/territory potentials
Allocate territories on basis of
Geographical areas
Prospect density
Economic condition
Industrial centres
Special Income groups
Population increases
Increase in number of households
Rearrange territories for more effective effort
Develop routing lists for territories
Review territory allocations periodically for Improvements.
X. CONTROLLING THE SALES PERSONNEL
Visit regional, district and branch offices
Pay periodic visits to salesmen in the field
Arrange and attend meetings, conferences and conventions
Control salesmen through
Dally, weekly, monthly reports
Letters and bulletins
Personal contacts
Expense accounts
Sales meetings
Supervisors and branch managers
Quotas and special assignments
Commission and bonuses
Incentive plans
Visit important distributors and dealers
Bring distributors and dealers Into home office occasionally
Analyse orders from distributors and dealers
Find and develop new distributors and dealers
Check complaints and adjustments
Visit large and important customers
Tap information from trade association contacts
Arrange marketing research trips to old and possible The various decision areas
of sales management may be exhibite as a cycle in Fig-2.

Fig 2. Sales Management Cycle
Analysis: Review of the firm's internal sales records and sale persons' reports.
Planning: Selling objectives of the firm's sales effort and malpoing out strategies
and facts for achieving them.
Organisation: Setting up structure and procedures for smooth an effective execution
of sales programmes and plans.
Direction: Staffing and supervision of the day-to-day implementation: of sales
policies, programmes and plans.
Control: Performance comparison of actual and planned sale results, examination of
the reasons for observe divergencies and evaluation of the need for plan revision
3. QUALITIES OF A SALESMAN
Under this let us examine first what is personal selling or salesmanship.
3. 1 Meaning of Salesmanship
The American Marketing Association has defined personal selling as an "oral
presentation In a conversation with one or more prospective purchasers for the purpose
of making sales". Whitehead defines salesmanship as, "the art of so presenting an
offering that a mutually satisfactory sale follows...." The ability to handle people is also
salesmanship. A good, salesman looks upon the work of 'selling as process of making the
customer buy. It is effected only if the prospect is convinced in his own mind that it will
be beneficial for him to make the purchase. In terms of psychology salesmanship is
persuasion which motivates feelings to action or evidence which convinces reason and
judgement.
The work of a salesman is service because he helps the customer to get the most for the
money he spends. He performs two important tasks viz, he serves as a link between the
producer and the distributor to their mutual advantage and secondly, he enables the
customer to satisfy his wants better.
3.2. Classification of Salesmen
Salesmen can be classified on the basis of (a) organisations they represent, (b) the goods
they sell, and (c) the services they render.


Please use headphones

The following Figure gives an idea about the classification of salesmen on the basis of
organisations they serve.

Fig. 1 Classification of Salesmen
On the basis of the types of goods they sell, the salesmen may be classified into
1. Staple salesmen
2. Speciality salesmen
On the basis of services or field of operation the salesmen may be classified into House-
to-House salesmen, Missionary salesmen, Service salesmen and Exporter's salesmen.
3.3. Qualities of a Good Salesman
The personality of the salesman plays a very important role in the field of sales. Sales
personality includes all the qualities of a good salesman. When one compares two
salesmen, one having a good personality and the other not having it there will be
remarkable difference in the sales made by them. Since the success of sales is primarily
influenced by the personality of the salesman, firms become careful in selecting the right
type of salesman whose personality Is impressive.
The qualities may broadly be divided into (a) physical, (b) mental, (c) social and (d)
character traits.
3.3.1. Physical Qualities:
The salesman is the ambassador of the company. Physically he must be fit. Sound health
is of first necessity. The personality of a salesman will be pleasing only when he has a
good health. A good health is usually associated with a good breath. Offensive breath
repels the customers. Since the salesman has to meet and talk with many customers,
oral hygiene is of utmost importance. The quality and the tone of voice has also its
influence on the listeners. A good appearance is another important physical quality
which goes a -long way to create a good Impression. A tall, fair, healthy looking and well
proportioned young man with a good poise makes an excellent Impression on the
prospects. Appearance Includes many things viz. clean and neat dress, general
cleanliness, good facial expression of the salesman, etc. A well-dressed salesman can
work with ease and confidence and uphold the prestige of the firm he represents. It is
said, "Apparel often counts a man". A healthy and happy facial expression is a sure
indication of the confidence with which a salesman works. It is aptly remarked, "smile
and the world smiles with you. Weep and you keep your goods".
3.3.2. Mental Qualities:
The important mental traits or qualities which must be developed by a salesman to be
successful arc accuracy, alertness, imagination, resourcefulness, initiative, self-
confidence, cheerfulness, and so on. A salesman should be accurate in his speech or
statements. By making accurate statements he is able to establish confidence of the
customers in himself. While meeting the inquiries of the customers he has to convince
them by stating the facts and advantages of the products. Alertness relates to the
presence of mind. It also means keen power of observation and common sense to take
correct decisions quickly. If the salesman will be alert, he will inspire confidence in the
customers and this results in more sales. Imagination is also another important mental
quality. Imagination is needed to enable the salesman to see problems through the eyes
of the prospect and to devise means for solving them. It is the ability to invent new
angles of approach to sales problem that characterizes the imaginative salesman. This
quality can be cultivated through study of products and psychology of customers.
Resourcefulness is a mental ability think and find cut alternatives. A resourceful
salesman is one w. can make (he situation by alertness and use of common sense. A salt
so understand the psychology of the customer better shall ultimately be a resourceful
salesman. Self-confidence is another important quality, which every salesman should
possess and cultivate. Self-confidence comes to him through study, experience and
knowledge of himself, goods he sells and the customers.
3.3.3. Social Traits:
Some of the qualities under this category are ability of the salesman to meet the public,
tact, courtesy, manners and mannerism, etc.
A salesman has to initiate talks and should feel happy in meeting the public and enjoy
their presence. He should be an extrovert. He should have the ability to meet strangers,
open up new territories and create friendship. He must have the ability to speak very
effectively to impress the customers. Conversation is an art and can be developed by
proper thought and practice.
Tact is the skillful way of doing things. A good salesman understands the attitude and
feelings of the customers and answers all questions fully, calmly and tactfully, inspiring
confidence of the customers. In fact, tact can be considered as the social intelligence. It
implies doing the right thing at the right moment. This can be developed through
experience and mixing with people easily.
Courtesy is an indication of refinement and culture. The salesman should always be
polite and courteous. By showing polite behaviour he exercises courtesy. Being punctual
appointments, becoming polite to customers, receptionists and secretaries, listening
attentively and maintaining a cool temperament are some of the important courtesy
rules. A salesman has to show .good manners to customers. The success of an
organisation greatly depends on good manners and politeness of A the salesmen.
Manners of a salesman either make him prosper or mar his career. A salesman should
avoid biting nails, clasping and unclasping hands, swinging back and forth in the chair,
keeping hands swinging back and forth to the chair etc.
3.3.4. Character Attributes:
Honesty, integrity, loyalty, reliability, industriousness etc., are some of the important
character traits which a salesman must possess and develop.
Honesty in dealings and statements, and keeping one's promise make salesman
successful. An honest salesman appeals to the customer's desire for safety and
protection. Though an honest salesman might take time to win customers, once his
reputation is established, customers will frequently come to his shop. Hence, the
significance of honesty in selling. Integrity implies uprightness of character, moral
soundness and good behaviour, honesty, fulfilment of promises and strength of
character. There is no substitute for this quality. Loyalty is another character attribute
which a salesman should possess and develop. He should be loyal to (1) the organisation
in which he works and its products. (2) his customers, and (3) his fellow-workers. He
has to work in harmony with the authority given to him. Secretly making any profit,
stealing or misusing any property of the firm are some of the acts of disloyalty.
Reliability is the outcome of honesty, integrity and loyally. A salesman should be reliable
or trustworthy. A reliable salesman takes his work seriously and is honest in his
dealings. Such a salesman gives value to his promises, fulfils them and loses no friend.
In the process, he commands the confidence of the customers.
Industriousness is another quality which means the ability to work hard. It implies
persistent work to achieve a desired goal. Willingness to work is a great thing in
salesmanship also.
It may be pointed out here that a salesman may not possess all the qualities that are
present in the best salesmen. The personality of a salesman can be improved. Salesmen
are not necessarily born as qualified salesmen. They can be made qualified or ideal
salesmen by developing their personality through constant and sincere efforts. Sales
managers impart necessary training to their salesmen to develop their personality. Self-
examination and self-improvement may turn out to prove amazingly rewarding, through
out the life of the salesman.
4. SELLING PROCESS
Personal selling is an oral representation in conversation. The actual process the
salesmen go through to sell a product are more or less the same. (Fig. 2). All salesmen
attempt to locate the prospect buyers (prospecting), collect valuable information about
their testes and habits (preapproach) initial contact (meeting) with the potential buyers
(Approach), show the product and its use (presentation and demonstration), attempt to
overcome the objections, arid then close the sale.

Fig. 2 The personal selling process
4.1 Prospecting
This is the first step in the personal selling process. Prospecting implies locating of
prospects or locating the potential customers. The prospect or potential customer has an
unsatisfied need, the ability to purchase and a willingness to buy the product A salesman
can locate potential buyer by analysing the telephone directory, yellow pages.
Membership Registers of clubs, etc. The task of prospecting begins with obtaining
names and addresses of people who might be needers. Such names with addresses are of
no use if he does not qualify each person according to the requirements of a prospect.
Before approaching a prospect the salesman should ascertain whether the prospect has
a need to buy the product. This can be assessed from his profession, income and
environment. Many persons may have the need to buy but they may not have the ability
to pay for them. The salesman should ensure that the prospect has the necessary
financial capacity and also the desire to spend in that product.
The prospect whom the salesman contacts may be quite convinced about the product
but he may not have the authority to buy the same. In case of institutions, big
organisations and Government concerns, all executive officers do not have the authority
to buy. The salesman should ascertain the authority of the executive or officer before
approaching to persuade him.
Accessibility is another criteria to 'know whether person/organisation could be a
potential buyer. Accessibility means whether a prospect is approachable by the salesman
or not. Physical accessibility is less important than financial accessibility. If the
salesman can approach a prospect, but with very high expenses it is said that such
prospect does not have accessibility.
The important prospecting methods are:
1. Endless chain method
2. Centre of influence method
3. Cold canvass method
4. Direct mail and Telephone method
In addition to these methods of prospecting, the salesman may take advantage of other
methods under suitable circumstances. The persons visiting various exhibitions and
fairs are likely to become prospects.
4.2. Pre-approach
This is the second step in the sales process and starts soon after the salesman obtains
the names and addresses of the prospects. Hereafter, the salesman prepares for the next
step i.e. approaching the prospects. In the pre-approach stage, the salesman obtains
some other detailed information like the ability need, authority, accessibility, etc., of the
prospects. The objectives of the pre-approach are:
to obtain additional qualifying information,
to obtain information around which the presentation can be better planned,
to give the salesman more confidence,
to gain insights into how best to approach the prospect.
During this stage the salesman would be required to go through the age, marital status,
children, income, occupation, education, religion, hobbies, etc. The Information
gathered in the pre-approach will differ with the selling problem facing the salesman. If
he is selling to an individual for his own use, the salesman will confine his investigations
to the prospect as a person. On the other hand, if the prospect is buying for a business
the pre-approach should be broadened and it Includes many facts about that business
also.
4.3. Approach
The initial few minutes of the sales talk are known as the "approach" to the prospect.
The purpose of the talk is to arouse and sustain the customer's attention. Before the talk,
the salesman should Introduce himself by using the telephone, by obtaining
introduction from a customer and by handing his business card. In the first contact, he
should attract the attention of the customers and get them interested in the talk. Some
of the popular techniques for this purpose are reference approach* benefit approach,
sample approach, and mutual approach.
The reference approach involves reference of the product by the friends of the prospects.
The benefit approach indicates the benefits of the product. The sample approach
involves giving the sample to prospect. The mutual approach considers the prospect
supreme.
Whatever methods of approach the salesman adopts/he must make it a point to include
something of interest to the prospect. The salesman should put him in the place of the
prospect when planning his approach in person and asks himself, "Will this interest me
and cause me to like the salesman?"
Approach by travelling salesmen differs from approach by retail salesmen. The
travelling salesman faces many difficulties hi approaching people who are completely
strangers to him. He has to meet many subordinates like receptionists, secretary and
others who may not allow them to go in unless they have some real value to offer to the
executives proposed to be met by him. Gaining an interview with the right man is the
biggest problem. It is rightly observed gaining the interview is in fact a selling process, it
is like making a sale. The salesman is to sell an idea to the subordinate i.e. secretary or
receptionist who prevents him from meeting the boss, or to the prospect who has the
power to grant or refuse the interview to the prospect proper. The salesman should give
due respect and recognition to the subordinates, praise them to get their favour and
thank them for their co-operation.
A travelling salesman may follow any one of the following ways of approach for gaining
an interview with the prospect.
Personal call without introduction
Personal call with introduction
Sending business card
Writing for an interview
Appointment over telephone
Use of sales letters
The approach followed by the retail salesman/indoor salesman is different. This class of
salesmen does not move from place to place for prospecting. Collecting details of the
prospects is also required in retail selling. Such prospects are aware of the products and
one attracted to the store by means of advertising, displays, etc.
4.4. Presentation and Demonstration
"Presentation" means the presentation of the product to the customer or prospect, and
is closely related to the buying process. Sales presentation involves the presentation of
the product and a demonstration of its features and benefits to the prospect, and shows
how the product meets the customers' needs. It attempts to increase the desire for the
product and arouses the willingness of the prospect to purchase the product. If the
salesman will be prompt in presenting the articles to the prospects, he usually conveys
his willingness or indication to serve them. Prompt action creates a favourable mood in
the minds of the prospects. Clarity in presentation is essential and the salesman should
always try to complete it for the satisfaction of prospects. The details of articles, about
their uses and working, model, texture, etc., have to be explained to the prospect. The
prospect should be allowed to fondle, handle, test the articles for their satisfaction.
Demonstration in personal selling is the task of proving the statements by a salesman
about quality, utility, service, etc., of a product with the help of experiments, operation,
test or by any other satisfactory evidence. Demonstration gives rise to following
advantages:
It enables the salesman to present all the salient features of products in a more
concrete way.
It also affords an opportunity to the salesman to prove the truth of what he has
stated about the products.
It appeals to the senses of the customers.
It enables the salesman to reduce his sales talk to some extent and sometimes to a
substantial extent.
The main forms of demonstration are; (a) Demonstration in use and (b) Demonstration
of a specific feature of the article. The most effective form of demonstration would be to
show how the article will appear when actually used by the customer. For example,
while selling a TV, or audioset one may ask the customer to switch on and switch off and
see the picture clarity (TV) or stereo effect (audio-set). The specific features like 'leak
proof, 'unbreakable', etc. can also be demonstrated.
1. Meeting Objections
Sometimes, customers raise some objections to the product. The objections or resistance
may be either psychological or logical. Psychological resistance relates to interference,
preference for established products or habits and traditions. A customer may be
reluctant to give up the product and adopt the new product. Logical resistance or
objections may pertain to price, product, transport, payment systems of the company. A
salesman has to answer these objections and overcome the customer's resistance. He
should break down the customer's objections. Experience and training would enable
him to deal with the objections satisfactorily. The best time for meeting objections is the
moment they are raised. The way and the time of answering questions or meeting
objections depends upon the attitude of the prospects, the nature of the product and the
type of objections. Listening attentively is the fundamental principle of over coming
objections. The mere act of listening to the prospect is likely to feed his ego.
Various methods are available to overcome objections viz. Direct Denial Method,
Indirect Denial Method/Yes.... But method, Superior point/Compensation Method,
Boomerang Method, etc. Indirect denial method is invariably used in meeting most of
the important objections. It removes the idea from the mind of the prospect
inoffensively and courteously. Direct denial method may be applied when the objection
raised is a false one, mostly due to ignorance of prospects.
2. Closing and Follow-up
The main object of the salesman is to sell and hence closing the sale. It is said a poor
closer is always a poor salesman. The ultimate goal of salesman is to get the order. The
salesman should be expert enough to close the sales talk at the right moment and ask for
the order. He should know the closing signal, including physical actions, statements or
comments. He can ask for the order, help the customer to select a particular product and
offer special inducements to close the sale. Self confidence and positive attitudes help
the salesman to secure favourable buying decisions.
Follow-up action begins when the prospect signs the order and asks tor delivery. He
prices to remove any post-purchase problems. After sales service is a good example of
follow-up action. The sale is said to complete when the buyer is satisfied. It is true that
sale is made not in the mind of the salesman, not over the product's place but in the
mind of the buyer. The follow-up action also provides feedback to the salesman because
if graces him a chance to evaluate his actions and persuatlons. One should keep in mind
that the close of one is the beginning of another.
5. AIDCA PROCESS
In order to effect a sale, the salesman must persuade the customer to buy his product.
This act of persuation needs proper planning of the strategy and tactics. The customer
must be taken through various stages of the mind. These stages are summarised by what
is known as the AIDCA formula.
Attention (A):
It is the starting point in the sales process. The attention of the customer must be
attracted to the product, the want what the product is able to satisfy and the buying
motive to which the product appeals. Until the customer's attention is secured by the
salesman, the sale process does not develop. At stage, the salesman informs the
customer about his needs. He also informs him about the existence of products or
services to satisfy his needs. The salesman induces the customer to think about the
goods. In this way the prospect's attention is attracted towards the product. The
attention of the prospects may be attracted in many ways such as advertisements,
display, etc.
Interest (I):
The salesman must awaken an interest in the" mind of the customer. Awakening
interest means getting a person interested in an article or proposition. The salesman can
arouse interest and held his attention by specifying to him interesting features of his
product. One can arouse Interest by offering something useful, supplying sure
information, distributing samples etc. The customer must be made to realize how the
product will benefit him, and must feel curious to know more about the product, its
features, and its merits.
Desire (D):
A salesman must ignite the desire of the prospect after securing his attention and after
arousing his interest in the product. From the stage of interest or curiosity must develop
the desire to buy the product. The first thing which is involved here is to make the
prospect feel that the article is necessary for them. Interest can be converted into desire
for the product mainly by three means, viz.
Emphasizing the selling points of the article/product.
Making suggestions
Making demonstration.
Conviction (C):
After a desire for the product has been created in the mind of the prospect. Some doubts
may remain to be removed. In order to convince him all objections must be met
adequately. He has to convince him about the soundness of his proposition. After the
desire is created in the mind of the prospect, he must be made to feel that the product to
be sold is worth buying. Once he is convinced of this fact he would be ready to buy.
Action (A):
It means gaining an order. The culmination of the first three stages should be in the
actual purchase of the product. Action can be stimulated by permitting the prospect to
feel sensually gratified by seeing, smelling, testing, touching, hearing, etc. and by
explaining once more the important selling points of the products. If the prospect is
convinced or his confidence is reported in the product, firm and the salesman, it leads
the prospect to the ultimate decision or action, i.e. purchasing.
6. EFFECTIVE SELLING
There are six pre-requisits of effective selling i.e. know your company, know your
product, know your competitors and their products, know your customers, know the
process of selling and know your self.
6.1. Knowledge of the Company
It is essential that the salesman has art indepth knowledge of the company In which he
has been working. In a good number of cases, the potential customers make buying
decisions in the background of brand, name or fame earned by a particular corporation.
Hence, the salesman should essentially be company-oriented. As the representative of
the company, he is expected to know everything about the company. The potential
buyers may raise different querries regarding the policies, after sale-servicing,
discounts, guarantees and so on. It is the responsibility of the salesman to answer all the
questions asked by the potential buyers and albeit to satisfy them. Unless, the salesman
has an indepth knowledge of the corporate multi-faceted development programmes, he
would not be successful in answering the questions asked by the potential customers.
6.2. Knowledge of product
A salesman should know all about his product, (a) materials from which it is made, (b)
how it is used and how it is maintained, (c) product features, (d) selling points of the
product in relation to its rivals, etc. This would help him particularly while convincing
the potential customers. The whole responsibility before a salesman is to convert the
potential customer into the actual users and this would not be possible, if the salesman
lacks details about the products.
6.3. Knowledge of Competition
It is essential that the salesman constantly studies the emerging trends in competition.
He should constantly study the products offered by his competitors and determine their
strengths and weaknesses in comparison to his own products. Awareness of competition
enables a salesman, if necessary, to compare his product with that of the rival on those
points in which the buyer seems most interested. Buyers have faith in well - informed
salesman. Then again knowledge gives salesmen confidence in themselves.
6.4. Knowledge of Customers
To make the personal selling effective, it is also essential that the salesman must have
adequate knowledge about the customers. A salesman should have details of the
customers wants, desires and habits. The changing trends in fashion should also be
studied by a salesman. The principal responsibility before a salesman is to establish a
fair match between the goods desired and goods offered. The buying motives of the
customers would help the salesman, particularly while studying the customers. The
perception, motivation and learning processes would help the salesman, especially while
studying the buyers behaviour. Sales presentation cannot be effective unless a salesman
knows socio-psychological factors influencing buyer behaviour.
6.5. Knowledge of Selling Process
The various stages of personal selling process have already been discussed in this lesson.
The salesman should know the details of prospecting, preapproach, approach, etc. The
AIDCA formula also helps the salesman, particularly while sales presentation. The post-
sale activities like writing of order, execution preferences facilitating grant of credit
should also be known to the salesman. The details regarding the selling processes would
help a salesman, in making the processes effective, pro-active or sensitive.
6.6. Know Yourself
Last but not the least essential requisite for successful selling is knowledge of self. To
make the selling process effective, it is essential that a salesman evaluates his own
performance. Self-evaluation of performance is the best criterion to diagnose the
loopholes. This evaluation should be made not only in terms of the salesmen but also in
respect of the quality of goods and services offered and the prices charged.
Thus, all the aforesaid prerequisites would help the salesman in raising the volume of
sales. But it must not be forgotten that the mere possession of selling techniques does
little to ensure success. It is the ability or perfectability of the salesman that counts more
in the process.
7. SUMMARY
Sales management is an important aspect of overall marketing management. It
embraces within itself the planning, organizing, directing coordinating, motivating and
controlling of sales force. Recruitment, selection, training and evaluation of sales
personnel also come within the purview of sales management. Personal selling is an
element in the promotion-mix of any marketing strategy. It involves primarily
prospecting, pre-approach, approach, presentation and demonstration and meeting
objections of prospective buyers.
AIDCA - attracting attention, awakening interest, creating desire, conviction and
ultimately action process is also followed by the salesmen. Various methods and
principles exist for successful personal selling at each stage. An effective and successful
salesman should have the knowledge of self, the knowledge of the company and its
product and that of the competitors too. He has to develop his sales personality. He
must possess a certain qualities in order to become successful.
KEY CONCEPTS
Sales Management Cycle
Tact
Prospecting
MODEL QUESTIONS
1) Define sales management. Give an overview of its scope and functions.
2) Define personal selling. State and explain in brief the various stages which are
followed by salesmen.
3) Describe the various qualities of a successful salesman.
4) Write notes on
a. Prospecting.
b. Direct denial method of overcoming objections.
c. After sale service.
d. Canons of a successful close.
5) Explain the AIDCA process of selling.
6) What is effective personal selling? How can this be developed?
REFERENCES
1. Anderson Rolph E. et al. Professional Sales Management, McGraw-Hill. New York.
1988.
2. Jha, S.M. and Singh L.P. Marketing Management in Indian Perspective, Himalaya,
New Delhi, 1988.
3. Nayak, A.P. & Sahoo S.C. Salesmanship, Sales Management and Advertising, Books
and Books, Cuttack, 1994.
4. Still R.R. et. al. Soles Management: Decisions, Policies and Cases. PHI. New Delhi.
1976.

CASE STUDY-1
Helix Latex Industries

Helix Latex Industries, a partnership concern which was in the business of Surgical and
Medical equipments, manufacturing between 25 and 30 items like feeding nipples,
B.L.B. mask equipment, saline and blood transfusion tubing, soil testing sheets etc.,
entered into the business of manufacturing surgical and post mortem hand gloves in
December 1968. It invested Rs. 5 lakhs in plant and equipment to manufacture this item
and started manufacturing 2,000 pairs per day. There were about 30 other
manufacturers In this field nearly all of them coming under the classification of small
scale industries. Helix Latex faced competition mainly from Dial Rubber Works of
Bombay, Phoenix of Bhavnagar and Swastlk Rubber of Poona.
The First two companies were selling about 60,000 pairs of hand gloves everyday.
Swastlk Rubber which was the biggest company of .the lot was marketing about 30,000
pairs per day. These concerns were selling gloves on an approximate rate of Rs. 1 per
pair.
When Helix first started manufacturing gloves is tried to sell its products at the rate of
Rs. 1.25 per pair. In terms of quality its products was superior to two of its competitors
but occupied a second place when compared to Dial Rubber Works of Bombay. Being a
surgical item the product however had to satisfy the minimum specifications in respect
of T.S. (Tensile Strength) and E.B. (Elongation at Break) laid down by the Government
which required testing of the product In the Government laboratories before permission
to market them was granted.
The market for gloves consisted of hospitals, surgical trade, D.G.S. & D and State
tenders, individual doctors and packets of medicines. Helix sold their brand of gloves.
Which they called supertax, through wholesalers and dealers and were able to keep to
delivery schedules. They had an open channel policy. Helix appointed one dealer each in
Madras. Calcutta and three in Delhi. No dealer was appointed in Bombay where the
competition was very tough.
In promoting the sale of gloves Helix put up sign boards in important surgical and
medical equipments markets. To push the sale of its gloves it also advertised its
products in medical journals and put up stalls in medical and surgical conference.
The above marketing mix did not, however, help Helix in selling its daily production of
2,000 gloves in the market. One of its partners, who had his training in the area of
marketing in one of the best business schools of U.S.A. finding that its product was not
moving notwithstanding the fact that Helix's marketing mix compared favourably with
its competitors, decided to experiment and identify the effect of price reduction on the
sale of this product. As a result of this decision the price of its brand of product supertax
was reduced from Rs.1.25 initially fixed price, to Re. I/. The reduced price also did not
make any difference in the sale of supertax. It again reduced the price to 87 paise per
pair. On finding that the reduced price of 87 Paise, which was lower than its three main
competitor's prices in the neighbourhood of Re. l/-per pair, again failed to tick, a
decision was taken to further reduce the price to 75 paise per pair. No tangible
difference was, however, made to sales of supertax by third downward exercise in price
reduction.
On reviewing other elements of the marketing mix, it was found that the Bombay
concern was selling for cash and was not giving any credit facilities while its two other
competitors were allowing 30 days credit. Helix in order to improve upon its
competitors' strategy decided to grant 3 months credit facilities. Unfortunately all these
changes did not help Helix in marketing all the 2,000 pairs it could produce every day.
The firm was really at a loss to understand what mix and strategy it could adopt to
achieve success in its sales efforts?
QUESTIONS
a) What are the basic problems being faced by the Company in marketing its products?
b) What are the strengths and weaknesses of the company?
c) What marketing mix and strategy would you recommend to the company?

CASE STUDY-2
Promotional Strategy for Bread Marketing

Mr. Rao, a successful businessman in Coimbatore, plans to launch a mechanised bread-
making unit on a large scale. For this purpose, he intends to purchase the required
machinery from "Brittania Industries Limited of Germany. The proposed unit's
installed capacity is 30,000 loaves per day. Mr. Rao is interested in introducing two
varieties of bread viz, 'milk bread' and 'fruit bread'. Other bakery products will be added
to the product line at a later date. He is also interested in starting a chain of bakeries in
the city.
Mr. Rao approached Think Group' (TG), a reputed consultancy firm in the city for a
feasibility study of the proposed venture. According TG conducted an exhaustive market
survey. The following are the findings of the study.
Coimbatore is developing fast industrially with a population of 6 lakhs. Out of the
total population. As most of the industries are located In the outskirts of the city,
a majority of employees have to travel on an average of 12 kms., everyday and
reach work-place before 8'O Clock in the morning.
Regarding breakfast habits of most of the people, it has been observed that they
are in the habit of taking idly, dosai, puri, etc.
Out of lakh working population, working women account for 0.20 lakh. Most of
these working women expressed that the preparation of conventional break-fast
items like idly, dosai etc., is time consuming. They are also reluctant to get these
Items from hotels on the grounds of health and hygiene, cost, and lack of good
hotels in their localities.
Bread-making and marketing in the city is unorganized. There are about 30 small
bread making units, whose markets are limited to the places where they are
located. Their manufacturing process is not mechanised.
At present M/s Hindustan Bread" is the only large scale, semi-mechanised
bread-making unit, which is marketing bread, under the brand name "Hindustan
Bread".
There is no prominent branding, labelling, and packaging activity In other units.
Most of the units simply wrap the bread in a white paper, and also some units sell
bread without packing.
Some of the Industrial units and some big hospitals are large scale customers of
bread ii) the city. These institutions, generally give supply contract after calling
for tenders. It is worth nothing here that, this segment of customers is not happy
with the regularity of supply and inconsistent quality of bread supplied by "M/s
Hindustan Bread", which is the sole supplier of bread to this segment.
TG has a strong feeling that there is a good market potential for bread in Coimbatore,
where a change in the breakfast habits in favour of bread can be brought about by an
aggressive promotional campaign. TG has made a positive case for Mr. Rao's venture, as
this mechanised unit will have a proven advantage over his nearest competitor 'M/s
Hindustan Bread' in ensuring better supply and quality consistency. In addition, Mr.
Rao can also have economies of scale with this mechanised unit
Having gone through MIGs findings and recommendations, Mr. Rao entrusted the job
of developing suitable marketing strategy to TG again. Mr. Ram Murty, Chief Executive
of TG entrusted this job to Mr. Krishna Reddy, one of the TG's senior executives.
QUESTIONS FOR DISCUSSION
1. What sax the important points that emerge from this case?
2. Do you think that TG's recommendation for aggressive promotional programme is a
suitable marketing strategy to bring about this desired change in the breakfast habits of
the working people?
3. If you are in the place of Mr. Krishna Reddy, how would you work out suitable
promotional programme for Mr. Rao.


-End Of Chapter-
LESSON-19
DISTRIBUTION CHANNELS


OBJECTIVES.
After reading this lesson you will be able to understand
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.
PREAMBLE
1. Introduction
2. Meaning and Importance of Distribution Channels
2.1 Importance of Distribution Channels
3. Role and Functions of Wholesalers
3.1 Classification of Wholesalers
3.2 Functions of Wholesalers
4. Role and Functions of Retailers
4.1 Forms of Retail Outlets
4.2 Functions of Retailers
5. Selection of Channels of Distribution
5.1 Analysing Service output Levels
5.2 Establishing Channel Objectives
5.3 Identifying the Major Channel Alternatives
5.4 Evaluating Channels
6. Channels of Distribution for Consumer and Industrial Goods
7. Summary
1. INTRODUCTION
Placement or distribution of goods is an important element in the marketing-mix since
the product/service must reach the consumer in right quantity and at right time. There
are a number of middlemen with varied roles and functions between the manufacturer
or producer and the consumer or user. They constitute the marketing channel involving
themselves in the process of making a product or service available for use or
consumption by consumers or industrial users.
2. MEANING & IMPORTANCE OF DISTRIBUTION CHANNELS
Large-scale production of to-day has necessitated the use of different channels of
distribution or marketing channels. Richard M. Clewett states, "A channel is the pipeline
through which a product flows on its way to the ultimate consumer. The manufacturer
puts his product into the pipeline or marketing channel and various marketing people
move it along to the consumer at the other end of the channel. (Marketing Channels for
Manufactured Products, Richard D. Irwin, Illinois. 1954). Somebody has said,
"Marketing Channels are the combination of agencies through which the seller who is
often though not necessarily, the manufacturer markets his product to the ultimate
user".
The American Marketing Association defines marketing or distribution channel on "the
structure of intra-company organisation units or extra-company agents and dealers,
whole and retail, through which a commodity, product or service is marketed".
2.1. Importance of Distribution Channels
The Importance of distribution channels can be examined with reference to the need for
their emergence and functions they perform.
1. Intermediaries arise in the process of exchange because they can improve the
efficiency of the process. Since the location of supply and demand points are at widely
different locations, there is the need for physical movement of products. The demand of
consumers at different geographical locations is intermittent and smaller in quantity,
prohibiting individual customer specific transportation. This is referred to as spatial
discrepancy. Mass consumer products are to be produced and stocked in advance to
cater to the demand. This difference in line of production and consumption are referred
to as temporal discrepancy which requires for risk of inventory stocking.
There is a variation in quantities and assortment demanded. The producers produce
large quantities of an item while the individual consumer purchases a limited quantity
of wide variety of items at a given point of time. So to facilitate exchange specific
quantities and unique assortments must be built up from the product range. This is the
discrepancy of quantity and assortment in the exchange process. The other factor is the
buyers intention to buy on the believe that right products are available at right
quantities and at desired assortments. This does not guarantee an exchange.
2. Channel intermediaries arise to adjust the discrepancy of assortment and through the
performance of sorting processes. The Sorting function is necessary to bridge the
discrepancy between the assortment of goods and services generated by the producer
and demanded by consumer. This discrepancy arises 'out of the fact that manufacturers
typically produce a large quantity of limited variety of goods whereas consumers usually
desire only a limited quantity of wide variety of goods. The sorting function performed
by intermediaries includes the following activities.
a) Sorting out: It involves breaking down a heterogeneous supply into separate
stocks that are relatively homogeneous. For example, separating the potatoes from the
supply of vegetables to a restaurant.
b) Accumulation: It involves bringing similar stocks from a number of sources
together into a larger homogeneous supply (wholesalers accumulating various goods for
retailers and in turn, retailers for consumers).
c) Allocation: It involves breaking a homogeneous supply down into smaller and
smaller lots. Goods received in car loads are sold in case lots.
d) Assorting: It involves building up the assortment of products for resale in
association with each other.
While sorting out and accumulation predominate in the agricultural marketing,
allocation and assorting are marked in finished goods.
3. Marketing agencies group together in channel arrangements to provide for the
routinization of transactions. Every transaction involves ordering of, valuation of and
payment for goods and services. The seller and buyer must agree to the mode, amount
and timing of payment. The cost of distribution can be minimized if the transactions are
routinised. This process facilitates the development of exchange system. Routinisation
leads to standardisation of performance of goods and services and encouraged high
valued items production. Since Exchange relationships between buyer and seller are
standardised resulting to routinization of lot size frequency of delivery and payment, a
sequence of marketing intermediaries can group together in a channel structure.
4. Channels facilitate the searching process: There is a double search for each other by
both buyers and sellers in market place. This process involves the risk of uncertainty
because producers are not certain of consumer needs and consumers are not certain
about their products they are looking for. Marketing channels facilitate the process of
searching as when, for example, wholesale and retail institutions are organized by
separate lines of trade such as hardware, grocery, medicine, etc.
Mass consumption products like chocolates, bread, sugar are available through various
types of outlets like general stores, chain shops, super markets etc.
Thousands of automative parts are supplied to the spare part retailers by the local
wholesalers within few hours of requisition.
Distribution channels play a decisive role in the successful marketing of many products
because they aid in mass consumption. The channels provide distributional efficiency to
the manufacturers. They also provide a vital input for salesmanship. Channels help in
merchandising and implementing price mechanism. Channels also look-after physical
distribution and financing function. They promote transfer of technology and act as
change agents. The channel's role is to specialize in exchange efficiency and value
assortment to provide customer satisfaction at the right time with right product at
correct price.
Intermediaries make possible the flow of products from producers to buyers by
performing three basic functions.
a) Intermediaries perform a transactional function that involves buying, selling and risk
taking because they stock merchandise in anticipation of sales.
b) Intermediaries perform a logistical function evident in the gathering, storing and
dispersing of products.
c) Intermediaries perform facilitating functions, which assist producers in making
goods and services more attractive to buyers.
All three groups of functions (Fig. 1) must be performed in a marketing channel even
though each channel member may not participate in all three. The members often
negotiate about which specific function they will perform which results in reducing the
channel conflict.
Type of Function Description
a) Transaction Buying : Purchasing products for
functions resale or as an agent for supply
Selling: Contacting potential customers
promoting products and soliciting orders
Risk taking: Assuming business risks in the ownership
of inventory that can become obsolete or deteriorate

A channel symbolizes that path for movement. This movement may be title, possession
and payment for goods or services. Eight flow functions take place through channel,
physical possession, ownership and promotion are typically forward flows from
producer to consumer. Each of these moves 'down' the distribution channel. The
negotiation, financing and risk flows move in both directions. Ordering and payment are
backward flows. At any point of time, when inventories along with its title are held by a
channel member, financing of the preceding level takes place.

Fig.2 Marketing Flows in Channels
3. Role and function of Wholesaler
Wholesaler is one of the omportant members among theprimary participants in a
channel system. Wholesaler is commonly defined as an intermediary who sells to
another intermediaries usually to retailers. wholesalers are defined as all establishment
or places of business engaged in selling merchandise to retailers, industrial, commercial
and institutional users or to other wholesalers.
The wholesaler's role in the modern business is shaped by the vast economic task of
coordinating production and consumption. Wholesalers bridge the gap between periods
and places in which goods are produced and consumed. This sorting process is the
essence of their economic viability which helps in reducing the discrepancy of
assortment. The wholesaler's role is for value addition for suppliers and customers as
illustrated below:

Fig.2 Value Addition by Wholesaler through the performance of Marketing
Function
3.1 Classification of Wholesalers
Merchant wholesalers are independently owned firms that take title to the merchandise
they handle. A merchanr wholesalers compensation is the profit made on the sale of
goods. Merchant wholesalers are classified as either full service or limited service
wholesaler, depending upon the number of functions performed.
Two major types of full service wholesalers exist. General Merchandise (full time)
wholesalers carry a broad assortment of merchandise and perform all channel
funcctions. These wholesalers do not maintain much depth of assortment within specific
product lines. Speciality merchandise (limited time) wholesalers offer
relatively narrow range of product but have an extensive assortment within the product
line carried. They are found in helath drinks, automotive parts and seafood industries.

Fig.3 Types of wholesaling intermediaries
Four major types of limited service wholesalers exist. Rack jobbers furnish the racks or
shelves that display merchandise in retail stores, perform all channel functions and sell
on consignment to retailers which means that they retain the title to the products
displayed and bill retailers only for the merchandise sold. Familiar products such as
hosiery, toys, housewares, health and beauty aids are sold by rack jobbers.
Cash and Carry Wholesalers take title for merchandise but sell only to buyers who call
on them, pay cash for merchandise and furnish their transportation for merchandie.
They carry a limited product assortment and do not make deliveries on credit or supply
market information. this wholesaler is common in electric, office supplies, hardware
products and groceries.
Drop Shippers or desk jobbers are wholesalers who own the merchandise they sell but
do not physically handle, stock or deliver if they simply solicit orders from retailers and
other wholesalers and have the merchandise shipped directly from a producer to a
buyer. Drop shippers ar used for bulky products like chemicals.
Truck jobbers are small wholesalers who have a small warehouse from which they stock
their trucks for distribution to retailers. They usually handle limited assortments of fast
moving or perishable items.
Agents and Brokers: Unlike merchant wholesalers, agents and brokers do not take
title to merchandise and typically provide fewer channel functions. They make their
profit from commissions or fees paid for their services where as merchant wholesalers
make their profit from the merchandise sold.
Manufacturer's agent and selling agent are the two major types of agents used by
producers.
Manufacturer's Agents work for several producers and carry non-competitive,
complementary merchandise in an exclusive territory. They act as a producer's sale arm
In a territory and are principally responsible for the transactional channel functions.
They are used extensively in automative industry, footwear and fabricated steel
industries. Selling agents represent a single producer and are responsible for the entire
marketing function of that producer. They design promotional marketing function of
that producer. They design promotional plans set prices, determine distribution policies
and make recommendations on product strategy. Brokers are Independent firms or
Individuals whose principal function is to bring buyers and sellers and together to make
sale. They usually do not have continuous relationship with the buyer or seller but
negotiate a contract between two parties and then move on to another task.
Manufacturer's Branches and Offices: Unlike merchant wholesalers, agents and
brokers, manufacturer's branches and offices are wholly owned extensions of the
producer that perform wholesaling activities. Producers will assume wholesaling
functions when there are no intermediaries to perform these activities, customers are
few in number and geographically concentrated or orders are large or require significant
attention. A Manufacturer's Branch Office carries a producer's inventory, performs the
functions of a full service wholesaler and is an alternative to merchant wholesaler.
A Manufacturer's Sales Office does not carry inventory typically performs only a sales
function and serves as an alternative to agents and brokers.
3.2. Functions of Wholesalers
The following are the marketing functions performed by the wholesalers.
I. Market Coverage Function: Markets for the product of most manufacturers
consist of many customers spread over large geographical areas. To have good market
coverage so that their products are readily available to customers when needed,
manufacturers can call on wholesalers to secure the necessary market coverage at
reasonable cost.
II. Sales Contact Function: The cost to cover the spread over market by sales force
will be prohibitive. By using wholesaler to cover a substantial portion of the market,
manufacturers are able to reduce significantly the costs of outside sales contacts.
III. Inventory holding function: Wholesalers take title to and usually stock the
products of the manufacturers whom they represent. By doing so, they can reduce the
manufacturer's financial burden and reduce the risk with holding large inventories and
also help in planning better production schedule.
IV. Market Information Function: Wholesalers are quite close to the customers
geographically and in many cases have continual contact through frequent sales calls on
their customers. So they are in a good position to learn about customers product and
service requirement, number and type of customer orders and supports required by
customers from the company in the form of ineffective merchandise return, after sales
service information. They also provide advice and technical support in the case of
hightech and industrial goods.
V. Product Availability Function: Probably the most basic marketing function
offered by wholesalers to their customers is providing for the ready availability of
products which sometimes cover the fabricating operation, assembly and set up of
products. There is also the wholesalers' ability to bring together from a variety of
manufacturers an assortment of products that can greatly simplify their customer's
ordering tasks. Customers also do not need large quantities. Many manufacturers find it
uneconomical to sell directly to small order customers. So wholesalers buy in lot and sell
it to small customers by performing bulk-breaking functions.
VI. Credit and Finance Function: Wholesaler provide their customer with financial
assistance by extending open account credit on -products sold, their customers have
time to use products in their business before having to pay for them. Second, by stocking
and providing ready availability for many of the items needed by their customers
wholesalers significantly reduce the financial inventory burden their customers would
bear if they had to stock all of the products themselves.
4. ROLE AND FUNCTION OF RETAILERS
Retail trade is defined by the Bureau of Census as "all establishments engaged in selling
merchandise for personal or household consumption and rendering services incident to
the sale of such goods".
Retailing includes all activities involved in selling, renting and providing services to
ultimate customers for personal, non-business use. They are distinguished from
wholesalers by the fact that they sell primarily to ultimate users.
The utilities provided by intermediaries are of major value to retailers. Time, place,
possession and form utilities are offered by most retailers in varying degrees. Many
retailers often are able to influence marketing policies and practices of their suppliers.
Any time a retailer is able to obtain a price concession advertising support or faster
delivery from a manufacturer influence has been exerted over that manufacturers
policies. Retailers have many sources of power to draw upon in their attempt to develop
market leadership. These powers emerge because of their;
I. Close Proximity to the Customers: They collect market information and
consumers raise their complaints, preferences desires and needs to the firms which
supply them directly the desired market knowledge.
II. Local Monopoly: Retailing is highly distributed and spread over activity. So
within a specific market area, the manufacturer's alternatives are limited. The amount of
space or shelf area is restricted providing a local monopoly to the retailer.
III. Customer Franchise: Related to local monopoly is the concept of retail customer
franchise. The capabilities of a retailer to develop a large customer following can make a
firm a critical channel link to a supplier. In process of developing such a retail loyalty, it
enables in generating monopoly for the retailer.
IV. Private Labels: Increasing use of private brands by retailers also increases their
power relative to the manufacturer. Stores with strong customer franchise and being
trusted by consumers have included private label merchandise within their product
assortments.
4.1. Forms of Retail Outlets
There is a wide variety of retail outlets but broadly they can be classified into
I. Form of ownership : Who owns the outlet
II. Level of service : The degree of service provided to customer
III. Merchandise line : How many different types of products a store carries and
in what assortment
IV. Method of operation : The manner in which services are provided - how and
where the customer purchase, products.
I. FORM OF OWNERSHIP
a) Independent retailer: This is the retail outlet common to everyday life which is
owned by an individual e.g. dry cleaner, florist etc. The customer gets a personalised
service in these kind of stores.
b) Corporate chain: It involves multiple outlets under common ownership. In a chain
operation, centralisation in decision making and purchasing is common. Chain stores
have advantages in dealing with manufacturers particularly as the size of the chain
grows.
c) Contractual System: it involves independently owned stores that band together to
act like a chain. The examples include retailer sponsored co-operative, wholesaler
sponsored voluntary chains and franchising.
II. LEVEL OF SERVICE
a) Self Service: It is at the extreme end of the level of service continuum because the
customer performs many functions and little is provided by the outlet. Home building
supply outlets, discount stores and catalogue showroom are often self-service.
b) Limited Service: These outlets provide some services such as credit, merchandise
return and telephone ordering. Department stores are considered as limited service
outlets.
c) Full Service: These retailers provide a complete list of services to cater to its
customers. Specialty stores are among the few stores in this category.
III. MERCHANDISE LINE
a) Depth of Line: These kinds of stores carry a considerable assortment (depth) of a
related line of items. There are limited line stores. Stores that carry tremendous depth in
one primary line of merchandise are single line stores.
b) Breadth of Line: These stores carry a broad product line with limited depth. These
are referred to as general merchandise stores, e.g. a large department store carries a
wide range of different types of products, but not unusual size.
IV. METHOD OF OPERATION
a) Store Retailing: Traditionally, retailing meant the consumer went to the store and
purchased a product which is store retailing e.g. corporate chains, departmental stores
and limited and single tie specialty stores.
b) Non-Store Retailing: It occurs outside a retail outlet such as through direct
marketing e.g. mail order, vending machines, computer and teleshopping.


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4.2. Functions of Retailer
The retailer is the ultimate connecting point to the consumer in distribution channel.
The retailers perform various functions such as:
a) Physical flow
1. Take possession of merchandise from wholesaler.
2. Provide inventory facility
3. Make the required assortment in variety and quantity.
4. Change the title of the merchandise to customers.
b) Promotion:
Retailer takes an active part in producers promotion programme by facilitating POP
display, store display and act as final dispenser of sales promotion schemes to the
consumer.
c) Negotiation, Financing and Risk Bearing:
The retailer negotiates with the wholesaler and manufacturer is quality, price stocked
quantity and terms of sale. Also negotiates with consumers. They also help in financing
consumer by extending credit facility for regular or bulk buying. As risk accompanies
ownership, the retailers assume all the risk inherent in ownership of goods.
d) Order, Payment and Information Flow:
Anticipating or reacting to the needs of customer, the retailers order the merchandise
through the wholesaler to manufacturer. Accepting payment from the customers in
consideration for the transfer of ownership retailers pass on the payment, after
deducting their margin, backward in the channel. Retailers form a vital link in the two
way flow of information about customer response, product and promotional
information.
5. SELECTION OF CHANNEL OF DISTRIBUTION
A new firm typically starts as a local operation selling in a limited market. Since it has
limited capital, it uses existing middlemen. The number of middlemen in any local is
ought to be limited I.e. a few manufacturer's selling agents, few wholesalers, several
established retailers. Deciding upon the best channels is a challenging task if the new
firm is successful, it branches out to new markets and operates with existing
intermediaries. The following steps are involved while selecting and designing a
distribution channel.
Step I: Analysing service output levels desired by customers.
Step II: Establishing channel objectives.
Step III: Identifying the major channel alternatives.
Step IV: Evaluating channels.
5.1. Analysing Service Output Levels Desired by Customers
There is a diversity in the customer's buying needs, product assortments, merchandise
choice and frequency of buying. There are five service outputs produced by channels.
They include;
-- Lot size: It is the number of units that the channel permits an individual customer to
buy on one buying situation. The smaller the lot size the greater the service output level
that the channel must provide.
-- Product variety: It represents the breadth of assortment provided by the marketing
channel customers like greater assortment breadth because it increases the chance of
exactly meeting their need.
-- Wasting time: It is the average time that customers wait for receiving the goods.
Customers normally prefer fast delivery channels. Faster service requires a greater
service output level.
--Convenience: This expresses the degree to which the marketing channel makes it
easy for customers to purchase the product.
-- Service back up: Service back up represents the add on services like credit, delivery,
installation, repairs provided by the channel. The greater the service back up, the greater
the work provided by the channel.
5.2. Establishing Channel Objectives
These objectives should be stated in terms of targeted service output levels. Channel
objectives vary with product characteristics. Perishable products require more direct
marketing. Bulky products such as building and machinery material require channels
minimizing transportation and shipping distance and the number of handlings in the
movement from producer to customer. Non standardised products are sold directly by
company sales representatives. Products which require installation, fabrication and
maintenance are sold by company itself. Similarly high unit value products are often
sold through a company salesforce. Channel design decision maker should do the
strength and weakness analysis of each member and the decision should be adaptable to
a larger environment.
5.3. Identifying the Major Channel Alternatives
After defining the target market and the variability of customer needs, there should be
the Identification of channel alternatives. A channel alternative is characterized by;
a) Types of business intermediaries
b) The number of intermediaries
c) The responsibility and duty of each channel participant.
a) There are various kinds of intermediaries and each of them differ in their role and
function. As in the ultimate flow of products, price and communication these channel
members perform a varying degree of function. The intermediaries can be of the
manufacture's agents or independent units or manufacturer's salesforce.
b) The number of intermediaries decide the type of distribution the organisation prefers.
An exclusive distribution involves severely limiting the number of intermediaries
handling the company's merchandise. In this case the producer exercises a great deal of
control. Selective distribution involves the use of more than a few but less than all of the
intermediaries who are willing to carry a particular product. This type of distribution is
used by established as well as new organisation. An intensive distribution Involves
placing the goods or services in as many outlets as possible. To get the locational
convenience, it is required to offer greater intensity of distribution.
c) The manufacturer must determine the conditions and responsibilities of the
participating channel members. The policies involved are price policies conditions of
sale, territorial rights and mutual services to be performed by each party.
5.4 Evaluating Channels
The various channels so selected needs to be evaluated against (a) Economic criteria, (b)
Adaptive criteria, (c) Control criteria.
a) Economic Criteria: Each channel member produces a different level of sales and
cost. Whether the company salesforce or the intermediaries will be generating more
sales and the cost involved in maintaining each of these alternatives are to be analysed.
b) Adoptive Criteria: In order to develop a channel, the members must make some
degree of commitment to each other for a specified period of time. So in rapidly
changing volatile or uncertain- product markets, the producer needs the channel
structure and policies to maximize control over the members.
c) Control Criteria: The area of channel evaluation should be broadened to include
the control criteria. The balance of the dynamics of marketing control between
intermediaries and manufacturer should be considered.
6. CHANNELS OF DISTRIBUTION FOR CONSUMER AND INDUSTRIAL
GOODS
The channels for consumer goods and industrial goods differ widely because of
customer demands. As the intermediaries between a producer and buyer increases, the
channel is viewed as increasing in length.

Channel a represents a direct channel, because a producer deals directly with each
consumer. Many products and services are distributed this way. The remaining three
channels B, C, D are indirect channels, because intermediaries are inserted between the
producer and consumers and perform numerous channel functions. Channel B, with a
retailer added is most common when a retailer is large and can buy in large quantities
from a producer. Adding a wholesaler in channel C is most common for low cost, low
unit value items that re frequently purchased by consumers such as sweets, chocolates
and magazines. Channel D is the most indirect channel used when there are many small
manufacturers and many small retailers and an agent is used to help coordinate a large
supply of the product.

In contrast with channels for consumer products, industrial channels typically are
shorter and rely on one Intermediary or none at all because industrial users are fewer in
number and tend to be concentrated geographically and buy in larger quantities.
Channel A is a direct channel and firms using this channel maintain their own salesforce
and are responsible for all channel functions. This channel arrangement is employed
when buyers are large and well defined, the sales effort requires extensive negotiations
and the products are of high unit value and require hands on expertise in terms of
installation or use.
Other channels are indirect channels. In channel B an industrial distributor performs a
variety of marketing channel functions. Channel C, introduces a second intermediary, an
agent, who serves primarily as the independent selling arm of producers and represent
and producer to industrial users. Channel D is the longest channel and includes both
agents and distributors.
Channel structures for consumer and industrial products assume various forms based
on the number and type of intermediaries. Knowledge of the roles played by these
intermediaries is important for understanding the channel operation.
7. SUMMARY
Distribution is also an important element in the marketing-mix. The motto of any
marketer is to see that the right production in right quantity at price is made available at
the right place. The methods of distribution may broadly be divided into direct and
indirect methods. A number of intermediaries/middlemen are engaged in the
distribution of goods and service. The wholesalers and retailers perform a number of
functions such a sorting out, accumulation, allocation and assorting. While sorting out
and accumulation predominate in the agricultural marketing, allocation and assorting
are marked in finished goods. The channel members also facilitate the searching
process. The wholesaler more specifically performs the functions which can be broadly
grouped under market coverage function; sales contact function, inventory holding
function, market Information function, credit and finance function.
The retailer is the ultimate connecting link between the wholesaler and the
consumer/user. He takes possession of merchandise from the wholesaler, provides
Inventory facility, etc. He also takes active part in producer's promotion programmes by
facilitating POP display, store display and act as final dispenser of sales promotion
schemes to the consumer.
Four major steps are involved in selecting and designing the distribution channel viz.,
analysing service output levels desired by customers, establishing channel objectives,
identifying the major channel alternatives, and evaluating channels.
KEY CONCEPTS
Sorting out Assorting Logistical function Transactional function Product flows Title
flows Information flows Local monopoly Customer franchise Depth of merchandise line
Breadth of merchandise line Store retailing
MODEL QUESTIONS
1. Answer the following:
a) What is meant by a marketing channel?
b) What are the basic functions performed by intermediaries?
c) What utilities are created by intermediaries?
2. Discuss the type and role of wholesalers in a channel?
3. What are the functions of wholesalers and retailers?
4. What are the various types of retailers and their functions?
5. Suppose the President of Libra Carpets has asked you to look into the possibility of
by passing the firm's wholesalers (who sell to carpet department and furniture stores)
and selling directly to these stores. What caution would you voice on this matter and
what type of information would you gather before making this decision.
6. Suppose 15 firms in an industry wished to reach 15,000 potential customers be
selling to them directly. How many sales contacts would be required in this industry if
each firm if each firm called on each customer? How many sales contacts would be
required if an intermediary were placed between firms and i potential customers.
7. Comment on the statement, "The only distinction among merchant wholesalers and
agents and pokers is that merchant wholesalers take title to the products they sell.
REFERENCES
1. Clewett, RM. (ed). Marketing Channels for Manufactured Products, Richard D.
Irwin, Illinois, 1954.
2. Cravens, David W. et. al. Marketing Management, Richard D. Irwin, Illinois, 1988.
3. Kotler, P. Marketing Management, Analysis, Planning and Control, PHI, New
Delhi, 1992.
4. Stern, Lowis W. (ed.) Distribution Channels: Behavioural Dimensions, Houghton
Mifflin Co.,


-End Of Chapter-
LESSON -20
PHYSICAL DISTRIBUTION

OBJECTIVES
After studying this lesson you will be able to understand the following:
The Importance of physical distribution in marketing.
The various important elements in physical distribution.
PREAMBLE
1. Introduction
2. Meaning, Objectives and Importance
2.1 Meaning
2.2 Objectives
2.3 Importance
3. Components of PDS
3.1 Transportation
3.2 Inventory Management
3.3 Storage & Warehousing
4. Managing Physical Distribution
4.1 Establish PDS Objectives
4.2 Measure Customer Service
4.3 Examine Cost Trade-offs
4.4 Identify and Select Design Alternatives
5. Summary
1. INTRODUCTION
Physical distribution activities and decisions are important for many kinds of
manufacturers, wholesalers, and retailers, affecting both customer satisfaction and
bottom-line profit performance. The management of physical distribution provides an
exciting opportunity for improving customer services and reducing costs. Managing the
physical distribution function is considered in this lesson.
2. MEANING, OBJECTIVES AND IMPORTANCE
2.1. Meaning
Physical distribution involves planning, implementing, and controlling the physical
flows of materials and final goods from points of origin to points of use to meet
customer needs at a profit. (Kotler, P. Marketing Management, PHI, New Delhi, 1992, P.
554). The National Council of Physical Distribution Management, Chicago, USA states tt
at physical distribution is a term employed in manufacturing and commerce to describe
the broad range of activities concerned with efficient movement of finished products
from the end of the production line to the consumer. These activities Include freight
transportation, warehousing, materials handling, protective packaging, inventory
control, plant and warehousing site location, order processing, market forecasting, and
customer service. In some cases the physical distribution also includes the movement of
raw materials from the source of supply to the beginning of the production
line. McCarthy states that physical distribution is the actual handling and moving of
goods within individual firms and along channel systems.
Thus, it could be observed from the above definitions that physical distribution is a
marketing term which refers to the broad range of activities connected with efficient
movement of goods from the place of production to the place of consumption.
2.2 Objectives
Like other components of the marketing-mix, physical distribution, too strikes to
achieve two broad marketing objectives, viz, Consumer satisfaction and profit
maximization,
By delivering products to target consumers at the places and time required, physical
distribution ensures better customer services. In the process it adds to Uie value
satisfactions of consumers. An efficient service increases the probability of repeat sales,
a higher customer retention rate and the addition of new customers.
An efficient physical distribution facilitates lowering the level of stock and to avoid out
of stock situations. This is achieved through devising a constant delivery schedule.
Devising a constant delivery schedule results into lower inventory carrying costs and a
reduction in the amount of capital tied-up in inventory. A significant reduction in cost is
also brought about by determining the optimum number and location of warehouses,
improving the handling of materials. Increasing stock turnover and so on. All these help
ultimately in profit maximization. The specific objectives of physical distribution are:
Minimizing inventory level
Speedier transportation
Minimum handling
Minimum trans-shipment
Of course, these objectives may vary from company to company and even from situation
to situation in a company. The physical distribution strategy will, thus, largely depend
on what the company aims to achieve within given cost revenue constraints.
2.3 Importance
Physical distribution system is the most powerful support to distribution channel. Even
the best distribution channels are not likely to yield derived results without adequate
support provided by the system of physical distribution. The importance of physical
distribution system will be better understood from the following:
1. A well-devised Physical Distribution system helps to minimize cost of marketing.
Recently, all the major components of marketing cost, viz, transportation cost, materials
handling, inventories, order processing, etc. have registered a sharp increase primarily
due to inflationary conditions all the world over. It is against this that physical
distribution management assumes particular significance. A sizable chunk of marketing
cost could very well be curtailed by evolving an appropriate PDS.
2. Physical distribution system helps to attain the objective of utmost customer
satisfaction. Customer satisfaction is the end of all marketing activities. A satisfactory
physical distribution system ensures best, possible warehousing, Inventory control,
transport, protective packaging, physical handling, order processing, etc. which gives
the customer the service they expect.
3. PDS creates time and place utilities: Physical distribution creates utilities of time and
place by making available a product at the time it is needed and at the place where it is
needed.
4. PDS form a major part of national wealth: PDS in the form of rail, road, highways,
trucks, aircraft, ships, docks, etc. represents a major portion of national Income. Hence
PDS becomes important from the point of view of the national economy as well.
Thus, the process of physical distribution is of utmost importance not only from the
view point of the enterprise in question but also from the broader national angle.
3. COMPONENTS OF PDS
PDS comprises the following broad areas:
3.1 Transportation
As a component of the physical distribution system of an organisation, transportation
refers to the movement of products from the warehouse (s) to the consumer destination
(s). Transportation is the crux of the problem of physical distribution. It plays an
important role in the economic development of a nation. In marketing, transport
discharges an important function, since the entire work of assembling and dispersing of
goods is done with the help of some form of transport. Better transport opens up new
markets, which, in turn, increases the volume of production requiring the support of
wider and larger transport facilities. Without the development of transport, large-scale
production would have been impossible. There are several modes of transport such as,
Land/Road Transport (Road & Railway).
Water Transport
Air Transport.


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Some of the factors determining the choice of selecting transport medium may be
pointed out here.
1. Cost- Cost of transport is indicated by the freight rate and total freight bill that a
company is required to pay on the goods/cargo. The distance to be travelled and the
volume of products to be moved go to determine the cost. The distance criterion
influences the ratio between the fixed and variable components of the total movement
cost. Anyway, other things being equal, management chooses that mode which involves
the minimum cost.
2. Performance Criteria: Performance characteristics of each mode of transport
considerably Influence the choice of management. The important performance criteria
are speed, reliability, frequency, availability and safety.
Speed refers to the pace of movement and is usually indicated in kilometers per
hour. While calculating speed, the time involved in transshipment, handling,
stoppages, loading and unloading, and carting from station to customer
destination are taken into account. It is the total time taken from warehouse to
customer destination that is relevant
Reliability: It implies the dependability of the transport medium. Dependability
is indicated by the number of in-transit interruptions, dislocation' owing to
inclement weather, accident proneness, etc. Both railways and roadways in these
terms rank before airway and waterway.
Frequency: It refers to repetitive movement of the mode of transport from one
place to the other. There are daily rail and road cargo services from practically all
trading centre in the country.
Availability: It Implies flexibility and accessibility of the transport medium. The
chromic wagon shortage makes railways a purely available mode; road transport
emerges successfully in this test.
Safety: Safe and secure movement of products is important. Safety is indicated
by the possibilities of product loss and damage.
3. Product Suitability: Not all media are suitable for the movement of all types of
products. Hence the choice of the transport medium is also determined by its suitability
from the view point of product character. Perishable products and products having a
high replacement rate and time value are best moved by the roadway whereas bulky
goods like coal, oil, etc. is best moved by railway and water ways. Similarly, products
with a high unit value, such as diamond, jewellery, electronic equipment, etc. are best
moved by air owing to the low ratio of the transport cost to the product price.
3.2. Inventory Management
Inventory refers to all kinds of materials, component parts, supplies, in-process goods
and finished goods available with a firm. A firm cannot succeed in maximizing customer
satisfaction without effective management of inventories. It is because of this reason
that inventory management assumes a strategic importance in the management of
physical distribution.
Inventory management means the laying down of the policy to be followed regarding the
holdings of stocks of raw materials and finished products and the implementation of
this policy in the business. The principal aim of inventory management is to ensure
enough supply of all the materials and supplies of the quality essential to the business
with the least of the inventory investment and inventory carrying cost.
Inventory control means holding balanced stock of materials and/or finished goods. It
aims at three objectives:
Never run out of anything (out of stock)
Never build up a very large inventory i.e. having much of anything on hand
(unwanted stock)
Never send out too many small orders for more i.e. never pay high prices and
incur high freight and lose quantity discount because of buying in small
quantities.
It should be noted that the efficient inventory management can not eliminate business
risk but it can certainly reduce it. We can only assess risk, plan a strategy and accept risk
and meet it on most favourable terms.
3.2.1. Standards in Inventory Control : There are four important standards in
inventory control
1. The Maximum: It indicates the upper limit of inventory or stock. It is the largest
quantity to be kept in the interest of the economy.
2. The Minimum: It is the lower limit of inventory. It is also called safety or reserve
stock. It must be always on hand. It acts as a safety valve.
3. The Ordering Point: It indicates when to order or reorder. It is the level of
inventory necessary to protect against exhaustion of the stock during the time gap
between the order date and the date of receipt of stock. The supplier can help his
customer by assuring delivery within a certain period, say 10 days from the date of
receipt or an order. Under such assured delivery time, the ordering point can be easily
determined. When the level of inventory or the balance of stocks-on hand reaches this
ordering point, it is an indication that a new order or reorder must be placed at once. Of
course, sufficient margin must be provided for contingent delay or transport
bottlenecks.
4. The Standard Order: It is the quantity of inventory to be requisitioned for
purchase at any one time. A reorder or repeat order for a commodity is always the same
quantity until conditions change, necessitating a revision of the standard order. The
standard order is the quantity for replenishment of stocks.
3.3. Storage and Warehousing
Storage and warehousing is one of the important physical distribution functions of
marketing. The word storage means holding the stock of goods for a relatively longer
period. Thus, storage is a function that helps in preserving the goods at one place until
they are needed at another place. Warehousing, on the other hand, involves more than
storage. Warehouse, perform many of the usual functions of wholesalers e.g. breaking
bulk, despatch of smaller consignments to -retailers, providing market intelligence and
many other merchandising services of manufacturers.
As regards the location of warehouses, usually two options are available, viz. to
centralise warehouse facilities at one geographies location or to decentralise them at
more than one locations. The centralised warehouse is usually built around the
manufacturing plant while the decentralised warehouse is built at or in the vicinity of
market. In centralised warehousing products are moved to the warehouse from the plant
from where these are distributed to different markets irrespective of the distance. Thus,
there is only one despatch point. In decentralised warehousing, on the other hand, the
products are first moved in bulk from the plant to different warehouses called
distribution centres where these are assorted, re-grouped, and repackaged in customer
acceptable sizes and delivered. It is a full service warehouse, primarily related to market.
A distribution centre provides services with the help of a computer and modern
materials handling equipment. It facilities movement of goods to customers. It can
reduce cost of inventory, storage, handling and transport. Products are shifted from the
factory to the distribution centre directly and not to a storage warehouse. The
Distribution Centre is a new idea developed recently in India. Many companies are
shifting steadily from storage warehouses, to distribution centres in their plans of
physical distribution.
As regards the ownership of warehouses, broadly two options are available viz; private
warehouse(s) or/and public warehouse(s). The former are owned and operated by the
company itself and are often exclusively used by it. The latter are those which are owned
and operated by public institutions or other persons and are open for use by anybody at
a charge who can confirm to certain rules and regulations.
4. MANAGING PHYSICAL DISTRIBUTION
The design and management of physical distribution systems involve a number of
business functions in addition to marketing, including raw materials management,
inventory control, manufacturing, transportation, and warehouse and plant location.
The major steps in designing the PDS are:
Establish PDS objectives
Measure customer service
Examine cost trade-offs,
Identify and select design alternatives.
4.1. Establish PDS Objectives
We have already pointed out earlier the objectives of effective PDS. The principal
objective was to provide better customer service. Customer service as it relates to the
physical distribution function consists of providing products at the time and location
corresponding to the customer's needs. The Customer service levels that may be
provided range from very good to very poor. It is a measure of how all the customer
service function is being accomplished. The ideal solution to the problem of PDS design
is to develop minimum cost systems for a range of acceptable levels of customer service
and then to select the service level that makes the greatest contribution of sales less
physical distribution costs. Customer service is a complex collection of demand-related
factors under the control of the firm, but whose importance in determining supplier
patronage is ultimately evaluated by the customer receiving the service. (Ronald H.
Ballow, Business Logistics Management, Prentice Hall, Englewood (Iiffs, N.J. 1973).
Five major factors affect customer service: time, dependability, communication,
availability and convenience.
4.2. Measure Customer Service
Several possible measures of customer service are shown in Fig. 1.

The choice of an appropriate measure or measures is situation specific and is based on
the service factor(s) most closely linked to customer satisfaction. The Pretransaction
elements use measures that designate service capability before it is provided. A target
delivery date indicates the planned time of delivery. The transaction elements gauge
serive performance for various components of buyer-seller transactions. The post-
transaction elements measure customer service based on results or outcomes.
Establishing communications between buyers and sellers is an important factor in
customer service.
4.3 Examine Cost Trade-offs
Trade-off analysis in PDS design is the evaluation of the costs of each system component
with the objective of determining the combination of components that provides a
minimum total cost system for a specified customer service level. the inter-relationships
of various PDS components are shown in Fig.2. The arrows indicate the trade-offs
between activities that must be evaluated in:
Estimating customer service levels.
Developing Purchasing policies.
Selecting transportation policies.
Making warehousing decisions.
Setting inventory levels.

Since certain elements of the distribution function are often more important that others
in a given firm, trade-off analysis should be directed to those elements that comprise the
major portion of distribution costs.
4.4 Identify and Select Design Alternatives
A key issue in designing the PDS is how to incorporate the customer service objective
into the design process. Management judgement and experience will often dictate a
range of customer satisfaction levels that are acceptable to the firm. In many cases,
these levels may be expresses not as percentages, but rather in terms of lot orders,
delays, stockouts etc. Two possible approaches may be considered as alternative ways of
handling the customer service objective. They are:
Estimate Sales Response to Customer Service.
Minimize Total PDS Costs.
Like product management, distribution involves areas of the firm that have traditionally
been seperated. Spproaches for organising physical distribution include:
The use of a task force to monitor, coordinate, and when necessary, modify
distribution activities and Interrelationships.
The assignment of management responsibility to an existing functional area In
which several distribution activities are already being performed.
The establishment of a separate organisational unit for distribution management
and coordination. The unit should be headed by a professional physical
distribution executive. It may range from a small staff organisation that is
primarily responsible for analysis, planning, and coordination to a line operation
with responsibility for such distribution activities as warehousing, transportation,
and order processing.
The integration of physical distribution activities may evolve over time, beginning with a
task force approach and ultimately developing into a separate organisational unit.
5. SUMMARY
Physical distribution is an important aspect of overall distribution in marketing. It is
also termed as the other half of marketing. To ensure better customer service, to lower
the level of stock, to reduce cost and ultimately to provide best service to customers are
the important objectives of any efficient PDS. PDS helps to minimize marketing cost,
creates time and place utilities, cultivates demand and has a direct bearing on the
standard of living of the people at large.
Transportation, inventory management and control, storage and warehousing are the
major components of any PDS. Various criteria are followed in selecting the mode of
transport, such as speed, safety, reliability etc. Inventory decisions are concerned with
balancing the costs of carrying inventory, ordering products from suppliers, and
controlling other inventory costs to achieve a desired level of customer satisfaction.
The PDS planning and designing process Involve establishing PDS objectives,
measuring customer service, examining cost trade-offs, and identifying and selecting
design alternatives. It is observed that many companies are shifting steadily from
storage warehouses to distribution centres in their plans of physical distribution. Such
companies have succeeded in reducing appreciably the number of storage warehouses.
KEY CONCEPTS
Customer service level
Cost trade-offs
Distribution centres
MODEL QUESTIONS
1. What do you mean by Physical Distribution? Describe its importance in
marketing of goods and services.
(a) State how the PDS can contribute to the creation of time, place and
possession utilities.
(b) How does physical distribution contribute to the firm's marketing
programme?
2. "Managing physical distribution involved balancing distribution costs against
acceptable level of customer services and satisfaction", Explain.
3. State the objectives of an effective PDS. What are its major components? Discuss
In brief.
REFERENCES
1. Douglas M.Lambert and James R. Stock, Strategic Distribution Management, Richard
D. Irwin, Homewood, Illinois, 1982.
2. Cravens, David W. Marketing Management, Richard D. Irwin, Inc. Homewood,
Illinois, 1988.
3.Gandhi J.C. Marketing - A Managerial Introduction, TMH, New Delhi. 1990.
4. Snykay, E.M., et al. Physical Distribution Management, Mcmillan Co, New York, 1961.


-End Of Chapter-
LESSON-21
MARKETING RESEARCH

OBJECTIVES
After studying this lesson, you should understand the following:
the meaning, scope and objects, of marketing research.
the marketing research process.
PREAMBLE
1. Introduction
2. Marketing Research - Meaning, Importance and Scope
2.1 Meaning & Importance
2.2 Scope
2.3 Marketing Information System Vs Marketing Research
3. Objects of Marketing Research
4. Marketing Research Process
5. Summary
1. INTRODUCTION
Decision-making in various areas of marketing management, such as pricing, product
development, promotion and distribution, is a complex problem. It is both a problem
and a challenge. It is essential for every marketer to develop a dependable marketing
data and information base for rational decision-making. This in turn, depends on
collection, recording and analysis of relevant data. This Job of collecting, recording and
analysing relevant data for marketing decisions is known as marketing research.
2. MARKETING RESEARCH MEANING IMPORTANCE AND SCOPE
2.1 Meaning & Importance
Marketing research has been variously defined. It is the systematic, objective and
exhaustive search for and study of the facts relating to any problem in the field of
marketing. (Richard Crisp).
The American Marketing Association has defined marketing research as the systematic
gathering, recording and analysing of data about problems relating to the marketing of
goods and services.
Marketing research is a step-by-step process of planning for, acquiring, analyzing, and
interpreting information relevant to a marketing decision-making situation. (Cravens,
Hills and Woodruff. Marketing Management. Richard D. Irwin, Illinois. 1988. P. 631).
An analysis of the definitions reveals the following salient features of marketing
research:
1. It is a search for data which are relevant to marketing problems- distribution,
promotion, pricing, etc.
2. It is carried out in a systematic manner as opposed to a haphazard or hit-and-miss
manner.
3. It involves a process or gathering, recording, and analysis of data.
As regards the importance, it can be said that marketing research plays a key role in the
entire marketing process. It helps the firm in market measurement, assessment of
market potential and development of sales forecasts. Marketing research can
significantly help each and every function of marketing. It is rightly observed.
"Marketing Research is the radiology and pathology of marketing operations of a
business. It diagnoses the business ailments when there Is a trouble, it also means
regular checks. Like the radiologist who provides an X-ray, the market researcher gives
a true picture of the business position. As the pathologist gives test reports to the
medical practitioner, the marketing research furnishes reports that can guide the
business executives".
With the emphasis shifting from the product to the consumer and his needs and with
the consumer becoming more involved and the market turning into a buyers market, it
became necessary to get information on the needs, preferences and evaluations of the
consumer.
One of the important tasks is to deliver the right product to the right person at the right
place at right time. It also required to obtain Information on consumer's satisfaction and
dissatisfaction for bringing requisite change in company's marketing programme, so
that the customer remains loyal to the enterprise and its product.
Thus, marketing research is described as an activity, the results of which are useful in
enhancing the ability to make marketing decisions in the ever changing world.
2.2 Scope
A wide range of research activities are carried on by marketing researchers of this
century. They can be broadly categorised into 7 groups.
a) Product/Service Research which covers the research on customer acceptance of the
proposed new product, comparative study of competitive products, determination of
new uses of existing products, Test marketing of proposed product, study of customer
dissatisfaction, product line decision, packaging labelling and design decision.
b) Market Research which covers analysis of market potentials for existing products,
Estimation of demand for new products, Sales forecasting. Characteristics of product
markets, Analysis of sales potential and Study of trends in markets.
c) Promotion Research which covers advertising campaign evaluation, Analysis of
advertising and selling practices, Selection of advertising media, Motivational study.
Establishment of sales territory, Evaluating present and proposed sales methods,
Studying competitive pricing, Analysing salesman's effectiveness and establishing sales
quota.
d) Distribution Research which covers location and design of distribution centres,
Handling and packing of merchandise, Cost analysis of transportation methods, Dealer
supply and storage requirements.
e) Pricing Research which covers Demand elasticities, perceived prices, Cost analysis
and margin analysis.
f) Corporate Responsibility Research which covers research on ecological impact of
business, protection of customer's rights, studies on legal restraints and regulations,
studies on social values and policies.
g) Miscellaneous Research Activities cover various research activities which are not
conducted regularly but has some marketing implication. This covers research on
diversification satisfaction and motivation of sales personnel, governmental actions and
attitudes towards corporate sector, international marketing research.
The scope of modern marketing research is twofold i.e. Routine Problem analysis and
Non-routine problem analysis. The above categorisation helps in giving a broader look
to the scope of marketing research.
2.3. Marketing Information System -Vs. Marketing Research
A marketing Information system is an ongoing future-oriented structure designed to
generate, process, store and later retrieve information to aid decision-making in an
organisation's marketing programme. It is a set of procedures and methods for the
regular and planned collection, analysis and presentation of information in making
marketing decisions. It consists of people, equipment and procedures to gather, sort,
analyse, evaluate and distribute needed, timely and accurate information to marketing
decision makers.
In order to carry out their analysis planning, Implementation and control
responsibilities, the marketing managers need Information about developments in the
marketing environment. The role of the MIS is to asses the manager's information
needs, develop the needed information and distribute the information in time to
marketing managers.

Figure 1. The Information Flow and Marketing Information System
There is an increasing need for marketing information system because
a) There is a growing consumer discontent.
b) There is a shortage in scarce resources.
c) There is the emergence of complex marketing environment.
d) There is a knowledge explosion.
e) there is shortening of time span for decision making.
There is a varying degree of contradiction among theorists regarding the relationship
between the MIS and MR. Some view marketing intelligence system as simply a logical,
computer based extension of marketing research. Others view them distinctly different.
Some opine that if a company has a formal MIS, then marketing research is a part of this
broader informaation system.

3. Objects of Marketing Research
The first and foremost objective of marketing research is to enable manufacturers to
make products acceptable and salebale and to see that they reach the market easily,
quickly, cheaply and profitably without sacrificing consumer interest. MR ains at
providign the following information to the marketing manager:
i. To define his present market situation together with the long-range trends which have
led up to it
ii. To discover what major and underlying factors are dominating the situation and how
these factors can be influenced or controlled.
iii. To set up a plan for keeping in touch with the behaviour to these dominating factors
and for measuring the results of any efforts made to influence or control them.
4. Marketing Research Process
The marketing research begins with the recognition of a marketing related problem.
Identifying and stating the right problems is like winning half of the marketing war. This
is followed by a formulation of the objectives of the study and the methodology to be
used to achieve these objectives. The detailed steps involved in the marketing process is
explained in the following flow chart.

Step - 1
Definition of Problem:
This is the first step In Marketing Research process. The problem may be of different
types depending on the marketing situation e.g. product failure, sales decrease, market
gossip etc. The problem may be solved internally or external assistance from a
marketing research agency, is required depending on the gravity of the problem. The
problems then are formulated into statements known as hypotheses. These hypotheses
can be translated into research objectives which give an indication on information to be
collected and variables to be studied.
Step - 2
Statement of Research Objectives:
The hypotheses are translated into research objectives. The information so obtained
while formulating the problems pass through a subjective exercise to assess the possible
outcomes. The hypothesis and objectives are formulated having the idea about the
possible set of outcomes, the subjective probabilities associated with each outcome and
the pay-offs associated with each outcome.
Step - 3
List of Needed Informations:
Information is required about attitudes, beliefs, values, knowledge, intention and socio-
economic status of prospects. The main source of information may be the prospects
themselves. The data may be primary or secondary in character.
The primary data are original data gathered specifically for the project at hand. The
secondary data have already been gathered for some other purpose. The sources of
secondary data are libraries, government, trade, professional and business associations,
private business firms, Advertising media, University research organisations and
foundation. The primary sources of data are obtained from respondents on their
attitude, opinion, preference, behaviour etc. for the specific research purpose.
Step - 4
Design of Data Collection Project
This covers two broad concepts viz; the type of research design and the methods to
collect information for the project.
The development of research design largely depends upon the purpose for which the
research is conducted. The depth and extent of data required, the costs and benefits of
the research, the urgency of the work and the tone available for the work also affects the
research design. It provides the blueprint for research work.
All marketing research projects start with exploratory research. This is required to
obtain a proper definition of the problem and helps in providing insight to the-problem.
It is helpful in establishing priorities in studying the competing explanations of
the phenomenon: conclusion research is an elaborate and systematic collection of the
information needed, its analysis and findings as per the research findings.
The second aspect of the design of data collection project, is the selection of methods for
gathering data. Primary data can be collected in various ways such as:
a) Survey Method:
A survey consists of gathering data by interviewing a limited number of people selected
from a larger group. It has the advantage of getting original information. The
interviewing in a survey method can be done by the researcher by person, telephone and
mall.
Personal Interviews are more flexible because they are able to probe more deeply if the
answer is not satisfactory. In addition to high cost and time consuming, personal
Interviews also face the possible limitation of inviting respondent's bias. Telephone
surveys can be conducted more rapidly and at least cost but it is time specific and it
leaves the scope of reaching non-telephone holders. Interviewing by mail involves
mailing a questionnaire to potential respondents and having them returned the
completed form by mail.
b) Observational Method:
In this method data are collected by observing some action of the respondent. It is the
observation of some occurrence, people and incident. The observation can be personal
and mechanical but this method suffers from recording covert behaviour.
c) Experimental Method:
This method of gathering primary data involves the establishment of a controlled
experiment that stimulates the real market situation as much as possible. This small
scale experiment will provide valuable information for designing a large scale marketing
programme.
Selecting the Sampling Scheme & Sample Size:
A complete enumeration or census Involves in decisive data gathering and the cost
involved is prohibitive in character: So it is prudent in marketing to select a small group
(sample) out of the population (universe). This process of selecting small number of
items out of a larger number of items is called sampling. This process of sampling can be
probabilistic as well a non-probabilistic or judgemental. A probabilistic or random
sample is one that is selected in such a way that every unit in the predetermined
universe has a known and equal chance of being selected. Some common probabilistic
sampling methods are simple random sampling and quota sampling, in non-
probabilistic, there is an unequal chance of few members being selected and rest others
of being not selected out of the whole population.
Step - 6
Organising the Field Work:
This step involves the res research work on the field. The actual collection of data in the
field by interviewing, observation is the weakest link in the entire research process. In
other steps, marketing prudents are involved to ensure the accuracy of the result so if
the field workers are inadequately trained and supervised, the whole labour will be lost.
There is the chance of bias because people in the sample may not feel at home and
refuse to answer, the field workers may be unable to establish rapport with respondents.
So organising the field work is an uphill task for the researcher.
Step - 7
Analysing the Data, Findings and Conclusions:
The data so obtained from field survey are subjected to editing. Editing is a process of
reviewing the data to avoid and check the error arising out of Illegibility, non-response
.and response from non- competent respondents. Then these data are categorised by
tabulation. Tabulation process involves manual as well as mechanical tabulation by
using punched card, computers etc. After data processing various statistical and non-
statistical tools are used to analyse the data quickly and inexpensively which invariably
leads to ' finding solutions to the marketing problem and conclusions. These findings
and conclusions are presented in the form of a report.
Marketing research process to be effective, should be always regulated with a follow up
action. This helps the decision makers in finding out the effectiveness of the research.
5. SUMMARY
Marketing research has become a vital weapon in the armoury of a modern marketer. It
is an activity, the results of which are useful in enhancing the ability of the marketer to
make marketing decisions in the ever changing world. He has to gather information and
process them for taking a decision on any marketing aspect. The scope of marketing
research is widening. It has embraced with itself consumer research, advertising
research, product and price research. MR involves a number of steps starting with
definition of problem and ending with findings and conclusions.
The future of marketing research in India is bright on account of the growing business
awareness about its usefulness and the steady growth of data base. Specialised research
skill and data processing facilities are also improving.
KEY CONCEPTS
Marketing information system Corporate responsibility research Conclusive research
Exploratory research
MODEL QUESTIONS
1. Why does a company need a marketing information system?
2. How does a marketing information system differ from marketing research?
3. Describe the types of goods/services which would definitely need
exploratory/research.
4. In depth interviews are similar to individual case studies -Comment.
5. 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.
6. Develop a suitable marketing research procedure for a departmental store for the
following problems:
Inability to cope up with large turnover of customers.
Lack of proper stock status
Stock accounting
Cash collection and reconciliation
Excessive reliance on the owner in day to day operations of the store made him
unable to devote sufficient time for developing business.
REFERENCES
1. Bert. G.C. Marketing Research. TMH. New Delhi, 1994.
2. Boyd Jr. et al. Marketing Research: Text and Cases. Richard D. Irwln. Illinois, 1964.
3. Green. P.E. & D.S. Tull. Research for Marketing Decisions. PHI. New Delhi, 1973.
4. Stanton, et al. Fundamental of Marketing. MrGraw Hill, New York. 1967.

CASE
ATTITUDE TOWARDS ADVERTISING

You have been asked to ascertain the attitude of people towards advertising, whether
favourable or unfavourable, in the medium- sized city where you live. The study should
indicate whether heterogeneous groups differ significantly or otherwise in their
attitudes towards advertising.
The proposed study has to be carried out in two parts. Part - I will involve the
construction of a suitable scale for measuring attitudes of people. Part II will examine
some hypotheses and conclude whether they are accepted or rejected. The hypotheses
will concern the differences in attitude of the two groups towards advertising. For this
purpose, you may think of groups in terms of male and female, young and old, educated
and uneducated, rich and poor.


Please use headphones

QUESTIONS
1. What type of study is this?
2. How would you develop a suitable scale for the proposed study?
3. Which scale would be most appropriate and why?
4. What would be the limitations of such a study?
source. Bert G.C. Marketing Research 2nd Edn., Tata Me Graw-Hill Publishing Co. Ltd.,
New Delhi. 1994. P. 218.

CASE
BUSINESS WORLD
Business world,a fortnightly magazine,is published from Bombay.it brought out by
management of anand bazaar patrika limited,Calcutta.in accordance with the decision
taken in the annual editorial workshop of business world held in early may 1986,a
questionnaire was printed in some issues of business world to know what readers
thought of this magazine.By undertaking a survey of this type,the management hoped to
ascertain the strength and weaknesses of the magazine.This would enable itto tailor
Business world of readersrequirements.
Questionnaire

Name: ______________________________________________________________________
__________
Profession: __________________ Designation:
_________________________________
Income: _____________ Age: _________ City:
___________________________
1.Which of these business papers/magazine do you read?(please tick)

Regularly Occasionally Infr
equently

Economic
times ___________ ______________ __________
___
Financial
express ___________ ______________ _________
____
Business
standard ___________ ______________ _________
____
World
business ___________ ______________ ______
_______
India
Fortune ___________ ______________ _____
________
India
update ___________ ______________ _____
________
Others(specify) ___________ ______________ _
____________


2.My areas of interest are(Please one or more)
Corporate and business
affairs ( )
Economic policy /
development ( )
Political
affairs ( )
People and
lifestyles ( )
Art
/Literature ( )
Investments (
)

3.Rank the following magazine on a 1 to 5 scale(5 for very good,1 for poor)for the
following attributes.
Business Business update Fortune
World India India
1. Timeliness of information
2. Depth of information
3. Range of information
4. Depth of analysis
5. Language and style of presentation
6. Quality of printing and visuals
4. How much time do you spend in reading an issue of business world?
_______________ Hours.
5. How much of business world do you read?(please tick one)
1. The entire magazine ( )
2. More than half the magazine ( )
3. More than a quarter of the magazine ( )
4. Less than a quarter of the magazine ( )
6. Which of these feature in Business World do you usually find interesting and
read?(please tick one or more)
(1) Cover feature ( ) (7) Editorial ( )
(2) Spotlight ( ) (8) Company news and events ( )
(3) Business news ( ) (9) International Briefs ( )
(4) In the news ( ) (10) Entrepreneurs ( )
(5) International News ( ) (11) Leisure ( )
(6) Off stage ( )
7. Which of this specialist page s in Business World do you read and find
interesting?(Please look at the shoulder heads inside the magazine pages if you are not
sure).
a. Political comment g. Career & Professionals
b. Banking and finance h. Media trends
c. Economic comment i. Book serial
d. Taxation j. Business information
e. Management k. Marketing
f. Computers l. Investments
8. In order to suit my requirements better, Business World should have
Fewer main feature stories ( )
The same number of main feature stories ( )
Atleast one more than feature story ( )
9. The lead features ( covers and spotlight ) should be
Shorter ( )
Same length ( )
Longer ( )
10. Business worlds coverage of the following items (please tick one column for each
entry):
Is adequate needs to be needs to be
expanded reduced
Technology ______________ ______________ _____________
Marketing ______________ ______________ ___________
__
Management ______________ ______________ ____________
_
Corporate finance ______________ ______________ _____________
Investment/stockmarket ______________ ______________ _____________
Book
reviews ______________ ______________ _____________
Economic policy ______________ ______________ _____________
Policy analysis ______________ ______________ _____________
Corporate performance ______________ ______________ _____________
Corporate case studies ______________ ______________ _____________
Behaviour ______________ ______________ ____________
_
11(a) Do you buy your copy of Business world from the news stands or are you a
subscriber?
A. News stand B. Subscriber
11(b) If A, do you find difficult to get a copy of business world on the news stands?
Yes ___________ No __________________
12. How soon after the magazine is published each fortnight do you receive your copy of
Business world?
1 - 3 days ______________ 3
3 days ___________________
6 - 12 days ______________ Longer than 12
days ______________
13. Do you have any other suggestion to improve Business world?
QUESTIONS
1. Evaluate this questionnaire in the light of the object stated.
2. Can you suggest a few more items that can be included in the questionnaire?
SOURCE: Beri c.g. Marketing research,2
nd
Edn.,Tata Mc Graw-Hill Publishing
Co.Ltd., New Delhi,1994,p.218.


-End Of Chapter-
LESSON-22
CONSUMERISM


OBJECTIVES
After studying this lesson, you will understand:
The meaning and need for consumerism,
The problems of consumer protection and related legislations.
PREAMBLE
1. Introduction
2. Consumerism - Definition and Scope
3. Need for Consumer Protection
4. Consumer Movement - Abroad and In India
5. The Problems of Consumer Protection
6. Consumer Protection - The Legal Framework.
7. Summary
1. INTRODUCTION
Consumer is the centre of all economic activities. In our Indian culture, Philosophers
and Thinkers have thought consumer as a God. He is a kingpin of any democracy. But
unfortunately the Indian consumer has always been neglected in our economy because
of many reasons.
2. CONSUMERISM - DEFINITION & SCOPE
Consumerism was thought of as a consumer movement first in mid 1960s. It was
considered as another ism like socialism and communism threatening capitalism. In
simple words, consumerism is a protest of consumers against unfair business practices
and business injustices. It is in fact a social force designed to protect consumer interests
in the market place by organising consumer pressure on business. Peter Drucker defines
consumerism as follows:
"Consumermism means that the consumer looks upon the manufacturer as somebody
who is interested but who really does not know what the consumer's realities are. He
regards the manufacturer as somebody who has not made the effort to find out, who
does not understand the world which the consumer likes, and who expects the consumer
to be able to make distinctions which the consumer is neither willing nor able to make".
("Consumerism in Marketing" - a Speech to the National Association of Manufacturers,
New York, April, 1969).
According to Buskirk and Rothe, consumerism means the organized efforts of
consumers seeking redress, restitution and remedy for the dissatisfaction they have
accumulated in the acquisition of their standard of living. Kotler defines consumerism
as an organized movement of citizens and government to strengthen, the rights and
power of the buyers in relation to sellers. G.S. Kamat says, consumerism Is a process
through which consumers seek redress for their/dissatisfaction and frustration on the
basis of organized efforts and activities.
Consumerism according to former Senator Charles Percy, is "a broad public reaction
against bureaucratic neglect and corporate disregard of the public". Some others have
defined consumerism as policies and activities designed to protect consumer rights as
they are Involved in an exchange relationship with any type of organisation.
Consumerism now-a-days includes many things within its compass. The term has come
to mean many things to different people. The most common understanding of
consumerism is in reference to protection of consumers privileges against clear-cut
abuses by the seller. This includes cheating and other malpractices at the market place
as well dangers to health and safety of life from various types of products. What is
Interesting is that consumerism is also considered to include protection of consumers
against consumers. For example, smoking is prohibited in auditorium, trains and public
buses to avoid nuisance to other persons from smokers. Now-a-days consumerism has
become wide enough to include protection against environmental pollution and
declining quality of physical environment. The people are greatly concerned
maintenance of ecological 'balance and conservation of national resources.
3. NEED FOR CONSUMER PROTECTION
In a country like India, there is a very great need for consumer protection for a variety of
reasons. Some of the important ones may be highlighted here.
a) A majority of the population is illiterate, ignorant and ill informed. In a vast country
like India, it is very difficult to organise the consumer. The people are not only backward
but also have linguistic, cultural and religious difference which make the problem still
more intricate.
b) The consumer is economically weak if compared with the producer or the seller. The
producer is able to manipulate the price, quality, size, weight, etc. of the product. He has
to depend upon the trade practice of the seller. If the seller indulges In unfair trade
practice, then the consumer needs protection against such malpractices.
c) The advance of science and technology enables the manufacturers to produce myriad
types of goods. There are varieties of same type of goods produced by different
manufacturers. Though they provide a choice of selection to the buyer still they Rave
made the goods more complex and complicated making selection difficult. In such a
situation the consumer needs guidance which can be provided by consumer
organisations.
d) Advertising is a potent device for sales promotion. But advertising to-day is highly
deceptive. A consumer does not know the real qualities of the advertised goods. For
example, he would not know how one processed butter is better than another processed
butter. He feels confused and hence needs to be guided and protected.
Thus to prevent ruthless exploitation, we need a forceful, well-organised consumerism
of consumer movement coupled with Government support and patronage in the form of
special legislation. Of course, legislation can protect consumers only when consumers
themselves assert their rights and exert necessary pressure on the producers, dealers
and the Government. Only then the prevailing malpractices like profiteering, black-
marketing, hoarding, adulteration, short measures and weights, misleading
advertisement, faulty packaging, mail-order frauds, etc. can be cured or reduced to the
minimum.
4. CONSUMER MOVEMENT - ABROAD AND IN INDIA
Consumerism or consumer movement is a social movement. In the past, all movements,
such as, Independence Movement, Civil Rights Movements, etc. were the results of
social conflicts. So also consumer movement which is likely to be with us till the conflict
facing the consumer is resolved. The social conflict, in the case is largely owing to rising
prices, poor product, shortage, deceptive advertising, etc.
In USA greater education and affluence of the buyers, better communication, mass
marketing and above all, the failure of business to implement the marketing concept
resulted in consumerism raising its head in the 1960's. The Watchword for this new
militant mood among the American consumers, according to Mrs. Virginia H. Knauer,
special Assistant to the President for Consumer Affairs, was simply "Let the seller
beware, in comparison with the age-old caveat emptor" i.e. Let the buyer beware.
Government's desire to protect the consumers and help them to arrive at rational
decisions in their selection resulted in excessive control and insistence on adequate
communication to the consumer such as the advertising pack the statement indicating
that smoking may cause cancer. Thus increasing education and sophistication led to
rising public standards of business conduct and social responsibility through consumer
unrest. This was augmented in 1966 by rising prices. The influential writings by John
Kenneth Galbraith, Vance Packard and Rachel Carson accused big business of wasteful
and manipulative prices. John Kennedy's Presidential Message of 1962 declared that
consumers had the right to safety, to be informed, to choose and to be heard.
Congressional investigations of certain industries proved embarrassing and finally,
Ralph Nader appeared on the scene to crystalize many of the issues. In course of time,
many private consumer organisations have emerged and several pieces of consumer
legislation have been passed.
In the West, consumerism has emerged after the countries concerned, reached a level of
affluence which is the characteristic of what may be called the post-Industrial society.
There was adequate production and distribution of essential as well as luxury products.
The objectives of consumerism under these circumstances were to seek more
information about the merits of competing products and services and to represent the
collective views of consumers In order to Influence the producers.
The movement by now has acquired an International character, with much strength in
Scandinavia, France, Germany and Japan. It has also got underway in India.
The consumer movement in India is in its infancy and is largely confined to
metropolitan cities like Bombay, Ahmedabad, Hyderabad, etc. The shortages of essential
consumer products and the Inflation of early 1973-74 gave a fillip to the consumer
movement.
As regards the origin of the movement in India, it was In April 1966, that nine
housewives and social workers got together and formed the Consumer Guidance Society
of India (CGSD to protect the consumer's interest. To-day the CGS7 has over 2,500
members and five branches at Hyderabad, Dandeli, Pune, Kottayam and Trichur. It is
gratifying to note that over the years, CGSI has excelled itself In publicising of tests
conducted by it on various products edible and electric. There is also the Consumer
Education and Research Centre (CERC) at Ahmedabad. Among other such
organisations Voluntary Organisation in Interest of Consumer Education (VOICE),
Indian Federation of Consumer Organisations (IFCO) and the Society for Civic Rights
are the most notable ones.
5. THE PROBLEMS OF CONSUMER PROTECTION
The Idea that the consumer is the king in the market place has in reality been largely
discarded and in its place the idea that he is a pawn in the hands of the businessman Is a
major driving force of consumer movement. Some of the problems of consumerism are;
First, rising prices of goods have created in customers an attitude to expect better
quality and if it is not forthcoming creates dissatisfaction among them. Further,
inflation in recent times has made purchasing more difficult.
Secondly, there is a large variety of products with increasing element of complexity
because of new and changing technology. This naturally makes the consumer to expect a
perfect product.
In the third place, the spread of education, especially higher education and rising
incomes have tended to intensify consumer movement.
The language of advertising making exaggerated claims about the products, creates an
expectation of better products.
There are three agencies for ensuring consumer protection
Self-help, i.e. consumer organisation itself,
Business, by self-regulation and by giving a fair deal to the resellers and
consumers,
Government, by having special Acts and implementing those laws strictly.
The consumer Interest In the market place is the focus, rather the heart of enlightened
marketing mix. The business and consumerism both aim at the protection of consumer
business through self-regulation and consumer through self-help. Consumerism
Invokes Government assistance when business misbehaves and falls to fulfil social
responsibilities. The problem of consumer protection in the market can be seen from
Fig.l.


Fig. 1: Problem of Consumer Protection in the Market.
It is rightly said that self-policing is far more effective and superior or advantageous
than State-policing, in the field of distribution. The business community must take
appropriate steps to regulate its conduct and cultivate self-discipline and sell- regulation
in the larger national interests. Enduring and positive improvements in, business
practices can be brought about by the businessmen themselves and these changes
should be based on the inner will or desire rather than from external force or discipline.
More and more companies are now creating a consumer affairs department in charge of
consumer adviser directly responsible to the head of the organisation. The department
deals with the consumer problems. It also contributes to the development of corporate
social objectives, programmes to implement or carry out these objectives and measures
to evaluate the programmes. It can also publish instructional booklets on the use and
care of the company products. Further, it can provide consumer education.
6. CONSUMER PROTECTION THE LEGAL FRAME WORK
In order to protect the consumer interest Government in the recent past have enacted
several statutory legislations. (Exhibit - 1). These legislations are related to
standardization, grading, packaging and branding, food adulteration, weight and
measure, false advertisement, hoarding, profiteering, unfair trade practices, etc. In fact,
to cover-up the consumers problems, the Government passed a comprehensive
legislation i.e. Consumer Protection Act, 1986.
Exhibit -1
1. The Sale of Goods Acts, 1930
2. The Agricultural Produce (Grading and marking) Act, 1937
3. The Drugs Act, 1940
4. The Drugs and Cosmetic Act, 1946 The Drugs Control Act, 1950
5. The Prevention of Food Adulteration Act,. 1954
6. The Drugs and Magic Remedies (Objectionable Advertisement) Act, 1954
7. The Drugs Control Act, 1954
8. The Essential Commodities Act, 1955
9. The Standard Weights and Measures Act, 1956
10. The Display of Prices Order, 1963
11. The Monopolies and Restrictive Trade Practices Act, 1969
12. The Patent Act, 1970
13. The Cigarette (Regulation of Production, Supply and Distribution) Act, 1975
14. The Packaged Commodities Order, 1975
15. The Standards of Weights and Measures Act, 1976. The MRTP (Amendment) Act,
1984
16. The Environment (Protection) Act, 1986.
17. The Consumer Protection Act, 1986
18. The Monopolies and Restrictive Trade Practices (Recognition of Consumer
Association) Rules, 1987.
6.1. Salient Features of Major Legislations
6.1.1. The Prevention of Food Adulteration Act, 1954: This Is a consumer-oriented
legislation designed to protect the health of the public by prohibiting adulteration of
food. An adulterated food article is one Is Injurious to public health. In the area of
marketing, the provisions of this Act influence the product and advertising decision of
companies manufacturing food products. According to this Act manufacturing to sell,
storing, selling, or distributed of adulterated and misbranded food article Is considered
to be in injurious to public health.
It is deemed injurious when
The product quality is not as demanded or claimed.
It contains an injurious substance.
Its quality or purity falls below the prescribed standards. A food product is
misbranded when it is a deceptive imitation of or resembles an existing product.
It is falsely stated to be a product of another place or country.
It makes false claims.
Its package contains false or misleading information about its contents.
The Act provides elaborate rules about the quality of different food articles and imposes
both civil and criminal liabilities for violation of its provisions.
6.1.2. The Essential Commodities Act, 1955:
It is one of the major consumer-oriented legislations of the country whose object is to
control, in the interest of the general public, the production, supply and distribution of
trade and commerce in certain commodities declared essential. The Act defines essential
commodities and lists a large number of products included under it. Whenever a
company markets these commodities the provisions of this Act apply to it and influence
its product, distribution, and pricing decisions.
In 1974, the Act was amended with provision against hoarders, black-marketers and
profiteers. It is made compulsory to display the prices of essential commodities. The Act
Imposes both civil and criminal liability on the person for the contravention of the
orders made under it.
6.1.3. The Trade and Merchandise Marks Act, 1958:
It is also an important commercial legislation which Influences company's products and
advertising decision particularly with regard to the use of trade and merchandise marks
registered under this Act. The registration of trade-mark under this Act endows on its
owner the right to its exclusive use and provides legal protection against infringement of
his right on the person(s) Infringing the rights of trademark the owner invites
prosecution.
6.1.4. The Drugs and Magic Remedies Objectionable Advertisement) Act,
1954:
It is an equally important piece of consumer-oriented legislation the provisions of which
Influence the advertising decisions of companies marketing drugs for certain ailments
specified in it. It aims to prevent advertisement tending to cause and ignorant and
unwary consumer to resort to self-medication with harmful drugs and appliances. The
Act prohibits advertisements making false claims for the drug.
According to this Act advertisements are prohibited in respect of certain drugs marketed
for the treatment of certain diseases and disorders like prevention of conception, sexual
Importance, epilepsy, fits, etc. and others given in the schedule.
As other consumer-oriented legislations, this Act also imposes both civil and criminal
liabilities for the contravention of its provisions.
6.1.5. The Consumer Protection Act, 1986:
This Act is the latest development in safeguarding the economic rights of citizens as
consumers. It is based on the principle of self-help i.e. a citizen must help himself to
protect his rights as a consumer. This is a welcome legislation and redefines the legal
relations between consumers of goods and services and their manufacturers or sellers.
The month of December 1986 can legitimately be considered as the Parliament's session
for consumer protection when marathon race of legislative activity was undertaken to
protect the interests of consumers.
The most important features of the Act, which is certainly an improvement over other
consumer protection legislations, is that it is applicable even to public sector enterprise,
financial institutions and co-operative societies. Secondly, the Act applies to all types of
goods and services and it extends to Government services like railway, postal, telephone,
telegram, radio, doordarshan, electricity, banks, insurance, etc. Thus the scope of this
piece of legislation Is much broader compared to the earlier ones.
The Act establishes two councils viz. the Central Consumer Protection Council and the
State Consumer Protection Councils comprising official and non-official members to
provide a platform for discussing consumer problems and to advise the concerned
Central or State Government on policies and programmes to safeguard consumers
interest. They have an advisory role to promote and protect the rights of consumers
which interalia consists of:
(a) the right to be Informed about the quality, quantity, potency, purity, standard and
price of goods;
(b) right to be assured access to a variety of goods at competitive prices;
(c) right to be heard at appropriate forums;
(d) right to seek redressal against unfair trade practices; and
(e) right to consumer education.
The Act provides for the establishment of adjudicator bodies at three different levels -
district, state and National. At the bottom, there is the consumer disputes redressal
forum (district forum) in each district to be established by the state government with
prior approval of the Central Government. The orders of the district forum and state and
national commissions are enforceable by them in the same manner as a decree or order
of a court: In case of their failure to enforce the order, the same may be sent to the court
of competent jurisdiction for enforcement. An order of the national commission, in
exercise of its original Jurisdiction, is appealable to the Supreme Court within 30 days of
its passing.
The whole objective of the Consumer Protection Act is to speedily redress the grievances
of the consumer and not through long drawn legal practices. The Redressal Forum may
give orders for removal of defects from goods, replacement of the goods, refund of the
price, award of compensation for Injury suffered.
The redressal machinery under the Consumer Protection Act, 1986 has been set in
Bihar, Delhi, U.P., Rajasthan, A.P. Orissa, Pondicherry, etc. As said earlier it is a
welcome legislation. However, the Act seems to have been enacted in a great hurry.
Perhaps because of this, some significant aspects could not be covered. For example,
there is no provision for giving interim relief or issuing interim Injunction which may be
necessary in some cases.
Again, a large number of administrative and quasi-judicial bodies have been established
under a large number of consumer protection legislations to exercise powers in many
areas which would also fall within the purview of the present Act. Efforts should be
made to harmonise the functioning of all these courts and authorities so that one does
not hinder the functioning of the other so as to harm the consumer instead of protecting
them.
The Act acknowledges only six rights of the consumers as pointed out a little earlier. It
completely ignores the right of consumers to a healthy environment. This is very
important in case of pollution control; hence the right of healthy environment must be
included for better environment.
Whatever may be the lacunae in the Act, it is expected to ensure consumerism in the
country, of course, with the support of the Government and the consumer's
organisations.
7. SUMMARY
Consumer is said to be the king in the market place. Unfortunately, the Indian consumer
suffers from various dishonest practices of the traders and marketers. Poverty, illiteracy
and lack of awareness necessitate for his protection. What is needed at present is a
forceful, well-organised consumer movement coupled with Government support and
patronage in the form of special legislation. The movement in India is in its infancy.
There are three agencies for ensuring consumer protection viz. self-help by consumer
organisations themselves, self-regulation by business and, the Government. In order to
protect the consumer interest, the Government have enacted a number of legislations.
All these legislations govern standardisation, grading, packaging and branding, and to
regulate food adulteration, weights and measures, unfair trade practices, etc. In 1986
the Government have passed a comprehensive legislation viz, Consumer Protection Act.
This is the latest Act meant to safeguard the economic rights of citizens as consumers.
The principal feature of the Act is that it is an improvement over the earlier consumer
legislations. It is applicable even to public sector enterprises, financial institutions and
co-operative societies. Secondly, the Act extends to Government services like railways,
postal, telephone, telegram, radio, electricity, insurance, etc. The Act establishes two
council's viz. the Central Consumer Protection Council and the State Consumer
Protection Councils comprising official and non-official members to provide a plat-form
for discussing consumer problems and to advise the concerned Central or State
Government on policies and programmes to safeguard consumer's interest. The whole
objective of the C.P. Act, 1986 is to speedily redress the grievances of the consumer.




REVIEW QUESTIONS
1. What do you mean by 'Conumerism'? Examine its scope.
2. Define Consumerism. Do you feel a need for consumer protection in India? Why?
3. Trace the origin and development of consumer movement in India and other
countries.
4. Write notes on:
a) The Essential Commodities Act.
b) The Prevention of Food Adulteration Act.
5. a) Point out the rights guaranted under the Consumer Protection Act, 1986.
b) Point out the salient features of C.P. Act, 1986.
6. Describe the problems that you face in the market place as a consumer and suggest
how can you protect your interest?
REFERENCES
1. Gandhi, J.C. Marketing - A Managerial Introduction, TMH, New Delhi, 1990.
(Chapter - 15).
2. Sahoo, S.C. & P.K. Sinha (Eds), Emerging Trends in Indian Marketing in the 1990s,
Academic Foundation, New Delhi, 1991 (Chapter - 4).
3. Sherlekar, S.A. Marketing Management Himalaya, New Delhi, 1993 (Chapter 10 & 11).


-End Of Chapter-
LESSON - 23
GOVERNMENT AND MARKETING


OBJECTIVES
After studying this you will be able to understand.
The need for government intervention in marketing.
Salient features of public distribution of essential commodities.
PREAMBLE
1. Introduction
2. Need for Government Intervention in Marketing
3. Public Distribution System.
4. Summary
1. INTRODUCTION
India lives in village and more than 75% of her population lives in village. They are
mostly poor illiterate. They lack bargaining power. The Government has to play its role
to protect their interest in the market place. Absence of collective unity among
consumers, excessive presence of middlemen, adulteration, inadequate storage facilities
and so on are the major reason which warrant intervention of Government.
2. NEED FOR GOVERNMENT INTERVENTION
Marketing decisions are influenced and shaped by a variety of organizational and
environmental factors. This section attempts to study the role played by the State and
law in relation to marketing in India. It describes the nature and causes of State's
intervention in marketing operation of companies and brings out the relevant features
of major legislation currently in vogue and having an influence in the marketing
decisions. The whole idea of this section is to highlight the role played by law as a
marketing decision input and examine to what extent it can promote
consumer movement by protecting the interest of the consumers.
The broad reasons for the influence, of State on the marketing decision of companies
may be put under three categories, viz
Commitment to national economic priorities and development strategy. .
Concern for and sympathy with emerging consumerism, and
The need for regulation of commercial relations amongst citizens of the country.
The planned development of Indian economy envisaged laying down of economic
priorities in the successive five year plans. Priorities as laid down in these plans entailed
development of heavy industry and manufacture of capital goods, development of public
sector and regulation of manufacturing operations through a licensing mechanism. In
order to pursue this development strategy, government have formulated such polices
which influence business and marketing operations, in particular. It has induced
government to determine what is to be manufactured, how much is to be manufactured
and who will manufacture. In fact, the power of these options is wide enough to shape
business decisions.
The influence of government of the marketing decisions may also be attributed to its
concern for and sympathy with the emerging consumerism in India which has been
discussed in the preceding section.
Lastly, individuals, though powerful, are incapable of forging enforceable commercial
relationships unless there are laws to help them out. If the businessmen earlier shown as
the necessary foresight on their own account had taken with effective and organized
steps to build up through voluntary regulation fair trade norms and practices into the
everyday process of industry and trade and into the exchange relationships between
traders and consumers, the need for enacting consumer legislations would not have
arisen. But what's the real picture? Just reverse. Government being the representative of
the citizens entrusted with the task of governing the affairs of the country by legislation
and enforcing relevant laws, has enacted certain laws to protect the well-being of the
consumers and to safeguard them. A few are dealt with here.
3. PUBLIC DISTRIBUTION SYSTEM
PDs is concerned with marketing of foodgrains, sugar, kerosene, i.e. essential
commodities. In each State, a Department of Civil Supplies exists in addition to a State
Civil Supplies Corporation. Other agencies concerned with PDs are Food Corporation of
India and Cooperative Sector. For effective distribution, District Civil Supplies Office at
the district level manned with Civil Supplies Officer, Inspectors and Supervisors
operates. Essential commodities are being distributed through open market as well as
controlled retail outlets. The Consumer Card Holders of different categories get their
commodities like wheat, sugar etc. through these retail outlets.
But a number of problems are witnessed in effective functioning of the PDs. It is
observed except in certain pockets of the country, the public distribution of food grains
has failed to have any 'impact on rural hunger. (Economic Times, 19 May, 1993). The
subsidy paid to F.C.I, has been continually increasing. The PDs has also failed to provide
adequate support to farmers. The Commission on Agricultural Costs and Prices (CACP)
has repeatedly reported the failures of support operations. The cheap food grain policy
has resulted in increasingly adverse terms of trade for farmer's, sharp decline in capital
formation in the farm sector and reduced growth rate of foodgrain production. Again, so
long as paddy is required to be converted into rice only by licensed rice mills, more than
half of the cereal production remains shackled, because paddy accounts for nearly 60%
of the cereal production in the country. (Economic Times, 19th May, 1993). In the
process, in case of paddy, the benefit of support prices, if any, accrues to the rice millers
and not to farmers, because most of the rice is procured by the government from rice
milling and not from farmers.
There are better alternatives to our public distribution system of food grains. The
genuinely poor deserve sympathy and help. The producer in India is suffering, not
because consumers and the taxpayers (in the form of subsidy) are paying less, but
because nearly half of what they are paying is being expropriated by middlemen-official
as well as non-official. However, the need for effective intervention by the state in times
of scarcity cannot be minimized. Therefore, reduction in the cost of foodgrains
distribution and effective interventionary powers in the hands of the government in
times of need, are the two essential features. For better distribution of food grains some
of the following steps may be taken:
1. All sorts of controls should be withdrawn.
2. A chain of rural godowns with Warehousing facilities be established and at least one
godown be located in a cluster of 10 to 12 villages.
3. It should be obligatory on the part of all stockiest who wish to stock more than 15
tonnes of food grains, to do so only in specified godowns under the control of the
Central Warehousing Corporation (CWC).


Please use headphones

4. SUMMARY
India is a poor country. About 70 - 75% of its population live on agriculture. Per capita
income is very low. To protect the interest of the people in a welfare state like it is vital
for the Government to intervene in marketing especially in public distribution of
essential commodities. For quality control the Government has passed the Bureau of
Indian Standards Act, 1986 under which ISI Certification is conferred on quality
products. ISI mark and AGMARK (for agricultural produce) testify quality. BIS is
concerned with standards formulation, certification marking, and a host of other
activities.
The public distribution system for essential commodities has failed to deliver the
results. In case of paddy, the benefit of support prices, if any, is accruing to the rice
millers and not to farmers. Reduction in the cost of foodgrains distribution and effective
interventionary powers in the hands of the Government in times of need shall go a long
way to help and aid the poor. A chain of rural godowns with warehousing facilities be
established for effective distribution.
REVIEW QUESTIONS
1. State the need for Government intervention in marketing in India.
2. What is ISI Certification mark? Who confers it and why?
3. 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?
4. Write short notes on
(a) AGMARK
(b) Activities of the BIS
REFERENCES
1. Gandhi J.C. Marketing Management - A managerial Introduction, THM, New Delhi,
1990.
2. Ramaswamy, V.S. and Namakumari, Marketing Management, Mcmillan, New Delhi,
1991.
3. Sahoo, S.C. & P.K. Sinha, Emerging Trends in Indian Marketing in the 90s, Academic
Foundation, New Delhi, 1991.


-End Of Chapter-
LESSON-24
THE INDIAN MARKETING ENVIRONMENT

OBJECTIVES
After studying this lesson you would be able to understand the following:
The salient features of the marketing environment and
Ethics in marketing
PREAMBLE
1. Introduction
2. Marketing Environment
2.1 Demographics
2.2 Psychographics
2.3 Products
2.4 Role of Price
2.5 Distribution
2.6 Promotion
3. Ethics in Marketing
4. Summary
1. INTRODUCTION
Environment comprises of two aspects viz; Internal and external. External environment
is influenced by uncontrollable forces, viz; demography, economic, political, legal,
technological, 'demand. competitive scenario. A customer-oriented organisation has
twin objectives - economic performance i.e. profitability and social performance i.e.
satisfaction of all interested parties, such as customer, citizens, employees and the
government. With this background let us examine the marketing environment
prevailing in India and also the changes that are likely to take place in the next few
years.
2. MARKETING ENVIRONMENT
2. 1. Demographics
India is the World's second largest customer base and adding to the population.
Majority of them are in the age bracket of 25 - 50, the spending years. This bracket has
the maximum discretionary income and hence the target of all producers. Creation in
nuclear family is changing the spending habits and is adding to the spendings. Multi-
income households are increasing. The population is looking upward and is better
educated, better informed and quality conscious. The mobility towards urban area has
been trend. The Nagars are becoming Mahanagars (like Colus becoming Mahacolos). A
middle class with an enhanced purchasing power might be through different easy
purchase schemes and support from the banks Is growing in its size. This is the segment
marketers are vying for.
Traditionally, India is a rural-based country. About 75% of the population live in
villages. They account for only 35% of the total spending. The change in media scene has
changed their spending and producers are looking forward to them. Their Ideal
Consumption Basket is changing. They are no more as inclined to buy land and gold as
they were. Their preference bases have shifted to durables like TVs' two-wheelers, etc.
With better facilities through Green and White Revolutions and now with the new
economic policy of the Government to channelise 50% Investment into rural areas the
number of developing and urban analogous villages will raise rapidly and there is going
to be an insurage of their purchasing power.
2.2. Psychographics
The change to nuclear family has led to democratic purchase decisions with housewife
exerting greater Influence. The importance of working women is leading to a more
prosperous and hedonist like style (Sahoo and Sinha Emerging Trends in Indian
Marketing in the 90's Academic Foundation. New Delhi, 1991, P. 31). The increasing
literacy rate and exposure to the World around have given the population a multi-
culture orientation. The household is now made of electronic gadgets that were once
dreams in Indian homes.
The middle class is a typical phenomenon. Its life style has been changed by the
convenient payment alternative and increased discretionary income that help realise its
dreams. The fact that even the entrepreneurs are young and dynamic has changed the
Industry scene and the market is proliferated with product which have takers. The
children want icecreams and chocolates and that too only Kwality and Cadbwy's. Such
discretion was never seen before. The child is tending to be the influencer, if not the
decider. Even the villages are affected by the process of change. Hero Honda and
ONIDA have become household names.
The population is no more homogenous. Every Individual is being treated as a segment.
The benefit segmentation will give way to occasion segmentation, as seen in readymade
garments being offered as casual or formal wear.
2.3. Products
The liberalization of the Indian economy with regard to technology transfer gave an
Impetus to the World's best technology flowing into the country. One of the main
reasons for the change in the life style of the Indian population is the proliferation of
products generated by the technology Inflow. Indian products are in no way less than
those available outside. In fact, the outflow of such products is increasing day by day.
An upsurge is seen in the consumer products market i.e. durables and
consumables/non-durables. The market that was characterised by a handful of brands
and one main brand is a scene of the past. Electronic gadgets have become a part of our
life. Personal transport is a necessity. Dependence on public transport will increase due
to the distance between work place and home, but a private transport will be a necessity.
Cycle will still be the maximum selling vehicle. The number of two-wheelers and car
owners will also increase.
On the organisational front, the office automation drive will be faster and surer. A major
shift in the product policies has been the emergence of services as a separate, and
perhaps a major sector. The technological advancement has given the customers better
quality products, but, in the process, the products have become complex in nature
requiring expert knowledge to maintain and repair.
The strategy is moving from Product Positioning to Brand Positioning. The brand image
is gaining primacy. Family brand is not likely to be popular but each brand will have a
shelter of a Corporate Image. Due to the fast spread of technology the distinctiveness of
the product will be shortlived. However, the products which are meant for prestige only
will be on the rise as the market for the riches is growing.
2.4. Role of Price
The Indian market is experiencing a peculiar phenomenon now-a-days. The consumer
durables have good image when priced higher, as in the case of TVs. On the other hand,
PCs marketers are cutting prices like anything and if the response to the price cut by
Electronic Corporation is any Indication of the things to come, PCs are going to be still
cheaper. These are clear indications that price is no longer a cost-related decision. The
companies which look to price as a cost related determination will have to change to the
non-related factors. Comparatively the new products are expected to be offered at much
less price than to-day.
2.5. Distribution
Distribution calls for making available the product in every corner of the market. This is
especially true with Low Involvement Products (LIPs), where there is a lot of Impulse
buying. Customers are more likely to go for conveniently available brands. In such a
situation, distribution plays a vital role.
The retail marketing scenario is changing. It is no more a dull exercise. The shops are
now having good get ups. The salesmen are becoming professional. The personal service
shops will make way for the departmental stores where consumers will find It
convenient-and feel more free to look, pick and choose. They will be selling at a
premium, customized and specialty product only. One can observe a whole lot of
addition to the service rendered at the retail outlets, viz; credit cards, home deliveries,
asserted services etc.
The dealer motivation will take a turn towards non-monetary Incentive. Commission
will stay as Important as It Is. but services like shop displays, contests, awards, co-
operative advertising will form more Important parts of motivation. The younger
generation Is taking over the business at the retail/wholesale outlets. They are dynamic,
professional and highly forward looking. The marketing principles, which are restricted
to the corporate level, will also come down to retailers. The trend shows an Increase In
the retailer's advertisements of the product than it was a decade ago. This will be on the
rise. In short, retail outlet will be another profit centre of the company and the concept
of Vertical Marketing System (VSM) will catch on. What is seen is that the manufacturer
has started to make the middlemen a partner in its marketing efforts.
2.6. Promotion
The 1980s have been regarded by many as a watershed decade. They saw the beginning
of the Positioning Era, Comparative Advertising. Political Advertising, the growing
importance of Shelf Space at retail outlets, the importance of rural markets and the
beginning of Direct Marketing. The nineties now see the crystallisation of many of these
changes and the beginnings of new trends.
Comparative advertising is the natural manifestation of a highly competitive
environment. It has become a recent phenomenon in India. The first real comparative
advertising in India was released more than a decade ago by Nutramul when it
compared prices of competing brands. That was an isolated case then. Today, the cases
of HCL Copiers Vs. Modi Xerox, TVS Suzuki Vs. Hero Honda, Nirma Vs. Surf, Nirma Vs.
Rin, and BPL Vs. Videocon are clear indications that comparative advertising Is here to
stay.
One of the most important objectives of any Marketing Manager during the recent years
was the procurement of a spot on the retailer's shelf so that the consumer can see if
easily and getting the retailer to push it just in case the consumer does not spot it. Thus,
incentives and margins for retailers and dealers become an important variable to be
tackled. Thus-dealer display contests, aggressive merchandising and efficient retailing
have become the fulcrum around which marketing plans revolve. This is going to be
more basic in the year to coma. Companies like HLL P & G, Nestle, etc. go for regular
booking, whereas a few Godrej, etc. use the space only In the case of a launch or
when there has been an unforeseen change in sales. The rates of the display depend on
the location of the shop, the place of display in the shop and the size of the display.
It is observed that roughly 40% of the consumers buy on impulse. This phenomenon can
be strategically exploited through Point-of-Purchase (POP) displays. POP promotion
consists of three major tasks viz,
Preparing the display materials, like danglers, stickers, etc.
Retailer motivation through citation, cash incentives, etc.
Acquiring shelf space for the company's products.
Budget outlays in various media and sales promotion in particular have shown
increases. The advertisers no longer blindly pump in major portions of their advertising
budget into television.
In the rural areas, hoardings and wall paintings will continue to be the leading media.
TV exhibitions and fairs are acquiring more popularity in rural areas. Of course, these
have already become a common scene in urban areas particularly for industrial and
household goods.
Industrial advertising is becoming more corporate Image Building through social and
ecological concerns shown by the companies.
The Hindustani Advertisements (Vernaculars written in English) is now-a-days proving
effective (Binnines, Co-Cool, Vicks, etc.).


Please use headphones

3. ETHICS IN MARKETING
Modem business is regarded as an integral component of society. Today, society is
expecting much more from business than in the past it demands what is called quality of
life management. In addition to economic performance, modern business must
demonstrate social awareness or sensitivity and social performance. Ethics in marketing
means an objective concern for the consumers or user of products and services i.e. for
the welfare of society that prevents or limits individual and corporate behaviour from
unethical practices such as unfair trade practices, restrictive trade practices, pollution of
environment and so on.
Following the principle of societal marketing, an enlightened company makes marketing
decisions by considering consumers' wants, the company's requirements, consumers'
long-run Interests, and society's long-run Interests. Alert companies view societal
problems as opportunities modern management is faced by critical public, challenging
customers, powerful labour, exacting shareholders; hence modern business has to
demonstrate not only its economic efficiency but also consumer sensitivity and social
awareness.
3.1. Criticisms Against Marketing
Many types of criticism have been levelled against marketing. These are In general in
relation to inefficiencies or unethical marketing practices. It is alleged that marketing
misallocates scarce economic resources. In an economy of scarcity like that of ours, this
assumes special significance. The production of lakhs of cars, TVs. two-wheelers,
refrigerators, music system and so on and only hundreds of new class rooms, a few
public hospitals, a few roads and such other socially desirable goods and services can be
said to be nothing but a serious misallocation.
Secondly, marketing also involves too much competitive promotion. For example, if
HLL spends lakhs of rupees in promoting its soaps and detergents TATA spends more
than HLL's investment in promotion promoting its brands. In the process, the prices
charged for both the rival brands would have to be higher than necessary. As a result the
consumer purchasing power is diverted from more worthwhile expenditures.
In the third place, marketing is also considered wasteful. It is felt that there are too
many middlemen especially in retail trade.
Again, marketing is said to create too much materialistic and artificial values. Most
consumer wants are acquired or imposed. Advertising and sales promotion encourage
consumers to place too much emphasis on the satisfaction of material wants and to
substitute material values f6r moral values. Fraudulent and deceptive means to
promotion exploit innocent consumers and always create after-sale doubts and
frustration.
3.2. Principles of Public Policy Towards Marketing
Marketing executives of the 1990s and beyond 2000 AD will face many challenges.
Companies that are able to create new values and practice societally responsible
marketing will have a world to conquer (Kotler, P. 642). Each company has to develop
corporate marketing ethics policies - broad guidelines that everyone in the organisation
must follow. These policies should cover distributor relations, advertising standards,
customer service, pricing, product development and general ethical standards. But the
question is what principle should guide companies and marketing managers on issue of
ethics and social responsibility?
One philosophy is that such issues are decided by the free market and legal system.
Under this principle, companies and their managers are not responsible for making
moral judgements. Companies can in good conscience do whatever the system allows.
A second philosophy puts responsibility not on the system but in the hands of individual
companies and managers. This means that & company should have a 'social conscience'.
Companies and marketing managers should apply high standards of ethics and morality
when making corporate decisions. Each company must work out a philosophy of socially
responsible and ethical behaviour. It should adopt its own code of ethics. A model is
potrayed below in Exhibit1
The General Dynamics ethics program is considered the most comprehensive in the
Industry. And little wonder it was put together as general from the Pentagon looked on.
The program came about after charged that the company had deliberately over billed the
government on defense contracts.
Now at General Dynamics, a committee of board members reviews its ethics policies,
and a corporate ethics director and steering group execute the program. The company
had set up hot lines that let any employee get instant advice on job-related ethical issues
and has given each employee a wallet card listing a toll-free number to report suspected
wrongdoing. Nearly all employees have attended workshops; those for sales people
cover such topics as expense accounts and supplier relations.
The company also has a 20 page code of ethics that tells employees in detail how to
conduct themselves. Here are some examples of rules for sales people:
If it becomes clear that the company must engage in unethical or illegal activity to
win a contract, it will not pursue that business further.
To prevent hidden Interpretations or understandings, all information provided
relating to products and services should be clear and concise.
Receiving or soliciting gifts, entertainment, or anything else of value is
prohibited.
In countries where common practices, indicate acceptance of conduct lower than
that to which General Dynamics aspires, sales people will follow the company's
standards.
Under no circumstances may an employee offer or give anything to customers or
their representatives in an effort to influence them.

Exhibit 1: The General Dynamics Ethics Program
___________________________________________________________________________
The General Dynamics ethics program is considered the most comprehensive in the
Industry. And little wonder it was put together as general from the Pentagon looked on.
The program came about after charged that the company had deliberately over billed the
government on defence contracts.
Now at General Dynamics, a committee of board members reviews its ethics policies,
and a corporate ethics director and steering group execute the program. The company
had set up hot lines that let any employee get instant advice on job-related ethical issues
and has given each employee a wallet card listing a toll-free number to report suspected
wrongdoing. Nearly all employees have attended workshops; those for sales people
cover such topics as expense accounts and supplier relations.
The company also has a 20 page code of ethics that tells employees in detail how to
conduct themselves. Here are some examples of rules for sales people:
If it becomes clear that the company must engage in unethical or illegal activity to
win a contract, it will not pursue that business further.
To prevent hidden Interpretations or understandings, all information provided
relating to products and services should be clear and concise.
Receiving or soliciting gifts, entertainment, or anything else of value is
prohibited.
In countries where common practices, indicate acceptance of conduct lower than
that to which General Dynamics aspires, sales people will follow the company's
standards.
Under no circumstances may an employee offer or give anything to customers or
their representatives in an effort to influence them.
source: potter. Philip, and G. Armstrong Principles of Marketing, PHI. New Delhi, 1992.
P. 643.
___________________________________________________________________________
A number of principles that might guide the formulation of public policy toward
marketing may be adopted. The important ones may be numerated in brief.
1. The Principle of Consumer and Producer Freedom
As far as practicable marketing decisions should be made by consumers and producers
under freedom. Marketing freedom is essential o enable the marketing system to deliver
a high standard of living; freedom for producers and consumers is the foundation of a
dynamic marketing programme. This leads to greater fulfillment through a closer
matching of products to desires.
2. The Principle of Meeting Basic Needs
Marketing should serve both affluent as well as disadvantaged ones. Certain people may
lack purchasing power and may go without needed goods and services, which ultimately
causes harm to their physical and psychological well-being. Hence, it should endeavour
to meet the basic deeds of all people and all people should share to some extent in the
standard of living it creates.
3. The Principle of Economic Efficiency
Marketing must strive to supply goods and services efficiently and at low prices.
The other principles of public policy which go to shape marketing ethics are (a) the
principle of innovation, (b) the principle of consumer education and Information and
the principle of consumer protection.
4. SUMMARY
Over 3/4th of the country's population are in their spending years and the emergence of
nuclear family has changed the spending habits. The customer-population is becoming
educated, better informed and quality conscious. They will have greater purchasing
power. The Indian market witnesses the proliferation of products service sector is
emerging as a major sector. Product positioning is taking a backseat. Brand positioning
is coming up. A whole lot of addition to the services at the retail outlets such as Credit
Cards, Home Deliveries etc., have become common. POP displays and personalised
marketing are being emphasised. Shop displays, contests, cooperative advertisements
etc. are forming an important part of dealer promotion. In rural areas, hoardings and
wall paintings are becoming a leading media. Exhibitions and fairs are common in
urban areas for promoting the products. Marketing is expected to become more
consumer-based with an added social concern.
It is alleged that marketing misallocates resources. It involves too much of competitive
promotion. The marketers at times forget their social responsibilities. Promotional
efforts often are offensive, misleading and untruthful. It is high time that the companies
and marketers must follow a code of ethics guided by certain principles of public policy.
REVIEW QUESTIONS
1. Examine the recent changes in the Indian Marketing environment.
2. a) What changes do you observe in the demographics and psychographics of the
Indian Consumers?
b) Distinguish between Product Positioning and Brand Positioning.
3. a) What changes do you witness in the Indian Market so far as products are
concerned?
b) Write a note on the promotional scenario In the Indian Market
4. What Is ethics In Marketing? What criticisms, are levelled against it?
5. State the important principles of public policy in relation to marketing.
REFERENCES
1. Kotler, P. & Gary Armstrong, Principles of Marketing, PHI. New Delhi, 1992
2. Mishra M.N. Sales Promotion and Advertising Management, Himalaya, New Delhi,
1994.
3. Sharlekar S.A. Marketing Management, Himalaya, New Delhi, 1993.


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