PONDICHERRY UNIVERSITY

(A Central University)

DIRECTORATE OF DISTANCE EDUCATION

Rural Marketing
Paper Code: MBMM 4001

MBA - MARKETING
IV - Semester

Authors
Prof. Atul Kumar Agarwal
Prof. Chitra Prasad Rao
Prof. B.V. Ramaligeswara Rao
Prof. Rigin
Prof. Lalitha Ramakrishnan

All Rights Reserved

For Private Circulation Only

TABLE OF CONTENTS
UNIT

LESSON

1.1

Rural Economy

2.1

Rural Marketing Concepts and Scope

15

2.2

Rural Consumers

27

2.3

Rural Vs. Urban Marketing

31

2.4

Rural Marketing Information System

41

3.1

Market Segmentation

51

3.2

Product Strategy and Product Mix Decisions

72

3.3

Product Strategies for Rural Markets

96

4.1

Pricing Strategies

117

4.2

Pricing Policies

131

4.3

Designing Right Promotion Mix

144

4.4

Sales Promotions

160

5.1

Distribution

185

5.2

Logistics Management

203

5.3

Channel Selection

234

5.4

Economic Reforms

250

5.5

New Approaches in Distribution

265

II

III

IV

TITLE

PAGE NO.

MBA (Marketing) - IV Semester

Paper Code: MBMM 4001

Paper - XVI

Rural Marketing

Objectives
To create awareness about the applicability of the concepts, techniques and processes
of marketing in rural context
To familiarize with the special problems related to sales in rural markets, and
To help understand the working of rural marketing institutions.
Unit - I
Rural Economy - Rural - Urban disparities-policy interventions required - Rural
face to Reforms - The D evelopment exercises in the last few decades.
Unit - II
Rural Marketing - Concept and Scope - Nature of rural markets - attractiveness of
rural markets - Rural Vs Urban Marketing - Characteristics of Rural consumers - Buying
decision process - Rural Marketing Information System - Potential and size of the Rural
Markets.
Unit - III
Selection of Markets - Product Strategy - Product mix Decisions - Competitive
product strategies for rural markets.
Unit - IV
Pricing strategy - pricing policies - innovative pricing methods for rural markets promotion strategy - appropriate media - Designing right promotion mix - promotional
campaigns.
1

Unit - V
Distribution - Logistics Management - Problems encountered - selection of
appropriate channels - New approaches to reach out rural markets Electronic choupal
applications.
References
1. Balaram Dogra & Karminder Ghuman, RURAL MARKETING: CONCEPT & CASES,
Tata McGraw-Hill Publishing Company, New Delhi, 2008
2. A.K. Singh & S. Pandey,RURAL MARKETING: INDIAN PERSPECTIVE, New Age
International Publuishers, 2007
3. CSG Krishnamacharylu & Laitha Ramakrishna, - RURAL MARKETING, Pearson
Education Asia. 2009
4. Philip Kotler, MARKETING MANAGEMENT, Prentice - Hall India Ltd. New Delhi
5. Agarwal A.N, INDIAN ECONOMY, Vikas Publication, New Delhi.
6. Ruddar Dutt Sundaram, INDIAN ECONOMY, Tata McGraw Hill. Publishers, New
Delhi

UNIT - I

Rural Economy

Learning Objectives
After studying this lesson, you should be in a position to:
Explain the nature of rural economy
Highlight the characteristics of rural markets
Describe the differences between rural and the urban economy
Introduction
In the present competitive world marketing of product is a challenging task.
Companies vie each other seriously for marketing the products. Identifying new market
has become inevitable for growth and expansion of any business. Markets can be classified
into urban and rural markets. At present urban markets have become more competitive
and reached the saturation level. Rural markets are having a lot of potential for business.
In the developing and developed nations, majority of the population live in the rural areas.
Therefore the scope for marketing the products in the rural areas is very high. Todays
companies have realized the potential of rural markets to a great extent. Hence they start
focusing on rural markets. The present subject Rural Marketing mainly deals with analyzing
rural economy and rural market. The nature of rural market and the characteristics of rural
customers are discussed in this unit.
Rural Economy
India is highly populated country. Majority of the Indian population lives in
the rural areas. Purchasing power of the rural people has increased significantly in the
recent past. Awareness of the rural people also increased significantly. Companies which
focus attention on rural market certainly can succeed. Rural marketing has become real
marketing. Compared to other economy, Indian economy is rural economy. As Gandhiji

once said India lives in rural areas. India has enormous potential for rural marketing.
Indias economy is predominantly rural in character. The predominantly rural character of
Indias national economy is reflected in the very high proportion of its population living in
rural areas: They were given below:
Year

Rural Population

In 1901

89 per cent

In 1951

83 percent

In 1971

80 percent

In 1981

76 per cent

In 1991

74 per cent

In 2001

73 per cent

With more than 700 million people living in rural areas, in some 5, 80,000 villages,
about two-third of its workforce was engaged in agriculture and allied activities with a
contribution of 29 percent of Indias Gross Domestic Product (GDP).
Classification of Indian Economy
Indias economy can be thought of as comprising of two main sectors, namely, the
rural sector and the urban sector. The rural sector is, in turn, composed of two main subsectors i.e. the agricultural sub- sector and the non-agricultural sub -sector. Fig. gives the
classification of Indian economy.

INDIAN ECONOMY

URBAN SECTOR

RURAL SECTOR

AGRICULTURAL

NONAGRICULTURAL
4

Classification of Indian Economy

The agricultural sector comprises agricultural and allied economic activities
such as Crop Cultivation, Animal Husbandry, Dairying, Fisheries, Poultry and Forestry
(Floriculture) etc. The non-agricultural sub-sector consists of economic activities relating
to Industry, Business and Services.
Industry refers to cottage and village industries, Khadi, handloom, handicraft,
etc. Business refers to trading of general goods, small shops, petty traders etc. Services
refer to transportation, communications, banking, postal, education etc. The size and
potential market of the rural sector could be measured in terms of the rural population, the
population of livestock, the extent of land, forest and other natural resources. According to
the population census of 1991, Indias rural population was 62.87 crore, which accounted
for 74.3 percent of the countrys total population.
Till recently, the focus of marketers in India was the urban consumer and by large
number specific efforts were made to reach the rural markets.
But now it is felt that with the tempo of development accelerating in rural India,
coupled with increase in purchasing power, because of scientific agriculture, the changing
life style and consumption pattern of villagers with increase in education, social mobility,
improved means of transportations and communication and other penetrations of mass
media such as television and its various satellite channels have exposed rural India to the
outside world and hence their outlook to life has also changed. Because of all these factors,
rural India is now attracting more and more marketers.
Increase in competition, saturated urban markets, more demand for new products
by urban customers, made the companies to think about potential for new markets. Thus,
Indian rural markets have caught the attention of many companies, advertisers and
multinational companies. Rural marketing has become the latest mantra of most corporate.
Companies like Hindustan Lever, Colgate Palmolive, Britannia and even Multinational
Companies (MNCs) like Pepsi, Coca Cola, L.G., Philips, Cavin Kare are all eyeing rural
markets to capture the large Indian market.
According to a recent survey conducted by the National Council for Applied
Economic Research (NCAER), the purchasing power of the rural people has increased due
to increase in productivity and better price commanded by the agricultural products. By
and large this rise in purchasing power remains unexploited and with the growing reach of
the television, it is now quite easy for the marketers to capture these markets.

Coming to the frame work of Rural Marketing, Rural Marketing broadly involves
reaching the rural customer, understanding their needs and wants, supply of goods and
services to meet their requirements, carrying out after sales service that leads to customer
satisfaction and repeat purchase/sales. Earlier, the general impression was that the rural
markets have potential only for agricultural inputs like seed, fertilizers, pesticides, cattle
feed and agricultural machinery.
There is a growing market for consumer goods as well. According to CIRCA 1998
survey report the rural nail polish market was pegged at ` 270 million against ` 81 million
in the cities. The rural market for lipstick was around ` 250 million, compared to estimate
at about 1,099 tonnes against 426 tonnes in the cities, while shampoos had a potential of
2,257 tonnes in the villages compared to 718 tonnes in the cities.
Even the mosquito repellent market was reckoned at ` 173 million to ignore such
a big segment i.e., Rural India. This has particularly been music to ears of big corporate as
well as multinational companies.
Development Indicators: India

1980
Agriculture

1985

1990

1995

Latest

CARG CARG
1980 1990

Unit

Average size of Ha
holding

1.8

1.7

1.6

- -1.6

Gross sown
area

% of RA

56.6

58.5

60.2

61.2

61.7

.6

.4

Area under
Rice

% of GCA

23.2

23.1

23.0

22.7

23.0

.5

.4

Area under
wheat

% of GCA

13.0

13.3

13.0

13.5

13.8

.7

1.1

Gross irrigated % of GCA

area

28.5

30.4

33.8

36.7

38.5

2.4

2.2

Fertilizer
consumption

30.7

45.7

63.9

68.0

78.7

7.6

3.0

Kg/ha

Value of
production

`/ha

Value of
agriculture
production

`/capita

Value of
mineral
production

`/capita

1950.0 5462.0 8578.0 11691.0

501.0 1305.0 1899.0

2370.0

- 16.0

6.4

- 14.3

4.5

228.3

294.5

5.2

Energy and
infrastructure
Villages
electrified

% of villages

43.4

64.3

81.3

86.0

6.5

1.1

Road length

/100sq.km.

45.4

51.3

60.4

66.1

75.0

2.9

3.2

Railway route
length

/100sq.km.

1.9

1.9

1.9

1.9

1.9

.2

.1

Post offices

/lakh pop

20.8

19.4

17.8

16.6

148.1 -1.5

30.4

Telephone
connections

/100 persons

.3

.4

.6

1.1

2.2

6.3

16.3

4.8

7.1

7.3

6.9

6.7

4.3

-1.0

4117.0 6967.0 16.1

14.4

2291.0 3816.0 13.4

13.1

Industries
Banking
Branches

/lakh pop

Deposits

`/capita

Credit

`/capita

671.0 1259.0

Credit to
agriculture

`/capita

118.0

201.0

Credit to
industry

`/capita

277.0

614.0

.8

1.0

2.3

466.0 1043.0 2075.0

271.0

408.0 11.2

8.2

1045.0 1876.0 17.2

13.2

Health
Primary health `/lakh pop
centers

2.3

- 10.9

.4

Hospital and
dispensary
beds

`./lakh pop

84.8

88.1

97.3

94.5

1.4

-.6

/lakh pop

73.7

70.9

67.7

66.3

64.9

-.9

-.7

Middle/ higher /lakh pop

schools

17.7

18.1

18.3

20.1

19.7

.3

1.3

Education
Primary
schools

Source: Center for management of Indian economy, 2000

Notes
1. CARG: Compound Annual Rate of Growth
2. Ha: Hectare
Characteristics of Rural Economy
There are 6.27 lakh villages in India. 50% of the rural population lives in villages with
a population between 1,000-5,000 people. Villages of population over 5,000 people account
for 10% of the rural population. 20% of the rural people live in villages with population less
than 500. The important characteristics of rural economy are given below:
1. Family System in India
Family is an important unit which exercises social control. In villages majority of the families
adopt the joint family system. The family bond among the family members in rural areas is
very strong. Marriage is considered as the religious obligation. Divorce is uncommon and
not accepted in the rural society.
2. Status of Women

The status of women is not good compared to men. Women enjoy less freedom in
the rural areas. Men dominate and in most cases they take decisions on their own without
consulting their life partners. However now there is a lot of improvement in the condition
of women in the rural economy.

3. Occupation Pattern

Agriculture is the main occupation in the rural economy. Agricultural activities are
traditionally carried out in villages. Supporting activities to the agriculture is also carried
out by many rural people. Generally both male and female involve in agricultural activities.
4. Income Generation

In the rural economy people mainly depend on agriculture and other related activities
for income generation. Agricultural income is a seasonal one. During harvest season they
get more income and spend money for purchasing various items. In other seasons rural
people restrict their purchases and even go for borrowing from money lenders and banks.
At present large number of rural people are migrating to urban areas as there is no assured
income in agriculture.
5. Literacy Level

The literacy level of people in rural areas is low. Particularly the literacy level of
women in rural areas is very low. Because of the low literacy many duplicate companies sell
their products easily in the rural market. Various exploitations are taking place in the rural
areas. Creating awareness among the rural people is very important.
Distinction between Rural and Urban Markets
Rural markets have many unique features which make quite different from urban
markets. In this section the importance difference between rural markets and urban markets
are discussed.
1. Population Density
It is low in the rural market. The population density in the urban area is high.
Nowadays a lot of rural people are migrating to urban areas. Therefore, the population
density in the urban areas is constantly increasing.
2. Occupation
The main occupation in the rural areas is agriculture. Agriculture is considered as
a major source for living in the rural areas. On the contrary trade, industry and service are
considered as main occupation in the urban areas.

3. Economy
The rural economy is closed and less monetized, whereas the urban economy is
open and monetized.
4. Infrastructure
The infrastructure facilities in the rural areas are poor and week. Governments
give least importance for infrastructure facilities in the rural areas. In the urban areas
infrastructure facilities are better. Nowadays urban areas becoming highly populated.
Therefore governments must also improve the infrastructure facilities correspondingly.
5. Attitude to Modernization
The attitude of rural people towards modernization is traditionally bound one.
Urban people have more exposure. They are ready for adaptation and change.
6. Family Structure
In rural economy people follow the joint family system. In urban nuclear family
system is followed. The influence of urban family system seriously affect the joint family
system of the rural markets.
7. Possession of Household Assets
It is low in rural markets. In urban markets the possession of household asset is high.
8. Mobility
People in the rural areas carry out their traditional occupation. Therefore, the
mobility in the rural markets is low. In the urban the mobility is high. Nowadays the life
time employment concept has gone in the private companies. People often change their
companies. So the mobility in urban is constantly increasing.
9. Literacy
The literacy level in the rural market is low. In urban the literacy rate is high.

10

10. Exposure
The level of exposure of people in the rural market is low. As their education level is
low they get less opportunity for having exposure. Urban people have high level of exposure.
High literacy level, access to various medias gives them more advantage for getting good
exposure.
11. Attitude of Life
People in the rural markets have fatalistic attitude. The attitude of people in the
urban markets is more scientific.
12. Manufacturing Activity
It is low in the rural markets. In the urban markets a lot of manufacturing activities
are going on.
13.

Distribution Outlets
Rural markets have fewer outlets and urban markets have more outlets.

Summary
Broadly the markets can be classified into rural markets and urban markets. As
the urban markets have become more competitive and reached the saturation point, lot
of companies now focus on rural markets. Rural markets are scattered and less organized.
Therefore, so far the potential of rural markets have not been utilized properly. But nowadays
companies are focusing their attention towards rural markets. At present the purchasing
power of rural people has increased significantly. Therefore, companies attempt to produce
the products to suit the requirements of rural people.
Indian economy is rural economy. Therefore, India has a lot scope for rural markets.
The Indian economy can be classified into rural and urban sector. Rural sector again
can be classified into agricultural and non-agricultural sectors. Crop cultivation, animal
husbandry, dairying, fisheries, poultry and forestry are coming under agricultural sector.
Industry, business and services come under non-agricultural sector.
Rural markets have certain unique features. Low literacy, seasonal income, less
organized, low level of exposure, joint family system, more restrictions in the life styles

11

and decision making are some of the important features of rural markets. There is a vast
difference between rural markets and urban markets. The purchasing power of people in the
rural market is comparatively low. They are more traditional and reluctant to adopt change.
People in the urban markets are just opposite of people in the rural markets. However,
medias are now reducing the differences significantly. Even rural people get access to many
electronic media. This increases their awareness and also now a lot of changes have taken
place in their way of life.

CASE STUDY
Sudesh Alagh is the Marketing Manager for the company MFL- Fabric Division, a
part of MFL groups of companies. The company was doing well and had earned a name in
selling reasonable variety of goods, good quality of readymade.
Garments for children and adults Sudesh received instruction from the Managing
Director of the company to identify target market and work out marketing plan for selling
garments in the rural market having a population of minimum 5000 and above.
Pre market survey indicated certain new realities.
More than seven out of ten rural households process watches.
One in fifty hoseholds have a colour television set.
Seven out of every hundred household own an electric iron.
70% of the sales of table and portable Radios, Bicycle and Cigarettes are from the
rural market.
Rural people are very particular when it comes to attributes and aspirations.
Rural consumers are more brand loyal then the urban consumers.
Rural consumers are even more particular about quality and value than their urban
counterparts.
Since the survey indicated tremendous rural market potential waiting to be tapped
MFL company decided to enter the rural market with new brand of readymade Garments
tailored to suit the need of the Rural Market. The company also decided to advertise the
product to ensure knowledge about the company and the readymade garments be made
available soon in the market. This was to be supported with sales promotion programmes
including wall poster, radio and television advertisement offers of small freebies.

12

For distribution the company decided to see that the product were available at the
local shops, with arrangements to have an understanding with the local tailors who would
be trained to make alterations to the ready-to-stitch and wear garments in various sizes,
patterns and designs for rural customers interested in going for readymade garments. It
was also decided to price the products reasonably to care of the competition from the
unorganized sector.
However, since social sanction plays an important role in rural consumer behavior,
the marketing manager Sudesh Alagh was keen to identify the reference group like the
village mukhia or panchayat head or local bank manager whose opinions carried out a lot
of weight among the rural public. The views and facts expressed by such person can act as
positive word of mouth advertising for the company.
Questions
1. Do you agree with decision of the company to enter the rural market? Why or Why
not?
2. Evaluate the marketing plan of the company.
3. Can you suggest any further improvement in the marketing plan?

****

13

14

UNIT II
Unit Structure
Lesson 2.1 - Rural Marketing Concept and Scope
Lesson 2.2 - Rural Consumers
Lesson 2.3 - Rural Vs Urban Marketing
Lesson 2.4 - Rural Marketing Information System

Lesson 2.1 - Rural Marketing Concept and Scope

Learning Objectives
After completing this lesson, you should be in a position to:
Define the meaning and scope of rural markets
Explain the features of rural markets
Highlight the roadblocks of Indian rural markets
Suggest the solutions for the problems of rural markets.
Rural Marketing- Meaning and Scope
National Commission on Agriculture defines rural marketing as a process which
starts with a decision to produce a saleable farm commodity and it involves all the aspects
of market structure or system, both functional and institutional, based on technical and
economic considerations and includes pre and post harvest operations, assembling, grading,
storage, transportation and distribution. According to Thomsen, the study of rural
marketing comprises of all the operations, and the agencies conducting them, involved in
the movement of farm produced food, raw materials and their derivatives, such as textiles,
from the farms to the final consumers, and the effects of such operations on producers,
middlemen and consumers.

15

Processes and Scope of Rural Marketing

Rural marketing has two major areas, namely, (a) marketing of agricultural products,
from rural to urban areas, and marketing of manufactured goods and services in rural
areas. In other words, rural marketing is a two-way marketing process. One is the flow of
goods from rural to urban areas and the other one is flow of goods and services from urban
to rural areas. Rural marketing also includes the flow of goods and services within the rural
areas itself. The rural to urban transactions include the agricultural products like food
gains, oilseeds, cotton, sugarcane, tobacco, etc. The urban to rural transactions cover the
goods and services of all agricultural inputs. Fertilizers, pesticides, seeds, tractors, consumer
durables like radio, bicycle, mopeds, electrical and electronic goods, etc. are transacted
from urban to rural. The processes of rural marketing are explained below:
Rural marketing involves the process of developing, pricing, promoting, distributing
rural specific product and a service leading to exchange between rural and urban market
which satisfies consumer demand and also achieves organizational objectives.
It is a two-way marketing process wherein the transactions can be:
1. Urban to Rural

It involves the selling of products and services by urban marketers in rural areas.
These include: Pesticides, FMCG Products, Consumer durables, etc.
2. Rural to Urban

Here, a rural producer (involved in agriculture) sells his produce in urban market.
This may not be direct. There generally are middlemen, agencies, government co-operatives,
etc who sell fruits, vegetables, grains, pulses and others.
3. Rural to Rural

These include selling of agricultural tools, cattle, carts and others to another village
in its proximity.
India is a land of diversity and about 70% of the Indian population lives in villages.
These villages contribute in the economic development of the nation through the production
of food grains, vegetables, fruits, etc. Export of these agricultural commodities result in the
generation of capital and earnings of foreign exchange.

16

There are 600,000 villages in India. 25% of all villages account for 65% of the total
rural population. So we can contact 65% of 680 million or 700 million population by simply
contacting 1,50,000 villages, which shows the huge potential of this market.
Indian rural market has a vast size and demand base. Before going into more aspects
on rural marketing, let us understand how rural is defined.
The Census defines urban India as - All the places that fall within the administrative
limits of a municipal corporation, municipality, cantonment board etc or have a population
of at least 5,000 and have at least 75 per cent male working population in outside the primary
sector and have a population density of at least 400 per square kilometer. Rural India, on
the other hand, comprises all places that are not urban!
The government of India only defines a non-urban market. An urban market is the
one which has a population density of 400 people per sq/km. 7% of its population has to be
involved in non-agricultural activities and there is a municipal body. If we go by statistics,
roughly around 70% of the Indian population lives in the rural areas. Thats almost 12% of
the world population.
To expand the market by tapping the countryside, more and more MNCs are
foraying into Indias rural markets.
Among those that have made some headway are Hindustan Lever, Coca-Cola, LG
Electronics, Britannia, Standard Life, Philips, Colgate Palmolive and the foreign-invested
telecom companies.
Features of Indian Rural Markets
India is a peculiar country in the world. People from different religion, culture,
and race live together. Therefore, Indian rural markets have some special features. The
important features of Indian rural market are given below:
Large, Diverse and Scattered Market: Rural market in India is large, and scattered
into a number of regions. There may be less number of shops available to market
products.
Major Income of Rural consumers is from Agriculture: Rural Prosperity is tied
with agriculture prosperity. In the event of a crop failure, the income of the rural
masses is directly affected.

17

 Standard of Living and Rising Disposable Income of the Rural Customers: It is

known that majority of the rural population lives below poverty line and has low
literacy rate, low per capita income, societal backwardness, low savings, etc. But the
new tax structure, good monsoon, government regulation on pricing has created
disposable incomes. Today the rural customer spends money to get value and is
aware of the happening around him.
Traditional Outlook: Villages develop slowly and have a traditional outlook.
Change is a continuous process but most rural people accept change gradually.
This is gradually changing due to literacy especially in the youth who have begun to
change the outlook in the villages.
Rising literacy levels: It is documented that approximately 45% of rural Indians are
literate. Hence awareness has increased and the farmers are well-informed about
the world around them. They are also educating themselves on the new technology
around them and aspiring for a better lifestyle.
Diverse Socioeconomic background: Due to dispersion of geographical areas and
uneven land fertility, rural people have disparate socioeconomic background, which
ultimately affects the rural market.
Infrastructure Facilities: The infrastructure facilities like cemented roads,
warehouses, communication system, and financial facilities are inadequate in rural
areas. Hence physical distribution is a challenge to marketers who have to find
innovative ways to market their products.
As part of planned economic development, the government is making continuous
efforts towards rural development. In this age of liberalization, privatization and
globalization, rural market offers a big attraction to the marketers to explore markets that
are untapped.
Opportunity and Size of Rural Markets
The Indian rural market with its vast size and demand base offers a huge opportunity
that MNCs cannot afford to ignore. With approximately 128 million households, the rural
population is nearly three times the urban. Due to the growing affluence, fuelled by good
monsoons and the increase in agricultural output to 200 million tonnes from 176 million
tonnes in 1991, rural India has a large consuming class with 41 per cent of Indias middleclass and 58 per cent of the total disposable income.

18

The importance of the rural market for some FMCG and durable marketers is
underlined by the fact that the rural market accounts for close to 70 per cent of toilet-soap
users and 38 per cent of all two-wheeler purchased.
Rural markets account for almost half of the total markets for products such as TV
sets, fans, pressure cookers, bicycles, washing soap, blades, tea, salt and toothpowder. The
rural market for FMCG products is growing much faster than the urban counterpart.
The market size has always been large. The size of this rural market is well over 700
million. All these individuals have needs, wants, desires and aspirations that anyone in
Urban India has. The fulfillment of these needs was by an unbranded commodity till a few
years back. Today, however, there is a rampant craving for the brand offering for a host of
needs.
The main area of concern key dilemma for MNCs eager to tap the large and fastgrowing rural market is whether they can do so without hurting the companys profit
margins as capturing rural markets could be costly.
Mr. Carlo Donati, Chairman and Managing-Director, Nestle, while admitting that
his companys product portfolio is essentially designed for urban consumers, cautions
companies from plunging headlong into the rural market as capturing rural consumers can
be expensive. Any generalization says Mr. Donati, about rural India could be wrong and
one should focus on high GDP growth areas, be it urban, semi-urban or rural.
Trends indicate that the rural markets are coming up in a big way and growing
twice as fast as the urban, witnessing a rise in sales of typical urban kitchen gadgets such
as refrigerators, mixer-grinders and pressure cookers. According to a National Council for
Applied Economic Research (NCAER) study, there are as many middle income and above
households in the rural areas as there are in the urban areas.
There are almost twice as many lower middle income households in rural areas as
in the urban areas. At the highest income level there are 2.3 million urban households as
against 1.6 million households in rural areas.
As per NCAER projections, the number of middle and high income households in
rural India is expected to grow from 80 million to 111 million by 2007. In urban India, the
same is expected to grow from 46 million to 59 million. Thus, the absolute size of rural
India is expected to be double that of urban India.

19

The study on ownership of goods indicates the same trend. It segments durables
under three groups:
(1) Necessary products - Transistors, wristwatch and bicycle,
(2) Emerging products Black and White TV and cassette recorder,
(3) Lifestyle products Colour TV and refrigerators.
Marketers have to depend on rural India for the first two categories for growth
and size. Even in lifestyle products, rural India will be significant over next five years. The
price-sensitivity of a consumer in a village is something the marketers should be alive to. It
is very difficult to establish a demand pattern in rural markets as the disposable income is
dependent on monsoon.
Apart from increasing the geographical width of their product distribution, the
focus of marketers should be on the introduction of brands and develop strategies specific
to rural consumers. Britannia Industries launched Tiger Biscuits especially for the rural
market. It clearly paid dividend. Its share of the glucose biscuit market has increased from
7 per cent to 15 per cent.
District Marketing
Mr. Francis Xavier, Managing Director, Francis Kanoi Marketing Research, wants
to see the urban-like village dweller as an urbanized person from the districts. The district
becomes the basic geographical entity. The village then becomes a location or a suburb
of a district. Since the urban-like populations in the villages are taken as a part of the
district, they will represent the dominant part of the market in most of the districts. This
will compel the kind of attention that it deserves.
This perspective removes the complexities, heterogeneity, access and targetability
that have hindered rural marketing initiatives. He feels that rural marketing requires
every element of marketing including product, pricing, packaging, advertising, and media
planning to have the rural customer as the target. This becomes applicable if we have
districts marketing as a separate entity.
Impact of Globalization
Globalization will have its impact on rural India also. It will be slow. It will have its
impact on target groups like farmers, youth and women. Farmers, today keep in touch with
the latest information and also look up what is happening globally. Price movements and
20

products availability in the international market place seem to drive their local business
strategies. On youth its impact is on knowledge and information and while on women it
still depends on the socio-economic aspect.
The marketers who understand the rural consumer and fine tune their strategy are
sure to reap benefits in the coming years. The leadership in any product or service is linked
to leadership in the rural India except for few lifestyle-based products, which depend on
urban India mainly. There has been a substantial increase in the penetration of consumer
durables in the Indian rural sector. One thirds of the premium luxury goods are now sold in
the rural market. Two thirds of the middle-income households are now in the rural market.
A study which compared the rural income and buying power established that if the
rural income in India goes up by 1%, there would be a corresponding increase of about `
10,000 crores in the buying power.
On the other hand, the urban sector has showed saturation in the recent years. The
fact remains that the rural market in India has great potential, which is just waiting to be
tapped. Some have progressed on this road, but there seems to be a long way for marketers
to go in order to derive and reap maximum benefits. Rural India is not as poor as it used to
be a decade or so back. Things are looking up!
Roadblocks of Indian Rural Markets
There are several roadblocks that make it difficult to progress in the rural market.
Marketers encounter a number of problems like dealing with physical distribution, logistics,
proper and effective deployment of sales force and effective marketing communication
when they enter rural markets. The major problems are listed below.
1. Standard of Living

The number of people below the poverty line is more in rural markets. Thus the
market is also underdeveloped and marketing strategies have to be different from those
used in urban marketing.
2. Low Literacy Levels

The low literacy levels in rural areas leads to a problem of communication. Print
media has less utility compared to the other media of communication.

21

3. Low Per Capita Income

Agriculture is the main source of income and hence spending capacity depends
upon the agriculture produce. Demand may not be stable or regular.
4. Transportation and Warehousing

Transportation is one of the biggest challenges in rural markets. As far as road
transportation is concerned, about 50% of Indian villages are connected by roads. However,
the rest of the rural markets do not even have a proper road linkage which makes physical
distribution a tough task.

Many villages are located in hilly terrains that make it difficult to connect them
through roads. Most marketers use tractors or bullock carts in rural areas to distribute
their products. Warehousing is another major problem in rural areas, as there is hardly
any organized agency to look after the storage issue. The services rendered by central
warehousing corporation and state warehousing corporations are limited only to urban
and suburban areas.
5. Ineffective Distribution Channels

The distribution chain is not very well organized and requires a large number of
intermediaries, which in turn increases the cost and creates administrative problems. Due
to lack of proper infrastructure, manufacturers are reluctant to open outlets in these areas.
They are mainly dependent on dealers, who are not easily available for rural areas. This is
a challenge to the marketers.
6. Many Languages and Diversity in Culture

Factors like cultural congruence, different behavior and language of the respective
areas make it difficult to handle the customers. Traits among the sales force are required to
match the various requirements of these specific areas.
7. Lack of Effective Communication System

Quick communication is the need of the hour for smooth conduct of business, but it
continues to be a far cry in rural areas due to lack of communication facilities like telegraph
and telecommunication systems etc.

22

8. Spurious Brands

Cost is an important factor that determines purchasing decision in rural areas.
A lot of spurious brands or look-alikes are available, providing a low cost option to the
rural customer. Many a time the rural customer may not be aware of the difference due to
illiteracy.
9. Seasonal Demand

Demand may be seasonal due to dependency on agricultural income. Harvest season
might see an increase in disposable income and hence more purchasing power.
10. Dispersed Markets

Rural population is highly dispersed and requires a lot of marketing efforts in terms
of distribution and communication.
The entire points discussed above offer challenges to the marketer. He tries to
uncover newer ways to market his product as he cannot afford to miss this huge opportunity
existing in rural markets. He tries to identify solutions to these marketing problems.
Solutions to Problems of Rural Markets
To solve the problems of rural markets in India, the following suggestions can be
used by marketers.
1. R
 egarding the problems of physical distribution, the marketer may have a joint
network of stockiest/ clearing-cum-forwarding (C&F) agents at strategic location
for facilitation of physical distribution for its products in the rural market. The main
advantage of this scheme is that the costs of physical distribution can be shared by
the companies and stockists. The combination of different modes of transport based
on availability of trucks will be beneficial to the companies. Presently, bullock-cart
plays a very vital role in rural distribution where the roads are not available. Some of
the leading companies use delivery vans in rural areas for resolving the distribution
problems in rural market. The delivery van takes the products to the retail shops in
every corner of the rural market and it enables the company to establish direct sales
contact with majority of the rural consumers which helps in sales promotion.

23

2. T
 he rural market is composed of a number of retail sales outlets along with fair
price shops under the public distribution system. It is suggested that the government
should encourage private shopkeepers and cooperative stores to come forward and
establish their business in rural areas instead of the weekly market known as weekly
bazaar. Fertilizer companies have opened their outlets for proper distribution of
fertilizer among the farmers. Similarly, the companies dealing in consumer goods
can apply this model. The company may also appoint a number of retailers in and
around the feeder towns and attach them to the stockist who distributes the goods
to the retailers as per the potential of the market. This system has the benefit of
penetrating into the interior areas of the rural markets.
3. T
 o solve the problems of sales force management, it is suggested that the company
takes due care in the recruitment and selection of sales people because the traits
they require are different from urban and suburban sales persons. For the rural
markets, only those sales people should be considered for selections who are willing
to work in rural areas. They must be aware of the local language and must have the
patience to deal with rural customers and can discharge the duties of a bare-footed
salesman. Administration of such a large and scattered sales force, supervising and
supporting them in sales calls, guiding them, attending to their official and personal
problems, and motivating them for better results should be an exacting task for the
sales manager. Thus, the people operating in rural areas should invariably be from
the rural background and should have a missionary zeal to serve the rural masses.
4. W
 ith reference to marketing communication in rural areas, the company should use
organized media-mix like TV, Radio, cinema and POP (point of purchase). Television
is gaining popularity in the rural areas but due to poor supply of electricity, radio is
performing significantly better. Since, the rural people need demonstration, shortfeature films with disguised advertisement messages, direct advertisement films and
documentaries that combine knowledge and advertisements will perform better
rural marketing communication. Here the companies may also use audiovisual
publicity vans, which may sell the products with promotion campaign. To attract
the rural consumers, companies can organize village fairs, dance and drama shows,
group meetings to convince the rural consumers about the products and services.
In most Indian villages, there are some opinion leaders. For the rural markets, only
those sales people should be preferred for selection who is willing to work in rural
areas like Sarpanch, Pradhan and other elderly persons. They can be approached by
the marketers to propagate their messages; these persons can prove to be effective
communicators within the rural masses.

24

The rural market in India is quite fascinating and challenging in spite of all the
difficulties existing. The potential is enormous. Even though, these markets have weaknesses
they also have tremendous opportunities which should be availed by the marketers. It is
well known that Markets are created and not born. The market so created should be
tapped effectively. An ideal example is that of LIC. The Life Insurance Corporation of India
generates life insurance business by appointing the insurance agent from the village itself
so that he can easily convince his near and dear ones. LIC started a scheme called Gram
Vikas where the Sarpanch is given a target to sell a minimum of 10 policy plans and the
commission so earned is spent on the development of their respective villages.
The marketers have to come up with innovative ideas through which the villagers
also get involved in getting business from their respective villages. The Indian rural market
is quite fascinating and challenging. It provides tremendous opportunities which beckon a
marketer to explore.
Summary
Indian rural market has a vast size and demand base. Rural marketing involves the
process of developing, pricing, promoting, distributing rural specific product and a service
leading to exchange between rural and urban market which satisfies consumer demand and
also achieves organizational objectives.
As part of planned economic development, the government is making continuous
efforts towards rural development. Indian rural market has 128 million households. It
accounts for almost half the total markets for TV sets, fans, pressure cookers, bicycles,
washing soap, blades, tea, salt and toothpowder. The rural market for FMCG products is
growing much faster than the urban counterpart. The market size has always been large.
The size of this rural market is well over 700 million.
The study on ownership of goods indicates the same trend. It segments durables
under three groups: Necessary products, Emerging products and Lifestyle products.
Marketers have to depend on rural India for the first two categories for growth and size.
Even in lifestyle products, rural India will be significant over next five years. The pricesensitivity of a consumer in a village is something the marketers should be alive to. It is
very difficult to establish a demand pattern in rural markets as the disposable income is
dependent on monsoon.
Globalization will have its impact on rural India also. It will be slow. It will have its
impact on target groups like farmers, youth and women. The marketers who understand

25

the rural consumer and fine tune their strategy are sure to reap benefits in the coming
years. The leadership in any product or service is linked to leadership in the rural India
except for few lifestyle-based products, which depend on urban India mainly.
There are several roadblocks that make it difficult to progress in the rural market.
Marketers encounter a number of problems like dealing with physical distribution, logistics,
proper and effective deployment of sales force and effective marketing communication when
they enter rural markets. The rural market in India is quite fascinating and challenging in
spite of all the difficulties existing. The potential is enormous. Even though, these markets
have weaknesses they also have tremendous opportunities which should be availed by
the marketers. The marketers have to come up with innovative ideas through which the
villagers also get involved in getting business from their respective villages.

****

26

Lesson 2.2 - Rural Consumers

Learning Objectives
After studying this lesson, you should be able to:
Classify rural consumers
Discuss changing profile of rural consumers
Explain the strategies to be adopted for influencing the rural consumers
Introduction
Rural consumers have certain unique features. Understanding the background of
rural consumers will help the companies to formulate suitable marketing strategies. Rural
consumers will be slower to pick up trends or brands but will remain loyal when accepted.
Further, rural consumers are ready to select premium services if they are available and
deliver value to them. Therefore, rural marketing is grooming at a greater speed than its
urban counterpart. In this lesson you can study the types of rural consumers and how to
woo them.
Classification of Rural Consumers
The rural consumers are classified into the following groups based on their economic status:
The Affluent Group: They are cash rich farmers and a very few in number. They
have affordability but not form a demand base large enough for marketing firms to
depend on. Wheat farmers in Punjab and rice merchants of Andhra Pradesh fall in
this group.
The Middle Class: This is one of the largest segments for manufactured goods and
is fast expanding. Farmers cultivating sugar cane in UP and Karnataka fall in this
category.
The Poor: This constitutes a huge segment. Purchasing power is less, but strength is
more. They receive the grants from government and reap the benefits of many such
schemes and may move towards the middle class. The farmers of Bihar and Orissa
fall under this category.

27

Profile of Rural Consumers

IMRB (Indian Market Research Bureau) and NCAER (National Council for Applied
Economic Research) have made available a few studies based on which rural consumers
profile can be arrived at.
Literacy: 23% of rural Indian population is literate and people are getting added
to this list year after year. There are still some villages which are underdeveloped.
Maximum education is primary school or in some cases high school. To this group
the marketing promotional strategy to be adopted is demonstration of product
features and advantages. Therefore, print media and posters do not make any impact
among rural consumers. Demonstrations and visual media create more impact on
them.
Income: An average rural consumer has a much lower income than his urban
counterpart. The disposable income has increased in the recent years to considerable
extent. In spite of this, the common traits of rural consumers are low purchasing
power, low standard of living, low per capita income and low economic and social
positions.
Density: Rural population is scattered across 7 lakh villages. This implies that rural
demand is scattered and urban demand is concentrated.
Influencers: There are many reference groups in a village. These include teacher,
doctor, panchayat members, health workers, bank manager and co-operative board
workers. These influencers need to be kept in mind when a marketer decides on
rural marketing.
Occupation: The main occupation is agriculture. The size and ownership of land
determines the basis for differentiation and consumption patterns.
Culture: Rural consumers are traditional in their outlook. They associate faster with
messages that match their cultural behavior.
Language: English is not a language of rural India. Hence a marketer should aim for
communication in the local language.
Media Habits: Television, radio, video and theatre are some of the traditional media
that a rural consumer identifies with.
The above are some of the factors that differentiate the rural consumer from his/her
urban counterpart. A marketer has to decide on all the above parameters while designing
a marketing plan.
28

Changing Profile of Rural Consumers

Rural consumers as studied are dependent on agriculture and were not very literate
about products and services available. This scenario is slowly changing due to increase in
literacy and disposable income. Not long ago, rural consumers went to a nearby city to buy
branded products and services. Only select household consumed branded goods, be it tea
or jeans. Earlier, big companies flocked to rural markets to establish their brands.
Rural markets today are critical for every marketer be it for a branded shampoo
or a television. Earlier marketers thought of van campaigns, cinema commercials and a
few wall paintings to entice rural folks under their folds. Today a customer in a rural area
is quite literate about myriad products that are on offer in the market place, thanks to
television. Many companies are foraying into the rural markets and educating them on
newer products and services.
The rural youth today are playing a far more significant role in influencing the
purchase decisions. They travel frequently out of the village and are the drivers of purchase
decisions regarding radios, television (black and white as well as color), automobiles and
other goods. They may not be the end customers but often are the people who influence the
purchase of high value products and they decide on which brands to choose.
Penetration levels of consumer durables in the rural sector have risen dramatically
in the last decade or so. Even the rural woman is coming out of the closet.
She is exercising her choice in selecting categories - the choice of brands may still
be with the males of the household. The prerogative of making the final purchase decisions
stills rests with the head of the family. In other words, the chief wage earner syndrome
still applies in the rural markets.
Influencing the Rural Consumers
The biggest challenge today is to develop a scalable model of influencing the rural
consumers mind over a large period of time and keep it going. This needs to be achieved
in a limited or a reasonable budget. Thats where the marketers who really understand
rural markets and advertising agencies can make a difference and develop a scalable media/
communication model.The mass media has the drawback that the time gap between the
point of exposure and the time of purchase is long. Hence it is difficult to use it in rural
communication. The most important element in rural communications is that the marketer
has to integrate 3 things in communication. These are:

29

1. Exposure of a message
2. Trial or demonstration
3. Final sale.
There is minimal brand loyalty in rural consumers. This is mainly due to a bigger
problem of brand recognition. There are a lot of looks alike in the rural market. The
challenge is to create communication that would help the rural consumer in recognizing
brands, logos, visuals, colors, etc., so that he or she actually buys the actual brand and not
something else.
Summary
The rural consumers are classified into: the affluent group, the middle class and the
poor based on their economic status. IMRB (Indian Market Research Bureau) and NCAER
(National Council for Applied Economic Research) have made available a few studies
based on which rural consumers profile can be arrived at. The rural youth today are playing
a far more significant role in influencing the purchase decisions. They may not be the end
customers but often are the people who influence the purchase of high value products and
they decide on which brands to choose. The biggest challenge today is to develop a scalable
model of influencing the rural consumers mind over a large period of time and keep it
going.

30

Lesson 2.3 - Rural Vs Urban Marketing

Learning Objectives
After studying this lesson, you should be able to:
Describe the characteristics of rural market
Outline the challenges of rural marketing
Explain the 4Ps of rural marketing
Introduction
A dramatic change is in progress in the villages. Villagers who used to crack open
peanut candies, eat the nut and throw away the shell are now demanding chocolate candies
that will melt in their mouths, not in their hands. The new advertisement of Perk featuring
Rani Mukerjee speaks about the demand created in rural markets for chocolates. Charcoal,
neem twigs and twigs of babool tree to clean teeth are replaced by tooth paste. Today, the
ultra bright shine of Colgate or some other international brand of toothpaste holds more
appeal than the traditional methods of cleaning teeth.
The terminologies being used to describe activities are also undergoing change with
respect to marketing appeal of products. Consumerism and globalization is invading parts
of India where, as some would venture to say, time seems to have ceased for centuries.
These villages and small towns, which were once inconsequential dots on maps, are now
getting the attention of global marketing giants and media planners.
Characteristics of Rural Markets
1 The rural markets are of diverse nature. There are people from diverse cultural,
linguistic and religious background. No two markets are alike and it is dispersed
across India.
2 Shift towards rural markets are mainly because of saturation and competitiveness of
urban market. Marketers do not want to neglect this huge untapped market.

31

3 The incomes of rural customers are also increasing. As seen earlier disposable
income of rural consumers have increased and they spend on FMCG and consumer
durables.
4 Rising literacy has generated a demand of life style products. Lot of youth move out
of the village and visit surrounding cities. They come back and influence decision
making.
5 Cable television has also contributed to an increase in life style. The reach has
increased and marketers are in a position to promote their products much more
easily,
Challenges of Rural Marketing
The rural market may be attracting marketers but it is not without its problems: Low
per capita disposable incomes that is half the urban disposable income; large number of daily
wage earners, acute dependence on the vagaries of the monsoon; seasonal consumption
linked to harvests and festivals and special occasions; poor roads; power problems; and
inaccessibility to conventional advertising media are some of the problems of rural markets.
However, the rural consumer is not unlike his urban counterpart in many ways. The more
marketers are meeting the consequent challenges of availability, affordability, acceptability
and awareness in rural market.
Availability
The first challenge in rural marketing is to ensure availability of the product or
service. There are about 6,38,365 villages in the country against 300 cities and 5,161 towns.
Of the 121 crore Indians 83.3 crore live in rural areas as per the census of 2011. Indias
villages are spread over 3.2 million sq km. Rural consumers are scattered therefore, finding
them is not easy.
Given the poor infrastructure, it is a greater challenge to regularly reach products to
the far-flung villages. Marketer should plan accordingly and strive to reach these markets
n a regular basis. Marketers must trade off the distribution cost with incremental market
penetration.
Indias largest MNC, Hindustan Unilever Limited, has built a strong distribution
system which helps its brands reach the interiors of the rural market. To serve remote
village, stockist uses auto rickshaws, bullock-carts and even boats in the backwaters of
Kerala. Coca-Cola, which considers rural India as a future growth driver, has evolved a hub

32

and spoke distribution model to reach the villages. To ensure full loads, the company depot
supplies, twice a week, large distributors which who act as hubs. These distributors appoint
and supply, once a week, smaller distributors in adjoining areas.
LG Electronics has set up 45 area offices and 59 rural/remote area offices to cater to
these potential markets.
Affordability
The second major challenge is to ensure affordability of the product or service. With
low disposable incomes, products need to be made for the rural consumer, most of who are
on daily wages. A solution to this has been introduction of unit packs by some companies.
This ensures greater affordability. Most of the shampoos are available in smaller packs. Fair
and lovely was launched in a smaller pack.
Colgate toothpaste launched its smaller packs to cater to the traveling segment and
the rural consumers. Godrej recently introduced three brands of Cinthol, Fair Glow and
Godrej in 50-gm packs.
Hindustan Lever has launched a variant of its largest selling soap brand, Lifebuoy.
Coca-Cola has addressed the affordability issue by introducing the smaller bottle priced
at ` 5. The initiative has paid off: Eighty per cent of new drinkers now come from the
rural markets. A series of advertisement for this was run showing people from diverse
backgrounds featuring Aamir Khan.
Acceptability
The next challenge is to gain acceptability for the product or service. Therefore,
there is a need to offer products that suit the rural market. LG Electronics have reaped
rich dividends by doing so. In 1998, it developed a customized TV for the rural market
named Sampoorna. It was a runway hit selling 100,000 sets in the very first year. Coca-Cola
provided low-cost ice boxes in the rural areas due to the lack of electricity and refrigerators.
It also provided a tin box for new outlets and thermocol box for seasonal outlets.
The insurance companies that have tailor-made products for the rural market have
also performed well. HDFC Standard LIFE topped private insurers by selling policies worth
` 3.5 crore in total premium. The company tied up with non-governmental organizations
and offered reasonably-priced policies in the nature of group insurance covers.

33

Awareness
A large part of rural India is inaccessible to conventional advertising media. Only
41 per cent rural households have access to TV. Building awareness is another challenge
in rural marketing. A common factor between the rural and the urban consumer is the
interest for movies and music. Family is the key unit of identity for both the urban and rural
consumer. However, the rural consumer expressions differ from his urban counterpart. For
a rural consumer, outing is confined to local fairs and festivals and TV viewing is confined
to the state-owned Doordarshan. Consumption of branded products is treated as a special
treat or indulgence.
Hindustan Lever has its own company-organized media. These are promotional
events organized by stockists. Godrej Consumer Products, which is trying to push its soap
brands into the interior areas, uses radio to reach the local people in their language. CocaCola uses a combination of TV, cinema and radio to reach the rural households. It has
also used banners, posters and tapped all the local forms of entertainment. Since price is a
key issue in the rural areas, Coca-Cola advertising stressed its `magical price point of ` 5
per bottle in all media. LG Electronics uses vans and road shows to reach rural customers.
The company uses local language advertising. Philips India uses wall painting and radio
advertising to drive its growth in rural areas.
Also, in India, the retailers are highly fragmented, highly dispersed. At the same
time, each of these regions serves a large population. The media penetration in rural areas
is only about 57%. It has been seen that, two out of five Indians are unreached by any media
- TV, Press, Radio and Cinema put together. Haats, mandis and melas are opportunities for
reaching the rural consumers.
The 4Ps of Rural Marketing
Most of the companies treat rural market as a dumping ground for the lower
end products designed for an urban audience. But, this scenario is slowly changing and
importance is given to the need of the rural consumer. Hence it is important to understand
the 4Ps of rural marketing with respect to a rural consumer.
1. Product
A product is the heart of rural marketing. It is a need satisfying entity to a rural
consumer. NCAER has classified consumer goods into 3 categories. These categories cover
most of the products from ` 100 to ` 20,000 and above.

34

Category I

Category II

Category III

Pressure Cookers.

2-in-1 (mono)

C TVs (S)

Pressure Pans

2-in-1 (stereo)

C TVs (R)

Mono Cassette Recorders

B and W TV (S)

VCRs/ VCPs

Wrist watches (mechanical) B and W TV (R)

Scooters

Wrist watches (quartz)

Instant Geyser

Mopeds

Radio/Transistors

Storage Geysers

Motor Cycles

Electric irons

Sewing Machines

Refrigerators

Ceiling Fans

Vacuum Cleaners

Washing Machines

Table Fans

Mixer/grinders

Bicycles
The hierarchy depends on the needs of the rural consumers. Most of the products
under category 1 are of immediate use to the family. Category 2 products reduce the strain
on the households and also act as a source of entertainment. Category 3 is a combination of
means to supplement income.
Rural branding aims at creating and disseminating the brand name so that it is
easily understood and recognized by the rural consumers. In rural markets, brands are
almost non-existent. They identify FMCG by three things:
(i) Color,
(ii) Visuals of animals and birds and
(iii) Numbers.

So a 555, 777, hara goli, pila hathi, lal saboon, saphed dantmanjan are the kind of
terms with which they identify brands.
Hence it is very important for us to understand that a lot needs to be done in terms
of communications, media, marketing and branding. There are a number of cases which
suggest that to sell brands in the rural market, it is necessary to simultaneously educate
the consumers. If you have to create brand communication, marketing efforts must be
supported by education.

35

The following issues have to be kept in mind while the marketer makes a decision
on the product.
a. T
 he product for the rural market has to be simple, easy to use and provide after sales
service or maintenance.
b. The product has to be packed for low price and convenient usage.
c. The pack has to be easily understood by the rural consumer. The information on
the pack is preferred in local language communicating the functional benefit of the
product.
2 Pricing
A rural customer is price sensitive and shops for value. This is mainly because of his
lower income levels than his urban counterparts. Hence the marketer has to find ways of
making the product affordable to the rural consumer.
Banks offer loans for tractors, pump sets, television sets and so on to make the
product affordable to a rural consumer. Smaller unit packs are preferred in the case of
FMCG products to offer at lower prices. The product packaging and presentation offers
scope for keeping the price low. Reusable packs or refills are also preferred and are seen as
value addition.
3 Placement or Distribution
Distribution of products is one of the biggest challenges of rural marketing. There are
CWC (Central Warehousing Corporation) and SWCS (State Warehousing Corporations)
set up in rural areas to store and distribute products. A three tier rural warehousing setup
exists:
CWC/SWCs
Co-operatives
Rural Godowns
CWC and SWCs reach up to the district levels. The co-operatives are at the mandi
level. The Rural Godowns are at the village level wherein they are owned by panchayat
heads. All these tiers provide warehousing facilities only to their own members.
Hence it is a big problem for a company to store its goods in rural areas.

36

There are some problems of rural distribution:

Transportation has not been fully developed.
Lack of proper channels of communication like telephone, postal services, and so
on pose a lot of problem to marketer to service the retailer as it is difficult to the
retailers to place order for goods.
Storage of goods in rural areas is also a problem for the marketers.
Multiple tiers push up the costs and channel management is a major problem for
marketers due to lot of middlemen in the process.
Availability of suitable dealers
Poor viability of rural outlets

Rural outlets need banking support for remittances to principals, get fast
replenishment of stocks, receive supplies through bank and facilitate credit. This
gets handicapped due to inadequate bank facilities.
There are a lot of private shops in the rural sector.
Retailers in Rural Markets
There are different kinds of retailers.
Shops within the village
Shops located on the main road and not exactly within the village
Kasba market or the tahsil market.
The clientele for these markets also varies. For the shops within the village, the
stocking pattern is very much dependent on the kind of investment the retailer can make
in a one-time purchase.
Margins are very important to a rural retailer. The pushing by the retailers depends
on margins and the pushing by the wholesalers depends on retailers. The gap is very wide
because the local manufacturers do not undertake investments either in terms of advertising
or anything. Hence they are very fast imitators. For rural retailers, its the question of simple
economics Am I getting more money if I invest much less on these brands? He decides
based on this question. More the margin better choice to stock and sell.

37

The rural retailer stocks few brands in each category. This may have important
implications for a company and its managers because whoever reaches the market first
gets the share of the market. The rural retailer may keep some amount of area or space for
a certain product category and he wont keep more than one or two brands. So unless the
marketer reaches there first and re-stocks at frequent intervals, he will not be able to sell
more.
The other important development has been that more number of companies are
offering smaller packs. The retailer today has far more shelf space than he had earlier.
Shampoos are available in sachets. He can simply string the shampoo sachets and hang it.
4. Promotion
Communication to rural consumer is through organized media. More number
of rural consumer (~70%) listen to radio and many go to cinema. Rural communication
can be through Conventional media or through a non-conventional media. The most
common conventional media include: Print, Cinema, Television and Print. The Nonconventional media include: Theatre, Posters, Haats and Melas. The conventional media
have excellent reach, less expensive and create a better impact. But at the same time, it is
not customized to each village and also offers unnecessary coverage at times. Low literacy
rates, culture, traditions, rural reach, attitudes and behavior are the other problems in rural
communication.
An effective promotion should plan for a proper mix of media. This is very important
to create a mind share in the rural consumers. Hence, talking to the customer in a language
known to him, advertising the functional benefits and demonstrating the product go a long
way in capturing the rural market.
The Indian rural market today accounts for only about ` 8 billion (53 per cent FMCG sector, 59 per cent durables sale, 100 per cent agricultural products) of the total ad
pie of ` 120 billion, thus claiming 6.6 per cent of the total share. So clearly there seems to
be a long way ahead.
Hindustan Lever is the first company that comes to mind while thinking of rural
marketing. Amul is another case in point of aggressive rural marketing. Some of the other
corporates that are slowly making headway in this area are Coca Cola India, Colgate,
Eveready Batteries, LG Electronics, Philips, BSNL, Life Insurance Corporation, Cavin Kare,
Britannia and Hero
Honda to name a few.

38

Until some years ago, the rural market was being given a step-motherly treatment by
many companies and advertising to rural consumers was usually a hit and miss affair. More
often than not, the agenda being to take a short-cut route by pushing urban communication
to the rural market by merely transliterating the ad copy. Hence advertising that is rooted
in urban sensitivities didnt touch the hearts and minds of the rural consumer. This is
definitely changing now but is still a slow process. The greatest challenge for advertisers
and marketers is to find the right mix that will have a pan-Indian rural appeal. Coca Cola,
with their Aamir Khan Ad campaign succeeded in providing just that.
Corporates are still apprehensive to Go Rural. Since, the rural consumers are
scattered and it is difficult to predict the demand in the rural market. A few agencies that are
trying to create awareness about the rural market and its importance are Anugrah Madison,
Sampark Marketing and Advertising Solutions Pvt Ltd, MART, Rural Relations, O&M
Outreach, Linterland and RC&M, to name a few. Also, the first four agencies mentioned
above have come together to form The Rural Network. The paramount objective of the
Network is to get clients who are looking for a national strategy in rural marketing and help
them in executing it across different regions.
Summary
The rural markets are of diverse nature. There are people from diverse cultural,
linguistic and religious background. The incomes of rural customers are also increasing.
Rising literacy has generated a demand of life style products. The reach has increased and
marketers are in a position to promote their products much more easily. The marketers are
meeting the consequent challenges of availability, affordability, acceptability and awareness
in rural market. Most of the companies treat rural market as a dumping ground for the
lower end products designed for an urban audience. But, this scenario is slowly changing
and importance is given to the need of the rural consumer.
In rural markets, brands are almost non-existent. They identify FMCG by three
things: Color, Visuals of animals and birds and Numbers. Hence it is very important for us
to understand that a lot needs to be done in terms of communications, media, marketing
and branding. There are a number of cases which suggest that to sell brands in the rural
market, it is necessary to simultaneously educate the consumers. If you have to create brand
communication, marketing efforts must be supported by education. A rural customer
is price sensitive and shops for value. This is mainly because of his lower income levels
than his urban counterparts. Hence the marketer has to find ways of making the product
affordable to the rural consumer.

39

Distribution of products is one of the biggest challenges of rural marketing. There are
CWC (Central Warehousing Corporation) and SWCS (State Warehousing Corporations)
set up in rural areas to store and distribute products. All these tiers provide warehousing
facilities only to their own members. Hence it is a big problem for a company to store its
goods in rural areas. Rural communication can be through Conventional media or through
a non-conventional media. The most common conventional media include: Print, Cinema,
Television and Print. The Non-conventional media include: Theatre, Posters, Haats and
Melas.

****

40

Lesson 2.4 - Rural Marketing Information System

Learning Objectives
After studying this lesson, you should be able:
Explain the meaning of rural marketing information system
Describe the significance of information system in rural marketing
Discuss the benefits of rural marketing information system
Introduction
The villages are the backbone or the soul of India. With more than two thirds of
the Indian population living in rural areas, rural India reflects the very essence of Indian
culture and tradition. A holistic development of India as a nation rests on a sustained and
holistic development of rural India. Farmers could use the connected computers to get
commodity prices faster, or get information on new agricultural techniques. The youth
would get details on job opportunities across the state.
The district administration could get details of problems in near real-time. The
eligible could search for matrimonial matches across adjacent villages. The voters would
communicate their concerns to the politicians and bureaucrats electronically, with a trail
of the communication. The village officials could share governance best practices faster
among their counterparts elsewhere.
The National Informatics Centre is proposing a Rural Studio initiative for
developing reusable software components and services for the rural development sector.
Computers were used in the process of governance in India, way back in the 1980s with
some of the early and popular initiatives such as the Computerized Rural Information
Systems Project (CRISP, http://crisp.nic.in) by the Department of Rural Development
(Government of India), the District Information Systems of the National Informatics
Centre (DISNIC) Project, the National Resource Data Management System (NRDMS) by
Department of Science and Technology (Govt. of India) and Surendra Nagar Experiments,
among others.

41

The Land Records Computerization Project (LRCP, http://dolr.nic.in) was another

key initiative taken by the Government of India in addressing issues related to land records
management and ownership. These projects were conceptualized and executed when ICTs,
particularly networking technologies, were in a very nascent stage in India and had not
gained roots in the government segment. Most of these projects focused on exploiting the
computing/processing power of computer systems. At the district level, computers were
primarily used to process data (spatial, non-spatial or both) related to various developmental
schemes to strengthen the monitoring and planning done by the district administration.
Information and Communicative Technology (ICT)
ICT has emerged as a new way of reaching out to the people at grass root level.
ICT applications into the domain of Indian Rural Development (RD) dates back to 1986
when the Computerized Rural Information Systems Project (CRISP- http://crisp.nic.in)
was launched in 1986 by the Ministry of Rural Development (MoRD). Under this project,
every district in the country was provided with computers and a software called CRISP
(now re-named as RuralSoft http://ruralsoft.nic.in) to help District Rural Development
Agencies (DRDAs) to manage MoRDs Programmes more efficiently. The RD domain has
come a long way now both in terms of ICT infrastructure as well as software solutions. The
results have now started trickling down to the common people in rural areas. Some of the
major grass root level ICT initiatives by NIC include:
1. Land Records Computerization
The Land Records Computerization aims at employing state-of-the-art Information
Technology (IT) to galvanize and transform the way of maintaining land records in the
country. The project is a collaborative effort with Ministry of Rural Development providing
funds to states for data collection, collation and site preparation etc. while NIC provides
technical support, training etc. Various kinds of land records software operational in
different States include Bhoomi (Karnataka), Tamil Nilam (Tamil Nadu), e-Dharni (Goa),
Bhuyan (Chhatisgarh), Apna Khata (Rajasthan), e-Dhara (Gujarat), Bhumi (West Bengal),
Himbhoomi (Himachal Pradesh) etc.
2. eNRICH Community Software Solution Framework
eNRICH (http://enrich.nic.in) is another ICT solution that has been developed as a
Community Software Solution Framework addressing the needs of rural people. eNRICH,
which was initially developed for UNESCO to facilitate intra-community communications,
was subsequently enhanced to work as a framework capable of networking communities

42

and building collaborations between government and citizens, particularly mainstreaming

the rural people who are most disadvantaged and underprivileged.
2. Agmarknet
AGMARKNET (http://agmarknet.nic.in) is a NICNET based Agricultural Marketing
Information System Network that links all important Agricultural Produce Market
Committees (APMCs), State Agricultural Marketing Boards/Directorates and Directorate
of Marketing & Inspection (DMI) regional offices located throughout the country for
effective information exchange on market prices related to agricultural produce. This web
based information system enables farmers to sell their produce in the nearest market at
remunerative prices.
3. Community Information Centres (CICs)
The North Eastern region has been traditionally less developed due to its remoteness
and difficult hilly terrain. To provide a boost to all-round development of the region
through ICT, 487 Community Information Centres (CICs) have been set up in all the
eight States of the region as part of the CIC Project initiated by the Department of IT,
Government of India. Each CIC has its own web-site accessible through http://www.cic.
nic.in and provides information on forms, rules and procedures, government tenders,
notification for employment opportunities, information on tourism, culture, examination
results, schemes, legal issues, guidelines for bank loans, weather information etc.
4. ASHA
NIC Assam in partnership with Agribusiness consortium has developed a model
ASHA for facilitating agribusiness through CIC (http://www.assamagribusiness.nic.in).
The site aims at building up of information useful for farmers and establish direct link
between buyers and sellers thus promoting agribusiness.
5. Rural Bazaar
Rural Bazaar (http://ruralbazar.nic.in) is an e-commerce solution developed by NIC
to address the marketing needs of the rural producers. The software provides provision for
simple showcasing of the products, off-line payment as well as on-line payment. It has been
implemented in the States of Tripura, Goa and Tamil Nadu.

43

6. Property Registration
NIC has developed Property Registration Systems that aim at setting quality and
time standards for all registration services.
The features include registration of deeds on the transactions relating to immovable
properties between citizens and include calculation of stamp duty; Revising the rates of
market values, Deed writing, providing computerized copies of Records of Right (ROR),
computerized history of transactions on property & land record mutation etc.
7. Panchayat Informatics
NIC has also initiated efforts to provide ICT solutions for streamlining the
functioning of panchayats to enable easy access to information and services by the common
man.
Some of the applications in this area include National Panchayat Portal, Priasoft Panchayati Raj Institutions Administration Software, e-Gram Vishwa Gram, e-Panchayat
and InfoGram.
8. e-Governance for Rural Masses
NIC has designed applications to deliver e-Governance services to the rural masses.
Some of these include:
a. Rural Digital Services
Rural Digital Services provide a single window for all government services at village
level. In the first phase of the project, the services offered include Birth/Death Registration
and Certificates (Caste, Income, Widow, Unemployment, No Tenancy etc.).
b. Lokvani
Lokvani provides citizens an opportunity to interact with government without
actually visiting the government offices. The services provided through the kiosks include
information about various government schemes, forms, list of old-age pensioners, list of
scholarship beneficiaries, allotment of food grains to kotedars, allotment of funds to gram
panchayats, land records etc.

44

c. LokMitra
Lokmitra is an initiative of Government of Himachal Pradesh that envisages taking
the benefits of IT to the door-step of general public, especially those living in rural areas
through Lokmitra Soochana Kendras set up at 25 centrally located Panchayats. NIC
provided the Lokmitra software and necessary training to the Soochaks, who manage the
Soochana Kendras. The services offered through the Lokmitra Kendras include Classified
Complaints, Forms download, Job Vacancies, Tenders, Schemes information, market rates
etc. Efforts are underway to expand this initiative to all the districts in the State.
d. Gyandoot
Gyandoot is an intranet in Dhar District that connects rural cyber cafes catering
to everyday needs of the masses. Some of the services provided, using the software
applications developed by NIC, through the kiosks set up in the villages of the rural district
include Commodity/Mandi Marketing Information System, Income Certificate, Domicile
Certificate, Caste Certificate, Driving License, information regarding Rural Markets etc.
9. Backend e-Governance Solutions
The success of how efficiently the ICT services are delivered to the common man
depends largely on the extent of backend computerization. Some of the back-end rural
informatics solutions developed by NIC are as Follows:
a. Ruralsoft
RuralSoft (http://ruralsoft.nic.in) is a solution that helps capturing monthly progress
of various poverty alleviation schemes sponsored by the Ministry of Rural Development
(MoRD) and State Rural Development Departments (SRDs).
b. Monitoring Software for DDWS Schemes
The Department of Drinking Water Supply provides funds to the states for rural
drinking water supply and sanitation programmes.
ITC - Echoupals
ITC is setting up eChoupals across the agricultural belt in India to offer the farmers
of India all the information, products and services they need to enhance farm productivity,

45

improve farm-gate price realization and cut transaction costs. Farmers can access latest
local and global information on weather, scientific farming practices as well as market
prices at the village itself through this web portal - all in Hindi. Choupal also facilitates
supply of high quality farm inputs as well as purchase of commodities at their doorstep.
This has been done in a phased approach. In Phase I, the business goal was to create
a physical infrastructure of eChoupals at the village level and create local level ownerships
through the identified Sanchalaks. At this stage the business goal was supported by creating
a local language portal, which provided the required information to farmers such as local
weather, market prices and best practices. In Phase II, the business goal was to get the farmer
registered and transacting by selling directly to ITC Ltd. through the virtual market. This
goal was supported by creating a B2B site, which integrated the transactions directly to the
back-end ERP and ensured that there was no latency in processing any of the procurement
by the processing units.
In Phase III, the business goal was to create a full fledged meta-market. In this phase,
the market would facilitate other operators like inputs providers and rural distributors to
work effectively through the eChoupal to deliver and procure goods from every participating
village. The technology road map to support this phase was to have a secure, consolidated
Farmers database with all information pertaining to their holdings and credit worthiness to
be available online. This database, along with identification provided by smart cards would
enable support for online transactions through the eChoupal leading to integration with
participating financial institutions such as banks, insurance and credit agencies.
A more detailed description of the ecosystem being created by the eChoupals comes
from a note on the World Resources Institute Digital Dividend Knowledge Bank site: This
reorganization of the role of middlemen results in lower procurement costs for ITC, despite
having to pay higher prices to the farmers. Transaction costs are also minimized for the
farmer by buying output at the farmers doorstep, and through transparent pricing and
weighing practices. A substantial quantity has already been procured through this channel,
resulting in overall savings. The savings are shared between buyer (ITC) and seller (farmer).
On the marketing front, ITC is able to maintain and grow the trust of its farmers by
enhancing their productivity and wealth. ITC leverages this position of trust among farmers,
as well as its distribution capabilities, to market its own consumer good brands and those
of partner companies offering products and services that ITC does not. Sales of consumer
goods through the e-Choupals have been particularly successful because the cost-savings
associated with dealing directly with the manufacturer allow Sanchalaks to offer goods at
lower prices than other village-level traders or retailers can afford to do.

46

A Digital Transformation
The following have been some of the initiatives of e-choupal
ITC began the silent e-volution of rural India with soya growers in the villages of
Madhya Pradesh. For the first time, the stereotype image of the farmer on his bullock
cart made way for the e-farmer, browsing the e-Choupal website. Farmers now log
on to the site through Internet kiosks in their villages to order high quality agriinputs, get information on best farming practices, prevailing market prices for their
crops at home and abroad and the weather forecast all in the local language. In the
very first full season of e-Choupal operations in Madhya Pradesh, soya farmers sold
nearly 50,000 tons of their produce through the e-Choupal Internet platform, which
has more than doubled since then. The result marks the beginning of a transparent
and cost-effective marketing channel. No doubt, this brought prosperity to the
farmers doorstep.

Farmers grow wheat across several agro-climatic zones, producing grains of
varying grades. Though these grades had the potential to meet diverse consumer
preferences, the benefit never trickled down to the farmers, because all varieties
were aggregated as one average quality in the mandis. ITCs e-Choupal intervention
helped the farmers discover the best price for their quality at the village itself. The
site also provides farmers with specialised knowledge for customising their produce
to the right consumer segments. The new storage and handling system preserves the
identity of different varieties right through the farm-gate to dinner-plate supply
chain encouraging the farmers to raise their quality standards and attract higher
prices.
ITCs Aqua Care Centre in Kakinada, Andhra Pradesh, has revolutionized the
concept of shrimp seed testing. Its sophisticated laboratory detects the deadly White
Spot virus in the shrimp seed and advises farmers on appropriate remedial action.
echoupal.com has become popular among coffee growers as an effective platform for
global trade. Coffee planters in India have for years been tossed between the highs
and lows of the international coffee market. The information needed to manage
risks in the volatile global coffee market, price updates and prevalent trends in coffee
trading were just not available to them. Launch of e-Choupal.com has equipped
Indias coffee planters with appropriate knowledge base and risk management tools.
The site arms them with the latest prices posted on commodity exchanges like
CSCE in New York and LIFFE in London. Planters have access to technical analysis
47

by experts to help them comprehend trends, trading ranges and chart patterns in
simple language. Parity Chart and the Calculator on the site convert the coffee
prices quoted in international auctions into raw coffee equivalent for the benefit
of the small growers in India. Tradersnet, a special link on the site, brings together
a large number of coffee planters, traders and roasters, creating a virtual market
for transparent price discovery. ITC empowers Indian coffee growers with expert
knowledge in logistics and risk management, thereby enabling them to face global
competition.
ITC has shown how the rural market can be tapped for mutual benefit of the
customer and the marketer. Hence, a Rural Information System caters mainly to agricultural
marketing. All the above examples give us an idea of what the government and other
organizations are doing to help in agricultural marketing.
Summary
Computers were used in the process of governance in India, way back in the 1980s
with some of the early and popular initiatives such as the Computerized Rural Information
Systems by the Department of Rural Development (Government of India), the District
Information Systems of the National Informatics Centre (DISNIC) Project, the National
Resource Data Management System (NRDMS) by Department of Science and Technology
(Govt. of India) and Surendra Nagar Experiments, among others.
The Land Records Computerization Project (LRCP, http://dolr.nic.in) was another
key initiative taken by the Government of India in addressing issues related to land records
management and ownership. A Rural Information System caters mainly to agricultural
marketing. There have been a lot of initiatives by ICT in this regard. ICT is used at advance
levels in various sectors. ICT has emerged as a new way of reaching out to the people at grass
root level. ICT applications into the domain of Indian Rural Development (RD) dates back
to 1986 when the Computerized Rural Information Systems Project was launched in 1986
by the Ministry of Rural Development. Under this project, every district in the country was
provided with computers and a software called CRISP (now re-named as Rural Soft to
help District Rural Development Agencies (DRDAs) to manage MoRDs Programmes more
efficiently. The RD domain has come a long way now both in terms of ICT infrastructure
as well as software solutions. The results have now started trickling down to the common
people in rural areas.

48

Self Assessment Questions

1.

What do you understand by rural economy?

2.

Enumerate the features of rural economy.

3.

Explain the importance of studying the rural economy.

4.

Distinguish between rural markets and urban markets.

5.

Indian economy is rural economy. Explain.

6.

Rural marketing has become real marketing. Do you agree with this statement?
Substantiate your answer.

7.

Define rural marketing.

8.

Explain the main features of rural markets.

9.

What are the drawbacks of Indian Rural markets?

10. Describe the various benefits of rural marketing.

11. Explain the roadblocks faced by companies in marketing their products in the rural
markets.
12. Study of rural market is necessary for designing rural marketing strategy. Explain.
13. How do you solve the problems of Indian rural markets?
14. Rural marketing cannot be neglected. Explain.
15. Who are the rural consumers? How are they classified?
16. The biggest challenge today is to develop a scalable model of influencing the rural
consumers mind. Explain.
17. Explain the profiles of a rural consumer.
18. How do you influence a rural consumer?
19. Describe the strategies to be adopted for influencing the rural consumers.
20. What are the emerging characteristics of a rural market?
21. A dramatic change is in progress in the villages. Explain.
22. What are the challenges of rural marketing?
23. Ensuring availability of products in rural markets is a great challenge. Explain.
24. Is affordability important to rural consumer? Why?
25. Why is building awareness a challenge in rural marketing?
26. Elaborate on the 4Ps of rural marketing.

49

27. What are the utilities of a rural marketing information system?

28. Explain some of the initiatives taken by ITC to computerize in rural areas. What
has been the benefit of such schemes?
29. What are the lessons to be learnt from ITCs E-choupal initiative?
30. How will computers change the life of rural consumers?

****

50

UNIT III

Unit Structure
Lesson 3.1 - Market Segmentation
Lesson 3.2 - Product Strategy and Product Mix Decision
Lesson 3.3 - Product Strategies for Rural Market

Lesson 3.1 - Market Segmentation

Learning Objectives
After studying this lesson, you should be in a position to:
Explain the meaning of market segmentation
Describe the bases for market segmentation
Discuss the benefits of market segmentation
Enumerate various types of segmentation.
Introduction
Companies are today developing different brands in different pack sizes and
formulations to win over the consumers. Different people want different quantities and
different mixes of benefits from the product they buy. Take detergents for example, HUL
has Surf, Rin, Shakti and Wheel powder to meet the needs of different income groups.
Palmolive has three varieties of toilet soaps offering skin care benefits to three
different types of skins of consumers. In reality they are dividing the markets into attractive
segments to reach them efficiently, serve them effectively and achieve results economically.

51

Concept and Process

Selecting and attracting markets involves three key decisions, viz., segmenting,
targeting and positioning. Segmenting is the process of dividing or categorizing market
into different groups based on one or more variables. Targeting is selecting the market
segments, which can be served efficiently and profitability. It is deciding on market coverage
strategies. Positioning is a market attraction strategy, which involves placing the brand in
the minds of the customers in the target market.
Guides to Effective Segmentation
Any process can be effective, if it has a sound philosophy and practical validity.
Segmentation can be effective only if it satisfies the following requirements:
(i) Measurable

Segments are formed with the help of certain variables. These variables should be
distinct, clear and measurable. Only then segments can be described in exact terms and
differences understood. Companies, so far, are not able to reach rural markets due to lack
of proper data. In the absence of information related to size, purchasing power and profiles
of rural consumers, they considered them similar to urbanites.
(ii) Accessible

Reach is important to serve the segments. Till recently, marketers preferred urban
markets to rural ones because of the inaccessibility of the latter. They were dependent on
the mobile vans and nearby town distributors and retail outlets to reach rural consumers.
Now, research has established that effective means of reaching rural folk is possible by
participation in hats or mandis organized weekly. Also, there is considerable improvement
in the infrastructure that makes several villages accessible.
(iii) Differentiable

Rural markets are identified as a different segment, for their responses are different
from the urban in case of some products and programmes. For instance, in case of buying
wrist watches, rural consumers differ with urban consumers.

52

(iv) Substantial

A segment is attractive only when it is profitable. A segment should as such possess
the following characteristics:
(a) Homogeneous

It should consist of people, who are similar in perceptions, learning, preferences,
attitudes and action. As such, covering them will be easy.
(b) Large

It should comprise of either large number of light users or small number of heavy
users so that marketing becomes beneficial to the companies.
It is observed that rural areas are not homogeneous. Region-wise differences are
found in language, thinking and behaviour. However, it is difficult to design separate
promotional programmes as the size of consumers is not large enough to make the effort
viable.
Bases of Segmentation
There is no one way of segmenting the market. A marketer may look for one or more
variables viz., geographic, demographic, psychographic and behavioral, to distinguish and
describe their market segments.

53

(1) Geographic Segmentation

Geographic segmentation is made based on variables like zones/regions, states,
districts, cities/town/ villages by size, density, climate and culture.

(a) Zones: The country is divided into four zones.

East: West Bengal, Assam
West: Maharastra, Gujarat, Rajasthan
North: Delhi, UP, Bihar. Himachal Pradesh
South: Tamil Nadu, Andhra Pradesh, Kerala, Karnataka.
The number of villages with a population of less than 5000 people is:
East: 1,61,982,West: 1,35,936,North: 2,00,106,South: 73,585
(b) S
 tates, Districts and Villages: The country is divided into states on the basis of
language. For the convenience of administration each state is divided into districts.
(c) Density: The density of population per square kilometer in the rural areas is very
low
(d) Climate: The country is divided by climatic conditions as follows:

Tropical Rainy - Cold

(e) Culture: Media will be effective when its messages are fine-tuned to the culture
of the people. As such, the political division is immaterial for the various media.
Ogilvy-Rural has divided the country into 56 Socio-Cultural Regions (SCR).

(ii) Demographic Segmentation

Markets are divided into segments based on variables such as age, life-cycle, gender,
family size, income, occupation, education, religion and nationality.
Age

Under 6, 612, 1319, 2040, 4160, 60+.

Lifecycle :

Infants, children, teens, young adults, elders, seniors.

Gender

MaleFemale.

Marital status :

MarriedUnmarried.

Family size :

12, 34, 5+

54

Income

` 25, 000 and below, ` 25, 001-50,000,

` 50,001-75,000, ` 75,001, ` 1 lakh, above ` 1 lakh.

Occupation : 
Farmer, agricultural labourer, artisan, non- agricultural labourer
Business, professionals, employees, retired, student, unemployed.
Education

: 
Illiterate, literate, elementary school, high School, college, and
university.

Religion

Hindu, Muslim, Christian and Others.

(a) Age and Life-Cycle

The age and lifecycle classification applicable to urban is valid to rural as well. The
specific products for the age segments are:
Age

Products

Segment
Infants

Typical Brands

Milk, Powder, cereals, soaps, diapers

Glaxo, Nestle, Johnson and Johnson,

Wipro, HLL

Children

Toothpaste,

confectionery,

sports

cycles, story books, magazines

Pepsodent, NUTRINE Britannia, Parle,

BSA, Atlas, Hero, Amar Chitra Katha
series, Chand Mama, Balamitra

Teens

Toothpaste,

Face

creams,

shoes,

Close-up, Fair & Lovely, North Star, Nike,

mopeds, soft drinks

TVS, Luna, Coke, Pepsi, Thums Up

Young

Magazines, shoes, TV, music systems,

Sport star, Computer Digest, Reebok,

Adults

computers, scooters

Philips, Sony, Samsung, HCL, Compaq,

Bajaj, LML

Elders

Briefcases, spectacles, suitings, cell

VIP, Samsonite, Ray ban, Bosche and Lamb,

phones

Raymond, Park Avenue, Tata Cellular,

Magic

Seniors

Rocking

chairs,

knee

pads,

self

diagnostic kits, medicines

Modfurn, Conybio, Cipla, Glaxo, Reddy

Labs

(b) Gender

Gender differences are observed in terms of dress, footwear, cosmetics and other
products. The peculiarities of women like gynecological problems and beauty consciousness
offer marketers an opportunity to supply unique products like sanitary napkins, estrogen
medicines, bust creams, and face packs.

55

(c) Marital Status

The influence of marital status is obvious. Some companies can benefit on this ground.
Unmarried
Residence

Small size houses/flats, working womens hostels

Eat out

Fast food centres

Occasions

Valentines Day

Married
Tourism and Hotels

Honeymoon packages

Events

Best Couple competitions.

(d) Family Size

As family size increases, consumption of consumables will increase. In rural areas,
it is found that large families with low incomes are buying consumer durables like TV. The
promotion of consumables as family product particularly in economy refill packs works
well with large families. Large families may buy more than one brand of a product to meet
specific individual preferences and tastes. As such, multi-brand consumption of a product
may be there. While, Colgate is family toothpaste, Close-up is more personalized with its
focus on the youth. Naturally, it makes inroads into families with young members and
adequate buying power and co-exists with Colgate.
(e) Income
Rural households fall under different income categories as shown below.
Income Range

% of Rural
Households

Above ` 1,00,000

3.8

` 75,001 1,00,000

4.7

` 50,000 75,000

13.0

` 25,001 50,000

41.1

` 25,000 & below

37.4

56

The importance of income in influencing the purchase decisions relating to quantity

and quality need not be over emphasized. The sale of the premium brands to low income
groups is made possible through sachet revolution.
Products offered in sachets like Velvettee shampoo, Dairy top and Colgate are highly
successful in rural markets. The high-income group provides market potential to durables
like refrigerators, CTVs and washing machines.
(f) Occupation
Occupational needs vary.
Farmer

Seeds, fertilizers, pesticides, tractors, harvesters,

Pump sets, etc.

Employee

Pens, stationery items, etc.

Doctor

Stethoscope, BP kit, medicines, syringes,

Animal husbandry :

Feed, medicines, consultancy.

The identification of specific products provides an opportunity to marketers to

develop, design and distribute products to cater to the particular markets.
(g) Education

Education provides knowledge and skill. It improves the thinking process and
facilitates understanding of issues on a higher and wider plane.
(h) Religion

The influence of religion on the consumer purchase behaviour is an important
consideration for marketers. Religion provides a code of life and links the visible real
world, with invisible world after death. It furnishes the dos and donts to be followed.

Religion

Product / Items

Occasions / Events

Christians

Church, Holy bible, cross, candles, rose, Good Friday, Easter, Christmas
water, Christmas trees, bells, stars

57

Hindus

Temples, rivers, icons of God, cotton Deepavali, Vinayaka, Chaturthi,

thread for lamps, lamps, license sticks, Krishna Jayanthi Sravan Fridays,
camphor, coconuts, fruits, betel leaves, Kartika month Margasira month
nut powder sandal paste, Kumkum

Muslims

Mosque, perfumes, white caps. license Id-ul-Fitr, Bakrid,

sticks, Holy Quran, Agar
nabi, Muharram

Miladun-

(II) Psychographic Segmentation

While geographic and demographic segmentations provide a physical view of the
markets, the true dynamics of purchase can be assessed and marketing offer can be designed
only on the basis of psychographics of the people. An example, to prove this point:
Market is divided into different segments based on three variables viz.,
(i) Social class,
(ii) Life style, and
(iii) Personality.
(a) Social Class

Society consists of a structure, which represents a hierarchy of classes or grades of
people. Caste was one of the divisions of class system in India along with wealth. However,
in recent times, social class is determined by a combination of factors like education,
occupation, income, wealth and others.

Media Research Users Council (MRUC) and Indian Readership Survey (IRS)95

have come out with a new rural Socio-Economic Class (SEC), which maps the rural market
on three variables.
(i)

Education of the chief wage earner

(ii) Ownership of durables

(iii) Type of the house (Pucca, Semi-pucca or Kuchha)
The social classes may be categorized into six groups as shown in Table

58

Social Classes - Characteristics and Preferences

S.No.

Class

Characteristics

Preferences

1.

Upper- Social elite, wealth inherited, well Jewellery, antique, farm houses,
Upper known family background, ascribed vacations, luxury, products at
status, aristocrats, small in number high prices
reference group for others.

2.

Lower- Social elite, wealth earned, educated

Upper and professional active in social and
civic affairs, aspire, and associate
with upper, upper stratum.

Status symbols cars, homes,

refrigerators, expensive schools,
exhibition products, art pieces,
sculptures, etc.

3.

Upper- Career oriented dependent on

middle education and hard work, dual
career families seek comfort,
ambitious

Quality of life, products and

entertainment, good interior
decoration, vacations, travel
and tour regular but economics
entertainment.

4.

Lower- Average paid employees, small

middle businessmen, college background,
fashion, oriented but traditional
dual career families.

Better life products, nice, homes,

nice furniture, decent school,
occasional vacations, travel and
tour regular but economical
entertainment

5.

Upper- Above poverty line Depend on

lower
loans and advances, hand to mouth,
dual career families, traditional,
strong family ties, school education

Economy, products, installment

and credit buying, low priced
popular brands and local
unbranded products.

6.

Lower- Below poverty line, daily incomes,

Lower low per capital income poor health
and hygiene, dependence on petty
loans and charity

Local unbranded products, daily

purchases, cheap varieties, buy
seconds or collect thrown out
clothes, food etc.

(b) Life Style

With the rural populace has the advent of satellite television and cable networks all
across the country, been exposed to the rich life style of the urban households. The rural
consumers brand choices are not that different from his urban counterparts. But while the
brand choices tend to converge, packing preferences dont. By and large, the rural preference

59

is for smaller packs. Wherever an option exists in case of durables, premium models are
preferred by the rural rich.

One way of life style classification is: Trend setters, Traditionalists or Chameleons

A separate classification for woman may be helpful. One such classification is: a
capable home maker, career women, and a free spirit.
(C) Personality

Personality refers to the set of psychological and physical characteristics of a individua1 that determine individual behaviour. These characteristics are unique making
individuals different from one another. Personality can be defined with the help of characteristics like self-confidence, sociability, adaptability, assertiveness, autonomy, creativity,
sensitivity, and so on.
(iv) Segmentation
Behaviour of consumers is a better guide to segment the markets. To understand the
behaviours the following questions may be raised.
When do people buy?

Occasions

Why do people buy?

Benefits sought

Do they buy once? Or more?

User status

How much do they buy?

Usage rate

Do they repeat the buy?

Loyalty status

Where do they buy?

Place-retail outlet.

What do they buy?

Products possessed.

(a) Occasions

Most of the durables are purchased during the month of January when farmers incur
agricultural income. Other occasions are festivals like Diwali and Dussehra. Also, rural
people prefer buying required goods when melas and haats are organised. As a routine,
weekends are the times of purchase by rurals at mandies and haats.

60

(b) Benefits Sought

The benefits sought from a product vary from consumer to consumer. A rural
consumer may buy a motor bike seeking one or more of the following benefits.
Status symbol
Sense of fulfillment
Convenience of transport
Economy in commuting
Based on the benefits sought, consumers are grouped and positioning is effectively
done to pull them to buy.
(c) User status

Consumers may be categorized as follows based on their user status. The
corresponding marketing actions can be given as under.
User Status

Users Action

Marketers action

Ex-user

Stopped using
Using other brand

Convince then about benefit

First time user

Trial

Assure benefits

Regular users

Repeat buy

Appreciate them and advice them

on usage. Assure service

Evidently, each category of users is to be treated as a separate segment and marketing
offer should be designed to suit each one of them.
(d) Usage Rate
Based upon the size of their consumption, consumers may be categorised as:
Light users
Medium users
Heavy users

61

(e) Loyalty Status

A market can also be segmented on the basis of consumer loyalty to brands, stores
and companies. In rural areas, brand loyalty is higher, as decisions are collectively made.
Strong loyalty is reported only in the case of Lifebuoy.
Company may design marketing actions based on loyalty status.
Loyalty Status

Goal

Marketing Action

Strong

To retain

Improve the features and promotions

Weak

To attract

Support with good promotion

Non-loyal

To convert

Heavy Sales promotion campaign

(f) Place
Rural people may buy at the following places:
Weekly haats or mandies
Occasional Melas and Jaataras
Nearest town, the feeding centre for villages
Mobile vans
Products may be promoted by developing an understanding of the place where the
potential buyers congregate mostly and prefer to buy the products. Marketers are today
considering the traditional retail spaces viz., haats or mandies as they realise their potential
in promoting sales of several products.
(g) Product Possession Categories

Targeting the buyer on the basis of products he already possesses is appropriate.
NCAER has categorized products to help marketers of durables target the next customer.
Category I products are of immediate use to the family or things which tend to be
instrumental in supplementing the income in these households.
Category II products consist of a combination of the products that ease the household
works and act as a source of entertainment.

62

Category III products show a combination of classy products that fulfill all the above
needs.
Category

Product price

Products

Below ` 1000

Wrist watches, Transistor, Fan, Bicycle, Electric irons,

Mono cassette recorder, Pressure cooker / Pan

II

Between ` 1000 Two-in-one, TV (B&W), sewing machine, Mixer-grinder,

Geyser, Vacuum cleaner
and ` 6000

III

Above ` 6000

Two-wheeler, Refrigerator, TV (Colour) VCR / VCP

Washing machine

This categorization can be used as a guideline to target the next customer. Purchases
in Category II are made after purchase of 3 or 4 items in category I. Purchases in category
III are made after purchasing 5 to 6 products in category I and II. Sometimes it can be a
straight jump from category I to category III.
Multi-Variable Segmentation
Very rarely, marketers depend on a single variable for segmentation. Target market
to be meaningful requires the use of several variables. One of the recent developments in
multi-variable segmentation is geo-demographic segmentation.
(a) Thompson Rural Market Index (TRMI)

Hindustan Thompson Associates Ltd. developed TRMI as a guide to segment
markets in the rural areas in 1972 and improved it in 1986. They compiled a data out of 335
districts, based on 26 variables. Further, they collected the value of agricultural output data
for each district. It is considered to be the overall indicator of rural market potential as it
has strong correlation with 10 selected agriculture-related variables viz.,
Agricultural labourers
Gross cropped area
Gross irrigated area
Area under non-food crops
Pump sets
Fertilizer consumptions
Tractors

63

 Rural credit,
Rural deposits and
Villages electrified
Based on the index number, the districts have been classified as A, B, C, D and E
class of markets as shown in table below.
Classification of Markets
Class of Markets

Index Range

No. of Districts

Percentage of Market

60.00 to 100.00

22

17.8

40.00 to 59.99

39

20.5

30.00 to 39.99

54

20.4

20.00 to 29.99

86

23.0

Below 20.00

154

18.3

Total

355

100.00

(b) Lin

Quest: Initiative Media developed Lin: Quest, a software package that provides
marketers with data on rural India. The data can be sorted on five parameters:
Demographic
Agricultural
Income
Literacy
Civic amenities
Depending on the product being launched, marketers will be interested in certain
parameters such as literacy levels, male-female ratios, bank deposits, income levels,
accessibility (via road, rail and water), dispensaries, schools, and distance from the nearest
town. The software allows marketers to assign a weighted average on each of these.
The package then lists all the places that satisfy the marketers criteria. For the rural
launch of a regional daily newspaper the parameters could be villages (population over
10,000), income (over ` 2000) distance from the nearest town (not more than 45 km) and
literacy levels.

Lin: Quest provides a list of districts and villages within the district.
64

(c) MICA rating

MICA has developed MICA Rural Market Rating. It is available in a CD-ROM
with digital maps and provides the relative market potential of a particular district. The
ratings have been arrived at by using six parameters.
Total value of agricultural output
Bank advances
Cropped area
Irrigated area
Number of cultivators, and
Fertilizer consumption
It also highlights the village haats- when and where they are held and the proximity
to the centre by road and rail.
Targeting
Segmentation is the process of identifying and establishing alternative market
segments. As a next step, targeting involves evaluating the various segments and selecting
how many and which ones to target. The three aspects in targeting are evaluation, selection
and coverage.
(i) Evaluation of Segments
In evaluating market segments a company has to first identify the criteria for
evaluation. The following criteria may be applied to determine the attractiveness of
segments.
(a) Profitability: The Company has to collect information on aspects required to
conduct cost benefit analysis and ascertain profitability of the segment. Relevant
information includes:
Sales volumes
Distribution costs
Promotion costs
Sales revenues
Profit margins

65

(b) Attractiveness: Marketers should know whether they should design effective
programmes to attract and serve the market skills. Smaller companies or new
companies may lack the skills, experience and resources needed to serve the
larger segments. Some segments may be less attractive when there is already more
competition.
(c) Growth rate: A segments attractiveness depends not only on its current profitability
but also future prospects. The growth rate of the segment in terms of growth in
population, rise in purchasing power, and increase in preferences for the use of the
products is to be considered.
(d) Company objectives: Company should evaluate the segment opportunity with
reference to their short term and long term objectives. If a companys objective
is to expand the sales, it has to go rural instead of pulling rural consumers to the
nearby town.
(e) Limitations: Finally, a company should examine whether the entry into the segment
is acceptable to the society and government. If its entry provokes unnecessary
criticisms, the company may have to struggle hard to explain its stand and safeguard
its image.
(ii) Selection of Segments
Segments may be ranked based on the scores obtained and be considered for
selection. Those with high scores will be accepted and others will be kept aside for future
consideration.
(iii) Coverage of Segments
Organization has three alternative coverage strategies to suit their segmentation
approaches.
Segmentation

Type of marketing

Coverage strategy

Zero

Mass

Undifferentiated

Substantial

Segment

Differential

Selective

Niche

Concentrated

66

(a) Undifferentiated strategy: Undifferentiated marketing strategy focuses on What is

common among the consumers and tries to employ it in the design of its marketing
offer. For instance, many toilet soap users prefer medicinal value, cosmetic strength,
economy and freshness feeling in toilet soap. Medimix offers all these and claims
that, it is a beauty care Ayurvedic family soap. This soap appeals to all types of
consumers.
Undifferentiated marketing strategy is adopted by some firms to promote their
products in urban and rural markets. Despite certain differences between rural life styles
and urban life style, they find some convergence. Fair & Lovely proves this point. In
the skin cream market, Fair & Lovely fairness cream, which has spread its tentacles in the
urban market has a high penetration of 75 percent in the rural market. Other such products
are Lifebuoy, Ponds talcum powder, and many others.
(b) Differentiated strategy: Differentiated marketing strategy investigates and
identifies differences between segments and tries to match the market offer to the
desires and expectations of each segment.
The results of such exercise would be-Strong identification of the company in the
product category. More costs but higher sales hence more profits and more loyal consumers.
Are companies using differentiated strategy within rural areas? Obviously, there are
products, which are exclusive to rural areas like fertilizers, tractors, seeds, etc. Following
examples explain the use of this strategy.
Sl.No. Product

Type

Segmentation

25 - 30 HP

Marginal or small farmer

50 HP

Large farmer

50 g

Middle and high income

15 g

Low income

2.

Tractor
Pepsodent

(c) Concentrated Strategy: Concentrated strategy directs all marketing efforts towards
one selected segment. It facilitates specialization in serving the segment and
achieving higher level of consumer satisfaction, delight and loyalty. However, it is
not without risks. In course of time,
Preferences of consumers may change, and Large companies may become
competitors seeing the success of this company.

67

Generally, large companies may prefer to offer specialized services as a part of

their diversification move. O& M has set up O& M Rural Communication New Work to
implement rural communication packages and devise distribution strategies.
(iv) Choosing a Coverage Strategy
The following check list guides companies in making their coverage strategy choices,
with reference to the state of the four variables for example, company resources, product
variability, product life-cycle stage and market variability. For instance, undifferentiated
strategy is to be chosen, when company resources are moderate, product variability is less,
and product is in the introduction stage in a market that has less variability.
Variable

Strategy
Undifferentiated

Differentiated

Concentrated

Company resources

Moderate

Large

Limited

Product variability

Less

More

Less

Product life-cycle stage

Introduction

Growth

Introduction

Market variability

Less

High

High

Positioning is the act of finding a place in the minds of consumers and locating the
brand therein. Companies have to plan positions that give their products the necessary
advantage in the target markets.
Positioning involves three tasks. They are:
(i)

Identifying the differences of the offer vis-a-vis competitors offers.

(ii)

Selecting the differences that have greater competitive advantage.

(iii)

Communicating such advantages effectively to the target audience.

Identify Differences
The marketing offer may be differentiated along the following lines:
Product
Services
People, or image
68

(a) Product Differentiation

Products can be differentiated on attributes like shape, size, colour, quality,
composition, and performance. Functional differentiations signify ease in process and
benefits of use.
Coke has 400 calories where as Diet coke has 1 calorie. Diet Coke is for diabetics.
Singer sewing machine stitches, memory craft can even scan designs.
Usha fighter is low priced fan whereas senator delivers air to the far corners
of a room.
Cinthol Sandal promises twin benefits of flawless, blemish free complexion and
freedom from perspiration odor owing to TCC. (Trichlora carbanalide content)
Products come in different sizes, shapes and colours.
Brand

Shape

Size

Round

150 g

Sandal

Oval

75 g

Sandal

Square

25 g

Sandal

Mysore Sandal Special

Round

150g

White, Lilac, Sandal

Mysore sandal classic with

Oval

75g

Sandal, Translucent

Close Up

Sachet

25 g

Red, blue, Green

Tube

50 g

Red, Blue, Green

Tube

100 g

Red, Blue, Green

Tube

150 g

Red, Blue, Green

Mysore sandal

Colour

(b) Services Differentiation

Services may be differentiated in respect of delivery, installation and maintenance.
Long warranty periods, free service coupons, service at phone call distance, 24 hours service,
emergency care, etc., are some examples.
(C) People

People, who come into contact with users, may quite often influence the decision
of consumers. In this era of relationship marketing, differentiation by people is worth con-

69

sidering. Service organisations like hospitals, schools, banks, road transport and telecommunication, require people who serve with smile and are efficient. Service organisations
mainly emphasize on the competencies of their people.
(d) Image

The image of a brand or company may win the consumer, even though the product
is very much similar to a competitive one. Image is built by advertisements, symbols, signs,
colours, logos, atmosphere of organisation, and social activities.
Selecting the Right Differences
When a company identifies several differences it can evaluate them with the help of
the following criteria.
Attractive

Does it provide value to the customer?

Distinctive

Is it different from that of its competitors?

Preemptive

Is it very difficult for competitors to copy it?

Affordable

Can buyers pay for it?

Communicable

Can the difference be clearly expressed?

Is it visible? Is it Understandable?

The evaluation requires the following steps:

1. Identification of attributes, which can give competitive advantage.
2. Use of a rating scale. Say, 10 point scale.
3. Rating the attributes on the five criteria viz., attractive, distinctive, preemptive,
affordable and communicable.
4. Then, developing a comparative table of competitive advantages to arrive at an
appropriate decision.
Communicating

Once the company has chosen the differences, it has to choose an appropriate
marketing strategy.

70

Summary
Today companies are adopting different strategies to reach the consumers. Companies
select the specific market to reach the consumers. Selecting and attracting markets involves
three key decisions, viz., segmenting, targeting and positioning. Segmenting is the process
of dividing or categorizing market into different groups based on one or more variables.
Targeting is selecting the market segments, which can be served efficiently and profitability.
It is deciding on market coverage strategies. Positioning is a market attraction strategy, which
involves placing the brand in the minds of the customers in the target market. There are
different types of segmentation. Geographical segmentation, demographic segmentation,
and psychological segmentation are the important types of segmentation. Segmentation
can be effective if it is measurable, accessible, differential, substantial, homogeneous, and
large.

****

71

Lesson 3.2 - Product Strategy and Product Mix Decisions

Learning Objectives
After studying this lesson, you should be able to:
Explain the product related concepts
Describe the significance of product strategy
Highlight the different strategies adopted by Indian companies for rural markets.
Introduction

A sensitization to the rural environment is absolutely vital, to ensure effective
implementation of strategies, in the framework of new paradigms that are emerging, due to the
transformations taking place in Rural India. This has to be furthered supported by an on-line
monitoring mechanism. Online monitoring mechanism enables timely mid-course fine tuning.
The learning cycle becomes complete, only when, the knowledge and experience gained
from every implementation, can be systematically transferred, through effective training
and dissemination. The central decision in marketing mix strategy is product decision.

In the emergent dynamic, competitive environment, multi-product firms are fighting hard to gain commanding market through their product strategies. It is through continuous design and redesign of product mixes a company lays its way to success and fame.
Product Concepts and Classifications

Products required in rural areas may be classified in different ways. In the process,
let us see whether there are any significant differences between urban and rural product
classifications.
(i) Based on tangibility goods are classified into two groups:
(a) Tangible goods referred to as products
(b) Intangible goods referred to as services.

72

Table shows the difference between product and service.

Distinction between Product and Service
Characteristics

Product

Service

Tangibility

Yes

No

Separability

Yes

No

Variability

Sometimes, customization

Yes

Perishability

Some products

Yes

Examples

Soft drinks, office

furniture, houses, etc.

Repairs, hotel services, legal

services, medical services etc.

Distinction based on the purpose of use

Purpose

Type

Composition Consumer
Production

User

Products

Households

Toiletries cosmetics, beverages,

home appliances, etc.

Industrial / Agri- Industries frame Raw materials, components,

cultural goods
/ poultries etc
agricultural inputs and machinery, animal feeds, etc.
Distinction based on the functional life of the products
Nature of use

Functional Life
period

Consumables

One time

Short

Food & beverages, soft drinks

Durables

Life time

Long

Furniture, computers, cars, cameras

Type

Example

Cheaper goods are those, which are characterized by, low quality and low price.
They perform the core function but they lack certain attributes, which make their use less
comfortable, less pleasant and less desirable.
Shopping Goods.
Examples
Clothing, furniture, home appliances, etc.

73

Moderate Occasional Complex.

Examples
Jewellery. silk sarees, cars, bungalows, high priced cosmetics, toiletries and perfumes
(vi) Products Based on Product Development
Imitations (Novelties, Me-too goods, Copy Cats)
Innovations
Innovation is the key for survival in a highly competitive environment. A company
which innovates always has an edge over others.
1. Every organization will have to learn to innovate and this can now be organized in a
systematic process.
2. Product mix of the companies is heavily skewed towards me too types of products
and their success largely depends upon the companys expertise in developing and
using marketing innovations thereby enabling them to get differential advantages
for their me too products against those of their competitors.
3. Implementation of marketing innovations on a national scale involves a lot of risk
and therefore it is desirable that the companies experiment these innovations in
controlled areas and verify their results before they are finally adopted on a national
scale.
Imitations
Imitations may result in two types of goods depending upon the purpose commitment,
and competence of imitator. A poor imitator will end up in producing deceptive spurious,
fake, copy cat products. He dupes the gullible customer by offering products having close
resemblance with the original. In quality, it is a poor cousin to the original. On the other
hand, the competent imitator may even produce an improved version of the original
product.
Original Product
Lifebuoy

Imitations
Novelties

Copy cat

Nirma buoy

New Lime Buoy, Nimba buoy

74

Colgate

Pepsodent

College

Nirma

Wheel

Neerbha, Nima, Narima

Fair & lovely

Fairever

Friends & Lovely

Significance of Product
Product strategy refers to the long-range competitive plan involving decisions on
products, product line and product mix to make proper utilisation of resources and achieve
marketing goals.
Significance
An effective product strategy offers the following benefits.
(i) Achieves Product - Market Fit

A well thought out product strategy will be able to offer products based on market
needs. Thus, it achieves product market, fit and avoids the pitfalls of marketing myopia.
Consequently, it provides insurance for survival.
(ii) Encourages Innovativeness

The key of product strategy is innovation with a view to fine tune the market offer to
the current and future needs of customers. Product strategy relies on creativity processes,
methods and techniques. Innovation is an in-built feature of product strategy.
(iii) Provides Competitive Edge

In this competitive era, marketers need good intelligence on how to anticipate
competitive moves and launch their new product. Companies will have to use product
strategy to attack and to flank their competition, to defend their positions, and to wage
guerilla warfare.
(iv) Makes Better use of Resources

The product additions and deletions, based on rational appraisal of marketing and
production strengths and weaknesses allow for better utilization of physical, financial and
human resources. It thus helps achieve high productivity levels. Consequently, there will be
no idle capacities and no demoralized work force.
75

Scope
Product strategy embraces decisions at three levels.
i)

Product mix

ii) Product line, and

iii) Product item
Various strategies adopted at these levels are given in Table
Product Strategies - An Overview
Level

Strategy

Product Mix

Width extension New Product lines

Length extension New product items
Depth extension new product variants

Product Line

Stretching Upward, downward, both ways line pruning line

modernization

Product item

Quality, Features, Design, Brand and Package

Augmentation
Product Mix Decisions

Product mix is a set of all product lines and items offered by the company.
Horizon one

Horizon two

Horizon three

Soaps and Detergents

Popular foods

Direct-to-home products

Beverages

Culinary products

Value-added foods

Oil and Dairy fats

Personal products

Bread and biscuits

Specialty chemicals

Ice-creams

Animal feeds

Home care products

New Beverages

Profitable growth

Top line growth

76

Development and learning


Product line is a group of closely related products priced within a range and
distributed the - some channels to the same customer groups. It has two dimensions: Length
and Depth.
Length -

It refers to the total number of items in the line.

Depth -

It is the total number of variants to product items.

Length of Product Line

How long the product line should be? It is like asking, how long re legs should be?
The reply to this question is: long enough to reach the ground. Similarly, product- line
length should be evaluated in the light of company profitability. If profitability can be
increased by dropping items, the existing length is more than necessary. If profitability can
be increase: adding items, the existing length is short.

There is a need to work out optimal length. It should be neither too short nor too
length. Arguments in favour of short and long lines are summarized below.
Short line

Long line

When focus is on specialization

If companies want to be positioned

as full line companies

As a consequence of contraction As a result of flanking strategy

defense strategy
If profitability is the objective

If market growth and market-share

are the objective

When line pruning is done, Loss Product line proliferation. Zealously

making products are dropped
new products are added. A sort of
undisciplined growth.
Life Stretching

Line stretching is lengthening the product line beyond its current range. The stretch
can be in three directions:
Down ward

adding lower end items

Upward

adding high end items

Both ways

adding items at both higher and lower ends

77

Reasons
The line stretching decision is made for the following reasons:
Reaction- As a reaction to competition, innovative product items are added.
Opportunity- To utilise the existing market gap, new items are introduced.
Image- To have a full line company image, rolling upward or downward or both
ways is done.
Pressure- Yielding to pressure of sales force and dealers, new
introduced.

product items is

Strength- To use the available excess capacity, line stretching is done.

Desire- To fulfill the desire of a top executive or product manager, to introduce a
new product item, line stretching is done.
Line Pruning
Product lines tend to lengthen over time. Sometimes they are stretched on rational
rounds. At other times, they are lengthened because of emotional reasons. In either case,
some dead wood will accumulate. It is weeded out based on periodical review of the
contribution of product items.
The product items can be classified as:
(i)

Traffic builderswhich attract customers but generate marginal incomes

(ii) Bread winnerswhich generate major share of incomes

(iii) Parasiteswhich incur losses and depend on bread winners.
Product line pruning may be done when:
It is identified that dead wood is depressing profits, and
It is found that the production capacity is limited and cannot handle all the existing
products.
Line Modernization: When technological developments change the products,
a decision to amp the old line and design a modem line becomes inevitable. The
modemisation decision is to - taken with great care. The aspects to be considered
are:

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1. TimingIt should not be too early or too late. Remember, Strike the iron while
it is hot. Proper timing of modernization decision is important. The timing
decision requires information about
Conversion readiness of consumers from old to new products
Competitors moves
Profitability levels of existing product line.
2. Approach- Whether the change is total or piece-meal? The merits (+) and demerits
(-) of these two approaches are given below.
Total

Piece-meal

- Requires heavy cash flow

+ Less draining on companys cash flow

+ Surprises, competitors no chance to - Allow competitors to see changes and start

imitate
designing their own time.
- Implementation of change involving + People affected by change easily understand
dealers and customers is difficult
and adopt.
The example of HLL provides a clear understanding of contemporary line
modernizations attempts.
HLLs soaps, detergents and household care business continued to grow ahead of
market despite the recessionary trends and growing competition.
Rapid innovations in Products and the supply chain, backed by aggress, marketing
and distribution achieved this performance, Rural market accounts for about 50-60 per
cent HLLs Sales of detergents soaps and household care products division which in turn
contributes 40 per cent of HLLs total sales.
I Personal Wash Category

The top-end (premium toilet soaps) segment witnessed the launch of Savlon and
Lint Rain Fresh Lux International was re-launched Intensive sampling activities were
initiated on Dove, Liril Lux and Rexona continued to gain sales.

In the discount segment, a new herbal variant of Breeie was put on test market,
Breez and Jai continued as before. Lifebuoy Gold and Lifebuny plus were relaunchad,

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II Fabric Wash Category

In concentrates segment at the top end of the market international, Surf Excel was
re-launched with properties to remove even dried stains. In the mid-price segment, Rin
Shakti powder and bar were re-launched; With superior formulations Sunlight powder and
Super 501 bar be are re-launched.
In the mass-market segment, Blue Wheel powder was re-launched with new active
system. Wheel powder was also made available in sachets priced at ` 1 to further increase
penetration among low-income rural consumers, The franchise was extended with the test
market Of international Wheel Active offering stain removal at an affordable price and the
entry of Wheel laundry soap.
3. Household Category
Vim Dish wash Bar was re-launched with a superior formulation, Vim Bar, the first
such product fuelled the growth of dish wash bar segment by Over 200 per cent in the last
five years. It is converting consumers from unbranded proxy products like ash and mud to
branded products
The Domex range of surface cleaners also sustained growth,
Product Item Decisions
Product or service is an offer made by marketer that has the ability to satisfy the
needs and wants of customer. Products are physical and tangible. Examples are fertilizers,
mosquito repellants, analgesics and footwear Services are intangible and people-based or
equipment
Examples is soil testing, retailer advice, training and health care.
The key consideration in individual product/service offer is developing of the
product at three levels.
1. Core product development
2. Tangible product development
3. Augmented product development

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(1) Core Product

Core product refers to the benefits, which are specified by consumer needs. What is
the consumer really buying? Core product developer has to focus on the needs of consumer.
Product is to be seen not from manufacturing point of view but from marketing point of
view. Business is to be viewed as a customer satisfying process, not a goods-producing
process. Products are transient, but basic needs of customer groups remain. Table illustrates
this point.
Relationship between old products and new products
Needs

Old products

New products

Brushing
Teeth

Neem sticks, Charcoal, Ash

Rock salt, Husk, Powder mixtures

Tooth paste, tooth powder and

liquids

Washing
vessels

Coconut fiber, Earthy materials, Washing

brick powder, Ash
liquids

Transport

Bullock cart, Horse,

Chariots, Palanquins

Irrigation

Wells, Canals, Water lifters Wind Bore-wells,

Motors,
mills
generators, Pump sets

Hair wash

Shikakai powder, Aricanut (soap Shampoos And Hair Care Soaps

nut), Besan

soaps,

powders,

and

Donkeys Tractors, LCVs Mopeds, Scooters,

Motor Cycles, Trains, buses
Powers

A product that provides the important form utility and ensures performance of the
basic function is the core product. The testing question therefore is:
Is the product capable of fulfilling the needs of customers?
Taking the above examples, the relevant questions are:
Can the toothpowder brush the teeth clean?
Can the tractor run, even when, the soil is muddy, and roads are rough?
(ii) Tangible Product
When psychological needs are specified in physical terms, product concept becomes
visible and operational. Any product or service has five characteristics.

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1. Quality
2. Features
3. Style/design
4. Packaging
5. Branding
It is in these terms that a consumer expresses and expects benefits from a product to
satisfy his needs. Accordingly, marketers have to design and communicate product with
the above five Characteristics.
The task involves answering two questions:
1. What is each characteristic to the consumer?
2. How much of each is to be incorporated in product design?
(a) Quality

It is the first characteristic of a product and service. What quality signifies the ability
of product to meet the following expectations?
Durability-It should last for a certain period
Capacity-It should possess the requisite ability to function
Efficiency-It should function better to give desired outcomes with less inputs
Economy-Its operational cost, time and energy are less
Reliability-It is dependable in providing the desired function and results.
Product designers should necessarily interact with marketers to know how consumers
evaluate quality of a product. Is the consumer dependent on technical specifications? Or
has he any other parameters to decide quality levels?
Experience tells that consumers develop their norms, notions and beliefs to sense
quality. By knowing them, product designer has to provide physical signs and cues, which
represent them. These are termed as emotional specifications.
For instance, a rural consumer views heavy watches as quality watches; he judges
quality of cement by its bitter taste. Table provides technical specifications and emotional
specifications of a few products.

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Technical Vs Sensory Specifications

Product

Technical (Rational) specifications

Sensory (emotional) Specifications

Watches

Mechanical or Winding type

Weight

Moped

Fuel efficiency, power Capacity in Style and colour Noiseless

liters

Coffee

Coffee, Chicories content

Smell

Success in marketing depends on offering the desired quality products to market

segments which will be profitable. We find successful products on a quality spectrum in the
market. The following figure shows examples of products on the quality continuum.
Quality

High

Product

Surf Excel Nirma

Rin

Toilet Soaps Lux

Low
Wheel
Lifebuoy

Santoor
Supreme
Quality Spectrum
(b) Features
Humans are progressive in thinking and behaviour. They are never happy with
what they have. They continually seek improvements, for more comfort and convenience.
In a lighter vein, someone remarked, when hunger is satisfied, people demand music.
Evidently, bare-bone models of product do not satisfy consumers. They look for features.
What? Features are extras to a product, which are of value to the buyers. Features
are of two types.
1. Rational, problem-solving
2. Emotional, fancy
The consumer of a product seeks solutions to the problems he has in using the
product. Also, he is willing to pay for the solutions. It is the willingness to buy solutions
that leads marketers to add features to the stripped-down model.

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The second type of features is those which capture the attention of the buyers. They
are less functional and more fanciful. Table presents the features of some products.
Features of Products
Emotional

Product

Rational

35 mm Camera

Focusing

Auto-focus

Color

Lighting

Flash

Size

Carrying Flash
Bare-bones models do not completely satisfy people. Consumers look for features
which are of value to them.
How many? Based on market research studies, one can identify numerous feature
ideas. They require screening and evaluation on the prime considerations outlined here
below.
1. C
 onsumer point of viewdesirability and affordability of consumer. What is the
perceived value of the feature? What price is he willing to pay?
2. C
 ompetition point of viewIs it necessary, in view of competition? What are the
features of the products of competitors? What features they propose to add? What
features we have to add to become even with competitors? To excel them?
3. C
 ompany point of viewJs the feature profitable? If cost-benefit analysis reveals that
feature costs are lower than the price, the feature is viable. It can be added.
(c) Design and Style

Design means the arrangement of parts, form, colour, etc., so as to produce an
artistic unit with functional structure and attractive shape.
Style represents the characteristic manner of appearance and function.
A designer has to give consideration to the functionality, aesthetics, ergonomics,
and convenience of operation, ease of repair and service and costs. Good design contributes
to product usefulness and attractiveness. Design descriptors include words like compact,
sleek, elegant, sensational, unusual etc. Table illustrates the designs and styles of some
products.

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Design and Style of Products

Product

Design

Style

Gold Flake Filter Kings

Elegant

Gracious

Annadatha Magzine

Trim and Plain

Smart and wise

Garden Sarees

Geometric

Modern

It is through design that a product acquires structure, shape and style, the three
components of personality. Brand personality considerations occupy central place of
marketers decision making in respect of positioning and target marketing.
Packaging
Every product requires a package and label. Packaging is providing a container or
wrapper for a product. Packaging is done at three levels.
1. Primary Package: It holds the product for example, bottle
2. Secondary package: It holds the primary package for example, Cardboard box
3. Shipping Package: It helps carry the packed products from one place to another for
example, corrugated box
All products need shipping packaging as they are to be transported to different places.
It is mainly required for the protection, handling and convenience of the product. Some
products need secondary packaging for example, after-shave lotion, hair dyes, toothpastes,
fairness creams, toilet soaps, etc. Some products are sold with primary packaging for
example, talcum powder hair oils, edible oils, beverages, etc. Therefore, marketer has to
make primary packaging appealing in case of all products. The secondary package should
be made attractive, wherever necessary.
Today, we see a variety of packages in use. They appeal consumers at three different
levels: sensory, emotional and rational. Various considerations are necessary for creating
appealing packages at the three levels as given in Table.
Three Levels of Appeal by Packages
S. No.
1.

Level
Sensory

Purpose
Package
Attention

Package characteristics

Determinations

Attractive Distinctive Visibility Easy to identify

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2.

Emotional

Interest
Desire

Adoptability
Compatibility Easy to carry
Communicability
Easy to use
Easy to store
Attractive to reuse
Easy to dispense

3.

Rational

Evaluation

Informative
Interactive
Preservative
Economical

Easy to know
Easy to store
Good to reuse
Fair price

Now we consider the examples of different packages that offer different benefits.
(i)

Easy to identify and easy to recognize:

Different shapes

Different sizes

Different colours

(ii)

Easy to carry, easy to use and easy to dispense:

Tetra packsSoft drink, Milk

Polythene coversSanitary napkins, Dairy milk

Metal, Plastic tubesToothpaste, Medicines (ointments), Fairness

Creams Cardboard/paper packsToilet soaps, Hair dyes, Shaving

creams, Mosquito coils Small bottlesHoney, Sauce, Jam, Tonics and

Synips (kids)

Spray bottlesAir fresheners

Tear sheetsMedicines (tablets), mosquito mats

Tins-Threptin biscuits, Protex, Ovaltine, Lamitubes,Cherry blossom

(iii) Good to store: Food grade plastic/glass bottles-Beverages like

Bournvita, Boost and Horlicks, Edible oils like Saffola and Sakola.

(iv)

Attractive to reuse: Good to store bottles are often reusable.

(v)

Easy to evaluate: Purchase decisions are based on evaluation of the following.

1. Product quality
2. Product use information
3. Life period of the product.
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Through labeling or by presenting information on the package, evaluation process

is made easy. Packages are becoming interactive to permit easy evaluation by sight and
smell.
Branding
Contemporary marketing relies on branding to give products an identity, personality,
image, equity, and attractiveness
Brand Concept
Brand is a name, term, sign, symbol, design or colouring or a combination of them,
which help identify sellers products and differentiate them from those of competitors.
Examples
Brand Name

Marks

Lion Honey

Lion

Dabur Chyawanprash Rishi

Asian Paints

Gattu

Goodlass Nerolac

Tiger

Kelvinator

Penguin

Kingfisher

Kingfisher

Brand Name

Marks

Nivean

Bright Blue

Eveready, Coke, Lifebuoy

Red

Maggi noodles

Red and yellow

Liril

Lemon green

Tata Tea

Green

Max Tea

Green

Maxtouch cellular

Orange and black

Tide

Orange

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Branding Policy
Branding decisions are not easy ones. Branding dilemmas include:
(i) To brand or not to brand?
(ii) Sponsorshipcompany or middlemen?
(iii) NameIndividual or family?
Branding
The need: The arguments for and against branding are briefed here.
Arguments for
1. Identity Helps Processing:

Brand name gives identity to a companys product. It helps recognition and
processing easy for the company, distributors and consumers. It thus saves costs and time
in manufacturing, warehousing, transporting and order processing for the company in
selling. Distributors can reap similar benefits in handling the products and selling them.
Consumers find it easy to spot and select the product.
2. Image gives Competitive Advantage

Brands earn recognition and reputation by their performance. The image helps the
existing products in the line as well as new products. It gives commanding position to the
marketer to charge higher prices than competitors and to convince distributors to carry the
products.
3. Personality convinces consumers:

Brands in course of their association with consumers develop personality. Advertisers
take this opportunity to match personality of brands with that of prospects. It helps build
brand loyalty-a lasting companionship, a strong bondage between a brand and consumer.
4. Equity enhances value

Brands by their popularity not only enhance their value-in-use but also value-inexchange. A company that has built brand image over a period of time by its incessant
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innovative effort gets a reward for example, premium price offer for its brand from a
competitor or interested entrepreneur willing to own it.
Arguments Against
1. Investment-Returns Doubtful

Brand building is not an easy task. It requires a great deal of long range investment. It
is to be supported by R & D investment, advertising budget and dealer discounts. However,
there is no assurance of returns. Many brands have failed. Many are struggling hard despite
the good images they have built over a time.
2. Image and Personality an Emotional Nonsense

All the talk about brand personality and image are psychological fantasies created
by self-seeking marketers. No product sells on brand name. Only when it fulfills a need,
it stays and succeeds in the market. The image of a product or brand cannot help other
brands. Instances of such failures are many. Brand personality issues are more academic
rhetoric. It is an overstretched concept with little practical value. When a person buys the
product, the overriding, considerations are cost (price and operational economics) and
functional benefits. It is true with a vast majority of consumers.
3. Brand EquitySensible but not New

Brand equity concept replaces the old term good will. It is not, something new to be
argued in favour of a brand. It is outcome of business built over a period. Why marketers
glorify branding in this context? It is only an identification factor that helps marketers
promote distinctiveness.
Brand Sponsoring
The marketer has to decide who has to sponsor the brand? Alternative ways are:
1. Manufacturer brand (National brand)
2. Distributor brand (Private brand)
The development of super markets and retail chains provides the opportunity to
leave branding to distributors. The go and no go reasons for manufacturer brands are
stated below.
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Manufacturer Brand
Go

No Go

Consumer prefer certain national National brands are high priced, Local brands
brands
are relatively cheap. Due to price advantage,
sales will be low.
Many product categories are not National brands are quality products. But
feasible or attractive on a private consumers accept product in a quality range. If
brand basis.
there is a low priced local product in the same
quality range, they prefer it.
Branding reduces marketing costs and
improves sales opportunities by its
Only when consumers affordability and quality consciousness are reasonably fair,
national brands will be successful. Today, companies are seriously considering supply
chain management to make distribution more active, creative, competitive, productive and
profitable. The change in this direction favours branding by manufacturers.
Brand Identity
The primary purpose of branding is creating an identity of the product. However,
there are two important considerations.
1. Name what?
2. Name how?
Name What? The key questions are:
Should each product be given a brand name?
Should each group of products be named with a family brand name? Or all products?
Should company trade name be associated with the brand name?
The branch naming options are related to product levels, as indicated below:
(1) Product 1evel-1ndividua brand names
(ii) Product line level-Product group family names
(iii) Product-mix level-Blanket or umbrella family name.

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Individual Names

The policy envisages a separate brand name for each individual product. This can be
done with or without associating the company trade name.
(A) Individual Names Without Company Name
The examples are:
Godrej

Cinthol, Marvel, Ganga

HLL

Lifebuoy, Liril, Lux, Pears

P&G

OralB, Ariel

Merits
The image of the company is not affected by failure of the individual brands.
The company is free to introduce low quality products without any adverse impact
on the image of high quality products in the line. Also, it can introduce high end products
without being bogged down by low end products. The strategy allows searching for brand
names that evoke desired associations and positive response from target consumers.
Demerits
Too many brand names result in confusion. Also identification of products with
their company is difficult.
Development costs (name, identification, research, expenditure and name recognition advertising expenditure) are to be incurred for each brand. When added up
they make development costs high.
The spillover benefits of successful brands are marginal.
Overzealous product managers may launch new brands without proper analysis and
caution.
(b) Individual Names with Company Name
Some companies prefer to tag individual brand names with the company trade name.

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Examples
Ponds

Ponds Dream Flower Talc, Ponds Magic

TVS

TVS5OXL

Wipro

Wipro-Shikakai

Merits
Company name legitimizes, whereas an individual name individualizes the product.
The image and benefits of successful products help other products of the company.
Demerits

Product failures tarnish the image of the company.

Product group family name: Multi-product group companies may choose to name
different groups with different family brand names.
Merits

Helps promote a group of products. Hence development costs are less.

Failure of a product will have limited negative impact on its group only.

Different groups need different psychological associations. Different brand names

help evoke different and appropriate responses.
Demerits

Individual items will not have sufficient brand power and recognition.

Blanket Family Name

This policy advocates naming all the products of a company with one name family
brand name.
Examples are:
Usha-

fans, sewing machines, industrial pumps

Nirma-

detergent. toothpaste, soap

Colgate- dental cream, toothbrushes

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Merits
Development costs are very less. Under the umbrella brand name all products get
easy recognition.
The fear of failure makes management cautious in launching new products.
Marginal products also do better aided by the success of other products.
New products get instant recognition. It saves time and money during product
launch.
Demerits
Unsuccessful products may dilute the company image.
Brand name alone cannot help sell products. A variety of cues, stimuli and associations
for different products are to be created to make the brand desirable.
Name How? Names generate some distinct thoughts in the minds of the people. The
name Sita is associated with Virtuousness, Bhima with strength and Arjuna with Chivafry.
Brand names in similar way reflect particular characteristics and accomplishments.
Following guidelines help name brands effectively.
Easy to use
Easy to understand
Easy to distinguish
Table shows examples of effective brand names.
Effective brand names
Guideline

Description

Example

Easy to use
(Learning and
memory)

Short, simple and easy to

pronounce, read and remember

Tide, Surf, Rin, Colgate

Easy to understand
(Associate)

Meaningful and suggest

characteristics, and functions of
product

Ever youth Coltage, Super

Shakthi, Medimix, Kleenex,
Amrutanjan

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Easy to distinguish
(Preference)

Unique, peculiar and distinctive,

Not a close imitation to another
product like the ones given as
examples

Clinic plus, Pepsi,

Oraagnics, Vicco
Vajradanti, Parachute, Kit
kat

The association of brand grows larger beyond the product with which it is first
associated. Brand identity starts slowly with the product to which the name is given. It
grows next to become a symbol, a person and finally an organisation.
Take Philips. Philips brings to our mind electrical products; it stands as a symbol
for quality, it presents an energetic, capable, illustrious person, and an innovative great
company. Thus, a brand is a product, a person and finally on organisation.
(iii) Augmented Product
Marketers should have vision to look at the specific needs (core products) of
consumers, and also their related requirements. He needs a broader view to have the whole
picture of the consumption c the consumer to woo him or her with the right offer. It also
helps differentiate his offer with that of the competitors. The holistic approach helps to
systematically differentiate the offer. Table shows components of an offer.
Components of an Offer
Product related

Services related

Channel

Quality

Ordering

Design / Style

Delivery and credit

Expertise

Features

Installation

Performance

Packaging

Customer tracking

Courtesy

Augmentation requires fortifying the product strategy with additional force drawn
from other Products as a result, the product offers make buying and using a pleasant and
exciting experience. As Karl Van Clause with advised the greatest possible number of troops
should be brought into action at the decisive point. This is the principle of force
Following it, to win brand battles, a marketer has to assemble a wide range of benefits
to make the offer complete, different and strategically superior.

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Summary
Product strategy refers to the long range competitive plans involving decisions
on products, product line and product mix. Product strategy offers many benefits. First,
product strategy helps to achieve product market fit. Second, product strategy encourages
innovativeness. Third, it provides competitive edge. Fifth, product strategy makes better
use of resources. Product strategy embraces decisions at three levels, namely, product mix,
product line and product item. Product or service has five characteristics. Quality, features,
style/design, packaging and branding are the important five characteristics of product or
service.

****

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Lesson 3.3 - Product Strategies for Rural Markets

Learning Objectives
After studying this lesson, you should be able to:
Explain the significance of product strategy in the current marketing environment
Discuss the levels of product decisions
Evaluate the effectiveness of product-mix
Analyze the current value strategies used in rural markets.
Introduction
Strategy plays critical role in the success of a company. Companies adopt strategy
to achieve their long term goals. Strategy adopted by a company differs from country to
country. Even within the country companies adopt different strategies to attract the rural
consumers.
Rural consumers differ from urban consumers in many ways. Rural consumers are
not highly educated people. Further, they may not get regular income like an employee. So
the product strategy followed in urban may not work in rural areas. In this lesson you can
study the product strategies adopted by different companies to woo rural consumers.
Product Strategies of Different Companies
The basic product strategies of different companies in the market arena are as follows:
(i) Leader

Company which is leading the market can adopt all or any one of the following
strategies. Product innovation strategy, quality improvement strategy, multi-brand strategy,
brand extension strategy, superior service strategy and image building strategy.

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ii) Challenger

Cheaper goods strategy, prestige goods strategy, economy goods strategy, reacting
or pro-acting strategy can be adopted by the company which is facing serious competition
in the market.
iii) Follower

Innovative imitation strategy, and other strategies of leader and challenger
maintaining low profile can be adopted by follower.
iv) Nicher

High quality strategy, narrow product line, superior service, and indifference to

other companies as none of them are competitor.

From the above list, we can take the following strategies for the consideration of marketers.
i)

Identity Strategies, Commodity strategy, branding strategy

ii) Customer Value Strategies

Mass product strategy
Premium product strategy
(iii) Innovation Strategies
Rural common
Special for rural
iv) Quality Strategies
Quality improvement strategy
Spurious goods strategy
v) Packaging Strategies
vi) Brand Strategies
Brand extension strategy
Multi brand strategy
Co-branding strategy
Brand image/Equity management

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(i) Identity Strategies

(a) Commodity Strategy

Commodity describes products and services that are highly standardized perceived
to be homogeneous. They are unbranded products. Examples are food grains, vegetables,
fruits, edible oil, sugar, steel, and edibles. It is reported that as many as 75 per cent of oil
consumed in rural households is unbranded or locally branded.

When sold as commodities, the marketer can differentiate them in the following ways:
(i)

Grading

(ii) Delivery
(iii) Services
(iv) Relationship
(b) Branding Strategy
According to a famous marketing researcher Branded goods comprise 65 per cent of
sales in villages today. The share of non-branded goods is shrinking dramatically. Realising
this, Castrol launched lubricants successfully in a product category where consumers
bought the product as a commodity: They aggressively targeted non-conventional outlets
like automobile and mechanical shops and built awareness and loyalty for their lubricant
brands through powerful advertising
Brand names make products familiar and evoke possessiveness.
This has become true in case of LG Electronics of India. It named the customised
TV developed for the rural market, Sampoorna the word is a part of Bengali, Hindi Marathi
and Tamil language. The strategy worked About ` 114 crores worth TV sets were sold in
the villages in a year.
Strategy becomes effective when other elements are in consonance with it.
The case for branding is gaining strength. It is reported that in 18 categories, branded
consumption accounts for 80 per cent of sales in rural India.

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(ii) Customer Value Strategies

Mass Product Strategies
While urban consumers are brand conscious, rural consumers are price sensitive.
They are more concerned about functional benefits of the products and the value for money
they pay. Accordingly, several companies have launched no frills, economy products to
attract rural consumers and low-end urban markets.
Bonus
Maharaja Appliances Limited (MAL) has launched a range of no frills home
appliances, Bonus, especially for the rural and semi-urban markets. MAL realises that the
demand for home appliances is mushrooming. It has already a share of about 40 per cent in
the rural market. Since branded and quality products -are unavailable, rural -folk have to
make do with substandard orillegal, products.
Moreover, the difference between the price of gray products and legal branded
products is also a major deterrent. Maharaja counters this by sliding a sturdy Bonus Washing
Machine without a driver, priced at ` 2990. Thus, it filled the gap between the cheaper
unbranded goods and the more expensive, branded ones. Maharaja will have something of
edge, as it is an entrant.
Agni Tea
Rural households consume more than half of all the tea sold in India. Tata Tea is
a major player with brands like Tata Tea, Kannan Devan, Chakra Gold (Premium tea in
the dust grade) Gemini and Tata Tetley (tea bags). Each of these brands is positioned for a
particular region and with a distinct blend to satisfy the customers choice in the targeted
market.
Videocon is launching the lowest priced TV in a tie-up with a Chinese manufacturer.
Premium Product Strategy
Rural consumers exhibit preferences similar to those of urban consumers at least in
case of some products.

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Historically, most companies, especially those that hawk consumer durables, have
always believed that cheap products do well in the villages. That is necessarily true. Premium
brands are gaining wide acceptance in the rural bastions.
(iii) Innovation Strategies
(a) Rural-Urban Common

The products that are common to rural and urban markets are also many. Example:
toiletries, cosmetics, washing powders, communication services, postal services, etc.
(b) Special for Rural

Some companies choose to develop products especially to meet rural needs, others

experiment with packaging.

Rural Transporter
Mahindra & Mahindra is busy developing the prototype of what it calls a Rural
Transporterbasically a hybrid between a tractor and a rural transport vehicle. The
product at 20-25HP will be targeted at those who cannot afford a normal tractor and would
also fulfill the need of a family transporter that could take in the rural roughs but would be
much more comfortable and safer than the conventional tractor-trolley.
TVS50 XL: TVS50 XL Indias first indigenously developed moped by Sundaram
Clayton, hit the roads in 1980. It was the first entry of a two-seater moped.
At that time there were other models in the market such as Luna and Suvega, but
these were single seater mopeds. TVS50 were powered by a 48 cc engine and had enough
strength to carry a load of over 120 kg. It was, therefore the most powerful in its class.
Sampoorna TV: LG Electronics, the Japanese firm has re-jigged the TV to appeal to
local needs. It spent $50,000 (` 21 lakhs) to develop a set that would have on-screen
displays in the vernacular languages of Hindi, Tamil and Bengali. The logic, rural
consumers unfamiliar with English would still be able to use the TV without being
intimidated.
Nyle Shampoo: Nyle Herbal Shampoo has identified the problem in brand
identification. Who reads? Who can read brand names in rural areas? Among

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shampoos, it is known by its green colour. The health freshness of green is symbolized
by a lady wearing similar looking green colour.
Hero Cycles: It is modifying its cycles to meet different needs in different regions. It
has as such, a special orientation towards rural needs.
Titan Watches: A recent NCAER study revealed that there is a great potential for
watches in rural areas. In fact, it is considered to be a high priority item. Impressed
by this the company is launching a pilot project for low priced models.
Green Cards: Andhra Bank and Allahabad Bank had issued credit cards, namely,
Green cards to the farmers. The cards issued by Allahabad banks are: Diamond
Card (for farmers having more than 9 acre land) Gold Card (for farmers having 7-9
acre land) Silver Card (for farmers having 5-7 acre land)
(b) Market
(iv) Quality Strategies
Quality is one of the major differentiators. Many companies utilise the quality
aspect to win the customers. In the organized sector, competition requires quality
improvements.
(a) Quality Improvement Strategy

TVS50: In 1980, TVS50 XL was introduced by Sundaram Clayton. It was
powered by 48 cc engine and a load carrying capacity of 120 kg. In 1983, the company
researched the uses that the vehicle was being put to.

Its utility varied from a farmer in the village taking his family of four to the nearby
town or carrying sacks of paddy to be sold in the local market, to a dhobi carrying a massive
bundle of clothes for washing. The company decided to give TVS50 XL a 53.3 cc engine,
which was, at that time, the highest powered in its class. The Luna was a 49 cc moped.
After some time, the engine capacity of TVS50 XL was reduced to 49.9 cc, as the
company it this size had the right combination of power and mileage.
However, in 1991, to again give the vehicle more power as it was primarily being
used as LCV on two wheels, a multi-port engine and a full chain cover for safety were
introduced.

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(b) Spurious Goods Strategy

Corporate marketer often finds the competition from copy cats as a big menace
and debates on the ways of mitigating it. Spurious products, generally marketed by the
unorganized, lowend entrepreneurs, somehow, make their way into the market and eat
away the large chunk of corporate marketers profits. The imitations will have resemblances
that dupe the gullible consumer. Look at these examples:
Lifebuoy : Loveboy
Tata

: Teta

They use similar pack designs and pack sizes. In case of bottled products, the
company logo is embossed.
We will now discuss the spurious product marketers strategies as well as the
encounter strategies. Loosely defined, spurious products are look-alike products with
similarity in packaging and minor alterations in the name.

The primary motive is to capitalize on the trust built by established brands. The
marketer of spurious products has less experience and limited resources. As such, he seeks
to benefit from the images of the popular brands and low prices of his brands.
Facilitators
Ambient conditions in the operating environment would be:
(i) Acceptance of substitutes with dubious antecedents.
(ii) Best sale point having substantial influence on the consumer buying decision.
(iii) Price consciousness outreaching quality consciousness.
(iv) High costs to trace and pin down multiple sources of look like products.
(v) Lack of clearly defined or effective legal remedies.
(vi) Poor literacy levels make brand recall primarily a mix of phonetics, colour and
symbols.
(vii) Users in villagers are largely first generation and long term brand associations are
rare.

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Timing
The ideal time to launch a spurious brand is just after the entry and initial
consolidation of the original.
Marketing Strategy
The four Ps of the marketers are:
(a) Product resemblances: The copy cats resemble the original in many Ways.
i) Brand: Phonetics: To woo the largely illiterate customer, the names usually
have a close phonetic resemblance to the originalLoveboy for Lifebuoy,
Nirbha for Nirma, Teta for Tata.
ii) Package: Visuals: Similar pack designs and pack sizes are adopted. Colours
bear close resemblance to the original. Bottled products have the company
logo embossed. Generally empties of the original are collected and retailed by
these entrepreneurs.
iii) Quality. Intangible: Generally inferior in quality. However, consumer can not
gauge it before using it. As such, consumer relies on retailer opinion largely to
decide the buy.
b) Low prices: Lower end consumer prices are fixed attracting price sensitive, valuefor-money al consumers.
c) S
 ilent Promotion: As higher margins are given to retailers, they advocate consumers
to buy these products. Retailer push goes a long way to induce fist time trials.
(d) L
 imited and anonymous distribution: The copycat seller keeps his identity
unknown. He prefers distribution in the local areas where he can establish secret
links with retailers. This is necessary to avoid future litigations.
Consequences
As a consequence of operations of the spurious product marketers, corporates loose
in two ways.
Loss in sales, and
Spoiled image of the brand as well as the company

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The most affected products are personal care products. A rural marketer believes in
valuefor- money and would not compromise on quality say, in the case of a tractor or a
torch.
The Encounter Strategy
Corporate marketers may analyse the situation and embark on an offensive strategy
to push out the imitators.
Encounter Problems
1. Limited rural reach of media makes educating the consumer cumbersome.
2. Spurious brands have highly localized presence. A successful brand may face a
different set of fakes every 200 km, which makes tracing each duplicate source both
difficult and costly.
3. Litigation is cumbersome.
Strategy Components
The formulation of encounter strategy requires an intelligent understanding of
consumer needs and wants, their perceptions of products and weak points. The strategy
components are:
(a) Complicated packaging: Packaging could be made more difficult to replicate.
Liquid soaps in tetra packs with design patterns as complicated as currency notes
with a hologram thrown in for a measureexpensive but uniquecould settle for
a test for differentiation.
(b) Products at low end: A range of products targeted for the rural consumer could
be launched with low price and low quality to counter the spurious products. This
can be done by developing franchisee units to manufacture low-end products with
a highly localized area.
(c) Rural pull promotion: Rural sales schemes to reach consumers and enlist support
of retailers should be envisaged.
(d) Promoting quality consciousness: Local promotion in individual village markets
could be an effective route to educate them. Area specific examples, of the harm
spurious products can have, could be communicated.

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Example
Bindis, which have an adhesive coating, are hawked by many tiny units in the north.
On sustained usage, the spurious ones discolor skin, at times triggering allergies.
(e) Boosting ego needs: In the highly status conscious village society with rigidly
defined community structures, the spurious brands can be depicted as the ideal fit
for the down and out.
(J) Syndicated: National players could join hands to promote their products in rural
areas as well as counter spurious products.
(v) Packaging Strategies
Packaging is defining new paradigms in rural marketing, making it perhaps the
most vital component in the marketing mix. According to the survey of National Council
for Applied Economics and Research (NCAER) in 1998, it is the low-income group which
now comprises an overwhelming majority of consumers for mass consumption products.
The study indicated that almost 90 per cent of goods surveyed were purchased by
people earning less than ` 18,000 per annum. Marketers have realised, To enter the rural
market, it is necessary to offer products at the lowest unit price.
At the same time, innovative packages are necessary to add value to the premium
products. Particularly, innovations, which help lower the price, are desirable. Small packs
and combi-packs have become a major attraction in rural India.
(a) Small Packs
The reasons for high preference to small pack lowunit prices are:
(i) Affordability

The income of rural consumers is unsteady. The sources of income as well as the
size of income earned per day vary. They cannot hence make planned purchases and large
purchases. Small pack sizes help the rural consumer pick the product at a price that he can
afford.

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(ii) Usage

Certain products like detergent and paste are bought in larger quantities, whereas
shampoos, toilet soaps, eatables are bought in small pack sizes.

The reason for this is: The products that are common to family members are bought
in large pack sizes whereas individualuse products are preferred in small packs.
(iii) Storability

The storage life of a product also has a bearing on this decision. Edibles, for example,
cannot last long unless preserved and kept under ideal conditions. Further, the shelf space
of rural consumers is also limited as they live in small huts or semi-pucca houses.
(iv) Benefits to Retailer

The small pack sizes are convenient to the retailer to do his business and promote
the national brands. The shelf space of rural retailers is less. He cannot afford big premises.
Small pack sizes do not demand shelf space.
(v) Display

Smaller sizes are easy to display. They increase the visual appeal they carry compared
to large ones; the colours on the smaller packs are looked at with more interest.
(vi) Implications to Marketers

Manufacturers prefer producing large pack sizes. The economies of scale indicate
that small pack sizes are less feasible.
However, on the marketing side, benefits are revealing. They induce strongly the
rural consumers to buy.
Trial sales of national brands are on the rise.
Regular sales are growing up for many products. The regional/local players are
finding it difficult to face competition from the big players on their home turf.

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Examples
Many companies have become participants in the package revolution that is
sweeping the rural side and the economy strata in the urban area.
JK Dairy came up with a 50 gm sachet of Dairy Whitener at ` 6.50.
P & G introduced Vicks VapoRub in a tiny 5 gm tin and Tide detergent in 30 gm
sachets priced at ` 3.
Godrej sells its Velvette shampoo in sachets priced at ` 1.25.
Marico Industries launched low priced sachets of hair oil.
Kothari Products offers Paan Parag in sachets.
(b) Combi-Packs
Another packaging innovation is combi-packs. When related products are racked
together and sold at economy prices, the consumer finds it a better option to buy. The
Combi-Pack may become an assortment when more than two products are packed
together. Johnson & Johnsons baby care assortment package priced around ` 175 consists
of a powder, soap, shampoo, hair oil and cream.
(c) See-Through Packs
Many companies are coming up with new packages that are attractive as all as economical.

The transparent packing of new Palmolive Naturals is not just a matter of aesthetics
The see through wrappers, which are a first of its kind in India enable Colgate Palmolive to
offer a:premium product at a competitive price of ` 17 for a 100 gm pack.
vi) Brand Strategies
a) Brand Extension

Product innovations are a regular feature for a competitive organisation. Should
they be launched as separate brands or as extensions of the existing strong brand? The
decision in favour of brand extensions is made for one or more of the following reasons.
To make a brand more visible
To reduce development costs of a brand

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 To reduce risk, by banking on the image of a reputed brand.

To meet competition or to complete the line of offer.
Types of Extensions
In pursuance of the two types of productrelated growth strategies, three types of
brand extensions are observed. The three types of extensions are elaborated and illustrated
with suitable examples as given below:
Expansionnew products but related
Unrelated
Diversification growth
Horizontal diversification
Productmix width
Expansionnew products, unrelated
Category Related
The parent brand name is given to product variants, which have the same use but
slightly different benefits.
Here, the common point issame customer needs. Only tastes differ. It satisfies
variety seekers. It is part of the flanking strategy of a company.
Image Related
The parent brand name is given to the product items in a different productline.
Here, the common factor is customer group.
The related needs of the customer groups will be satisfied by these product items.
The image of the parent product and its emotional benefits can be transferred to the brand
extensions.
Unrelated
There is not even one common factor between the parent brand and the extension.
It is entirely a different product line requiring a different marketing strategy catering to
different customer groups.
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The three brand extensions are illustrated in the following table:

S.No. Product

Category related

Image related

Unrelated

1.

Godrej Shaving
cream

Godrej shaving cake Godrej hair dye

Godrej
refrigerator

T-Series folk music

audio cassettes

T-series film music

audio cassettes

T-series video
cassettes

T-series
washing power

3.

Usha ceiling fan

Usha table fan

Usha sewing
machine

Usha industrial
pumps

Evaluating brand extensions: Whether brand extension is beneficial? Or would

it harm companys prospects? Marketers have to make follow-up study of the impact of
brand extensions. The brand extension decision is considered sound when the following
outcomes are observed:
When the new brand is successful.
When the new brand does not cannibalize the parent brand.
When there is no brand dilution due to the failure of the brand extension.
When there is no brand dilution by brand proliferation.
Category brand extensions (variant brands) generally cannibalize or eat away the
shares of parent brands partly. But they may open up a new segment and boost sale. But
on the whole, there are more sales. In some cases, the brand extension may surprise the
company by increasing the sales of the Parent brand or shock it by hurting the brand image.
When Godrej introduced New Cinthol, the sales of old Cinthol had gone up, P &
0 introduced low paced detergent powder under the brand name Mel super soaker It was a
mistake as it hurt the image of the mother brand Ariel which s a premium detergent Later
it was re-launched as Garn detergent
Brand Extension of HLL
Hindustan Lever Limited (HLL) Plans to lead the development of the branded
food market by upgrading consumers from unbranded commodities to superior branded
products. By doing this, the company hopes that the popular food division would emerge
as the largest division of the company.
Relentless creativity leading to innovation will be the companys strategy for its
growth. The company currently markets the Kissan Annapurna iodized salt and wheat

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atta in the Indian market. The company also plans to extend the Kissan brand into a whole
range of food products..
(b) MultiBranding
A company may introduce several brands in a productline with different features
to appeal to different categories in the same customer group. Many FMCG companies
follow this strategy.
Benefits include
Flanking of the major brand
Occupying more shelf space of retailers
Gaining more profits
Disadvantages include
Each brand may have a small market share
Cannibalization of some brands of the company
High development costs as many brands are to be developed.
Company

Product Group

Multi-brands

HLL

Soaps

Lifebuoy, Liril, Lux

Godrej

Soaps

Cinthol, Ganga, Marvel, Fair flow

(C) CoBranding
Today, we find offers with two or more brands of the same company or different
companies. When a marketer offers one brand with another brand of the same company or
another company it is called co-branding. Such offers may take two different forms
(i) Ingredient co-branding
(ii) Product co-branding
Ingredient co-branding takes place when
The maker of the parts is to be visible to the market and to gain image for the brand,
insists on publicizing it.

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 The part is important and the maker has an image that enhances the consumer
acceptance of the ultimate product, and when
Competitors are following such practices
(d) Brand Image/Equity Management
When brands are effectively managed they acquire value and become assets with
good-will. Effective brand image management involves
Enhancing brand personality Protecting brand identity
Brand Personality
Like a person then, brand is a psychosocial being having an appearance, emotional
feelings and rational behaviors. Brand personality can therefore be described at three levels.
Sensory
How would the brand see, smell, taste, touch, and hear if it is a person? What are its
demographics? Is it having an attractive and socially acceptable personality? Emotional
If a brand were to become an emotion what would it be? What are the underlying subjective,
non-functional, emotions of the brand? Is it trustworthy? Is it a desirable companion?
Rational
What would the brand, as a person, do? Achieve? What are the functional benefits?
Is it a person with expertise?
Brand

Sensory

Emotional

Onida

Ugly Male devil

Greed, Irritation Quality

Hi-tech

Lux

Beautiful,
Feminine

Aspiration and Soft, high

Achievement
quality

Star with
charisma

TAFE

Sturdy, Rugged
male

Macho, tough

Fuel efficient Reliable hard

comfort
working

Trustworthiness

Expertise

Interaction Attractiveness
out come

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Rational

Image

The interaction of a consumer with the brand at the three levels produces an image,
which may reflect attractiveness, trustworthiness and expertise. Generally, these evoked
feelings as strengthened by the testimony or assurance of popular and credible celebrities.
Following Table illustrates this.
Level

Feature

Image

Celebrity

Product

Sensory

Attractiveness

Beautiful

Madhuri Dixit

Lux

Emotional

Trustworthiness

Reliable

Kapil Dev

Boost

Rational

Expertise

Knowledge

Sachin Tendulkar

Rocker Shoes

Brand personality creates impressions in the minds of people. The impressions left
by a brand in the minds of people are summarily explained by the word brand image. Brand
image as perceived by both users as well as non-users is important to marketers because
purchase behaviour is influenced by it.
Three behavioural patterns are predicted:
1. Consumer buys products consistent with self-image.
2. Avoids buying products inconsistent with self-image.
3. Upgrades to brands that enhance self-image.
2. Protecting Brand Identity
To protect brand identity, a marketer has to depend on semiotics and mnemonics.
The dictionary meaning of semiotics is the study of signs, symbols and their interpretation.
In the rural context, the interpretation of these signs and symbols becomes the deciding
factor to build the brand value and image. Semiotics primarily works best for products
that have low-involvement at the time of purchase and have very frequent usage. FMCGs
such as soaps, shampoo, tyres and tea are the ones that fit the bill best. Though the signs
and symbols help identify products, they may not always succeed in making the consumer
remember the product. Mnemonics also become crucial to nurture and retain products in
mind space.
Brand names depicting numbers or animals or symbols like 555 soap, Monkey brand
toothpowder Gemini tea (with elephant), Cheetah light matches, Sheru beed) Tiger Msik
cigarettes, 3 Roses tea, Tortoise mosquito coil etc.

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ITC sells its Gold Flake brand with yellow colour in the South, where it is associated
with prosperity and purity, compared to a golden one in the North, where yellow is often
associated with jaundice and illhealth. Many companies have changed their logos to
make them contemporary Brooke Bond is one. These too enshrines better the pioneering
attitude, dynamism and charitable.
Selling in Rural India
The Indian rural market with its vast size and demand base offers a huge opportunity
that MNCs cannot afford to ignore. To expand the market by tapping the countryside,
more and more MNCs are foraying into Indias rural markets.
Among those that have made some headway are Hindustan Lever, Coca-Cola, LG
Electronics, Britannia, Standard Life, Philips, Colgate Palmolive and the foreign-invested
telecom companies.
Opportunity
The Indian rural market with its vast size and demand base offers a huge opportunity
that MNCs cannot afford to ignore. With 128 million households, the rural population is
nearly three times the urban.
As a result of the growing affluence, fuelled by good monsoons and the increase in
agricultural output to 200 million tonnes from 176 million tonnes in 1991, rural India has
a large consuming class with 41 per cent of Indias middle-class and 58 per cent of the total
disposable income.
The importance of the rural market for some FMCG and durable marketers is
underlined by the fact that the rural market accounts for close to 70 per cent of toilet-soap
users and 38 per cent of all two-wheeler purchased.
The rural market accounts for half the total market for TV sets, fans, pressure
cookers, bicycles, washing soap, blades, tea, salt and toothpowder, What is more, the rural
market for FMCG products is growing much faster than the urban counterpart.
The 4A Approach
The rural market may be alluring but it is not without its problems: Low per capita
disposable incomes that is half the urban disposable income; large number of daily wage

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earners, acute dependence on the vagaries of the monsoon; seasonal consumption linked to
harvests and festivals and special occasions; poor roads; power problems; and inaccessibility
to conventional advertising media. However, the rural consumer is not unlike his urban
counterpart in many ways. The more daring MNCs are meeting the consequent challenges
of availability, affordability, acceptability and awareness (the so-called 4 As)
Self Assessment Questions
1.

Explain the rationale for segmentation.

2.

Marketing approaches vary with degree of segmentation. Explain with examples.

3.

What are the prerequisites for effective segmentation?

4.

List the bases of segmentation.

5. How do you segment markets based on geographical variables? Explain with

examples.
6.

Using demographical variables, segment markets for

7.

(a) TVs

(b) Cosmetics

(c) Tooth paste

8.

What is psychographic segmentation? Is it superior to other types of segmentation?

9. Identify life styles of men and women and show their influence on product
preferences with suitable examples.
10. Explain how Indian marketers are differentiating their products based on personality
variables.
11. Examine the importance and possibilities of multi-variable segmentation.
12. How do you evaluate and select target markets?
13. What are the features of products?
14. Distinguish between product and service.
15. What is branding? Explain its importance.
16. What is brand sponsoring?
17. Give your comments in favour and against branding.
18. Discuss the relationship between old product and new product.
19. What are the types of product?

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20. Describe the significance of product strategy in the current market environment.
21. Explain the three levels of product decisions with suitable examples.
22. State a company of your choice and explain its product-mix decisions. How do you
evaluate the effectiveness of product mix?
23. Do you prefer short or long product-line? Give arguments to support your answer.
24. State the reasons for line stretching. Provide examples of line stretching.
25. Explain when and how line pruning or line modernizations are done. Give examples.
26. What are the considerations in developing a tangible product?
27. How do you design products for rural and urban?
28. Discuss the customer value strategies used in rural markets. Give suitable examples.

CASE STUDY
RUF and TUF jeans
Indias leading denim manufacturer, Aravind Mills, achieved the expansion of its
consumer base, with a new brand tailored for specifically the rural market. It required not
only a new product but also a new distribution approach.
(i)

Consumer preferences: Market research revealed:

(a) Many in rural areas found even the cheapest branded jeans beyond their
means.
(b) There is skepticism towards readymade products among rural Indians.

(ii)

Product: The result: ready to-stitch jeans for the first time priced at 195, as
against the unorganized sectors range of ` 150-350, the kit included a denim
trouser length with specific tailoring instructions and the brand zipper, rivets
and buttons that distinguish jeans from more denim trousers in the consumers
mind.

(iii)

Distribution; It was the critical issue. Not only the product be made available but
also the expertise to tailor it is to be created. Success depended on total tailors
fineness. The product was made available in village with a population as small as
5000. Local cloth shops were as retail outlets.

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Seminars were organized to train tailors in denim fits and inform them about the
changes required in regular sewing machines for stitching jeans. The additional machine
accessories were initially provided free of cost and later at a subsidized rate.
Outcome
The strategy worked. In the first two months, demand crossed a million pieces as
against a production capacity of 2,50,000 kits. So that the company had to stop advertising.
And within 1.8 months, five million kits were sold.
Consumers feedback showed that nearly 75 percent were first time jeans wearers.
R & T shirts as well as readymade, jeans were launched for the slightly more evolved
consumers who demanded jeans specific like the right wash, cotton and formal trousers are
now on the anvil.
Questions
(a) Trace the reason for the success of Ruf & Tuf in rural India.
(b) Which other companies do you think can emulate the strategies of Arvind Mills?

****

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UNIT IV

Unit Structure
Lesson 4.1 - Pricing Strategy
Lesson 4.2 - Pricing Policies
Lesson 4.3 - Designing Right Promotion Mix
Lesson 4.4 - Sales Promotion

Lesson 4.1 - Pricing Strategy

Learning Objectives
After studying this lesson, you should be able to:
Define pricing
Discuss the objectives of pricing
Explain the importance of pricing
Describe the significance of price factor
Highlight the significance of pricing policies.
Introduction
Pricing decisions have strategic importance in any enterprise. Pricing governs the
very feasibility of any marketing programme, because it is the only element in a marketing
mix accounting for demand and sales revenue. Other elements are cost factors. Price is the
only variable factor determining the revenues or income. A variety of economic and social
objectives came into prominence in many pricing decisions. We now come to the most
absorbing question of pricing.

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What is Price?
Economist defines price as the exchange value of a product or service always
expressed in money. To the consumer the price is an agreement between seller and buyer
concerning what each is to receive. Price is the mechanism or device for translating into
quantitative terms (Rupees and Paise) the perceived value of the product to the customer at
a point of time. We shall define the price as the amount charged for the product or service
including any warranties or guarantees, delivery, discounts, services or other items that are
part of the conditions of sale and are not paid for separately. To the buyer price is a package
of expectations and satisfactions.
Thus, price must be equal to the total amount of benefits (physical, economic,
sociological and psychological benefits). Any change in the price will also bring about
alterations in the satisfaction side of the equation. To the ultimate consumer, the price
he pays for a product or service represents a sacrifice of purchasing power. Prices paid by
resellers are also sacrifices.
Price is the only objective criteria (although an imperfect measuring rod) for the
consumer for comparing alternative items and making the final choice. To the consumer
price is a product disfeature, i.e., a feature of which he disapproves. However, to the seller
price is a source of revenue and a main determinant of profit. To the seller it is a product
feature most welcome.
Pricing is equivalent to the total product offering. This offering includes a brand
name, a package, product benefits, and service after sale, delivery, credit and so on. From the
marketers point of view, the price also covers the total market offering, i.e., the consumer is
also purchasing the information through advertising, sales promotion and personal selling
and distribution method that has been adopted.
The consumer gets these values and also covers their costs. We can now define price
as the money value of a product or service agreed upon in a market transaction. We have a
kind of price equation, where:
Money (Price) = Bundle of Expectations or Satisfactions.
Included in the bundle of expectations may be physical product plus other attributes
such as delivery, installation, credit, return privileges, after-sales servicing and so on.

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Importance of Pricing
Price is a matter of vital importance to both the seller and the buyer in the market
place. In money economy, without prices there cannot be marketing.
Price denotes the value of a product or service expressed in money. Only when a
buyer and a seller agree on price, we can have exchange of goods and services leading to
transfer of ownership.
In a competitive market economy, price is determined by free play of demand
and supply. The price will move forward or backward with changing supply and demand
conditions.
The going market price acts as basis for fixing the sale price. Rarely an individual
seller can dishonour the current market price. In a free market economy, we have freedom
of contract, freedom of enterprise, free competition and right to private property. Price
regulates business profits, allocates the economic resources for optimum production and
distribution.
Thus, price is the prime regulator of production, distribution and consumption
of goods. Economics revolves around pricing of resources. Price influences consumer
purchase decisions. It reflects purchasing power of currency.
It can determine the general living standards. In essence, by and large, every facet of
our economic life is directly or indirectly governed by pricing. This is literally true in our
money and credit economy.
Pricing decisions interconnect marketing actions with the financial objectives of the
enterprise. Among the most important marketing variables influenced by pricing decisions
are:
1. Sales volume,
2. Profit margins,
3. Rate of return on investment,
4. Trade margins,
5. Advertising and sales promotion,
6. Product image,
7. New product development.

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Therefore, pricing decisions play a very important role in the design of the marketing
mix. Pricing strategy determines the firms position in the market vis-a-vis its rivals.
Marketing effectiveness of pricing policy and strategy should not suffer merely on account
of cost and financial criteria.
Price is a powerful marketing instrument. As a marketing weapon, pricing is the biggun. However, it must be used with great caution. It is a dangerous and explosive marketing
force. It may doom a good product to failure. Low pricing strategies are irreversible
decisions. They must be used correctly from the outset. Every marketing plan involves
a pricing decision. Therefore, all marketing planners must make accurate and planned
pricing decisions.
Significance of the Price Factor
The selling price plays a unique role in business, because the price level:
(i)

Controls the sales volume and the firms market share,

(ii) Determines the total sales revenue (sales revenue=sales volume X unit price),
(iii) Regulates the rate of return on investment (ROI) and through ROI price influences
sales profitability,
(iv) Creates an impact on unit cost in mass production. Low price increases total
production and sales turnover, and ultimately mass produc
tion (through
economies of scale) leads to the lower unit cost of production. Law price induces
also efficiency in production and marketing. Henry Ford stated: Our policy is to
reduce the price, extend operations and improve the product.
OTHER BANKING
PRICE STRATEGY

STRATEGIES

1. PRODUCT
2. DISTRIBUTION
3. ADVERTSING
4. PERSONAL SELLING
5. SALES PROMOTION

(a)

REVENUE

COST PRICE
RELATIONSHIP
1. Place of Prince in the Marketing Strategy

PRICE

(b)
PRICE, REVENUES RELATIONSHIP

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REVENUES=UNIT PRICE
MULTIPLIED BY VOLUME
OF SALES

Comments
(i) All other elements (except price) in the marketing mix are called non-price
factors. They influence price and are also influenced by price. All elements are
interdependent interacting factors.
(ii) We have two relationships: (a) Cost/Price relationship, and (b) Price/ Revenue
relationship.
(iii) Price and other marketing mix variables are complementary factors. They may be
partial substitutes for each other.
(iv) Together all elements in the marketing mix collaborate to accomplish a common
objective, viz., to produce sales and sales revenues.
(v) All non-price factors of the marketing mix are cost factors involving expenditure
outflow of funds.
(vi) Price is the only marketing variable to determine revenues or income inflow of
funds. Revenues must be high and must exceed production costs as well as marketing
costs. Thus, price has a unique role extending beyond the area of marketing policy.
(vii) A firm is an organisation producing economic utilities. Within the firm, price factor
tries to achieve equilibrium between revenues and costs. It aims at profitability.
Hence, revenues must exceed total costs. Price also acts as a balancing force to
maintain the balance between firms own marketing mix and those of rivals.
Typical Pricing Objectives
A variety of objectives may guide pricing decision:
1. Growth in Sales: A low price can achieve the objective of increase in sales volume.
A low price is not always necessary. A right price can stimulate the desired sales
increase. In practice, price and non-price objectives are co-coordinated to produce
the desired increase in sales. Competitive price, if used wisely, can secure faster
increase in sales than any other marketing weapon.
2. Market Share: Price is typically one of those factors that carries the heaviest
responsibility for improving or maintaining market share a sensitive indicator of
customer and trade acceptance.
3. Predetermined Profit Level: Return on Investment, say 20 to 25 per cent is a common
decision in marketing. Pricing for profit is the most logical of all pricing objectives.
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4. Meet or Follow Competition: Many firms desire the stabilisation of price levels and
operating margins as more important than the maintenance of a certain level of
short-run profits. The price leader maintains stable prices in the industry.
Control Cash-Flow
A principal pricing objective is to return cash as much as possible (the funds invested)
within a given period. Investment in research and development, market development,
promotion, etc., should pay back within a specified period. Capita] expenditure on any
project must be recovered within 5 to 10 years. Pay-back or cash-flow objectives fit in easily
with other corporate objectives.
Note 1
While determining objectives of a pricing policy, marketers must take into account
reactions of a number of parties such as customers, competition, resellers or dealers,
government, public opinion, and so on.
1. The objectives may not be mutually exclusive. Marketers have to resolve their
conflicts. For instance, there may be a conflict between sales maximization objective
and a return on investment or profit objective. However, it should be noted that
maximum market penetration in the short-run (in the early phase of the product life
cycle) is the key to maximum ROI in the long run.
Probable Pricing Objectives

Profit - Centered

Sales - oriented

Growth in Sales

Maximization of
Profits

Growth in Market

Status quo

Maintaining
Market Share

Avoiding of
Meeting

Target R.O.I

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Non-Price
Competition

Market Price
The market price is the price determined by the free play of demand and supply.
The market price of a product affects the price paid to the factors of production - rent for
land, wages for labour, and interest for capital and profit for enterprise. In this way, price
becomes a prime or basic regulator of the entire economic system because it influences the
allocation (distribution) of these resources (factors of production).
For example, when the price of a commodity has a rising tendency, we shall have
higher wages attracting more labour, higher interest attracting more capital, and so on, in
the industry in which prices are rising.
Conversely, under falling prices, low wages, low rent, low interest, and low profits
will reduce the availability of labour, land, capital and risk-takers in a free market economy.
Prices direct and control production and consumption.
Since market price is determined in an impersonal way through the general relations
of demand and supply, the individual seller has no control over the market price and the
actual market price at any given time may be above or below the costs of individual sellers.
Market price is indicated by published prices, market reports, etc. A seller will have to
change his output to adjust with the current market price in order to secure maximum
gains or minimize his losses. He can also minimize operating costs.
Price as a Measure of Value
Economic theory of price has a few simple assumptions regarding products and
buyer behaviour. Buyers tastes and preferences are considered as given (constant). Buyer
is considered essentially a rational human being. The marketing concepts like brand image,
brand loyalty and benefit segmentation emotional motivation are outside the scope of
price theory. Hence, in practice, the classical price theory, saying price determines value of
the product, is not true.
Marketers have recognized the importance of perception, learning, and attitudes
creating psychological reactions to price, at least in consumer goods. The social and
psychological factors must be recognized in the evaluation of pricing strategies. The social
and psychological influences are responsible to support the consumers inclination to use
price as an indicator of quality for certain products e.g., cosmetics, jewellery, and clothing.
Such products have concealed values and benefits which the consumer cannot evaluate
rationally or on objective basis. Consumer does not have physical cues or guides suggesting
product quality in many cases and social psychological dimensions may dominate in the

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consumer behaviour. Under such situations, price is the most handy (but rough) available
indicator of product quality and value for many customers. Buyers believe in the implicit
subjective process viz., You get what you pay for, If it costs more, it must be better.
Marketers are bound to exploit buyers emotions, preferences and habits.
Price-quality relationship applies to products whose quality is difficult to judge and
whose brands vary widely in quality, e.g., cosmetics, jewellery, clothing, wine, floor wax,
etc.
Charm pricing is another psychological dimension of pricing. Accepted pricing
conventions have a charm for the consumer, e.g., price like ` 99. The quotation of ` 19.90
sounds better value than ` 20.
Price lining is another psychological dimension of pricing accounting for a common
marketing practice. For example, a reasonable price range for a new Television set is
between ` 8,000/- and ` 14,000/- for most people. Only handful of buyers would seriously
consider purchasing TV set costing ` 20,000/- or more, and new TV set costing less than `
4,000/- would generate doubts and suspicion.
The consumers answer the question (Is it worth it?) in terms of the familiar equation:
Satisfaction = Benefit Cost
The price is the cost part of the equation. It indicates sacrifice of purchasing power.
The reasons for the inability of price to determine the perceived value of the product are:
1. There are considerable differences in the market information available to consumers.
2. We have significant differences in the bargaining power of consumers.
3. In large parts of the retail market we have non-price competition replacing price
competition. The purpose of non-price competition is also to make sales or demand
curve less sensitive to price and the price of an article might be raised without adverse
effect on sale (demand has become less price elastic due to promotion). The higher
price compensates for promotion costs incurred in stimulating demand.
Multistage Price Determination Process
The marketing manager knows that the cost-plus a reasonable profit doctrine is
self-defeating. Pricing strategy must be based on the consumer (on the demand side), just

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as strategies on product distribution and promotion are based on the consumer. Of course,
costs (the supply side) are not forgotten but they are given proper place in the pricing
process.
Pricing process must start in the market, in the circle of exchange. Decisions on
pricing are taken in the light of marketing opportunities, competition and many other
variables influencing pricing. The price decisions must take into account all factors
affecting both demand price and supply price. The price determination process involves
the following steps:
1. Market segmentation,
2. Estimate of total demand,
3. Market share,
4. Designing the marketing mix,
5. Estimate of total costs,
6. Selecting pricing policies,
7. Determining pricing strategies, and
8. Developing the price structure.
1. Market Segmentation

On the basis of market opportunity analysis and assessment of firms strengths and
weaknesses marketers will find out specific marketing targets in the form of appropriate
market segments. There should be a perfect match or a kind of marriage between the firm
and its market. Marketers will have firm decisions on:
(a) The type of products to be produced or sold,
(b) The kind of service to be rendered,
(c) The costs of operations to be estimated, and
(d) The types of customers or market segments sought.
2. Estimate of Demand
Marketers will estimate total demand for the products. It will be based on sales
forecast, channel opinions and degree of competition in the market. Prices of comparable
rival products can guide us in pricing our products. We can determine market potential by
trying different prices in different test markets. Once we know the expected prices, we can
compute sales volume at several prices.
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3. The Market Share

Marketers will choose a brand image and the desired market share on the basis
of competitive reaction. Market planners must know exactly what his rivals are charging.
Level of competitive pricing enables the firm to price above, below, or at par and such a
decision is easier in many cases. Higher initial price may be preferred if you anticipate a
smaller market share, whereas if you expect a much larger market share for your brand,
you will have to prefer relatively lower price. Proper pricing strategy is evolved to reach
the expected market share either through skimming price or through penetration price or
through a compromise, i.e., fair trading, or fair price to cover cost of goods, operating
expenses and normal profit margin.
4. The Marketing Mix
The overall marketing strategy is based on an integrated approach to all the elements
of marketing mix. It covers: l. Product-market strategy, 2. promotion strategy, 3. pricing
strategy, and 4. distribution strategy. All elements of the marketing mix are essential to the
overall success of the firm. Marketers will have to assign an appropriate role to price as an
element of the marketing mix. Price plays an important role in relation to and in support
of other elements of the marketing mix. Promotional strategy will affect pricing decisions.
The design of the marketing mix can indicate the role to be played by pricing in relation to
promotion and distribution policies. Price is critical strategic element of the marketing mix
as it influences the quality perception and enables product or brand positioning. It is also a
good tactical variable. Changes in price can be made much faster than in any other variable
of marketing mix. Hence, price has a good tactical value.
5. Estimate of Costs
Straight cost-plus pricing is not desirable always as it is not sensitive to demand.
Marketing must take into account all relevant costs as well as price elasticity of demand, if
necessary, through market tests.
6. Pricing Policies
Price policies provide the general framework within which managerial decisions are
made on pricing. Pricing policies are guidelines to carry out pricing strategy. Pricing policy
may desire to meet competition or we may have pricing above or below the competition. We
may have fixed or flexible pricing policies. Pricing policies must change and adapt themselves
with the changing objectives and changing environment.

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7. Pricing Strategies
Pricing policies are general guidelines for recurrent and routine issues in marketing.
Strategy is a plan of action (a movement or counter movement) to adjust with changing
conditions of the market place. New and unanticipated developments may occur, e.g., pricecut by rivals, government regulations e.g., (mandatory Environment Audit) economic
recession, fluctuations in purchasing power of consumers, changes in consumer demand,
and so on. Situations like these demand special attention and relevant adjustments in our
pricing policies and procedures.
8. The Price Structure
Developing the price structure on the basis of pricing policies and strategies is the
final step in price determination process. The price structure will now define selling prices
for all products and permissible discounts and allowances to be given to middlemen as well
as various types of buyers.
Note
The ultimate goal is to set a price that is in tune with the rest of the marketing
mix ingredients and that will enable the firm to achieve its objectives, (bottom line profit
through consumer citizen satisfaction)

Price is a vital managerial function. Price determination function involves

consideration of many relevant internal and external variables or factors. Internal variables
are involved under the multi-stage process of price determination, e.g., pricing objectives,
role of price in marketing programme, costs of production and marketing, image of the
firm and its products, and so on.
The internal forces are controllable pricing variables. But there are also external
variables mostly uncontrollable by an enterprise and these include such factors as
government regulation, competition, buyer behaviour, economic conditions, social and
ethical considerations, characteristics of demand and so on.
Every marketer involved in price decision must take into consideration the impact
of both the controllable and uncontrollable variable when he is called upon to develop
pricing policies and procedures. The price decision as it is affected by all variables is shown
in the model of pricing forces.

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Note
1. Reactions to pricing policy can be expected from:
1. Resellers, i.e., the wholesale and retail trade,
2. Ultimate users i.e., individuals, organisations,
3. Competitors,
4. The government, suppliers, trade unions and public opinion.
5. Compulsory pollution control.
2. Inner circle indicates internal variables and outer circle indicates external variables
affecting price decisions (core circle).
Base Price
After pinpointing the market, estimating demand, and discovering rivals prices,
marketer can identify basic price alternatives. Basic price is a realistic market price. It
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resembles an ideal price. However, it is only a starting point in the determination of actual
pricing structure.
Pricing decisions are guided by overall organisation objectives. A base price is usually
established, and adjustments from that base price is made to ensure closer correlation
between the product of the firm and consumer wants and desires, i.e., matching the product
offering with the expected bundle of satisfactions (perceived value by consumer).
The figure given below indicates number of choices in setting the base price. A base
price acts as a reference price. It is a price from which actual prices can be determined by
adding extras and deducting discounts. The actual prices reflect differentials from the base
price because of market structure, geographical location, competitive conditions, and the
terms of individual transactions
Comments
1. At one extreme (at the top) there is a price (too high) at which there is no demand at
all. At the other extreme (the bottom) there is a price (too low) at which no amount
of demand will yield enough revenues to cover costs.
2. Skimming price (skim the cream) is rather high in the range of possible prices. A
new product enters the market with a high price to generate the most profitable
sales. At the introduction stage demand is more inelastic. Rich buyers are not price
conscious. Too high price can be lowered more easily subsequently.
3. A low price may be deliberately fixed to penetrate the market easily. It provides
maximum product exposure. Sales growth potential is very high.
4. Under usual circumstances, marketer selects base price somewhere between
skimming price and penetration price for each product line. Factors influencing the
choice of base price are shown in the figure.
5. Unique product features, rising costs or a company reputation for quality and
services are me factors influencing the base price in an upward direction. A unique
product offered by reputed and respected company can have a high price and buyers
may be prepared to buy it. Sophisticated Vimal fabrics of Reliance Industries adopted
high premium price to the fashion conscious upper middle class of urban India
and buyers welcomed the premium quality fabrics. On the other hand, objective of
a large market share, government price controls, and intensive competition from
rivals would compel the marketer to fix the base price lower and lower.

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Summary
Price is one of the important components of product mix. Price is defined by
different people in a different ways. Economist defines price as the exchange value of a
product or service always expressed in money. To the consumer the price is an agreement
between seller and buyer concerning what each is to receive.
Price is the mechanism or device for translating into quantitative terms the
perceived value of the product to the customer at a point of time. Price can be defined as
the amount charged for the product or service including any warranties or guarantees,
delivery, discounts, services or other items that are part of the conditions of sale and are
not paid for separately. Price is a matter of importance to both the seller and the buyer in
the market place.
Price is determined by free play of demand and supply in the competitive market
economy. Price regulates business profits, allocates the economic resources for optimum
production and distribution. The price determination process involves the following steps:
1. Market segmentation,
2. Estimate of total demand,
3. Market share,
4. Designing the marketing mix,
5. Estimate of total costs,
6. Selecting pricing policies,
7. Determining pricing strategies,
8. Developing the price structure.

****

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Lesson 4.2 - Pricing Policies

Learning Objectives
After studying this unit, you should be able to:
Describe the importance of pricing policies
Explain the various types of pricing
Discuss one-price vs variable pricing policy
Explain the advantages of pricing policies
Discuss the different types of discounts.
Introduction
Price is an important element in the marketing mix. Arrival at the right selling
price is essential in a sound marketing mix. Right price can be determined through pricing
research and by adopting the test market techniques.
A price policy is the standing answer of the firm to recurring problem of pricing. It
provides guidelines to the marketing manager to evolve appropriate pricing decisions. If
competition is mainly on a price basis, then each company generally prices its products at
the same level as its competitors. If there is non-price competition, each marketer chooses
from among the three alternatives:
1. Price in Line (Pricing at the Market)

The sale at current market price is desirable under free competition and when a
traditional or customary price level exists. It is preferable when product differentiation
through branding is minimum, buyers and sellers are well-informed, and we have a
free market economy. Under such conditions price loses its importance as a weapon of
competition and sellers have to adopt other means of non-price competition, e.g., branding,
packaging, advertising, sales promotion, credit, etc., to capture the market.

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2. Market-Plus (Pricing above the market)

The sale above the market prices under free competition is profitable only when
your product is distinctive, unique and it has prestige or status in the market. Customer is
inclined to put a greater value on the product if the package is very good or the brand is
well-known. Otherwise, it will be a killing price policy, especially if the customer is priceconscious. Reputed brands have higher prices. Price of a product is associated with value,
quality, durability, performance, and service after sale, credit, and many other attributes.
Product-differentiation through branding introduces monopoly element in pricing and
established brands can afford higher prices without reducing volume of sales. In foreign
countries, such as the U.S.A. and the U.K., almost all consumer goods are branded and large
national concerns have used branding as an instrument of monopoly.
3. Market-Minus (Pricing below the market):

The sale below the market price, particularly at the retail level, is profitable only
to large chain stores, self-service stores and discount houses. These large retailers can sell
well-known nationally advertised brands 10 to 30 per cent below the suggested retail prices,
list prices or fixed resale prices by the manufacturers.If you have lower costs because your
product is of inferior quality, you may have to fix lower price. Similarly, you may prefer
a lower price without promotion expenses (which your rivals are undertaking on a large
scale). A lower price is a substitute for sales promotion and advertising. Prices of national
brands are higher as there is heavy expenditure on advertising and sales promotion to
maintain the brand loyalty.
Right Pricing
In the long run, the best pricing policy in a competitive market is the market based
method of pricing. It is safer to follow the prices of important competitors who dominate
the market. Such a price policy will prevent price war, and assure normal profits.
Non-Price Competition
The seller should rely more on non-price factors to capture the consumer demand. At
present in many countries business firms avoid price reduction as a means of competition.
With or without price competition, increasing emphasis is being given on the various
weapons of non-price competition. Non-price competition devices are:

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1. Branding,
2. Attractive packaging,
3. Service after sale,
4. Liberal credit,
5. Free home delivery,
6. Money-back guarantee (return of goods),
7. Sales promotion,
8. Advertising,
9. Personal salesmanship, and
10. Product improvements and innovations.
We can also consider indirect price competition when a seller offers certain benefits
in the form of indirect price concession e.g., advertising allowance, free merchandising
services, dealer training programme and so on.
Price is not the sole determinant of purchasing. Besides fair price, consumers
demand, better services, better quality and reliability, fair trade practices, personalised
relation with sellers, quality guarantee, credit, etc. Non-price factors are important selling
points, in addition to price. Non-price competition tends to increase as buyers put more
stress upon quality, fashion, variety, style, finish and service than on price.
Conditions Favouring Premium or (Higher) Prices:
1. Higher sales promotion expenditure is needed,
2. Production is as per order,
3. Initially small market share is preferred,
4. Sales turnover is slow,
5. Good many ancillary services are needed,
6. Goods are durable,
7. Package is unique.
8. Product itself is unique.
9. Customers are rich.

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Conditions Favouring Lower Prices

1. Little sales promotion is necessary,
2. We have mass-production,
3. We are ready for mass-distribution and we want larger market share,
4. Sales turnover is quick i.e., fast selling is anticipated,
5. Very few or no additional services are needed,
6. There is no special package, and
7. We have perishable goods demanding quick clearance.
8. Buyers are not rich.
Skim-the-Cream Price (High Pricing)
A manufacturer introducing a new product may adopt this pricing strategy
deliberately to build up the image of quality and prestige for his new product.
In the earlier stages of product life cycle, a strategy of high price associates with
heavy expenditure on promotion, and at the later stage of the product life cycle, a strategy
of lower prices with normal promotional expenditure pays a rich dividend.
Reasons for Skimming Price Policy
There are a few reasons supporting skim-the-cream pricing for a new unique
product in its introduction stage:
1. I n the initial stage, we have less elastic demand. Price is less important in purchase
decisions. There are buyers who are not sensitive to price and they do not mind
higher price. As the product is new and distinctive, there is little competition.
2. W
 hen entry of rivals is difficult, costs are uncertain, life-cycle is short, we should
prefer skimming price.
3. S kimming price enables the firm to take the cream of the market, at a higher price
and then it may attempt to appeal price-sensitive sections of the market by adopting
penetration, i.e., lower price.
4. H
 igh initial price can provide a large margin which generates cash flow easily, and if
the price is too high, it can be easily lowered. Reverse is not practical. 5. High initial
price can keep demand within limit of your productive capacity.

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There are two disadvantages of skimming price

1. It attracts competition.
2. If entry of rivals is easy, this policy is risky.
Penetration Pricing (Low pricing)
The approach is favourable under the following conditions:
1. Product has greater elasticity of demand.
2. Mass-production provides substantial reduction in unit cost of production.
3. Very strong competition is expected soon after the product enters the market.
4. High-income section of the population is not adequate. We have bulk of the
population in the middle and lower income group.
Reasons for Low Pricing
When product has long life cycle, it has a mass market, entry of rivals into the
market is easier and demand is elastic, penetration price is always preferable as rivals are
discouraged to enter the market and you can establish a strong hold on the market share,
incidentally making future entry of rivals difficult. The only disadvantage of this pricing is
you may have excess demand within a short period.
One-Price vs. Variable Price Policy
Under one-price policy, a seller will charge all similar types of buyers exactly the
same price and there will be no discrimination or difference among the buyers of the same
commodity. There is no question of negotiation, bargaining or haggling. No favoritism
is shown to any buyers. Terms of sale are the same for similar quantities of the product.
Discounts and allowances are granted on equal terms to all buyers. It is a fair trade practice.
It gains customer confidence. A fair and fixed policy in line with the normal market price
and providing for normal margin of profit is the best pricing policy. Through efficient
management and best marketing mix, the manufacturers and dealer, should bring down
marketing costs and improve quality of services to the ultimate consumers. The consumers
should be offered lower price and better quality under any normal pricing policy. In the
U.S.A. and other developed countries, particularly at the retail level, they have adopted oneprice policy. In India and many other developing countries, sellers have usually variableprice policy, i.e., prices are subject to negotiation and haggling.

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Under variable-price or negotiated price policy, the seller will sell same quantities
to different buyers at different prices. Certain favoured customers are offered lower
prices. The terms of sale, e.g., discounts and allowances are granted on unequal terms to
buyers. Especially in developing countries, sellers commonly use variable pricing for most
consumer items. In retail trade the price discrimination is usual. A foam leather handbag
was quoted by a well-known retailer at ` 300/- in the first instance. The price was reduced
to ` 250/- and then to ` 225/-. On sensing that the customer was aware of its real price, the
price was scaled down ultimately to ` 200/- only. Street sellers use this pricing.
Advantages of One Price Policy
1. Uniform return from each sale assured and certain profits.
2. Lower selling costs, saving of time in sale as no question of price bargaining. Many
a time, haggling drags on the sales talk and it is a time killer.
3. Customer confidence is secured. In the absence of a preferential price, there is no
risk of losing of a customer. Timid or weak bargainers are not at a disadvantage.
4. The seller can maintain his goodwill. 4. It is eminently suitable for self-service
retailing, mail order selling and automatic vending or selling. Large retailers follow
this policy.
Advantage of Variable Price Policy
1. Seller can have flexibility in his dealings with different customers.
2. Certain valuable customers can be offered lower price, e.g., a promising large-scale
buyer in the near future.
3. Flexible price policy enables to attract customers of other competitors and thus new
business can be secured.
4. When the size of the transaction is large, price should be negotiable, i.e.,
subject to bargaining e.g., sale of a motor car.
5. The sellers of consumer durables often adopt variable price policy.
6. Some buyers have greater bargaining power or they are able to pay cash. They will
always insist on negotiated price.
On the whole, one-price policy is the best policy. Variable price policy creates illwill and spoils the sellers reputation. It can lead to a price war and unhealthy competition.
Managerial control is also less on selling cost and on profits. It reduces confidence. It is not
equitable.
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Cost-Plus or Mark-up Pricing

This method is considered the best approach to pricing. It is based on the sellers
per-unit cost of the product plus an additional margin of profit. There are four items in
determining the sale price:
1. Cost of producing/ acquiring goods.
2. Cost of operating/selling expenses.
3. Interest, depreciation, etc.
4. Expected profit margin-mark-up.
The mark-up is indicated as a percentage of the cost of goods. The mark-up as a
percentage of selling price is a very common practice particularly in retail trade.
Cost-plus pricing is very popular in retail trade and wholesale trade. Some form of
customary mark-up pricing or cost-plus pricing is most practical in trade, as items for sale
are innumerable.
Discounts and Allowances
Discounts and allowances are price concessions offered to traders or buyers in the
form of deductions from the list price or from the amount of a bill or invoice. They are
forms of indirect price competition.
The common forms of discounts and allowance are:
Trade discount, Cash discount, Quantity discount, Seasonal discount, Promotional
discount, Advertising and display allowances, and Freight allowances.
We will now describe some of the important discounts and allowances.
Trade Discount
Trade discount is a kind of functional discount. It is given to the buyers buying for
resale, e.g., wholesaler or retailer, in payment for marketing functions which these traders
are expected to perform. Sellers quote price less discount rather than net price.

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Illustration
A manufacturer feels that ` 10 per unit of his product can be a fair retail price. The
manufacturers list price is ` 120 per dozen. He quotes trade discount at 33.33% and 15%
from the list price. This indicates that the wholesaler pays ` 120 less 33.33% (` 40) less 15%
of ` 80 (` 12), or ` 68 for one dozen items. In selling to the retailer, the wholesaler retains
15% which is his margin to cover his expenses and profit. The wholesaler will quote ` 120
less 33.33% or ` 80 per dozen to the retailer. Thus, the retailer also has a margin of 33.33%
to cover his expenses and profit and he can sell the product at the list price or suggested
retail price, viz., ` 120 per dozen or ` 10 per unit. Please not that 33.33% and ` 15% do not
constitute a total of 48.33% off the list price. Each trade discount percentage in the chain
is calculated on the remaining amount after the preceding percentage has been deducted.
Purposes of Trade Discount
1. Trade discount provides the cover for expenses and profit of each middleman in the
chain of distribution, when the manufacturer fixes the retail price and it is advertised
and printed on the packages. It is remuneration for marketing services rendered by
the traders. It is paid only to the resellers.
2. The catalogue or price list has printed prices. Actual market price may be fluctuating.
If the actual price changes, the seller will merely change the rate of discount for
adjustment of the two prices list price and current market price. He need not
print a new price list or catalogue. These are revised periodically, e.g., once in three
months. Trade discount is altered inversely to change in prices, i.e., falling prices
will invite rising discounts, and vice versa.
The trade discount can also act as a weapon of price competition. It makes price
structure flexible. The seller can offer a larger trade discount to attract business from the
rivals.
The dealer is enabled to sell to consumers at the price even lower than the list price
as he is given a higher discount. The dealer can show the price list to the consumer and
point out that he is getting a good bargain.
Limitations of Trade Discount
1. The manufacturer may offer a larger trade discount to the wholesaler and retailer
so that they do a better selling job and take greater interest in his products. But the

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traders may pass on the additional margin to their customers in the form of price
reductions rather than using it for additional sales promotion efforts.
2. The increased discounts given to the traders may lead to unhealthy competition and
competitors may follow the initiator by raising their trade discount. So ultimately
there may not be any real gain. In fact, it may result in cut-throat competition.
Cash Discount
It is merely a rebate or a concession given to the trader or consumer to encourage
him to pay in full by cash or cheque within a short period of the date of the bill or invoice.
It is a deduction from the amount of the bill or invoice amount to be paid. The period to
avail the cash discount is usually 10 days.
Illustration
The wholesaler quotes to the retailer as a term of payment, 2% 10 days, and net 30.
This indicates that if the invoice amount is paid with 10 days he will get rebate of 2% but
if he pays after 10 days and of course, within 30 days, he has to pay the net invoice amount
without any rebate. It means if the retailer forgoes the cash discount, he has to pay 2% price
for 20 days accommodation, or in effect he has to pay 36% interest per year. The retailer
would prefer to borrow from his bank at 15% and pay the wholesaler cash within 10 days of
the invoice. In the absence of bank credit, trade credit may be inevitable.
Purpose of Cash Discount
1. T
 he wholesaler need not have a larger working capital as he need not sell on credit
to the retailer.
2. T
 here is relief in the recovery of debts and no danger of bad debts. To the seller cash
sales are always welcome. In practice, trade credit becomes necessary, as a lesser evil.
Cash discount is calculated on the net amount due after first deducting trade and
quantity discounts from the initial list or catalogue price. It is a percentage reduction on
the net amount due.
Quantity Discount
In order to encourage a customer to make bulk or large purchases at a time or
to concentrate his purchases with the seller, quantity discount may be offered to large

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buyers. Quantity discount can reduce the prices for bulk purchase order. These may be
even cumulative, i.e., on the total volume of purchases made during a certain period. They
are really patronage discounts.
Purposes of Quantity Discount
1. Sales of slow moving items can be stimulated.
2. Manufacturer can have real economies in production as well as in selling. This will
reduce his total costs.
3. The manufacturer will have no problem of accumulated stocks or inventories.
Seasonal Discount
The manufacturer may offer additional seasonal discount of say 5, 10 or 15% to a
dealer or a customer who places an order during the slack season. This will ensure better
use of his plant and production facilities.
Allowances
The manufacturer may offer promotional allowances, e.g., advertising allowance,
window display allowance, free samples, free display materials, free training in sales
demonstration and sales talk, etc. It amounts to a price reduction of an equal amount of
service expected.
Comments
1. D
 iscounts and allowances are rarely given in selling to the ultimate consumers. They
are offered to resellers only.
2. They are common in wholesale and retail tradein the sale of manufactured goods.
3. Such price concessions are good weapons of healthy competition and sales promotion.
4. I f these price concessions are given to all dealers and merchants without discrimination
there is no problem of ill-will in trade.
But in practice, many a time, they are not offered to all competing customers on
Proportionally equal terms, in which case they are considered as unfair and unwise trade
practices. In many countries, promotional allowances are controlled by law to ensure fair
trading. 5. We also come across secret or confidential discounts given by manufacturers

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to preferred customers. These are given in highly competitive lines or especially during a
trade depression.
These are also undesirable and unfair trade practices. It is difficult to control these
malpractices by legislation alone. Business itself must evolve a code of conduct to prevent
such malpractices. Self-regulation and self-discipline are always superior than compulsory
rule or forced discipline. Fair trading is now recognised as a social responsibility of the
business.
Price Leadership
In every industry, we do have a few big and dominant business enterprises who act
as leaders for setting the price by others. When the leader raises or lowers the price, all
others usually follow the leader. The non-leading firms have no other practical alternative
but to follow the leader in their price-fixing. In many consumer goods industries we do
come across one or a few price leaders and the market price is dictated by them.
Psychological Pricing
It is used to create an illusion of a bargain. It is a popular practice of setting the prices
at odd points, e.g., ` 17.95, ` 49 00, ` 995, etc. This policy is followed usually in consumer
goods industry, e.g., Bata Shoe Company has psychological pricing in shoe prices. Prices of
consumer durables such as cars, refrigerators, etc., are usually fixed in odd amounts.
Such a pricing strategy is based on the belief that a buyer is mentally prepared to pay
a little less than the rounded figure, e.g., ` 10.85 instead of ` 11 for a product. Even prices
create an impression that the product is of high quality. Thus, pricing can create expected
motivation.
Charging What the Traffic will bear
There are two principles, in pricing. One is called cost of service principle and
another is called value of service principle. The second one is also termed as charging what
the traffic will bear. It points out demand price. It is usually adopted by railways in our
country. Professionals like doctors, lawyers, chartered accountants, consultants, etc., adopt
this principle of charging what the customer will bear.
They charge their fees on the basis of ability to pay and the cost factor is secondary
in their charges. In business, particularly in commodity markets, we do not have such a

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price discrimination based on the customers ability to pay. A monopolist, of course, can
afford to adopt this principle to maximize his profits. In a sense, such pricing renders
justice to customers. Dual pricing of sugar in India is based on this principle of ability to
pay. Electricity Company also has different rates for domestic and industrial customers.
Premium Pricing
Premium pricing is a mix of what the traffic will bear idea and the value for
money. Marketer has a premium product, i.e., superior quality / good variety. He uses best
technology. He employs premium promotion programme. He has at his disposal premium
distribution process. Hence, he opts out for non-price competition. Thus, he is ready to
adopt premium pricing strategy. Of course, under this pricing approach, we need aggressive
and proactive (not reactive) pricing. Again, premium pricing can give rich dividend when
buyers are not price conscious and they are willing to pay higher price if they get a better
product and wider choice.
Reliance adopted this pricing strategy for vimal fabrics: Price is nothing but perceived
value what the customer perceives as value. Reliance assured that its buyers perceived the
prices of Vimal textiles as really good value for money. Premium pricing is an aggressive
pricing strategy.
Upper middle-class buyers constitute the target market for premium pricing. In
India, this approach is now adopted by renowned marketers. It assures growth and higher
profits through higher customer satisfaction and service. Going premium is the latest trend
in response to the consumers desire for high quality products on par with foreign goods.
The Indian cosmetics and toiletries market is now adopting premium pricing. Indian
marketers are hurrying into the premium segment in order to prompt foreign competition.
That it is going to be a tough fight for a niche consumer segment is undoubted.
Exposure to western lifestyles on television and an increasing trend towards perfect
grooming has opened up ample scope for selling beauty at a premium price. Similar trend
in favour of premium pricing is noticeable in the sale of fashion clothing, wrist watches
(Titan), Ray Ban goggles and clolured TV sets.
Summary
Pricing policies provides guidelines to the marketing manager to evolve appropriate
pricing decisions. If competition is mainly on a price basis then companies fix the price at
the same level of its competitors.
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On the other hand, if there is non-price competition, each marketer chooses from
price at market or pricing above the market or pricing below the market. Price is not the
sole determinant of purchasing. Many factors influence purchasing decisions. Fair price,
consumers demand, better services, better quality and reliability, fair trade practices etc.
influence purchase decision.
There are different types of pricing. Penetration pricing, cost plus pricing, skimming
pricing, one pricing policy and variable pricing policy are some important methods of
pricing. A seller charge similar prices to all types of consumers under one pricing policy.
There is no scope for negotiation, bargaining or haggling under one pricing policy. The
seller charge different prices to different types of consumers under variable pricing policy.

****

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Lesson 4.3 - Designing Right Promotion Mix

Learning Objectives
After studying this lesson you should be able to:
Explain the meaning of sales promotion
Enumerate the objectives of sales promotion
Bring out the components of promotion mix
Describe the process of communication in marketing
Explain pricing methods for rural markets.
Introduction
Promotion is a form of communication with an additional element of persuasion
to accept ideas, products, and services and hence persuasive communication becomes the
heart of promotion, the third element of marketing mix. In essence, promotion is the spark
plug of our marketing mix and an important marketing strategy.
People must know that the right product at the right price is available at the right
place. It is said that in a competitive market without promotion nothing can be sold. In
marketing, effective communication is absolutely necessary even though you have a superb
product, best package and also you offer a fair price. People will not buy your product, if
they have never heard of it and they are simply unaware of its existence.
What is Promotion?
Promotion is the process of marketing communication to inform, persuade, remind
and influence consumers or users in favour of your product or service. Promotion has three
specific purposes.
It communicates marketing information to consumers, users and resellers. It is not
enough to communicate ideas. Promotion persuades and convinces the buyer and influences
his/her behaviour to take the desired action. Promotional efforts act as powerful tools of

144

competition providing the cutting edge of its entire marketing programme. Promotion has
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, It is a form of non-price competition.
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. Consumers really speaking buy a bundle of expectations (a package
of utilities) to satisfy their economic, psycho-social wants and desires. The promotion
communicates benefits of the products or service to the consumers.
Hence, promotion message has two basic purposes:
1. Persuasive communication,
2. Tool of competition.
Promotion is responsible for awakening and stimulating consumer demand for your
product. It can create and stimulate demand, capture demand from rivals and maintain
demand for your products even against keen competition. Of course, it is taken for granted
that your product has the capacity to satisfy consumer expectations and can fill their wants
and desires. It is a truism that nothing can be sold and nothing can make money (except
mint) without some means of promotion.
Marketers have adopted a communication view of their firms promotional activities.
Receiver is now regarded as an active participant in the process of communication. All
marketing communications must be planned as part of a total system, not as independent
pieces. The promotion mix includes four ingredients, viz., advertising, publicity, personal
selling, and all forms of sales promotion.
All forms of promotion try to influence consumers attitudes, beliefs, ways of living
or life style, values and preferences towards a company and its products, and thereby
influence his/ her behaviour.
1. Advertising

It is defined as any paid form of non-personal presentation and promotion of ideas,
goods and services by an identified sponsor. It is impersonal salesmanship for mass selling,
a means of mass communication.

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2. 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.
3. Personal Selling

It is the best means of oral and face-to-face communication and presentation with
the prospect for the purpose of making sales. There may be one prospect or a number of
prospects in the personal conversation.
4. Sales Promotion

It covers those marketing activities other than advertising, publicity and personal
selling that stimulate consumer purchasing and dealer effectiveness.. Such activities are
displays, shows, exhibitions, demonstrations, and many other non-routine selling efforts at
the point of purchase. Sales promotion tries to complement the other means of promotion
given above.
All kinds of promotion play the role of communication channels between the
marketer (the source and the sender of message) and the consumer (the receiver of the
message). Promotion as an element of marketing mix has three broad objectives:
(a) Information,
(b) Persuasion,
(c) Reminding.
The overall objective of promotion is, of course, influencing the buyer behaviour
and his predispositions (needs, attitudes, goals, beliefs, values and preferences).
Four promotion mix elements have a definite role in all stages of the selling process.
Publicity is more effective in the awareness stage. Advertising gradually becomes less
and less effective over a time span. Hence, reminder advertisement is necessary. Personal
selling becomes more and more effective as interpersonal interaction assumes increasing
importance. Closing of sales needs not only personal selling but also sales promotion tools
at the point of purchase in order to provide additional incentives for buyers action.

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Today, promotion is not regarded as the sole tool of marketing communications. We

have now the wider concept of the term marketing communications. In the communication
mix of the firm we now include all the four components of marketing mix (the four Ps):
1. T
 he total product personality covering product quality and other features, brand
name, company name, package and label.
2. Price conveying quality, status, fair charge, and unique technological features.
3. P
 romotion-mix covering personal salesmanship, advertising, publicity, and sales
promotion.
4. P
 lace or point of sale indicating store choice, store image, store display and store
services.
Thus, all 4ps. (product, price, promotion and place of distribution) communicate and
act as senders of marketing messages. Of course, promotion proper is the most substantial
and most eminent component of marketing communication mix. Without it marketing is
impossible in a competitive and changing marketing environment.
Process of Communication in Marketing
There are three essential parts of communication, viz., the source, message and
receiver. True communication takes place only when the message means the same thing (in
common) to both the parties i.e., the sender of message and its receiver.
Marketing communication involves sharing of meaning, information, and concepts
by the source and the receiver about products and services and about the firm selling them.
Marketing communication is undertaken by marketers through the devices of promotion
viz., advertising, publicity, salesmanship and sales promotion. We have also word-ofmouth communication to accelerate the spreading over of marketing communication.
The effective communication occurs when a sender (source) sends a message and
a receiver responds to the message in a manner which satisfies the sender. Both must
have identical meaning of the message. Effective communication is equal to: receipt of
the message plus understanding plus acceptance plus action. In marketing action means
decision to purchase.
In marketing management, the source or communicator is the marketer who desires
to promote his product. He attempts to deliver a message to a receiver. He can deliver the
message in many ways. All forms of promotion are media or channels of communicating or

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sending the message. The receiver or audience is the target market segment, i.e., the group
of consumers for whom the message is sent.
Message is received and interpreted by consumers and if their predispositions
become favourable, they decide to purchase. Feedback is the reverse How of communication
from the consumer to the marketer.
When the message is transmitted through personal salesmanship, the seller may
have prompt feedback from the receiver. The sender can find out how the message is being
received as we have face-lo-face direct communication through sales talk and conversation.
The salesman can balance the message on the basis of feedback from the buyer. This is the
real advantage of personal selling.
Personal interaction is the most efficient form of communication. Under mass
communication or advertising, mass sellers must rely for information feedback (returned
message from buyer) on dealers, consumerism, complaints from consumers, marketing
research or total sales results given through sales analysis.
Mass communication is essentially one-way communication. Feedback is difficult
and usually delayed. Consumer surveys, electronic devices, and other types of marketing
research are used to get the feedback. However, this feedback is delayed and it is of no use
in altering the future advertising message.
Distortion and Noise in the Promotion Channel
Marketing communications may be distorted particularly when a message passes
through a number of channels. Noise is a more serious problem. It can arise due to faulty
transmission, faulty reception, or interference. Competitive communications constitute
the most serious noise. A consumer may be tuned to many communication flows
(advertisements) at the same time.
Promotion Messages
The message transmitted through all forms of promotion must describe the product
features in terms of customer wants and desires. The problem solving or need-satisfaction
approach is better while transmitting the message. It develops better understanding of
customer needs and problems. Remember that customers are buying a bundle of benefits
services. The promotion message must communicate effectively these benefits and services
to consumers. Hence, promotion message must achieve two basic objects: Communication

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and persuasion. For effective communication, sender and receiver must have a common
background of experience, e.g., a common culture, common language so that they will be
able to symbolize certain ideas, concepts and events in a manner easily understandable to
each other.
Promotion by definition is persuasive communication. The message is arranged to
facilitate the consumer decision-making process (awareness, knowledge, liking, preference,
conviction and action). Promotion message is one source of information (though very
important) at the disposal of a buyer. The buyer behaviour is influenced by many other
sources of information available from many sources. If promotion message is useful,
relevant and credible, the buyer will be influenced and persuaded to take action as desired
by the marketer or communicator.
Unfortunately, we come across fraudulent, deceitful and misleading promotion
message. The innocent consumer, relying on the promotion message, purchases the product
but very soon he discovers the dissonance and frustration in his post-purchase experience.
Without satisfaction, repurchase and consumer loyalty will be impossible; on the other
hand, word of mouth communication will act as anti-advertisement.
The Message Form
We have spoken and written words, picture and music. Communication involves
transmission of ideas, not merely words. Message need not always be translated into
the language. There are other ways for transmission of ideas. A picture communicates a
message very effectively. Any visual, non-verbal media can attract attention. Visual contact
is stronger and longer than a word contact. Picture permits easier association for the
viewer. Spoken word is also an effective communication tool. Music contributes to effective
communication. Hence, television is perfect advertising medium.
Main Purpose of Promotion
The overall purpose of promotion is to influence buyer behaviour and alter the
location and shape of the consumer demand curve in favour of the products. All promotional
efforts, i.e., marketing communications are directed to alter the demand curve or buyer
behaviour. The following figure demonstrates the effect of promotion on the demand curve.
1. Large quantity OQ2 sold at the same price OP,
2. Same quantity OQ1 sold at the higher price OP,

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Promotion tries to alter demand curve to the right (from D l to D2). Thus, promotion
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 communications.
In short, all forms of promotion can act as the best means of non-price competition,
and without any change in the price, marketers can succeed in influencing to a certain
extent the buyer behaviour and partially exercise control over demand and market without
using the weapon of price to meet competition.
The favourable change in the pattern of consumer demand is secured through
commercial information, persuasion and influence with the help of personal selling,
advertising, publicity and sales promotion devices.
Note
1. E
 ach tool of promotion is a vehicle or medium of communication in the field of
marketing management.
2. T
 he marketer as an artist creates the most favourable blend of all promotion elements
to influence buyer behaviour and the process of decision-making in purchases. Thus,
sales can be promoted through a promotion campaign.
Is there a Promotion Opportunity? There are five conditions indicating favourable
opportunity to promote:
1. Favourable trend in demand,
2. Strong product differentiation,
3. Hidden product qualities,
4. Emotional buying motives, and
5. Adequate finance to promote.

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Pricing Methods for Rural Markets

By the middle of 1994, Indias population has reached 920 million. With the advent
of 21st century, we may almost touch 1000 million. World population stands at 5.63 billion.
Chinas population is around 1.2 billion, U.S.A., 261 million, and Indonesia 195 million.
236,000 persons enter the world every day.
The middle class explosion accounts for 300 million consumers. The upper middle
class accounts for 60 million, with annual income over ` 10 lakhs (like a fabulous 16 lacs
annually in U.S.A.).
There are around 10 million rural families (around 50 million consumers) with
annual income over ` 40,000. India is considered the 5th largest market in the world. By the
year 2001 A.D. we would have around 500 million middle class buyers.
Indias new prosperity and market potential is attributable to the governments
ongoing commitment to economic reforms introduced in 1991. These reforms
deregulation, liberalization, privatizations have allowed India to rebuilt its economy and
foreign exchange reserves, reduce inflation and most importantly improve competition
and efficiency in the market place by relaxing substantially economic, trade and investment
controls.
The result has been a sharp rise in incomes and private consumption, especially
among the Indias growing middle class (not only in urban but also in the rural areas) and
similar growth in the affluent class. Private consumption in 1991 was around ` 4000 billion
($125 billion), 15percentincrease over the previous year and fourfold increase over 1981.
By the year 2001 the total private consumption may exceed ` 8,000 billion.
However, though our consumer market is estimated to be the 6th largest in the
world, the total private consumption at present is quite low by any measure. The present
consumption levels are: toothpaste at just 50 grams; per head annually against Brazils 300
grams; four bottles of soft drinks per head annually as against the U.S.A.s almost 30 bottles;
70-TV sets per 100 households against 145 per hundred households in Japan.
Of course, this state of low consumption indicates that potential of the Indian market
is quite remarkable and marketers in India have ample opportunity to exploit this potential
with the help of modern tools of advertising and sales promotion. For marketers the evergrowing urban and rural markets, in India, represent an unprecedented opportunity.

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As the poverty reduces, and as the middle classes continuously migrate up the
economic ladder, and as the professionals representing the elite class also grows with
further industrialization, so their consumption patterns change almost radically. For food
they move out of the wet market and enter into the super or hyper market; they trade
commodities for reputed branded goods and even premium price brands and become
home builders rather than members of an extended family. So they buy the latest white
and brown goods to fill their new homes. The large urban middle class and growing richer
rural class (due to green/white revolution in India) is wealthy, entrepreneurial and happy
to spend money lavishly.
Indias growing rural market is also experiencing increasing demand for fair-priced,
fast moving consumer goods as well as for some consumer durable goods such as cycles,
scooters, cookers, mixers, radios, televisions and so on. Lacs of upper class rural households
do have an income level high enough to allow for discretionary spending.
A distinct change in rural India is also quite visible. In the countryside poverty may
be widespread; nevertheless there are regions where tractors and agricultural machines
have replaced bullock carts and old traditional methods of farming. Silent green and
white revolutions are responsible for agricultural prosperity in many regions, e.g., Punjab,
Gujarat, and Maharashtra.
India vs. China
1993 was Chinas year. It suddenly became the key issue on every nations agenda.
China became acceptable as a stable market and every country wanted to be there. In 1990,
advertising budget of $ 1 million was considered as huge. In 1993-94, $ 10 million was
regarded usual and normal in China. Almost all important press reports compared India
with China and announced that 1994 onwards it would be Indias years. They recommended
investing in India over China from 1994 onwards.
There is twice as much American direct investment going into India as in China
since 1994. Unlike China, India, they say, operates within a rule of law. India has also a
much larger and far more capable infrastructure of local companies which serve as good
partners (e.g., Ambani, Godrej, Tata, Birla, Modi, Bajaj, and so on) and tough competitors.
Unlike China, India has much more cheap labour to offer. India has the enormous pool of
skilled and professional labour. More engineer graduate each year are there in India than
in China and South Korea combined. For instance, Motorola wants to make India a Brain
Centre for engineering and design work.

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Even Japan chose Indian software engineers over its own Japanese employees. In
short, in the International world, India is today recognized as one of the best emerging
markets. Till 1990, business planning was the monopoly of the bureaucrats.
Since 1991 onwards business/marketing planning is being done by businessmen and
marketers in India, and business management has adopted customer-oriented approach in
marketing and distribution.
The Consumer Market
The consumer market has changed radically during the last ten years. We are
witnessing a complete transformation of the consumer markets in India. There is a definite
shift from sellers market to buyers market, from Caveat Emptor (Buyer Beware) to Caveat
Vendor (Seller Beware).
The Indian Consumer has really begun to consume and that too with a revenge. The
reasons are many:
1. Rapid growth in the market supply of goods and services,
2. Increasing effective demand due to rising purchasing power of middle class
population,
3. R
 emarkable prosperity both in the vast rural areas and in the highly concentrated
population in the urban regions,
4. Overflowing unaccounted money everywhere,
5. Inflationary conditions compelling everybody to enter the market and maximise
their purchases from time to time,
6. A
 ggressive advertising on TV, radio and in the press inspiring the children, the
youth and the women to go all out and buy either from current income, savings or
on credit.
The cyclonic changes in the Indian marketing environment preceding the advent
of 21st century ought to be intelligently forecast through marketing research so that
enlightened marketer can prepare himself for the Big Leap in the 21st century.
Intense competition in the market is really proving a big boon or a windfall for
Indian consumers who is emerging as the king/queen after over two generations (more
than five decades) labouring under shortages of even essential consumer goods. It is really
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surprising that though inflation has become a permanent guest in our life, it is not creating
any obstacle to the new market boom even in the midst of poverty and unemployment still
persisting in India.
A real boom in consumer products market clearly points out its growth in size,
range and sophistication.
Year

Size of Consumer Market

1960-61 ` 2,400 Cr.

1986-87 ` 0,000 Cr.
1995-96 Over ` 40,000 Cr. (Estimate)
The Middle Class Explosion
The emergence of large middle class as the dominant consumption community
of the country can be regarded as one of the most noteworthy developments in India. It
has grown in size, and prosperity. Its disposable and discretionary income has gone up
considerably. The upper middle class is now regarded by marketers as a distinct profitable
target market. Its consumption of non-food items is continuously growing.
The upper middle class has money to invest on the stock exchange. They constitute
a lucrative market for consumer durable goods, for electronic entertainment goods for
status symbol goods, and for all the modern amenities of life. They are now reaching out to
satisfy their higher level psychological wants after satisfying their economic needs.
Its new and growing pattern of consumption is determined not merely by its
economic profile but also by its new social and life style profile. The potential of this market
segment in India is now almost on par with the total potential of major European countries
like U.K. France or West Germany. Middle Class Life-style
The current life-style of the middle class and the upper-income class consumers
acting as the consumption community of modern, India is depicted below:
1. Modern Kitchen appliances,
2. E
 ntry of white goods such as T.V., V.C.R., Freeze, Washing Machines, Sophisticated
music system, microwave ovens, etc.,
3. Interior home decoration, furniture and fixture,

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4. Personal means of transport,

5. F
 ashionable readymade garments for both sexes e.g. Levi Jeans, Lotto Shoes, Double
Bull, Arrow Shirts,
6. L
 ots of jewellery, and countless varieties of cosmetics and personal items, craving for
new status symbols.

The new-man-about city is not going to scrimp where it comes to showing off
his status. All the mega cities in India faithfully reflect the new life-style of Indian urban
population.
Comments
1.
Middle

class

explosion

in

reality

reflects

faithfully

urban

and

suburban markets as this class is the backbone of urban target market.

2. Any marketer in India is deeply interested in this class as it offers the maximum
demand potential and wide scope.
3. Though one has to consider cultural, linguistic and to some extent regional differences,
in general middle class life-style, buying behaviour and also consumption pattern
are similar throughout India.
4. Urban consumer is receptive to new ideas, welcomes innovation. However, by
temperament, a middle class consumer is usually price-conscious, cautious and he
wants economic/emotional security. Comforts and a few luxuries are regarded by
him as status symbols and marketers selling consumer durables ignite his sense of
prestige or status.
5. The middle class housewife is educated, employed and plays an active role in home
management. She is cost-conscious, quality-conscious, cautious but not against
change, fashion-loving but not crazy for fashionable goods. Please note that she is
the main decision-maker in all family purchases.
6. The intense competition among the marketers in India should assure costeffectiveness and quality of goods to consumers. Consumer Protection Act would
also induce good business response to growing consumerism and to fair trading.
The glamour of Western life and culture is responsible for the revolutionary changes
in the life-style and culture of urban and semi-urban Indian population, particularly in the
teenager Indian youth.

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Rural Markets
India has now achieved self-sufficiency in its food grain needs and can even export
food and fruit products. White revolutions are considered as economic marketing miracles.
65 per cent population is rural.
Rural market, however, accounts for hardly 40 per cent of total expenditure on
consumption. Rural market is vast but partially tapped. The top 15 per cent of farmers
account for about 40 per cent of expenditure on consumer goods in the rural markets.
It should be noted that rural markets untapped potential is throwing a big challenge/
opportunity to marketers in India and now as rural market is duly exposed to radio. TV.
and satellite communications and a Literacy is also growing in rural India, marketers can
have integrated marketing plans and programmes and meet the challenge by capitalizing
immense marketing opportunity.
If they succeed in exploiting rural market potential, we will witness a new era of
economic prosperity in the Indian villages in the near future.
The communications revolution is also now influencing rural India. Around 66 per
cent of our population is intensely exposed to the electronic media power, especially TV.
Seeing believes.
Union of sound, sight and movement in television makes it the most powerful sales
medium to influence the consumers. Rural consumers are also increasingly exposed to this
media.
The marketers are exploiting fully this media to convert millions of rural prospects
into actual customers for their brands. The rural folk are also responding though with some
resistance to the attractions of materially good life.
Typical Problems Encountered in Rural Marketing
1. Large Market

The rural market of India consists of about 60 crores consumers. It is a big market
having considerable potential as it is still partially tapped. Even then it is offering a market
worth ` 20,000 crore of non-foods per year at present.

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2. Scattered Market

The rural markets are very widely scattered covering about 5.6 lacs of villages spread
over the entire length and breadth of India.
3. Seasonal and Irregular Demand

Not only the rural market is very large and very widely scattered (fragmented) but
the demand is also seasonal (not regular or constant) because the rural demand is closely
associated with farming and farming in India depends on the vagaries of monsoon even
today. Hence, rural demand is tied down to agricultural harvesting seasons and also to
fairs/festivals which many a time coincide with harvests.
4. Economic and Social Backwardness

Average per capita income and purchasing power in rural India is low though
gradually growing. Literacy is also low. The village life is still governed by custom and
tradition though it is slowly being exposed to modernism. We have also to face diversities
relating to language, customs, and culture.
5. Special Problems in Marketing

We have already noted that the marketing of goods in rural India is a big challenge to
marketers. There are special problems in rural marketing: These are: problems in physical
distribution, problems of distribution channels, problems of promotion and marketing
communication, and problems of sales force management.
Rural marketer is not called upon just to find the market and tap it with the help of
promotion and distribution. In a sense, the marketer must adopt creativity and create the
market and develop it through innovative marketing management. Markets are made and
not merely found is literally true in the case of the rural market of India.
Marketing Communication in Rural India
In the evolution of a proper mix of marketing communications, there are two major
problem areas:
1. Appropriate media mix,
2. Nature of rural consumer. Let us deal with these problems.
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Communication Media
It is a fact that a high degree of illiteracy still exists in rural India. We have hardly
40 per cent male literates and 25 per cent female literates in rural India. Hence, press and
other print media are playing a very minor role in our rural markets. TV and radio are ideal
media with the rural consumers.
But they are only partially available for use in the rural regions. Hardly 20 percent of
the rural consumers can be tapped by the print media of advertisement. Cinema is relatively
acting as a better medium of communication in rural markets. 35 per cent of total cinema
income in India is emanating from rural viewers.
Nature of Rural Consumer
Marketer cannot use printed word or message as a means of communication.
In addition to low literacy, we have diverse cultural backgrounds, different languages
changing from region to region, varied customs, and traditions, economic backwardness.
As we cannot use Hindi and English languages for marketing communication, the problem
of rural communications becomes quite formidable.
About 200 million of the rural populations have the purchasing power but hardly 100
million adults in the rural areas are the target consumers. There are less than 15 newspapers
for every 1000 people. 50 per cent of the total circulation of newspapers is confined only to
the four metros and hardly 2 per cent of the copies of newspapers circulate in rural India.
Thus, marketer encounters a great difficulty in the formulation of appropriate media mix
to establish effective rural communication to a target rural market.
Summary
Promotion plays a critical role in marketing products or services. Whatever may be
the quality of the product or service, without promotional activities marketing the product
will be a challenging one, Promotion is a form of communication with an additional element
of persuasion to accept ideas, products, and services and hence persuasive communication
becomes the heart of promotion, the third element of marketing mix.
In essence, promotion is the spark plug of our marketing mix and an important
marketing strategy. Promotion communicates marketing information to the consumers,
users and resellers.

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It persuades the consumers to buy the products. Promotional activities influence

consumers attitudes, beliefs, values, way of living or life style and preferences towards a
company and its products and thereby influence their behaviours. Marketing communication
is undertaken by marketers through the devices of promotion, viz., advertising, publicity,
salesmanship and sales promotion.
4. Should the Indian farmer only concentrate on production and not worry about
agriculture marketing. Discuss issues.

****

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Lesson 4.4 - Sales Promotion

Learning Objectives
After studying this lesson, you should be able to:
Explain the characteristics of media
Describe the importance of media selection
Discuss the need for sales promotion
Explain the merits and limitations of sales promotion
Analyze the promotional strategies
Introduction

Advertisement plays a critical role in marketing the products or services. In the
present competitive environment advertisement is highly required even for selling quality
product. Advertisement communicates the availability of particular products in the market.
Features of the products and terms and conditions of the sale are clearly communicated to
the consumers through advertisement.

Choosing the advertisement message and selecting the media are important in the
advertisement. According to Philip Kotler media selection involves finding the most cost
effective media to deliver the desired number of exposures to the target audience. In media
decision, we have to consider the following factors:
1. The financial allocation for advertising.
2. The nature of the product and the demand for it.
3. The type of prospects, their location and other characteristics.
4. The nature of competition and the extent of coverage required.
5. Cost of media, co-operation and promotional aids offered by media, media circulation.
Right media of advertisement will enable the advertiser to deliver the message
effectively to the intended markets or prospects.

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Characteristics of Important Media

1. Mural Advertising

Mural or outdoor advertising has long life. It has a general and wide appeal. It
can attract attention of numerous people It is good to remind prospects. An advertiser
has ample scope to use his skill and art in advertising. However, outdoor advertising has
certain limitations. i cannot have a long message. It is not useful in selective advertising or
for specialised products. It has a low retention value. Its effectiveness cannot be accurately
measured and it may lead to considerable wastage also hill boards and hoardings are not
welcome today on highways due to adverse public opinion. (They spoil the natural beauty
and environment).
2. Press Advertising

Newspapers have a general and wide appeal. It is very common method of publicity.
Newspapers are flexible and timely. Repeat advertising is possible. Periodical change in size
and contents is also easy. Selective advertising to some extent is available. Effectiveness of
advertising can be estimated by having keyed advertisements.

Newspapers offer promotional assistance. Coloured and attractive advertisements
are now available even in newspapers. They are the best source of market information.
Newspapers are truly a way of life to most of the literate people. They have short closing times.
Closing times refer to the period before publication when the copy must be submitted. For
newspapers, this period is only 24 hours. The adage seeing is believing is applicable to press
advertisements. It offers greater prestige and believability. However, newspapers have short
span of life. Waste in advertising is considerable. Illiteracy affects its utility. Magazines and
trade journals are other means of press publicity. They are best for coloured and attractive
advertisements. They have longer life, greater retentive value as well as reference value.
Selective appeal is possible. We can approach particular market segment only. Waste can be
reduced. However, they need advance planning, do not facilitate repetitive advertisements.
They have limited circulation. They have higher unit cost per contact.
3. Film Advertising

It has a wide appeal. It can overcome language barriers. Audio-visual (sound and
sight) technique has maximum impact on audiences. Sound and sight both are employed
for communicating our message. Repeat advertising is possible. However, both cost
of production as well as cost of distribution of slides and films are quite high. Selective

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advertising is not possible. Effectiveness cannot be measured. Waste in film publicity can
be considerable.
4. Radio Advertisement
Of all the media, radio has the shortest closing times: Radio uses only an audio
(sound) signal. The copy can be submitted to air time. Announcements can be made
very quickly. It can secure dealer support. It has a very wide appeal. It is suitable even for
illiterate people. Repeat message is quite common. Spoken word has greater impact than
written word. With the entry of FM radio programme ranging from all-talk to Indian and
Western Music, certain target markets can be easily approached. However, radio cannot
permit selective advertising. It cannot give detailed information. It has low memory value.
People remember far more of what they see than of what they hear. It may not be very
effective as listeners may not like it. Many a time, they are bored by repeat messages. The
length of time media is momentary. The message may be lost, if the radio is not tuned.
Radio has low listening level as it is often used as background for working, studying or
some other activity.
5. Television Advertisement
Television uses both video (sight) and audio (sound) signals. It is a unique
combination of vision, motion and sound. Products can be demonstrated and also described.
We have best sales presentation. Television has all the advantages of radio, namely, sound
and explanation, plus the additional advantage of sight. It can appeal through ear as well as
eye. Product can be demonstrated with explanation. Television reaches the audience almost
like personal face-to-face contact. To that extent it is just like personal salesmanship. Full
opportunity exists for product demonstration and the amplification of selling points with
audio presentation. It is really a wonderful means of mass communication for creating
market. Television combines all of the elements of communication:
1. Illustration,
2. Music,
3. Spoken words,
4. Written words.
We can have short commercials as well as sponsored programmes combining
entertainment with advertisement. It represents typical combination of salesmanship and
advertising.

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6. Transit Advertising
Transit advertising consists of card advertising, which is located within buses,
subways, railways and outside displays, which appear on the fronts, sides, and backs of
buses or other public transport and at transportation terminals. Transit advertising is the
lowest-cost media. It gives geographic selectivity and seasonal selectivity. It has high reader
ship. It can reach pedestrians and traveling public. However, non-riders are not exposed
to car-cards located inside the vehicle. Car-cards have small size and they can carry only
short copy. Transit advertising is limited in quantity by the number of public vehicles in
operation.
7. Direct Mail
Direct mail is any advertising sent by mail (postal transmission) including sales
letters, folders, pamphlets, booklets, catalogues and the like. Direct mail is the most
personal and selective media. It reaches only the desired prospects. It has minimum waste
in circulation. The advertising copy can be very flexible. It has maximum possible personal
features even without personal contact. It can provide detailed information about the
product or service, creating lasting impression. Its effectiveness is measurable. It can be
timed as per advertisers will. It has maximum personal appeal. It can take any size, shape
or form permitted by the post office. It is not in direct competition with the rivals matter.
Extensive testing can be done on the product, price, appeal or other factors before the
entire mailing is sent out.
The results of direct mail advertising can be checked by means of an offer incorporated
in the mailing. However, direct mail is costly. We may not have proper mailing list. Receiver
may consider it as junk mail as it may not have entertainment value. It is not a good means
of mass communication.
8. Advertising Specialties
These include a wide variety of items, such as calendars, books, matches, pens, pencils,
knives, key rings, diaries, memo advertisements, cigarette lighters, blotters, paper weights,
electronic clocks, purses, rain hats and so on. They are given to advertising targets without
cost or obligation. Advertisers name, address, phone number, and a short sales message
are imprinted on the item. The advertiser can choose from among 5,000 specialties in the
market. Advertising specialties are reminder type of promotion. It is hoped that they will
lead to customers orders and re-orders. However, they have limited space available for
sales message. They are also costly.

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9. Point-of-Purchase Advertising
It really represents sales promotion devices. It covers the display material used in
advertising programme. Such point-of-purchase material may include advertising on the
package, window banners, shelf-talkers, merchandise tags, package stuffers, information
folders and booklets and such other displaying materials.
Advertising Spends/Estimates 1990-1993
(`. in Crores)
1990

1991

1992

1993

1050

1200

1400

1600

280

350

406

500

Outdoor

60

75

87

100

Radio

40

50

60

70

Video/Cable

10

15

20

25

1452

1695

1978

2300

Press
Doordarshan/Satellite

Cinema
Total
Promotional Campaigns

Sales promotion is an important instrument in marketing to lubricate the marketing

efforts. Today, sales promotion is a necessity and not merely a luxury or a fashion. It is not
expenditure; it is an investment which can pay rich dividends. It is an integral part of the
marketing effort.
What is Sales Promotion?
Sales promotion is referred to the promotional activities other than personal
salesmanship, advertising and publicity, which stimulate consumer purchasing and dealer
effectiveness, e.g., displays, exhibitions and showrooms, demonstrations, free samples,
coupons, premiums, contests and various other non-recurrent selling efforts not in the
ordinary routine. It is a plus ingredient in the marketing mix, whereas advertising and
personal salesmanship are essential and basic ingredients in the marketing mix. In short,
sales promotion is a bridge or a connecting link covering the gap between advertising and
personal salesmanship, the two wings of promotion.

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The manufacturer or wholesaler may have a good product, reasonable price,

attractive package, etc. He may have a good sales force. He may have spent a lot on
advertising. Even then he knows that the product may not sell by itself. He can get orders
from dealers or retailers. But many more things than orders are required to be achieved. The
sale of the product has to be promoted through a number of influences at the place where
retailers and prospective buyers meet face to face, i.e., at the point of purchase. In short,
all prospective buyers must be attracted, urged and even persuaded to buy your product.
Sales promotion is a vital link between advertising and field selling. It aims at stimulating
consumer purchasing at the point of sale and dealers effectiveness at the retail channel of
distribution, particularly because retailing is a highly competitive field.
Sales promotion and publicity, when combined with advertising and personal
selling programmes, really add up to more than the sum of the parts. Sales promotion is
that something extra (2 + 2 = 5). It can arouse enthusiasm, create a buying mood or spark
an immediate reaction from consumers, dealers and the firms salesperson. Many sales
promotion campaigns involve the use of incentives.
Incentives are something of financial value added to an offer to encourage some
obvious behavioural response. Sales promotion is often thought as special selling effort to
accelerate sales. Point-of-purchase displays give a real pay off, sales rising by 25 to 50 per
cent or even more.
Sales Promotion Objectives
Sales promotion has dual objectives:
1. To increase buying response by ultimate consumers, and
2. To increase selling efforts and intensity by dealers as well as by sales personnel.
3. To supplement and co-ordinate efforts of Advertising/Personal Selling.
The result of an effective total marketing programme is sales success, which entirely
depends on positive customer reaction and an intense, well organised selling effort by
resellers and salespersons. One study suggested the following reasons for undertaking
actively all forms of sales promotion:
1. Calling attention to new products and product improvements,
2. Informing buyers of new brand and new package,
3. Improving market share,

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4. Increasing usage rate by present customers,

5. Maintaining customer patronage and brand loyalty,
6. Obtaining dealer outlets,
7. Securing additional shelf-space and added display,
8. Creating talking points for salespersons,
9. Meeting competition.
Sales Promotion/Advertising
1. S ales promotion is a direct and open persuasion to the consumer to try the product
immediately. Advertising is indirect and subtle approach persuading consumers to
buy a product.
2. S ales promotion performs an immediate job of boosting sales. Advertising has usually
longer-term goal, e.g., to build brand awareness, image or loyally, or repositioning
of a brand.
3. S ales promotion only alters price-value relationship of the product. Advertising adds
some value to the product. Sales promotion supplements both personal selling and
advertising and co-ordinates them and helps to make them effective.
Merits and Limitations of Sales Promotion
1. It stimulates positive attitudes toward the product.
2. It gives extra incentive to the customer to make a purchase.
3. It gives direct inducement to take immediate action now rather than later.
4. I t has flexibility and it can he used at any stage of a new product introduction.
Sales promotions are very effective:
(a) When a new brand is introduced,
(b) When we have to communicate a major improvement in our product,
(c) When we want to amplify the results of the advertising,
(d) When we want to increase the number of retail stores to sell our products.
Limitations of Sales Promotion
1. S ales promotions have temporary and short life not exceeding three months. Sales
promotion alone cannot build up brand loyalty.

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2. S ales promotions are only supplementary devices to supplement selling efforts of

other promotion tools.
3. They are non-recurring in their use. They have seldom reuse values.
4. T
 oo many sales promotions may affect adversely the brand image, suggesting its lack
of popularity or overstocking by a company.
5. A
 dvertising agencies accord low status to sales promotions and usually employ
junior staff for sales promotion so that they may be trained for more creative jobs.
Sales promotions are ineffective:
(a) When established brands have a declining market,
(b) There are no product improvements,
(c) When there is intensive competition on consumer sales promotion.
Types of Sales Promotion
There are two types of Sales Promotion:
(a) Activities intended to educate or inform the consumers and those intended to
stimulate the consumers. These are called consumer sales promotion.
(b) Activities to increase the interest and enthusiasm of dealers and distributors. These
are called dealer/distributor sales promotion devices.
Consumer Sales Promotion
These devices are:
1. S ampling usually called consumer sampling. Free samples are given to consumers
to introduce a new product or to expand the market. The consumers can try the
product.
2. D
 emonstrations or instructions educating the consumers in the manner of using the
product.
3. A
 coupon is a certificate that reduces price. When a buyer gives a coupon to the
dealer, he gets the product at a lower price (Regular price is ` 20; with a coupon it is
` 18). Coupons (same as money) are accepted as cash by retailers.
4. M
 oney-refund orders, i.e., full purchase price are refunded, helping the introduction
of a new product. Refund offer creates additional interest and increases sales

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considerably. It is a good device for creating new user and to strengthen the brand
loyalty.
5. P
 remium (gift) offers are temporary price reductions, which appeal to bargain
instinct, e.g., instant coffee sold in carafes by one company was very successful.
Towels, dinnerware, hair-brushes, key chains, artificial flowers, ball pens, toilet soaps,
blades, were given as in pack premiums. Attractive reusable jars costing separately `
8 may be given at an extra charge of ` 4 only. Liril gave a soap box almost free with
two toilet soaps.
6. P
 rice-off, e.g., ` 2 off on a Brooke Bond pack of 500 grams; the price-off label is
printed on the package. It gives a temporary discount to the consumers.
7. F
 ashion shows and parades are good promotion aids or helps in mens and womens
sophisticated clothing.
8. Contests or quizzes for consumers help to stimulate consumer interest in the product.
In these contests, and quizzes, participants compete for prizes on the basis of their
skill or creative ideas. In sweepstakes, they submit their names to be included in a
drawing of prize winners. This type of sales promotion is not a lottery because there
is chance or luck, prizes are offered and a payment to participate is there.
9. Trading stamps are given for purchasing in a particular shop
The Quiz/Contest Craze
The advent of Star, Zee and Metro (Satellite TV) Channels has thrown open to
business concerns the possibilities of brand promotion via the countless quizzes and
contests now being telecast at a small percentage of normal! promotional cost. With quizzes
and contests on television gaining increasing popularity, many companies are gifting their
own products in an attempt at gaining mileage for their brands.
Sponsor companies on the television are adopting the quiz and contest route as a
profitable means of establishing brand equity over a period of time. In programmes like
Philips Top Ten. Bournvita, Close-up Antakshari, Bajaj Ke Tarane and Lux Kya Scene Hai,
brand equity has been used as a format. These programmes have gained considerable
popularity and they will be remembered for a long time. T. V. has gained substantial
audience in India. The basic strategy in contests is to provide an extra-incentive to the
consumer for buying a product. Full exploitation of contests at retail level must be planned.
Retailers must be briefed about the contest and enough merchandise should be available to
satisfy all customer demand. A well planned quiz contest has to be unique, interesting to
the buyer, related to the product being sold, and tied in with sales in some way.
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Contests are used to reach short-term sales goals. If properly designed, they can
achieve other objectives as well. In fact, they are even used as versatile ways to hit non-sales
related targets. As markets evolve, contests will be used for winning the upper hand, by
emphasizing a particular aspect of a product, coping with competitive pressures or increasing
recall. But competitions, like any form of sales promotion, have their limitationsthey
cannot, for instance, sell an inadequate product or one with a poor distribution network
overnight or work miracles. Currently the companies are caught up in the contest/quiz
fever. Viewers are not complaining either. Marketers should make the most of the quiz and
contest opportunity before the magic fades. And then they may latch on to some new fever,
for there is never an end to new opportunities.
Dealers Sales Promotion
These devices or helps are:
1.

 here is a provision of free display material either at the point of purchase (POP)
T
or point of sale (POS), depending on ones viewpoint. Display reaches consumers
when they are buying and actually spending their money.

2.

 etail demonstrators are supplied by manufacturers for preparing and distributing

R
the product as a retail sample, e.g., Nescafe instant coffee to consumers for trying
the sample on the spot or demonstration regarding the method of using the product.

3.

 rade deals are offered to encourage retailers to give additional selling support to
T
the product, e.g., toothpaste sold with 30% to 40% margin.

4.

Seller gives buying allowance of a certain amount of money for a product bought.

5.

 uy-back allowance is given to encourage repurchase of a product immediately after

B
another trade deal. A buy-back is a resale opportunity.

6.

Seller gives free goods e.g., one free with 11, or 2 free with 10 are common free deals.

7.

Advertising and display allowance may be given.

8.

Sales contests for salesmen are held.

9.

 ealer loader (a gift for an order) is a premium given to the retailer for buying
D
certain quantities of goods or premium for special display done by a retailer.

10. D
 ealer and distributor training for salesmen, which may be provided to give them
a better knowledge of a product and how to use it.

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Dealer sales promotion provides the selling devices. Sales promotion devices at the
point of purchase inform, remind, and stimulate buyers to purchase products. People who
see these devices are in a buying mood and thus they can be easily persuaded to buy those
products. Tell tags are informative labels affixed on the product, describing in detail the
features of the product and its unique selling points.
Shelf talkers are similar labels attached to the shelves close to product displays.
Counter top racks, posters, mechanized signs are other point-of-purchase displays.
Each form of sales promotion is used to encourage quick movement of products
along the channel of distribution and enhancing the tempo of sales campaign. It also creates
extra incentive or gives extra value to the channel of distribution itself, e.g., retailers. Hence,
sales promotion offers a direct inducement which gives an extra value or incentive to the
distributors, their sales force and the ultimate consumer.
Surging Popularity of Sales Promotion
Since 1990, sales promotion has become very popular and is now integrated into the
total marketing strategy. Factors accounting for importance given to sales promotion are:
1. Sales promotion offers quick results which are also measurable.
2. C
 ompetitive pressure compels many firms to retaliate with their own sales promotions,
e.g., contests, price off, gifts, etc.
3. C
 ontinuous rising prices oblige consumers to become more price conscious. Sales
promotions become more attractive to them.
4. Tools are needed at the point of purchase (POP) to boost sales in retail stores.
Reasons for Sales Promotion (Merchandising Aids)
1. Introduction of a new product.
2. Stimulus for a new use of a product.
3. Encouragement for increasing frequency of purchase.
4. Appeal to a special area of the market.
5. Combination offer to encourage the use of other product.
6. Creation of dealer interest and inducing them to stock the articles.
7. Securing shelf space in the retail window.
8. Counter-balancing price competition.

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9. Special training of salesmen.

10. Seasonal and grand reduction sales.
11. Capturing bargain hunting and non-brand conscious buyers through bargain sales.
12. Acceleration to slow selling lines.
Thus, sales promotion is used at the time of introducing a new consumer product,
to secure maximum dealer stocking, display space and attention of customers. Sales
promotion involves a lot of expenditure. It also has difficulties. But because it pays rich
dividends, sellers have accepted it as an important item in the marketing mix.
Not only does it give profit but it also serves other purposes such as provision of
information, creation of demand, repeat buyers, sales stabilisation and quick inventory
turnover. The successful promotional effort has many ingredients such as personal selling,
sales promotion devices, advertising, public relations, and publicity.
Industrial sales need higher personal salesmanship. In the sale of consumer goods,
we need a good combination of personal sales with advertising and a lot of point-ofpurchase help. Numerous final customers in mass distribution cannot be approached
through personal salesmanship. Hence, we need devices to promote sales, such as contests,
sweepstakes, premiums, coupons, product demonstration, exhibits, point-of-purchase
display, trading stamps, samples, free trips to Kashmir and so on. The marketing manager
must co-ordinate the promotional effort of the sales manager, advertising manager, and
sales promotion manager. At present, Advertising Agencies help in both advertising and
sales promotion devices.
Joint Promotion (Through Advertising or Through Promotional Events)
Two years ago, in an unusual print ad, Mafatlal Fabrics endorsed Procter &
Gambles new detergent product Ariel. Not that it was only Ariel: that stood to gain from
this approach. Mafatlal too, gained mileage through the advertisement. This was, perhaps,
the first noticeable instance of joint promotion on the part of two brands that hoped to gain
in visibility. Joint promotions as a marketing device have finally come into its own. The
reasons for this are manifold. Rising advertising rates in the various media makes brand
visibility an expensive affair. Also, with the clutter of parallel products in the market and
messaging on the media, attempts at establishing brand equity have become a more complex
exercise. The days of distinct USPs are by now in the past. If two brands that already have
an established equity, endorse each other, the likelihood of success even beyond regular
advertising stands a good chance. The Godrej-Titan promotional tie-up that was carried

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out in November 1993 is a case in point. The sales of the Godrej refrigerators trebled.
However, in a similar exercise, when an alarm clock made by a small scale manufacturer
was offered free with the Godrej refrigerator, the increase in sales was just 20 per cent.
Joint promotions between two brands that pose no threat to each other, yet aim at
the same target audience and belong to the same usage category (a detergent and washing
machine for example), stand to gain in terms of competitive edge by endorsing each other.
The most notable examples here are the Surf Ultra Videocon washing machine tie up,
and car dealer, Auto riders India Limiteds cooperative marketing venture with financial
institutions, spare parts dealers and insurance companies. Moreover, even though the
target segment is the same, the participants are not in direct competition with each other.
Cost sharing on joint promotions is an attractive benefit for advertisers and
promoters, especially in the face of escalating advertising costs. Marketers in the jointpromotions game claim that such strategies can reduce media spend by as much as 70
per cent. Proponents of Joint-promotions claim that this is the second most important
marketing platform after advertising, and is one method of achieving a direct face-off
with the consumer. Fears that such cooperative marketing efforts might dilute the brands
identity are discounted on the grounds that in fact, they serve to provide incremental
enhancement for the brand.
Among the most recent and unique joint-promotion platforms has been a
promotional tool itself: the Snuggy Club of Diapers India Limited. With strength of 3,000
members who are mothers of children up to three-year-olds, the Club was recently used
for the launch of a number of childrens product by Wipro, Johnson & Johnson, Milton
(the Funny Bunny range) and Leo Mattel. Joint-promotions may yet be at a nascent stage.
Fast becoming an important marketing tool, it is bound to see a lot more innovations
and sophistication in the near future, as the need for closer interaction with the consumer
increases. Joint promotion, i.e., joining hands for visibility offers also mutual increase in
brand loyalty.
Exhibitions and Trade Fairs
An exhibition stand or stall is a form of showroom, but it is a very distinctive form
of showroom. It provides a temporary market place at which buyers and sellers meet.
There are various types of exhibitions, international trade fairs, national and local fairs
and exhibitions (usually sponsored by a chamber of commerce or trade association). We
may have indoor or outdoor public exhibitions and fairs and shows, e.g., agricultural and
industrial machinery and equipment, cottage industries and handicrafts, fashion shows

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and parades, domestic electric appliances, office machines and appliances, etc. An article
shown at an exhibition at least makes a good impression without creating actual demand.
A man is greatly impressed with a typewriter, time-clock or simple appliance. He
makes up his mind to buy one sooner or later. Usually, people are in a buying mood when
they visit an exhibition.
A successful stand in an exhibition or a trade fair gives three services to the owner:
1. It provides entirely new business which cannot be secured by any other method.
2. Buyers unwilling to meet salesmen or visit the shop or show-room will, on their
own account, do a lot of purchases at these fairs or exhibitions. These buyers are
usually resellers.
3. Competitors compete with each other for getting maximum busi
ness. The
conservative buyer can compare the competitive lines displayed in close distance to
one another. They need not disclose their identity. They welcome criticism of their
regular suppliers only at such exhibitions. Thus, at exhibitions constructive and
conservative buyers (resellers) can be easily handled and captured by rival sellers.
In many trades, exhibitions are held annually at the same period of the year, these
exhibitions attract a large number of buyers every day. These annual exhibitions become
the basis of many sales campaigns. Buyers purchase all their requirements, e.g., utensils,
furnishings, appliances, clothing, fittings, at these exhibitions.
Exclusive Showrooms
Generally the showroom idea is used as a tool of distribution. Currently in the face
of growing competition and unfair undercutting by dealers, a number of consumer durable
companies are opening plush, exclusive showrooms, arcades, and gallaries as powerful
means of sales promotion to boost their sales. Exclusivity plays the role of Unique Selling
Proposition (USP) to increase the sales. Onida has set up around 20 Arcades in big cities.
Bush has exclusive gallaries. Sumeet has established gallary-cum-service centres.Ceat has
(Ccat Shoppes). Vimal textiles have a large network of ultra-modern showrooms all over
India.
A very great advantage the exclusive showrooms offer to a company is the ability to
impress the consumer with the whole range of its products at a time when all companies is
going in for diversifications and range expansions.

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Of course, the showrooms are only additional means of sales promotion/distribution.

The distributor/dealer network systems have not been done away with completely. One
cannot deny the importance of dealers. A prospect about to invest more than ` 15,000
will obviously want to look at other brands in the market before making up his mind. The
showroom idea is also to encourage customers to go back to dealers stocking the brands. The
exclusive showroom idea as a promising marketing device has proved a draw is undoubted.
The future of such showrooms, particularly for T.V., V.C.R., Washing Machines, and
costly textiles seems to be bright at the moment. Some companies have franchise-owned
showrooms with identical colour schemes, furnishings, flooring and identical services.
Publicity/Public Relations
Publicity is also called marketing public relations. Publicity is not paid for by the
organization. Publicity comes from news reporters, columnists and journalist people. It
comes to the receiver as the truth rather than as a commercial. Public relations and publicity
taken together becomes the fourth major ingredient of promotion mix. These activities are,
however, not controllable by the firm. Every firm tries to create good public relations so as
to give good publicity. Defective products, unfair trade practices, anti-social activities often
result in unfavourable publicity, consumer ill-will, bad product image, increased consumer
protests, government regulations and so on.
The firm having a poor public image will have lower sales and lower profits.
Reducing the impact of bad news is as important as creating good publicity. Under the
social marketing concept, publicity and public relations are assuming unique importance
in the firms promotion mix. Consumerism is altering consumer attitudes not only towards
products, but also towards the firm and dealers selling the products of the firm.
Public Relations
Public relations have now become an important marketing function. The total
process of building goodwill toward a business enterprise and securing a bright public
image of the company is called public relations. It creates a favourable atmosphere for
conducting business. There are four groups of public:
1. Customers,
2. Shareholders,
3. Employees,
4. The community.

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The marketers should have the best possible relations with these groups. Public
relations complement advertising by creating product and service credibility. Effective
marketing communication is not possible without establishing and maintaining mutual
understanding between the company and its customers.
The lubricant making the wheel of marketing run smoothly is public relations.
Bright image is created and maintained only by public relations. Liberal aid in all social
welfare projects enhances the public image of the marketer.
Promotion Strategy
Strategy lays down the broad principles by which a company hopes to secure an
advantage over competitors, exhibit attractiveness to buyers, and lead to full exploitation
of company resources. When marketers resort to promotion or persuasive communication
in marketing, we have a kind of the promotion square.
It has four sides of equal importance, viz.:
1. The product described in the marketing communication.
2. The prospect to be converted into a customer through persuasion and influence by
promotion.
3. The seller or the sponsor who undertakes promotion, and
4. The channel or the route along which the product will move from marketer to buyer
the promotion strategy will depend upon these four sides.
The promotion strategy deals with the following decisions:
1. The blend of promotional activities (advertising, publicity, personal selling and sales
promotion),
2. The amount allocated for the various forms of promotion particularly to the advertising
media such as press, radio, television, and so on,
3. The kind of promotion to be used. Each kind of promotion has strengths and
weaknesses as a communication medium.
Each mode of promotion depends on the nature of the products, characteristics
of the market, stage of market development and stage of the buyers decision-making.
These unique strengths and weaknesses must be duly recognized while designing the

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promotion (communication) mix. Then again we have also interactions among the various
forms of promotion. These interactions determine the total promotion effectiveness. The
interdependencies of all kinds of promotion demand an integrated approach to promotion
mix.
1. The Product: The product is one of the factors determining the form of promotion.
Toys, Toilet Soups and Cosmetics are effectively shown on television. Press
advertisements are unsuitable for children. Mass selling consumer goods can be
easily promoted through radio and television advertising. Industrial and specialty
goods should be promoted through technical journals and through sales engineers.
2. The Buyer: If the marketers are to provide realistic solutions to the problem of buyers,
they must know their customers, their needs and desires, their attitudes, values,
aspirations and expectations. Hence, marketers must have up-to-date information
about consumer demand and consumer behaviour.
3. The Company: The firm has a unique public image in the market. The firms image
must be closely associated with promotional strategy so that its goodwill can be
exploited. Corporate advertisements usually emphasize more on the character,
reputation, reliability and responsibility of the marketing firm. Source credibility
in promotion plays a very important role in making promotion believable to the
receiver. Effectiveness of communication depends upon the firms image in the
market. When the perceived risk in buying a product is higher, the source credibility
is an important factor in purchase decisions. A credible or trustworthy source
produces much greater change in buyers predisposition than one that is not credible.
4. The Channel Choice: The promotional strategy also depends on the channel or
route through which products of the firm flow to consumers. There are pull and
push strategies in promotion. Pull strategies depend upon mass communication.
Products are literally pulled by buyers through the channels on the basis of mass
promotional efforts. In a pull strategy the product is pulled through the channel
by creating end-user demand. Customers force retail shops to stock those masspromoted products. In turn, retailers demand the highly advertised product from
wholesalers. The firms having well-known brands can exercise control over channels
through pull promotion strategies. Personal salesmanship plays a secondary role in
pull promotion. Marketer relies on intensive distribution. Dealer margins are also
lower in pull promotion.

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A Push Strategy
MANUFACTURERS

WHOLESALERS

RETAILERS

SALESMAN

SALESMAN

SALESMAN

MANUFACTURER

RETAILER

WHOLESALER

CONSUMER

B Pull Strategy
ADVERTISING ANDSALES
PROMOTION

MANUFACTURER

WHOLESALER

RETAILER

CONSUMER

Note
1. Under push strategy, producer directs all promotion efforts mainly on the middlemen
i.e., wholesalers and retailers. Product is pushed through the channel. So flow of
promotion and flow of goods move from the producer to the wholesaler and from
the wholesaler to the retailer and from the retailer to the consumer.

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2. Under pull strategy, all efforts of promotion now flow directly to the target market,
i.e., consumers and then consumers literally pull the wanted products from the
retailer and the retailers in turn pulling the products from the wholesalers who are
forced to stock those products by approaching the producer. So we have the request
for the product starting from consumers up to producers.
A pull strategy is also called a suction strategy. Extensive and heavy use of
advertising and sales promotion would be necessary to generate consumer demand. There
is less emphasis on personal selling at all stages of the marketing channel. Small firms are
unable to depend entirely on advertising and sales promotion, because large investment is
involved due to emphasis of advertising and sales promotion. A push strategy is called a
pressure strategy. It places heavy emphasis on personal selling.
Industrial marketing strategies are mostly the push type strategies relying primarily
on personal selling. In the sale of medical products and in life insurance, marketers have to
use large number of sales-people to call on physicians and prospects for life insurance. In
push type promotion, personal selling expenses are considerable and dealer margin is also
higher. In push type promotion, after-sale service is also important. In push type promotion
marketers rely on selective distribution. Push strategy can be successfully used when:
1. We have a high quality product with unique selling points,
2. We have a high-priced product, and
3. We can offer adequate incentives (financial) to middlemen and their salesmen.
Most consumer goods manufacturers generally employ a push-pull (combination)
strategy to sell their products. The ratio of pull to push may differ according to the
requirements of market situation. Salesmen are used to push the goods through the
marketing channel, while advertising and sales promotion will support personal selling to
accelerate sales. Thus, all tools of promotion work together.
Promotion Decisions
Once the marketing plan is ready we can develop a total promotion programme
to approach the target audiences. Budget for each element of promotion is prepared.
Promotion objectives must be set before we decide on message contents, layout and delivery
of message. Contents and layout decisions are based on strengths and weaknesses of the
various media vehicles. Delivery decisions are based on the needs of carrying particular
types of messages. Promotion objectives, message design, message delivery and promotion
budget are the constituents of promotion programme. All these are highly inter-related
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decision areas. When the promotion budget is fixed by the top management all decisions on
promotion programme must be within that budget. If the promotion budget is not so fixed,
promotion programme will be designed to support the marketing plan. The promotion
budget to implement marketing plan will be approved by top management.

OVERALL CORPORATE OBJECTIVE INCREASE

OF R.O.I BY 3 P.C.

MARKETTING OBJECTIVE INCREASE IN

MARKET SHARE BY 5 P.C

ADVERTISING
OBJECTIVE
INCREASE IN
BRAND
PREFERENCE BY
10 P.C

PUBLICITY OBJECTIVE
INCREASE IN FIRMS
IMAGE-SOCIAL
AWARENESS IN ITS
PROMOTION PLANS

PERSONAL SELLING
OBJECTIVE

SALES PROMOTION
OBJECTIVE

INCREASE IN
SALESMANS CALLS
ON NEW ACCOUNTS
BY 50 P.C

SUPPLY DEALERS
AIDS AND GET 5000
NEW RETAILERS TO
DISPLAY NEW
PRODUCTS

Hierarchy of Objectives for the Promotion Mix of the Marketing Programme of a firm
Note
1. There are three specific purposes of promotion: (a) to communicate, (b) to convince,
and (c) to compete. Ideas (communicated) must convince enough the consumer to
take the desired action. Promotion is the vital tool of giving competition.
2. A good product, an efficient channel, and an appropriate price will not be enough.
A strong promotional element in the marketing strategy alone can carve out a
market niche and create a differential advantage for your products. The competitive
character of promotion defines its vital role in marketing programme (for increasing
the market share).
Note: 1
There are three specific purposes of promotion: (a) to communicate, (b) to convince,
and (c) to compete. Ideas (communicated) must convince enough the consumer to take the
desired action. Promotion is the vital tool of giving competition.
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3. A good product, an efficient channel, and an appropriate price will not be enough.
A strong promotional element in the marketing strategy alone can carve out a
market niche and create a differential advantage for your products. The competitive
character of promotion defines its vital role in marketing programme (for increasing
the market share).
Summary
Advertisement plays an important role in marketing the products or services.
Drafting the message and selecting the suitable media are important in the advertisement.
Companies use different medias for advertisement. Print media and electronic media
are important ones. Sales promotion activities are also carried out by companies for
promoting the products. Sales promotion is referred to the promotional activities other
than salesmanship, advertising and publicity which stimulate consumer purchasing and
dealer effectiveness. Advertising is indirect and subtle approach persuading consumers to
buy a product. Sales promotion is a direct and open persuasion to the consumer to try
the product immediately. There are two types of sales promotion. One is consumer sales
promotion and another one dealer or distributor sales promotion.
Introduction of a new product, stimulus for a new use of a product, encouragement
for increasing frequency of purchase, appeal to a special area of the market, combination
offer to encourage the use of other product, creation of dealer interest and inducing them
to stock the articles, securing shelf space in the retail window, Counter-balancing price
competition, special training of salesmen, seasonal and grand reduction sales, capturing
bargain hunting and non-brand conscious buyers through bargain sales and acceleration to
slow selling lines are the important objectives of sales promotion. There are pull and push
strategies in promotion. Pull strategies depend upon mass communication. Products are
literally pulled by buyers through the channels on the basis of mass promotional efforts.
In a pull strategy the product is pulled through the channel by creating end-user demand.
Customers force retail shops to stock those mass-promoted products. In turn, retailers
demand the highly advertised product from wholesalers.
Self Assessment Questions
1.

Define pricing.

2.

Explain the objectives of pricing.

3.

Discuss the importance of pricing in the rural marketing.

4.

Describe the processes involved in pricing.

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5.

Discuss price as a measure of value.

6.

Write a note on pricing policies.

7.

What do you understand by pricing policy?

8.

Explain the different methods of pricing.

9.

Describe the benefits of pricing policy.

10. Write notes on one price policy and variable pricing policy.
11. Distinguish between one price policy and variable pricing policy.
12. Discuss the different types of discounts offered by sellers to woo the consumers.
13. Distinguish between trade discount and cash discount.
14. What do you understand by sales promotion?
15. What are the objectives of sales promotion?
16. Explain the importance of promotional activities in the present competitive
environment.
17. Discuss the process of communication in marketing
18. Explain the importance of marketing communication in the rural marketing.
19. Describe the problems encountered by marketers in the rural market.
20. What is sales promotion?
21. Explain the main characteristics of Medias.
22. Describe the need for sales promotion.
23. Distinguish between sales promotion and advertisement.
24. Explain the types of sales promotion.
25. Explain the concept push and pull strategy.
26. Write short notes on Trade fair.
27. Discuss the role of trade fair and exclusive showroom in promoting the product or
service.
28. Explain the promotional strategies adopted by modern companies.

CASE STUDY 1
Ignorant Mothers and Diarrhea
Rural mothers do not recognizes a serious diarrhea problem as soon as it occurs
though the disease kills some 4000 young children in India every day.

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The study sponsored by the United Nations International Childrens Education

Fund (UNICEF) at the request of the Union Government revealed the following:
Mothers usually recognize the disease only when the child has passed four-to five
loose motions in the course of a day. And she gets concerned enough to act only
when the frequency increases to six or seven such motions.
Rural mother has a strong inclination to seek medical treatment for the child hit by
diarrhea.
Though, a wide array of medicines, pills and even injections were prescribed only six
percent of the patients received Oral Dehydration Therapy (ORT)
On an average, mothers spent about ` 8 on treatment of a single diarrhea episode.
Dehydration is more noticed than understood. Even those who perceive loss of fluid
believe it to be a case of non-absorption of water that was ingested instead of a net
loss of fluids from the body.
Home based fluids, if promoted, are likely to be accepted by most mothers as a
proper response to child hood diarrhea. Since rice, sugar or gur is available in 75
to 83 percent of all rural households, it is possible to successfully promote the use
home-based fluids.
Mothers, however have reservations about adding sugar and salt to certain types of
fluids and water. Glucose water and rice water emerged as the favourite fluids.
It therefore suggests, that communication strategies be designed to reach the mother
so that she recognize a single loose motion as as indication of a potentially serious problem
and act promptly giving her child extra fluids to drink.
Questions
(a) What does the case suggest to rural marketers, particularly to Pharmaceutical
companies and the Government?
(b) What kind of promotion activities can you suggest to Pharmaceutical companies
and to Government?

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CASE STUDY 2
Should Farmers Promote their Products?
Nazir Hasan was a second year Agriculture Science student. Hasan got a tough
assignment from his lecturer to participate in a debate next week. The topic was Resolve:
Farmers should promote their products. Hasan had to prepare to debate both for the
motion and against it.
Hasans father was a rice producer, he helped Hasan for that day to make a list
of arguments against farmer advertising. Next day Hasan met Manager of Mother Dairy
and asked why Mother Dairy and dairy farmers cooperatives heavily sponsor the larger
sponsored advertising programme and propogating drinking milk Doodh, Doodh, DoodhDoodhhi wonderful wonderful slogan. The Manager said he thought milk advertising is a
successful story. He could not give any facts or figures for his success story. Hasan discussed
the topic with a larger grocer. The grocer said Kohinoor is a big brand name in Basmati
Rice. Kohinoor advertises in all media including TV and Cinema. The grocer also said
further Farmers have to advertise and promote their products just like any other product.
Hasan was confused, should farmers advertise or not? Does it pay or not?
Questions
1. Under what circumstances should farmers advertise their products?
2. What are the purposes of such promotional advertisements?
3. How should farmers know the benefits of such promotions cover their costs?

****

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184

UNIT V
Unit Structure
Lesson 5.1 - Distribution
Lesson 5.2 - Logistics Management
Lesson 5.3 - Channel Selection
Lesson 5.4 - Economic Reforms
Lesson 5.5 - New Approaches in Distribution

Lesson 5.1 - Distribution

Learning Objectives
After studying this unit, you should be able to:
To understand the role of distribution management in the marketing mix
To understand why the distribution channels are required at all
To study how distribution channels add value to marketing mix
To get an overview of distribution channel members
Introduction

A key decision among the five Ps of marketing managers is distribution. Distribution
decides the manner in which product and services are made available to the target customers.
It involves the bridging of place utility gaps between manufacturer and customers. It
also provides place, time and possession utility to the customer. The design of physical
distribution, referred to logistics and supply chain management and trade channels of
distribution are the major components in distribution.
Concept and Nature of Distribution
The link between manufacturers and customers is the channel of distribution. It
consists of producer, consumer, and any intermediary organizations that are aligned to
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provide a means of transferring ownership (title) or possession of a product from producer

to consumer. The characteristic features of distribution are:
(i) Distribution is an Ancient Function
It was found in a primitive economy in which people realized the need for
specialization and exchange. They understood that efficiency can be gained if one person
specializes in a certain activity, such as hunting, and another person specializes in a different
activity, such as fishing or farming. They exchanged one good for another to satisfy their
needs. In a primitive economy, distribution is straightforward; in todays global economy,
it is far more complex. It is because of the distances, variety of supporting trade services,
and variety of needs of buyers.
(ii) Key External Resource
While manufacturing, research, engineering and field sales personnel represent
internal resources, distribution represents a key external resource. It is outcome of a
significant corporate commitment to a large numbers of independent organizations whose
business is distribution.
(iii) Complex with Flows
Channels represent a set of interdependent relationships among intermediaries
and producer. The channel facilitates forward flows (physical goods, title of goods, and
promotion offers) and back ward flows (ordering and payment). Some of these flows are
forward flows (physical transportation, title, and promotion); others are backward flows
(ordering and payment); and still others move in both directions (information, finance,
and risk taking).
Channel Functions
Distribution channel performs various tasks necessary to promote sales of products
and services to the ultimate customers. They may include some or all of the following:
Buying
Every middleman must purchase products for resale or contract as an agent to
receive a supply of product.

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Selling
Every middleman must contact potential customers, promote the product, and
solicit orders.
Assorting
The typical middleman brings together an assortment of merchandize, usually of
related items, from several sources to better serve his potential customers.
Financing
By investing in inventory and by extending credit to customers, the middleman
helps to finance the exchange process.
Storage
Products must be assembled in a convenient location to assure availability and must
be protected to prevent deterioration and loss.
Sorting
In some situations, the middleman provides the important function of buying in
large quantities and breaking the bulk purchase into smaller quantities for resale.
Grading
It may be necessary for the middleman to inspect, test, or judge the products he
receives for quality and to assign distinct quality grades to them.
Transportation
This is the logistics function, managing the physical flow of the product.
Market Information
The middleman typically has some responsibility for providing market information
both to his customers and to his suppliers, including information about availability,
product quality, competitive conditions, customer needs, and so on.

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Risk-Taking
Risk is inherent in the ownership of an inventory of product that can deteriorate or
become obsolete.
The design of a marketing channel is an attempt to get each of these functions
performed as efficiently and effectively as possible.
Channel Structures

Channel structures are evolved based on the type of company products, target
market segments and competition. Three different channel structures are briefly explained
here. Table shows the different systems.
Marketing Systems
System

Description

Benefits

Vertical marketing Comprise producer, wholesaler Achieve economies through

system
(s) and retailer (s) acting as a their size, bargaining power,
unified system.
and elimination of duplicated
services and channel conflicts.
Horizontal
marketing system

Readiness or willingness of two Economy of effort. A channel

or more non-related companies to may become viable and attracput together resources to exploit tive. E.g.: Shakti groups
an emerging market opportunity

Multi- channel
marketing system

Simultaneous use of different Efficient

channels. Telemarketing and indi- coverage.
rect distribution as in the case of
marketing of mobile phones.

reach.

Wider

Channel Types
One key question in channel decisions is- whether to go for indirect or direct
marketing.
Direct to Customers
Producer > Customer through (i) own sales force without own branch net work (ii)
own sales force with own branch net work (iii) Telemarketing (iv) E-Channels
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Indirect to Customers
Because of the wide variety of channel arrangements that exist, it is difficult to
generalize the structure of channels across all industries. However, distribution channels
are usually of two types:
I. Direct Marketing Channel (or Zero level). This type of channel has no intermediaries.
In this distribution system, the goods go from the producer direct to the consumer,
e.g., Eureka-Forbes.

0 level

Producer

Consumer

II. I ndirect marketing Channel. This may further be classified in the following
categories
1. O
 ne-Level Channel. In this type of channel there is only one intermediary between
producer and consumer. This intermediary may be a retailer or a distributor.

1 Level

Producer --------- Retailer ----------- Consumer

If the intermediary is a distributor, this type of channel is used for specialty products
like washing machines, refrigerators or industrial products.

Producer -------- Distributor --------- Consumer

2. Two-Level Channel. The type of channel has two intermediaries, namely wholesaler/
distributor and retailer.

2 Level

Producer ----- Distributor --- Retailer -- Consumer

3. Three Level Channel. This type of channel has three intermediaries namely
distributor, wholesaler and retailer. This pattern is also used for convenience
products

Producer ----- Distributor ---- Wholesaler --- Retailer -- Consumer

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4. Four Level Channel. This type of channel has four intermediaries namely Agent,
Distributor, wholesaler and Retailer. This channel is somehow similar to the previous
two. This type of channel is used for consumer durable products also.

Producer ----- Agent ---- Distributor ---- Wholesaler --- Retailer -- Consumer

Let us now draw distinctions between direct and indirect marketing efforts. Table
presents them
Direct vs. Indirect Marketing
Sl. No

Aspect

Direct

Indirect

1.

Type of market

Vertical-few buyers

Horizontal-Many buyers, fragmented and widely distributed

2.

Market potential

High volume

Less volume

3.

Market density

High

Thin

4.

Buying habits

Large volumes per Small volume per order,

order, less frequent frequent buying, not particular
buying, preference to about contact with supplier
direct contact

5.

Buying process

Involves
extensive Less negotiation
negotiation
and
bargaining

6.

Product

Customized
solutions,

7.

Pricing

Volatile, need many Less volatile, few adjustments

adjustments

8.

Promotion
communications

9.

Distribution

10.

Servicesof installation Complex

operation maintenance

11.

Quality

Standardized

/ Strong need for infor- Less need for information

mationservice
service
Less emphasis on
logistics servicesneed
for deep product
knowledge and
personal attention

Important
for buyer

190

Strong emphasis on logistics

services (like lot size, delivery
time, assortment and so on),
need for availability of products
and not brand specific.
Less complex

concern Normal considerations

12.

Own financial position

Strong, Can support Weak, Requires quick returns

branches

13.

Marketing objective

Long range Better Short range profit orientarelations with cus- tion.
tomers

The internet is expected to cause disinter mediation (destruction of intermediary

function) as manufacturers bypass middlemen and deal directly with customers.
However, channel members continue to thrive in many industries. Surprisingly,
internet is now being used to collaborate and support the middlemen and to build customer
loyalty.
Distribution Practices of Select Firms
Shakti model of HLL
HLLs new distribution model, named project Shakti, was piloted in Nalgonda
district in 2001.It has been scaled up and extended to over 5,000 villages in 52 districts
in AP, Karnataka, Gujarat and Madhya Pradesh with around 1,000 women entrepreneurs
in its fold. The vision is ambitious: to create by 2010 about 11,000 Shakti entrepreneurs
covering one-lakh villages and touching the lives of 100 million rural consumers.
HLL has operated Project Shakti through the self-help groups. AP was chosen for
the pilot project as it has the most number and better established SHGs there are about
4.36 lakh SHGs in AP covering nearly 58.29 lakh rural women.
The objectives of Project Shakti are to create income-generating capabilities for
underprivileged rural women by providing a sustainable micro enterprise opportunity
and to improve rural living standards through health and hygiene awareness. For HLL.it
is enlightened self-interest. Creating opportunities to increase rural family incomes puts
more money in their hands to purchase the range of daily consumption products from
soaps to toothpastes that HLL makes. It also enables HLL access hitherto unexplored
rural hinterlands.
For HLL greater penetration in rural areas is also an imperative presently over
50 percent of its incomes for several of its product categories like soaps and detergents
come from rural India. The challenge for HLL now is to take its products to towns with a

191

smaller population under 2,000 people. HLLs conventional hub-and-spoke distribution

model which it uses to great effect in both urban and semi-urban markets wouldnt be costeffective in penetrating the smaller villages. Now, with this new distribution model, the
smaller markets are now being referred to as Shakti markets.
Typically, a woman from a SHG selected as a Shakti entrepreneur receives stocks
at her doorstep from the HLL rural distributor and sells direct to consumers as well as to
retailers in the village. Each Shakti entrepreneur services 6-10 villages in the population
strata of 1,000 2,000 people.
Typically, a Shakti entrepreneur sets off with 4-5 chief brands from the HLL portfolio
Lifebuoy, Wheel, Pepsodent, Annapurna salt and Clinic Plus. These brands apart, other
brands, which find favour with a rural audience, are: Lux, Ponds, Nihar and 3 Roses tea.
Typically, unit packs are small. All the brands are national and HLL is cool to the idea of
creating a rural-specific brand as it will only dissipate the advertising media effort for the
brands.
Having perfected the model in Nalgonda, in 2003 HLL plans to extend Shakti to a
100 districts in Madhya Pradesh, Gujarat and UP. There are other plans brewing. One is to
allow other companies which do not compete with HLL to get onto the Shakti network to
sell their products.
Talks are on with battery companies like NIPPO, TVS Motor for mopeds, insurance
companies for LIC policies. We wanted to first stabilize the project before we can look at
other companies.
It requires somebody with scale and size to build a platform and then invite other
companies onto this platform, elaborates Sehgal. HLL is now in the process of piloting
I-Shakti, an IT-based rural information service that will provide solutions to key rural
needs in the areas of agriculture, education, vocational training, health and hygiene.
The project will be plotted in Nalgonda district again; Based on a palm pilot, HLL is
looking at sourcing appropriate low-cost hardware from Hewlett-Packard while Unilever
Research out of London is developing the consumer interactivity software.
The Usha International Ltd. (UIL), the company which is known for the sewing
machines, also has the marketing arm of ` 1300 croreSiel Group selling the industrial and
farm equipments as well as appliances. The company has a wide distribution network
which includes:

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 Divisional Officers (15)

Warehouses (26)
Company Owned retail outlets (50)
Exclusive sales and service centers and multi-brand outlets (5000). And
Centralized spare parts facility centers for small appliances (8)
The UIL has a strong network of distribution channels and the products are made
available to the customer at the low cost with higher extent of satisfaction as compared to
the other companies. The distribution of 5000 sales and services centers of the company
provides better access to the retailers and customers.
Role of an Intermediary
If a consumer wants to buy a home product or medicine or an industrial buyer
plans to buy a motor or a generator, situation remains the same; need to make use of an
intermediary for successful completion of buying
Fig explains how place (distribution) is more relayed upon for a buying decision

As we all know that role of manufacturing and services sector play in the growth
of the GDP of any country. At the same time, manufacturing sector cannot contribute
without the support of the distribution systems in operation to help the manufacturing
sector reach the goods and services to the end user. Like other sectors of the economy that

193

have been influenced by globalisation and information technology, distribution sector has
also undergone a lot of changes.
Previously, companies undertook much distribution related operations and many
companies believed that distribution could be best performed by themselves. This sort of
arrangements has made them to build and maintain a huge sales force. But as markets
expanded with population, companies started realising that direct distribution to an
extended clientele was unmanageable and also quite expensive. Hence they started looking
for intermediaries who could do this job better. These intermediaries are able to perform
these functions and deliver benefits at a lower cost than if the company were to do it by
itself.
For example, to sell soap in Japan, Procter & Gamble has to work through a
complicated distribution system in the world. It must sell to a general wholesaler, who sells
to a product wholesaler, who sells to product-speciality wholesaler, who sells to a regional
wholesaler, who sells to a local wholesaler, who finally sells to retailers. All these distribution
levels can mean that the consumers price ends up double or triple the importers price; this
is mainly because of within-country channels of distribution operation.
Despite all above, intermediaries today play a significant role in distribution and
they are indispensible in the channel operations. It is only the degree of intermediation
which can vary between country to country, between industries and groups of customers.
Need for Distribution Channels
If a consumer wants to buy a Colgate tube his favourite toothpaste from a shop
close to his home on Tuesday at 8 pm. The company which produces in one plant deliver
to a C&F agent of the company who in-turn makes a point to sell to a distributor ( after
collecting a pre-signed cheque under the instruction of the company) and who in turn as
per the direction of the company visit a retailer on Friday to deliver the tube of paste along
with other products and consumer will be able to buy his chosen product when he needed
it.
Intermediaries or channel members are normally expected to perform the following
function;
To accumulate the right kind of goods, aggregating and sorting to meet consumer
needs at the point of purchase

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 Food world(Spencer) outlets would know what consumers in their catchment

area are looking to buy when they visit a FW outlet and hence would stock up at
least all these items, besides a host of other related products to take care of the
impulse nature of many customer purchases
To believe in routine and simplified transactions and work with a large number of
products (at the wholesaler and retailer level), so that the distribution costs could get
minimised
Investing in the infrastructure and the operating expenses by a channel member
will get dispersed over the large number of products (volume) he is able to
handle quickly
To provide information both to the sellers and the buyers to help them manage their
business better
The corner shop, which may be small retailer, influences the buying decisions of
his customers by recommending to them the best value for money products. He
also talks to company representatives on which products sell better and which
promotions were or were not successful
To be aware of the environment in which they operate the hence isolate the companies
from the direct impact of these local conditions
A food retailer would choose the right kind of food products to stock and sell so
that in case food inspectors take samples under the PFA Act, the sample would
pass tests and there is no backlash on the producer. Similarly, a chemist would
alert the company about any drugs which are getting close to their expiry date so
that the company can replace these with fresh stocks
To buy a large variety of goods and can compare costs and prices and make the right
recommendations to their customers
For example, an electronic goods dealer can give the right advice to a customer
if he asks for it before deciding on buying a colour TV
To reduce the number of tough points. The company will not be able to meet the
demands of thousands of its consumers directly and hence needs intermediation
For example, if an FMCG company were to directly carry out the distribution
effort, it would need to contact thousands of dispersed retailers and wholesalers
to sell its product

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Company - 2

Company - 1

Company - 3

Intermediary

Large number of Consumers

Role of an Intermediary
Distribution Channel Strategy
The companys marketing strategy is part of the overall business plan of the company
and its corporate strategy. Distribution, being part of the marketing effort, forms a critical
part of the marketing strategy.
It is critical because the distribution channel strategy cannot be frequently changed
because it requires building of network for the long term relationships.
The overall strategy and direction for the company is spelt out in its corporate
strategy. The marketing strategy outlines how this overall company strategy will be achieved
using the company products and its distribution network.
Organising and managing the distribution function forms the part of the distribution
strategy
Evolution of a distribution strategy

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The distribution strategy could be looking at some of these factors:

Defining customer service levels. This is critical factor in designing the channel
strategy. The customer service level is what the customer is most interested in and
hence requires extra care in defining
Defining the distribution objectives to achieve these service levels
Outlining the steps or activities required to achieve the distribution channel
objectives
Deciding on the structure of the network to implement these activities to achieve
the distribution objectives. Its a combination of sales personnel and the outside
resources like C&FAs, distributors and others
Clearly defined policy and procedure for the network to carry out its daily activities
to achieve the objectives
Stating the key performance indicators. This is only to check that the strategy is
working well. This has to worked out separately for each channel member.
Understanding the critical success factors to make the distribution strategy effective
Policy and Procedure
It is expected that the company sales personnel and its channel partners understand
what is expected of them and discharge their roles and responsibilities faithfully.
But as the sales people may change and the network is so vast with a large number of
channel partners, not all of them may understand the policy and implementation guidelines
in the same manner. Hence, company issues an operating manual which defines the policy
and procedures which are in the custody of sales personnel.
Apart from the routine procedure, policy guidelines are also required on:
System for Redressal of complaints from the channel partners
System for settling disputes
Any additional payments to the channel members for example in difficult territories
or for covering rural markets, the firm may decide to subsidise the freight costs for
carrying the goods to these markets for sometimes till the volumes pick up
Coverage of institutional business and service levels to be extended

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Critical Success Factors (CSFs)

Like any strategy, the distribution strategy also will be successful if it has the support
and backing of the top management of the company. This can be achieved by involving
them in the formulation of the strategy.
Other CSFs are mentioned below;
1. Clear, transparent and unambiguous policy and procedure
2. Serious commitment of the channel partners
3. Fair dealing of the company with all its partners. No undue favours to some of them
at the cost of the others
4. Clearly defined customer service policy
5. High levels of integrity to be demonstrated by all the channel members
6. Equitable distribution in times of shortage of a product
7. Compensation to channel partners on special promotional activity should be prompt
and not delayed
Classification of Distribution Channel
Sales Channel which has the function s of motivating buyers, sharing information
between the consumer and the company, negotiating fair bargains for the consumer
and financing the transactions
A distributor for Nestle would perform all these functions for the company
by dealing with the retailers and wholesalers who stock and sell the company
products
A franchisee for Pepsi would act in a similar manner
Delivery Channel which is only meant for physical transactions
This is the primary job of a Carrying & Forwarding Agent. A C&FA for Marico
would ensure that the orders received from the company for the company
distributors would be physically delivered to them on time in full. The C&FA
would also receive and stock the company products for distribution
Service Channel which performs after sales service like a Maruti service station
A franchisee for HP would help its customers either service or repair the PCs or
other hardware bought by the customers from HP

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Channel Members
C&FAs, CSAs
This category is known as facilitators. Carrying and Forwarding Agents are basically
transporters who act as a midway point between the company and its distributors. Their
role is to collect the products from the company plant and store then in a central location
for breaking bulk and dispatching to the distributors against indents from the company.
C&FAs take physical possession of the goods but do not pay for it. The goods in the C&FA
warehouse still belong to the company.
Consignment Selling Agents act as C&FAs but also sell the goods to the market and
then remit the value of the goods sold to the company. C&FAs or CSAs are on contract with
the company
Distributors, dealers, stockists, agents
This set of channel members are also known as stockists, agents, and guarantors
depending on the extent of re-distribution undertaken by them for the companies they
represent. Agents do not invest in the companys products to retailers.

Distributors are required to invest in the product while buying from the company

They work on commission, margin or mark-ups

They may or may not get credit from the company. They however, give credit to
their customers who are wholesalers or retailers

They get commission or margin is a percentage of the price at which they buy the
product from the company

Mark-up is still a percentage but based on the selling price to the customer/retailer

Distributors work in the markets and redistribute the stocks to the customerswholesalers and retailers. Stockists may just invest in the products but expect the company
to sell the products to the customers. Agents, dealers are only helping distribution with
their contacts in the market place either with wholesalers/retailers or institutions
Wholesalers
They normally operate out of the main markets in a city. They deal with a large
number of companies products and packs. They have their own shops in busy trading
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areas. They depend on large volumes of business as their margins are quite low. In some
cases it is known that wholesalers manage their margins or some products just by selling
empty cases or cartons in which the products are received. With the increase in the number
of supermarkets, the role of wholesalers is getting diluted
Retailers
They are the shop keepers who set up shops in the market place to cater to the needs
of hundreds of consumers. If the retailer is located in a busy part of the market where the
consumer traffic is large, he can command a lot of profitable terms from the distributors
and companies like credit, promotions, renting display space and so on. Retailers make
the highest margins in the entire supply chain. They extend home delivery to their regular
and customers close to their outlet.
Patterns of Distribution
This determines the intensity of desired distribution after a firm has decided on
the most appropriate channels of distribution. Intensity, denotes the service level that the
organisation provides to its customers. There are three types of distribution intensity exist;
Intensive distribution: this strategy is to make sure that the product is made available
in as many outlets as possible so that anywhere the consumer goes, he or she should
be able to get the product of his choice
If HLL is proud of the fact that its products are available in 3 million outlets, it can
be the best example of intensive distribution.
This system helps increase coverage and hence sales and is most suitable for FMCG
products.

Automobile manufacturers would prefer this intensity of distribution for their spare
parts
Selective distribution: It is obvious that in this case only a few select outlets will be
permitted to keep the company products. The outlets are carefully selected by the
company in line with the image it wants to project about itself and its exclusive
products.

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For example, if one is shopping for Tanishq jewellery, it would be available in a

few exclusive outlets only. Selective distribution gives the advantage of making the
product available in outlets that matter the most and keeping distribution costs
lower.
Exclusive distribution: This is more selective than the earlier example. Only one
outlet in a market may keep the product. In addition, the outlets set up by companies
for their own products could also be counted among these.
Example, is of Bata outlets or Titan showrooms
The producer is interested in keeping a close watch and control on the distribution
of his products. It requires a good relationship between the producer and the reseller
Example, include exclusive womens apparel and electronic appliances
Summary
Distribution is important from firm as well as economy point of view. A channel of
distribution links marketer and customers directly or through intermediaries. Distribution
is an ancient function, a key external resource, a link between seller and customer, a channel
with flows and complex in nature.
Channel structures present vertical, horizontal and multi-channel marketing systems.
Vertical marketing system is of three types corporate, administered and contractual. One
key question in channel decision is whether to go for direct or indirect marketing.
Direct marketing is appropriate when buyers are few and buy large volumes per
order, product is customized, buying requires negotiation, information needs are many
and long range relationships are important.
Indirect channels include wholesalers, retailers, dealers, cooperative agencies, selfhelp groups etc. Role of intermediaries and their and their importance in evolving marketing
strategies appropriate to the market are defined through various sizes of organisation and
the interfaces.
Distribution channel strategies are achieved using company products and its
distribution network. Channelizing the strategies enables the organisation to define the
customer service levels. Customers service levels are being categorised into different levels
to measure different levels of service.
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The effectiveness of key performance indicators are judged through certain measures
being measured through channel partners. Critical success Factors is also considered
like any other strategies to define policies and procedures to deliver the performance to
satisfy the customers. Direct marketing channels include branch houses, sales force, and
telemarketing service bureau and internet info mediaries.

****

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Lesson 5.2 - Logistics Management

Learning Objectives
After studying this lesson, you will be able to:
Appreciate the concept and role of logistics in marketing
Explain the concept and characteristics of supply chain management
Relate value chain to supply chain
Introduction
The origin of logistics and supply chain management are from materials management.
Materials management is the function in a company responsible for the co-ordination of
planning, moving, storing and controlling materials in an optimum manner so as to provide
a pre-decided service to the customer at a minimum cost.
Material Management Function includes:
Materials planning and control
Purchasing
Stores and inventory control
Handling these functions independently could create a conflict of interest. Hence an
integrated approach was required.
Logistics management is one of the time and cost saving strategies of business
organizations. It is now being related to supply chain management. Supply chain has
become important to companies to gain competitive advantage in terms of speed and cost
of delivery of products and services to customers. Marketers therefore should have a good
understanding of the goals of logistics and value chains.

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Concepts
Distribution can be analyzed into two aspects: physical distribution and channels
of distribution. Physical distribution refers to the process of moving goods from factory
to points of purchase by customers. It includes location of plants and warehousing,
transportation mode, inventory and packing. The systems concept of physical distribution
establishes firm linkages among these component activities. It is called as a integrated market
logistics that recognizes interdependence of costs of each activity. It involves activities that
begin when the customer places the order and that end with the delivery of the product to
the customer. The main elements are:
Order processing
Ware housing
Inventory
Transportation
Recently, the concept of integrated market logistics system is referred to as supply
chain management, which is broader in it s scope. It is concerned with all the flows starting
from supplier to manufacturer to customer. As such integrated market logistics system is a
subset of supply chain management of a firm.
Definition of Logistics
Logistics means the right place at the right time. A rider has been added to this
definition nowadays-that this has to be achieved at the right cost also.
The procurement, maintenance, distribution and replacement of personnel and
materials websters Dictionary. (The reference to personnel is obviously from the armed
forces where the term logistics seems to have been first used). This definition also includes
procurement or the purchasing function which is reality is kept separate from the logistics/
supply chain function.
The process of planning, implementing and controlling the efficient, effective
flow of goods, services and related information from the point of origin to the point
of consumption for the purpose of conforming to customer requirements Council of
Logistics Management
The above definition is more apt for supply chain management rather than just logistics.

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The Key Tasks of Logistics Management

Significance of Logistics
Responsive logistical service is very important from the point of view of customer
as well as competition. It enhances customer satisfaction and creates the opportunity for
closer and more profitable buyer-seller relationships. It is often ranked by buyers next to
quality as a criterion for selecting a vendor.
(1)

Place Factor

Logistics creates place utilities to consumers. Companies lose their customers when
they fail to supply goods at the right place. Many products fail in the competitive market
when they are not available at the points of purchase at the right time.
(2)

Time Factor

An important utility required by customers is time utility. If products or services are

not available at the right time, the customers look for substitutes. If the failure to supply is
frequent, customers shift their preferences to the timely available product though it is less
satisfying.
(3)

Cost Factor

Experts believe that substantial savings can be obtained in physical distribution

area. For this reason it has been described as the lost frontier for cost economies. Physical

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distribution decisions when un-coordinated, result in high cost. There is a need to make
use of modern operations research tools and computer programming for coordinating
inventory levels, transportation modes, and plant, warehouse and store locations.
(4)

Promotion Factor

It is a potent promo-tool in competitive marketing. Companies can attract additional

customers by offering better service or lower price through improvements in physical
distribution.
Objectives
The objective of physical distribution is getting the right goods to the right places
at the right time for the least cost. Evidently, this involves a tradeoff between customer
service and cost. The conflict in goals can be expressed as follows.
Maximum customer service implies large inventories, premium transportation and
multiple warehouses all of which raise distribution cost.
Minimum distribution cost implies cheap transportation, low stocks and few
warehouses.
Optimization of each of the components (subsystems) order processing,
warehousing, inventory and transportation, may appear to be the right answer. But it is not
correct.
Physical distribution decisions must aim at optimization of total system and not the
sub optimization at the subsystem levels i.e., order processing, warehousing, inventory and
transportation.
(i)

Customer Service

Let us recollect the words of Mahatma Gandhi

A Customer is the most important person ever in this premises. A customer is
not dependant on us. We are dependent on him. A customer is not an interruption of our
work- he is the purpose of it. We are not doing a favour by serving him he is doing us a
favour by giving us the opportunity to do so.

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Todays Customer
Is hard to please
Is smarter, more value conscious
Is more demanding and less forgiving
Is approached by more competitors with equal or better offers
In spite of these factors, the challenge is to produce loyal and long terms customers.
Hence, marketers have to decide their service standards based on key information
about customers and competitors.
(1) What the customers are looking for?
(2) What the competitors are offering?
Table describes the various elements of service. Typical service standards are:
Put the product within an arms length of customers
To deliver at least 95 per cent of the dealers orders within seven days of the receipt
To ensure that damage to merchandise in transit does not exceed 5 percent
However, not all products or all customers require the same level of logistical service.
Many business products that are made to ordersuch as heavy machineryhave
relatively low logistical service requirements.
Others, such as replacement parts, components, and subassemblies, require
extremely demanding logistical performance. Similarly, customers may be more or less
responsive to varying levels of logistical service.
Elements of Logistics Service
Elements

Description

Delivery time

The time from the creation of an order to the fulfillment and

delivery of that order encompasses both order-processing time
and delivery or transportation time.

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Delivery reliability

The most frequently used measure of logistics service, delivery

reliability focuses on the capability of having products available
to meet customer demand.

Order accuracy

The degree to which items received conform to the specification

of the order.
The key dimension is the incidence of orders shipped complete
and without error.

Information access

The firms ability to respond to inquires about order status and

product availability

Damage

A measure of the physical conditions of the product when

received by the buyer.

Ease of doing business

A range of factors including the ease with which orders, returns,

credits, billing, and adjustments are handled

Value-added services

Such features as packaging, which facilitates customer handling,

or other services such as pre pricing and drop shipments.

Source: Jonathon L. S. Byrnes, William C. Copacino, and Peter Metz, Forge Service into a Weapon with
Logistics, Transportation & Distribution, Presidential Issue 28 (September 1987): p.46.

(ii) Cost
The next step is developing a cost function for a service level as shown below.

D = T + FW + VW + S-------------------- (15.1)

Where

D = total distribution cost of proposed system

T = total freight cost

FW = total fixed warehouse costs

VW = total variable warehouse costs

S = Total cost of sales lost due to average delivery delay under proposed system.

The company should aim at minimizing the distribution cost of reaching a target
level of customer service.

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Key Decisions
We will now examine the five major decision issues
(1) How should orders be handled? (Order processing)
(2) Where should stocks be located? (Warehousing)
(3) How much stock should be held? (Inventory)
(4) How stocks should be moved? (Packaging)
(5) How should goods be shipped? (Transportation)
Others Aspects
(1) What should be done with expiry stocks? (Return goods)
(2) What should the return materials be done?(Reverse logistics)
(3) What should be done with unusable materials? (Salvage)
(a)

Order Processing

The first phase in physical distribution is order shipping billing cycle. A customer
order initiates several steps
1. Order department prepares multi copy invoices and dispatches them to various
departments.
2. Order is checked with available stock. Items out of stock are back ordered
3. Items are shipped. Shipped items are accompanied by shipping and billing documents
with copies going to various departments.
The whole process is now expedited with the help of computers by warehousing
(b)

Ware Housing

A storage function is necessary because the production will be more than customer
orders in general. Striking a balance between customer service standards and distribution
costs, marketers has to
Decide on a desirable number of stocking locations depending upon the markets the
firm intends to serve

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 Choose the type of warehouses. Today a variety of warehouses, with advanced

material handling systems and storage facilities are available.
(c) Inventory
Inventory management requires decisions relating to
(1) Level of stock Determining optimum order quantity
(2) Time of ordering Reorder point
(3) Minimum stock level to meet emergencies safety stock
Today, just in time production practices and product customization are changing
the inventory planning practices
(d) Packaging
Primary purpose is that is a form of advertising and marketing support. Logistics
is concerned with providing protection for the product in transit and storage. Logistics is
therefore involved in the outer packaging.
Packaging is more important towards customer decision making process, it not only
ensures protection it also serves as promotion material in enabling the customer to read its
contents for knowledge enhancements.
(e) Transportation
Marketers have to make careful choice of transportation mode and organizations.
In choosing a transportation mode for a particular product, shippers consider such criteria
as
Speed
Frequency
Dependability
Capability
Availability
Cost

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(f) Returned Goods Handling

In case of a problem with the product or the customer, returned goods may also be
required to support production like empty bottles in the soft drink industry. Return goods
could also be date expired stocks like in the pharmaceutical industry
(g) Reverse Logistics
It is getting back materials for disposal, re-use, reprocessing or recycling purposes.
This is the logistics part of the returned goods mentioned above
(h) Salvage and Scrap Disposal
Among all materials not useable in its original form or for its original purpose is
termed as salvage.
Example, after an accident of a vehicle, parts or subparts may get damaged due to
impact of collision, under such condition, neither those parts can be repaired or re-useable.
Organisations use these materials at disposal to recover some cost of it.
Types of Logistics
Logistics activities are divided into inbound and outbound.
Inbound or Upstream Logistics includes:
Receiving, storing and issuing inputs and taking care of;
1. Material handling
2. Inventory control
3. Inbound quality inspection along with the quality control function
4. Scheduling of production to manage issues
5. Return of unacceptable materials back to suppliers

Inbound logistics is the interface with the company suppliers, vendors and other
service providers

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Outbound or Downstream Logistics includes

Collecting, storing, dispatching and physically distributing the finished goods to the
buyers/distribution channels/consumers and includes;
1. Order processing of all orders received through the sales system
2. Materials handling of finished goods
3. Warehousing both in the plant and in the field
4. Delivery vehicle operations and scheduling
5. Shipping and related documentation
Outbound logistics is the interface with the companys customers
Special Reference to Package and Packaging
In the modern times, at the outset of development of 3 tier cities, package plays a
vital role in establishing the customer convenience and as well companies able to cater to
all people being differentiated through their economic means.
Packaging for any consumable goods is an essential part of marketing functions.
Packaging for rural produce is very economical and ordinary compared to the off-shelf the
sale of consumables seen in big stores of cities. Since last two to three decades, there are
changes where rice and wheat, jowar and other groceries are available at 25 KG bag or even
lesser quantity bags are available compare to the past of having only 50 and 100 KG bags.
It establishes Packaging controls over volume. Especially, cotton, wool, and cotton waste
have to be compressed and packed or else it will be too voluminous to handle and transport.
In addition, packaging protects material from spillage, spoilage, leakage, breakage and
pilferage. Even our daily useable products like milk, vegetables and fruits too come in handy
packets to serve the customers for convenience handling, transportation and durability
of goods and easy to store and sell. Many a cases it serves as instruction to customers.
Especially, the processed foods, fruits and vegetables, labels are printed and pasted with
instructions on the method of use, storage, date of manufacturing and date of expiry, etc.
This serves as good guideline to consumers from the timely usage of commodities. It also
provides fillip to sales in terms of presentation, size and branding.
Materials for packaging are a dynamic subject and there will be continuous
improvements and changes in this activity. In consumer goods, packaging has revolutionized
marketing by coming out with most attractive, innovative and protective packaging. In the

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case of agro-products, most of the packaging materials are re-useable and some are used for
different purposes. For example, gunny bags are used even after they are torn for different
household purposes.
Cost of packaging is an important consideration in deciding the packaging
material and preparations. The cost should be absorbed by the market. The packaging of
ghee, processed fruits, juices, cashew, basmati rice and processed foods are having better
materials, good printing and hence costlier. On the contrary for papads, vermicelli, pulses
preparations etc, they are packed in just good enough and economical packaging. Recent
trend is that, to have fancy and better packaging for rural products which then was only for
consumer products. Basically te packaging materials should be eco-friendly, economical
and retail the utility and freshness of the product for a longer time. It should cover the
following aspects;
1. Protection
2. Attraction/aesthetics
3. Convenience
4. Costs
5. safety
Type of Materials used
(i) Jute: Jute is very commonly being used for centuries to package food grains and
sugar. This material is considered to be very convenient to load, unload store and
handle at transshipment. The drawback is rodents who very easily cut this material
and consume the grain. For a long time, even cement was packed in jute bags.
Now they use synthetic packaging materials for cement. Other varieties of jute
are Hessian cloth, combination of jute and synthetics which are mainly used for
fertilizers and pesticides. Standard gunny bags are used for rice; sugar and wheat
are re-circulates and continue to be used until holes are formed. Household rural
people use these materials as carpet for sitting and sleeping. It fetches resale value
till the end.
(2) Packaging for Fruits: Characteristic of fruits are fast perishable, transport related
damages changes are high, segregation of quality, size, ripeness is essential and
fruits like apples are sent for long distances. Commonly used packagings are as
under;

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1. Wooden crates
2. Carton boxes
3. Synthetic material
(3) P
 ackaging for Vegetables: Vegetables have a short life and hence its packaging
should cost very less compared to fruits and food grains. The commonly used
packaging materials are as under;
1. Jute bags and jute cloth
2. Bamboo baskets
3. Corrugated boxes and plastic bags
4. Plastic nets
(4) P
 ackaging for Food items: Processed food, juices and pickles must be packed taking
care of the durability and retention of food values. Some of the commonly used
methods are as under;
1. Aluminium foils
2. Glass bottles
3. Tin containers
4. Polyethylene
5. Special materials- LDPE for extra thickness
Packaging materials continue to change and improvise year by year. This is because
people are becoming more and more health conscious and aware of health hazards due
to bought out food materials. Hence marketing function has lot of preparatory function
like grading, cleaning, packing, packaging and transportation. The grading, labelling helps
reasonable pricing as per prevailing Market rates.
Supply Chain Defined
It is a network of facilities including material flow from suppliers and their upstream
suppliers at all levels, Transformation of materials into semi-finished and finished products,
and distribution of products to customers and their downstream customers at all levels.
Briefly then, Logistic &Supply Chain Management (L&SCM) is enshrined in the 5Rs
making the Right product available at the Right place, at the Right time, at the Right cost
and in the Right quality.

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According to Cooper, Lambert, and Pagh, the following is a formal definition of

supply chain management:
Supply chain management (SCM) is the integration of business processes from end
user through suppliers that provides products, services and information that add values for
customers.
A supply chain consists of all parties involved, directly or indirectly, in fulfilling
a customer request. A typical supply chain may involve a variety of stages. These supply
chain stages include:
Customers
Retailers
Wholesalers /Distributors
Manufacturers
Component/Raw material suppliers
The appropriate design of the supply chain and the number of stages will depend on
both the customers needs and the roles of the stages involved.
Supply Chain Stages
Interface

Cycle

Activities

ManufacturerSupplier

Procurement
cycle

Order based manufacturers production schedule

Supplier production scheduling
Component manufacturing and shipping
Receiving at manufacturer

Distributor
Manufacturing
-Manufacturer cycle

Order arrival
Production scheduling Manufacturing and shipping
Receiving

Retailer
-Distributor

Replenishment
cycle

Retail order trigger

Retail order entry
Retail order fulfillment
Retail order receiving

Customer
Retailer

Customer
order cycle

Customer arrival
Customer order entry
Customer order fulfillment
Customer order
receiving

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Goals and Significance

The objective of every supply chain is to maximize the overall value generated.
Today companies are giving L&SCM due importance because of two reasons: cost control
and retaining markets. And, both these factors are crucial to defending bottom lines.
Value Chain Concept
Supply chain strategies sub serve competitive strategies of a company. A companys
competitive strategy defines the set of customer needs that it seeks to satisfy through
its products and services. Competitive strategy targets one or more customer segments
and aims to provide products and services that satisfy these customers needs.To see the
relationship between competitive and supply chain strategies, consider value chain for a
typical organization, as shown in Figure
The value chain begins with new product development linked to Marketing
and Sales, Operations, Distribution and Service. These are core functions that must be
performed for a successful sale. Finance, accounting, information technology, and human
resources support and facilitate the functioning of the value chain. To execute a companys
competitive strategy, all these functions play a role and each must develop its own strategy.
A Product development strategy specifies the portfolio of new products that a
company will try to develop. It also dictates whether the development effort will be
made internally or outsourced.
Marketing and sales strategy specifies how the market will be segmented and how
the product will be positioned, priced, and promoted.
A supply chain strategy determines the nature of procurement of raw materials,
transportation of materials to and from the company, manufacture of the product
or operation to provide the service, and distribution of the product to the customer,
along with any follow-up service.
From a value chain perspective, supply chain strategy specifies what operations,
distribution, and service will try to do particularly well. Additionally, in each company,
strategies will also be devised for finance, accounting, information technology, and human
resources. The value chain emphasizes the close relationship between all the functional
strategies within a company.

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Finance

Accounting

Information

Technology

Human Resources

Value Chain
The strategic fit requires that a company achieve the balance between responsiveness
and efficiency in its supply chain that best meets the needs of the companys competitive
strategy.
Table makes a comparison of efficient and responsive supply chains
Aspect

Responsive supply chain

Primary goal

Supply demand at the lowest Respond quickly to demand

cost

Product
Strategy

Efficient supply chain

design Maximize performance at a Create modularity to allow postminimum product cost

ponement of product differentiation

Pricing strategy

Lower margins because price Higher margins because price is not

is a prime customer driver
a prime customer driver

M a n u f a c t u r i n g Lower costs through high Maintain capacity flexibilityto buffer

Strategy
utilization
against demand/supply uncertainty
Inventory strategy

Minimize inventory to lower Maintain buffer inventory to deal

cost
with demand/supply uncertainty

Lead time strategy

Reduce but not at the expense Aggressively reduce even if thecosts

of costs
are significant

Supplier strategy

Select based on cost andqual- Selectbased on speed, flexibility,

ity
reliability and quality.

Source: Marshall L. Fisher What is the Right Supply Chain for your Product? Harvard Business Review
(March April 1997), 83-93.

To understand how a company can improve supply chain performance in terms
of responsiveness and efficiency, one has to examine the four drivers of supply chain
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performance: facilities (warehouses), inventory, transportation, and information. These

drivers not only determine the supply chains performance in term of responsiveness and
efficiency, they also determine whether strategic fit is achieved across the supply chain.
For each of the individual drivers, supply chain managers must make a tradeoff between efficiency and responsiveness. The combined impact of these drivers then
determines the responsiveness and efficiency of the entire supply chain. Tableshows the
logistics-mix for responsiveness and efficiency.
Logistics-Mix of a firm for Different Responses
Elements

Responsiveness

Efficiency

Warehouses

More and distributed

Fewer and concentrated

Inventory

High level

Low level

Transportation

Faster mode, high cost.

Slow mode, low cost

Information

Information needs and costs Information needs

are high
costs are less.

and

Supply chain in practice

With limited scope for passing on hikes in raw material costs and with increasing
pressures to improve growth, companies have been aiming at both organic and inorganic
growth. While companies abroad have been looking seriously at M&A to expand markets
and products, Indian companies are relying more on cost reduction. So much inefficiency is
built into the system that there is surely a considerable scope for cost reduction. Many Indian
organizations have adopted supply chain concepts and improved their competitiveness.

CASE STUDY
Asian Paints (India) Ltd (APIL)

Asian Paints set up three plants located at Ankleshwar (1981), Patancheru (1985)
and Kasna (1990). All the plants have captive resin manufacturing facilities and are capable
of producing the entire range of paints. Asian Paints believes that technology is a critical
aspect that can help it continue to move forward. Manish Choksi, Vice-President, Strategic
Planning and Information Technology, says:

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Our philosophy is to adopt best-of-breed technologies and business practices to

maintain our position as the largest paint company in India.
Asian Paints is the first Indian paint company to implement the SCM solution of i2
Technologies and ERP in 1990. The implementation of the SCM solution of i2 Technologies
and ERP made production process flexible. The flexibility in the production process helped
the customer to choose their own color/shade of paint, unlike the earlier mass-produced
shelf products. SCM includes the span of the materials function, manufacturing and quality
management. Asian Paints has one of the best distribution networks in India. The customer
service network consists of over 15,500 dealers, serviced by 70 Sales offices from 4 plants
and 6 Regional Distribution Centers. The network covers the entire country and goes well
into the rural India, and posses and exciting challenge for the distribution team.
Asian Paints has plans to strengthen its backbone by integrating systems using EAI
and enable advanced analysis by setting up a data warehouse. An employee portal along
with a Knowledge Management (KM), that would enhance employee productivity and
create a common forum for employees, is being rolled out. Also on the anvil are several
initiatives on the SRM and CRM front that would harness the Internet to provide business
benefit by integrating and collaborating with suppliers and customers.
Need for a Supply Chain Review
There are some visible signs in business that indicate the need for a review and
revamp or redesign of the supply chain processes. Some of them are:
Slowed down response to changes in the market. If competition launches a promotion
on a popular brand/pack, the firm concerned is not able to react in time
Large write-offs, since what the firm is producing, does not seem to be what the
customers are looking for.
In order to meet customer service needs and demands of customers which seem to
be imposing stringent conditions of delivery, the company would be taking up the
easy way out by building up inventories.
The firm is unable to commit on finished goods delivery dates. If the firm gets a
major export order, it is not even able to commit a firm date for delivery.
There could be frequent stock-outs and lost revenues as the planning seems to be
not keeping pace with the market needs. The forecasting seems to upset the planning
effort resulting in either excess stocks or no stocks when required.

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 The various partners in the supply chain blame each other for below optimum
performance and escalating costs. This kind of Silo approach is the most common
sign. The company would be losing out valuable opportunities in the market, but
internally departments keep pointing fingers at each other.
Meeting customer requirements means significant trade-offs in operations affecting
the profitability. A major auto manufacturer used to rush car windscreens by air
to meet customer requirements in another end of the country instead of planning
spares inventories carefully.
Companies with a well designed supply chain, and an effective planning process,
manage these signs by always giving to their customers the most appropriate service offering
at present, and with the growing needs of the business.
They have a system to ensure proper trade-off between the manufacturing locations,
flexibility, distribution cost and warehousing. The physical network has been optimally
designed and the system is IT enabled to ensure timely and correct flow of information in
the entire supply chain network.
Major Interaction Area
Logistics and Marketing: In todays tough competition, organisations need to trim
its cost in various platforms amongst the important ones, field of marketing requires more
attention and in the larger scope of customer satisfaction.
1. P
 roduct design: This has a direct impact on the warehouse space and transportation
utilisation and related costs.
2. P
 ricing: The organisation has to decide on the optimum service levels which the
customers can expect. The level of servicing the customer demand directly relates to
the product costs and influence on the pricing policies.
3. M
 arket and demand forecast: To service the customer, detailing the level of logistics
resources are needed
4. C
 ustomer service policies: If marketing wants to provide a high level of service to its
customers, logistics resources like (warehouse space, labour, transport arrangements)
have to be considered. Hence marketing has to work close with logistics to provide
service.
5. N
 umber and location of warehouses: Marketing would naturally prefer a large
number of warehouses closer to its main markets. More warehouses mean more
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effort in servicing these with stocks and higher inventory levels. The policy has to be
developed jointly by marketing and logistics.
6. I nventory policies: A careful balancing has to be done by the marketing and logistics
together, between the agreed level of customer service to be provided and the costs
of holding inventory.
7. O
 rder processing: This is the source of daily interaction between marketing/sales
and logistics. Field sales are responsible for providing the daily orders from the
customers, which logistics has to process and dispatch.
The logistics resources change with the delivery policy of the company- if it is direct
to the customers or it is to channel members. In general companies have a combination
of deliveries direct to institutions and channel members. Alternatively companies also
insist on their distributors to give monthly orders in advance, broken down into weeks to
facilitate dispatches.
Need to Assess Transportation as Facility
This facility not provides time and place utility for the customer, it also supports the
company operations and good transportation system enables such companies to keep its
cost under check. It provides greater economies in the scale of production.
It provides opportunities for business, it increases the competition among
transporters and this reduces the cost associated with transport, inventory and packaging.
It also provides better customer service.
Transportation Method Selection
There are variety of modes of transport are available. It is necessary to choose the
right and best one from these modes but also the right transporter from within the modes
chosen. Selection criteria should be as follows:
1. T
 ransport rate related variables- assuming that the movement is from door to door
and willingness of transporter to negotiate rates on open facts
2. C
 ustomer service capabilities in terms of door-to door transit time and reliability
and consistency of pickup and delivery
3. I t is assumed that the transporter delivers the items to the end point without any
damages or losses. If damages or loss occurs in transit, there should be provision
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available for claiming the value from the transporter. Procedure of claim should be
simple and transparent to make both the parties to remain with regular business.
4. T
 he transporter should be in a position to provide the right handling equipment as
needed by the company. Like, handling of heavy equipment or needed to provide
refrigerated container for ship perishable items. At the same time providing the
facility alone is not responsibility of the transporter, but also the staff being trained
to handle such equipments without damaging the goods.
Several of Modes of transport influence in ascertaining the profit of the organisation
and as well to curb unnecessary cost expenditure.
Rail Transport: In India the rail transport is the state run and believes in the two
principles of value of service on the demand side and cost of service on the supply side.
The freight rates do not have a linear relationship with tonnage or distance but keep in
mind social obligations and financial viability. Rail freight considerations are;
a) Speed of delivery desired - the freight on faster trains is higher.
b) Distance covered freight rates do increase with distance but telescopic rates also
work.
c) Ability to pay principle- as mentioned earlier, differential rates between essential
commodities and commercial ones exist for the same trains and same distances.
d) One of the main considerations, like in any other form of transport, is the nature of
the commodity being transported; rates vary according to its composition.
e) The freight rates also depend on the extent to which the consignor is willing to share
the risk in transit. Freight is higher if Railway risk is provided than if it is at owners
risk provision.
f) Depend on the demand and supply of wagons and the frequency of service required
by the customer, the railways charges different rates.
g) For special wagons like those which are closed or refrigerated or shock-absorbing,
the rates are also higher.
The advantages of rail transport are that it is economical over long distances and it
is reliable in all weather conditions. At the same time it uneconomical for small shipments
carried at short distances. Terminal handling facilities are costly and the time schedules of
the railways are not flexible.

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Road Transport
This is the most popular and commonly used form of transport of goods in India. It
is possible to hire vehicles for any destination and the trucker will ensure safe transit and
responsibility of the goods when in his possession. The option of freight payment can be
prepaid, to pay or to be billed later. The shipments could be full truck loads (FTL) the
standard load being 9 metric tons or smalls or less than truck load (LTL). Road transport
could be used and is extensively used for local cartage like truck loads or smalls from plant
to its local ware house or distribution centre or local customers or interlinking with other
modes like rail, air or sea. In modern times road transport network and the business is well
developed in India and that there is very less need for any company to have its own fleet
arrangement.
The advantages of road transport are;
I.

There is a through movement of the goods from the consignor to the consignee
without any transhipment

II.

The company has the flexibility of deciding the drop points, the routes and these
can be changed to suit changes in off-takes.

III.

Operations can be 24X7. It is known fact that long distance trucks run in the night.

IV.

The most of the truck transport is on contract, the risk of industrial action is
minimised. The labour is employed by the contractor who has to take care of them.

V.
VI.

Insurance, claims on truckers are in practice and are quite streamlined.

For schedules in operation for quite some time the truck turn- around is fast and it
is beneficial for both company and transporter.

Despite the fact being protected well, there is exposure to weather and road conditions
and heavy loads are not suitable for road transport, where as rail transport is best.
Air Transport
This is the most expensive but the fastest of the transport modes. Air transport is
suitable for high value small volume goods that need to be transported quickly. This mode
is being used for fast delivery in-spite of additional cost.
This being used for, high value products-require less packaging and in-transit
inventories, perishable products like fruits, vegetables and floral items. Certain emergency
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products such as life saving medicines or critical machinery parts, live animal like race
and show horses and short shelf life items like fashion items.
Air cargo rates are based on the volume and the economies of the route. Domestic
air cargo rates are based on available capacity, market requirements and the operational
economies. International air cargo tariff is based on different pricing concepts within the
tariff structure, rationalization in terms of routes, competition and any bilateral trade
agreements between countries.
The advantages of Air cargo are;
I. Fastest mode of transport domestic deliveries can be done the same day and
international deliveries can be made within 48-72 hours
II. Inventory cost can be controlled.
III. The service range is quite broad.
IV. The capacity is being built both in domestic and international sectors.
The disadvantage is:
I. High cost adds to the final price or affects margins in case of emergency dispatches
by air.
II. Weather can affect flight conditions and delay consignments.
III. Limitations on bulk and heavy consignment.
Water Transport: Domestic water transport is limited to coastal areas only. In the
case of international transport, the value of water is immense. Water transportation is
normally used for low value to weight ratio items like timber, iron ore, coal, chemicals and
cement. Commodities which are bulky but low value where the items are not required in a
hurry are most suitable for water transport. This mode is slower but inexpensive-low cost
per ton kilometre.
In the international water transport there are two kinds of shipping services are
available, they are, Liner conferences and tramp steamers.

Liner Conference: this is a group of carriers operating two or more vessels in

international waters. They provide international sea freight services on particular
routes within the geographies they have defined for themselves. All of them operate
on uniform or common freight rates to help customers. Liner conferences operate

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through a regular organisation and various committees. It is estimated that, over 350
liner conferences are operating in the world.

Tramp services: this is more like the unorganised services in shipping. They operate
very similar to taxis and can be hired between two points of interest to the customer.
They normally do not have fixed routes or rates but this has be negotiated for each
consignment. They are far less reliable than liner conference.
The advantages of sea transport are;

Movement of bulk quantities are possible.

Lowest freight cost in rupees per ton-kilometre.

Long distance movement of low value commodities.

The disadvantages of sea freight are;

This is not suitable for quick transit.

Suits certain types of commodities only except when the goods are containerised in
which case any number of commodities can be sent by sea.
Pipeline movement: The entire pipeline will be owned by the company using it and
is suitable for the products of the company running the piple line. Pipeline movement is
only suitable for transporting continuously large quantities of liquids and gases over long
distances. This mode is normally used for petroleum products, gases, slurry (coal, iron ore,
limestone, and copper) and crude.
The advantage of pipelines is;

It is reliable, continuous and all weather transport.

Low cost and the energy consumption is low.

Low maintenance and operating costs.

As the pipeline can be laid underground, there is no problem of space.

The transit losses are minimum

It can be used in a difficult terrain also.

The operations are 24X7 and quite safe.

It is estimated that the throughput can be doubled with just 25% to 30% additional
capital costs.

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High capital costs involved and inability to transport solids are the disadvantages of
pipeline movement.
Transport using ropeways: Ropeways are a means of transport in the private
domain only except in the case of hill stations and other such cases where ropeways could
transport could transport the public. Ropeways are meant to connect two points with a
large differential altitude. IN these cases the rate of rise or the gradient is not suitable either
for a road or rail route. Normally this gradient is one in two. Transporters using ropeways
can move materials over short distances in hilly regions. Ropeways are commonly used in
mines operations.
The advantages of ropeway transport are;

The only mode of transport suitable for transportation of solids like ore in hilly or
inaccessible areas.

Can work in long and circuitous routes with streams and deep valleys in between.

Suitable for all commodities that can be moved in ropeway buckets.

Haulages are normally less than 50 kilometres.

Has been found suitable where other modes are uneconomical or not feasible.
However, it lags behind in heavy investments and limitations on size, nature and
quantity of the haul.
Though we have given to understand the modes of transport system which is available
and the advantages, main selection is be based on the factor nature of the materials being
transported, the quantities involved, the value of the commodities and the distances to be
covered. In addition the above, other factors need to be considered are:
I. Nature of goods, the policy of the company and its customers which are all
operational details.
II. Comparison with the alternative modes that available.
III. The company and its customers expectations on speed of delivery required, quality
of the service and all this at an acceptable cost.
IV. Ability to track the consignment.
V. Simplicity of the documentation other than the statutory requirements.
VI. Handling of complaints and the processing of claims.

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Improvements in Supply Chain Management

The concept of supply chain management is about two decades old, there have been
a number of recent advances in the manner in which companies have made the supply
chains a source of competitive advantage.
1. Efficient consumer response: Major FMCG companies in India are attempting to
implement this concept that took roots in the grocery industry in the US. The idea
was to supply to final user/consumer only what he or she wanted in the most efficient
manner. This was used by scanners at the point of sale to inform the supplier of
the demand for the product lifted from the retail shelf. The supplier was able to
quickly fill back the services with the product which has moved out. It facilitates
in filling the gaps with its own brand or package without giving advantage to the
competition. For the modern retailer, he does not have to hold excess stocks in the
back-store as he knows that the company will quickly replenish sold quantities. The
consumers have the benefit of getting what they want, when they want it and in their
favourite retail outlet.
2. Category management: Management categories (groups of products which are
complementary from the consumer view point) of products makes the task of
logistics relatively easier. Even while calling-off products based on the merchandiser
negotiations, logistics can handle suppliers more efficiently. Co-ordination between
retailers and their vendors has become better.
3. Continuous replenishment: This resulted from tracking the online consumption
of the products at the point of sale. This was pioneered in the US by Wal-Mart
and P&G. Th principle is replace stocks on the retail shelves based on the updated
knowledge of consumer off-takes. Logistics helps in filling up the retai9l shelves
based on updated marketing information.
4. Quick response logistics: Here the consumer decides what he wants when and
where. The logistics system has to respond fast to the needs highlighted. This is a
good expel of a Pull system as the action happens based on consumer requirements.
In many cases the need may be based on a triggered impulse but still has to be met
fast. The point of sale data is collected and analysed to keep manufacturing flexible
to meet the demand.
5. Handling functional and Innovative products: A functional product meets the
basic needs of a consumer like a bar of soap or a tube of toothpaste. It requires
that the supply chain address the issues of time and place utility efficiently. Such a

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supply chain is known as physically efficient supply chain. On the other hand there
are innovative products like fashion accessories which are difficult to forecast and
also the demand is not certain. Some of these products may even have a short life.
In such cases, one is looking for a supply chain which is quick in response to the
market needs. This kind of a supply chain is known as a market responsive supply
chain.
6. Benchmarking: As the name implies, benchmarking is comparing performance of
a companys logistics or supply chain systems with that of its competitors or with
successful companies in other industries.

In the case of supply chain, processes at the supply end, the internal processes
and the processes at the distribution end can all be benchmarked.

At the supplier end, benchmarking is possible with the quality, the lead times
and the on-time delivery performance and ready availability of stocks when the
company sends its purchase orders.

Between the supplier and the company, comparisons can be made about the
communication process, the planning scheduling and the performance on
making sub- assemblies.

Between the company and its distribution network, communication, effective

requirements planning and working on plans for promotions together can be
benchmarked.

For the distribution network, we could measure the delivery performance,

customer service levels and any value added services can all be benchmarked.
Logistics function and IT enabled
Customer service functions are essentially important for organisations success.
Utilising the strength of information technology has established faster services to the
customer who are in need of a product immediately. It has been established that distribution
challenges can be proactively managed with real time knowledge of business events.
E-logistics upgrades a companys supply chain function to collaborate with its
suppliers and customers to make full use of business opportunities via internet. This has
altered traditional functions of inventory management, replenishment and shipping.
Logistics information systems have the components of a data base, planning function,
control function, co-ordination function and customer service.

228


The data base could contain external data, customer orders, inbound logistics,
internal data on production and inventory.

The planning function includes strategy planning, demand forecasting, stock

management and planning production by location, product and customer
requirements.

The control function means customer service levels, vendor performance ratings,
transporter performance rating and the system performance.

Coordination is for production scheduling and sales and marketing planning.

Customer service includes communication, customer order status, stock availability

by product and location.
EDI Electronic Data Interchange
This communication is quite common between the company and its suppliers and
is being extended to customers too. It is defined form of electronic-computer to computer
transfer of standard business documents, data and information. Advantages of EDI are:
1. Reduce paper works.
2. Increases accuracy and reduce the manual process of information.
3. Improvised data transmission speed and order receipts.
4. Reduced effort in data entry, filing and so on.
5. Purchase proactiveness is possible.
6. Cost can be reduced with respect to order placement, processing and handling.
7. Instantaneously information are available
Electronic Payment Transfers
This is another part of business transactions are facilitated to the customers and this
system is also a complex one in the business.
Howsoever, in recent times, this has made both companies and customers to reduce
physical transaction and well documented operations in the financial system. At the same
time, most suppliers prefer only cash on delivery. Customers may be reluctant to pay
through their credit cards and not all of them may have credit cards.

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Problems faced at the time of delivery;

The person present and receiving the goods may not be the one placing the order
and may ask that the courier should come later to collect the cash.

The person placing the order may not accept all the goods fully.

It could happen that the order may not be accepted as the customer has changed his
mind or bought the product elsewhere in the meantime.

The delivery agent would have to manage the issues of accepting payments in
different formats and delivering it back to the retailer.

In case of B2B transactions, the amounts are so high that it cannot be handled by
cash transactions. The payments have to be done by cheques or demand drafts.
Electronic means for secure payments has speeded up the growth of e-commerce.
The payments from B2C transactions are still small compared to the B2B transactions.
This has brought in specialist transaction service providers who handle different payment
methods like below:
1. Credit and debit cards
2. Internet service providers invoice
3. Demand drafts, cash on delivery
4. Transaction service providers
Performance Measurement
Logistics/supply chain performance can be measured both on internal and external
parameters:
Internal Measurements

The cost incurred to accomplish the objectives of customer service.

The customer service status seen as a combination of sales achieved, order numbers
received and executed, rate of stock returns, stock outs, orders cancelled, damage
claims settled and the order cycle time.

Customer service delivery in terms of satisfying customers

Fill rates ability to supply the full order in time

Order shipped complete ability to supply the full order every time
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Speed of response order cycle time

Consistency delivery every time as per needs

Stock out frequency number of times demand exceeded the availability

Reliability ability to meet customer perception of service

Productivity measures which show the relationship between input (effort, time
and cost) and output (Service provided)

Asset utilisation equipment, transport facilities and inventory

Concept of the perfect order quality of the fulfilled order in terms of customer
specifications, service goals, error free invoicing and zero defect performance
External Measurement

Customer perception obtained through regular feedback or surveys

Normally rank customer service parameters in relation to competition parameters

like order cycle time, feedback on order status, after sales service and support systems.

Best practice benchmarking to search for the best overall practice outside the
company and adopt it. The systems normally broken down into variables affecting
it and then compared- cost, quality, order processing effectiveness, transportation
and warehousing efficiencies.
Special Reference to Transportation
Transportation is an essential part of marketing activities for any type of product.
Different types of transport activities are involved for B2B AND B2C needs. This is because
goods are not consumed at the reduction place in totality. Most of the stages of production
or portion of production have to be moved to different places, different regions or outside
the country.
For agricultural produce, processed agro products, rural industry products, dairy,
poultry and forestry products, the bigger market will be available in towns and cities and
hence movement of goods is essential. Materials move from farms to primary wholesale
markets or co-operative societies. The transportation has undergone continuous change
since the last five decades. From bullock cart, horse driven tongas and manual trolley, it
has taken five decades after independence to improve the system. Even now bullock carts
are used in rural areas and the tongas and manual trolleys are not used much in towns
and cities. It can be expected that in another five years, animal driven vehicles and manual
trolleys will be replaced by mechanisation, four-lift trucks, automobiles, rickshaws etc.
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Though the older system was giving more employment and helping to use the
available resources, the system was very slow, inefficient, tiresome and inconvenient to
use. Modern methods help to save time, effort, cost and enable to do a neat and clean job
of high volume at our convenience.
Transportation of farm products to different places fetches money to farmers and
food items and variety to consumers located at various nearby and distant places. For
example tea is maximum grown in Assam and Kerala where it is consumed all over India.
The oldest methods of transport have been mostly for short distances Viz
(a) Carrying by men as head loads for short distance of farm to farm house
(b) B
 ullock carts, camel carts, buffalo carts for village to village and village to town
movements
(c) H
 and carts manually moved trolleys for movement in mandis (granaries) and
markets
(d) Use of bi-cycle and tricycle for short distance movements and
( e) T
 ractor-trolleys. Bullock carts were the main stay for centuries and they
symbolise rural life.
Even though the automobile industry has grown big and making vehicles to suit all
types of needs, India still continues to depend heavily on animal-driven carts in the rural
sector. This is partly due to traditional reasons and partly to utilise the bullocks which will
be free after harvesting.

Produce at
Farm

Consumer

Farmers Residence
Bullock Cart
or Godown

Tractors

Bullock Cart
Tractors

Trucks

Retailers

Hand Cart/Coolie
Tonga

Rickshaw

Own Vehicle

Cart
Tempo
Trucks

Transportation Chain of Agriculture Produce

232

Local
Market,
Terminal
Market

Wholesalers

Summary
Physical distribution includes warehouses, inventory, transportation, information
and packing. The systems concept of distribution led to integrated logistics system and
now to supply chain management. Logistics can contribute to savings in both time and cost
and enhance promotional value of products. Supply chain management is the integration
of business processes from end user through suppliers that provides products, services and
information that add values for customers. Supply chain components include customers,
retailers, whole sales, manufacturers and suppliers. Supply chain strategy represents a
value chain and forms a subset of competitive strategy. Supply chains can be responsive or
efficient by design.

****

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Lesson 5.3 Channel Selection

Learning Objectives
After studying this lesson, you will be able to.

Know the members in the of channel

Understand basic issues in channel selection

Appreciate the importance of channel management relationships

Understand various principles of Channel management

Understand the way in which services use marketing channels

Introduction
Marketing activity starts with the customer and ends with the customer. So customer
is the ultimate target for the marketer. Availability and affordability are the two important
considerations for buying. Availability depends upon the efficiency of the distribution
channel. Channels of distribution keep changing from one product to another. There is a
need for marketers to emphasize more on easy availability at acceptable price.
Concept
According to Kotler:
Every producer seeks to link together the set of marketing intermediaries that best
fulfil the firms objective. This set of marketing intermediaries is called marketing channel
Its purpose is transfer of ownership of the product through intermediaries or
directly to the buyer.
Types of Middlemen
There are three types of middlemen that facilitate the flow of goods and services
from the manufacturer to the customer.

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Merchant middlemen: These are the intermediaries who take title to the goods and
services and resell them. They are known as distributors, dealers, wholesalers and retailers.
These middlemen get margins and bonuses as compensation. They share the risk with
manufacturers when they take title and physical possession of the goods.
Agents: These are intermediaries who do not take title to the goods and services but
help in identifying potential customers and even help in negotiations. The typical example
is that of sales agents and manufacturers agents or manufacturers representatives, C&F
agents, brokers, jobbers, and so on who act on behalf of the producer only to the limited
extent of prospecting, warehousing and redistributing the products. They do not share risk
with the manufacturers, as they do not take the title to goods and services. Agents earn a
commission and are reimbursed for all expenses by the manufacturers.
Facilitators: These are independent business units that facilitate the flow of goods and
services from the producer to the customer, without taking a title to them or negotiating for
them on behalf of the producer. Transport companies, banks and independent warehouses
are examples of these institutions. These institutions are paid their service charges, as in
the case of a transporter who charges freight or a banker who is paid service charges or
warehouses, cold storages and go downs which earn rent.
Channel Components
The historically available people and places for distribution include: wholesaler,
retailer, vans, weekly haats, Bazaars and mandies.
(i) Wholesalers
The Indian wholesaler is principally a galla-kirana (food-grain) merchant who
sustains the belief that business is speculative rather than distributive in character. He is
a trader/commodity merchant rather than a distributor and therefore, tends to support a
brand during boom and withdraws support during slump.
The current need is to activate and develop wholesaler of the adjoining market as a
distributor of products to rural retail outlets and build his loyalties to the company.
(ii) Retailers
Retailers are the front-end characteristics players with direct access to customers.
They have the following.

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(a) Credibility: he enjoys the confidence of the villagers. His views are accepted and
followed by the rural people whose awareness and media exposure levels are low.
(b) Influence leader: His role as influence leader is indisputable. From tender twig
of neem to washing powder, retailer testimony has been vital part of the product
adoption process.
(c) Brand promoter: With the increasing number of brands in the place of commodities
concept selling has come to a close. Brand choices are easy as the brand characteristics
and benefits are communicated through different promotion media. Despite the
direct one-to-one communication, the retailer remains the deciding factor to sell a
particular brand.
(d) Relationship marketer: village retailer practices relationship marketing. He caters
to a set of buyers who have incomes derivative from immovable land resources and
would be static over a much longer time span. The relationship could extend beyond three generations, backed by historical credibility of the retailer as a product
referral.
(e) Harbinger of change: Village shopkeeper has not been merely a seller of wares in an
environment relatively isolated from external developments; he has been harbinger
o change. He is one of the main sources of information and opinion as well as
supplier of product and services. As against this, we find urban retailer, wielding
limited influence in changing the product choices and quality of life of consumers.
The retail outlets are now in for a change with the corporate marketers finding
them as right places for promoting their products.
(iii) Vans
Mobile vans long since, have an important place in distribution and promotion of
the products in villages.
(iv) Weekly Haats, Bazaars, Mandies
The haats are the oldest outlets to purchase household goods and for trade. These
markets are very well organized with shopkeepers having pre-assigned spaces for them to
sell their wares. A typical market is in an open field with ample space for displaying all sorts
of goods. Its location changes every week. These markets have different names in different
regions. But they are strikingly similar every week. These markets have different names in
different regions. But they are strikingly similar in what they sell. It is reported that there
are, in all. About 47,000 haats held throughout the country.
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(v) Melas and Fairs

These are low cost distribution opportunities in rural area. They are like the urban
events India International Trade Fair (IITF), Sajavat or Cnsumex in which audience
participation varies form a few thousands to a few lakh people. Most of them are associated
with either a religious event or a festival.
Some of the well known melas are: kumbhmela at Allahabad (trivenisangam),
pushkarmela in Rajasthan, KulluDussheramela in Himachal Pradesh, Sonepurmela in Bihar
and MakarVilakku in Kerala. People from all over the country gathers there. According to
the Indian Market Research Bureau (IMRB) around 8000 melas are held in rural India
every year. According to rural scan (Quarterly News letter by MICA (Mudra Institute of
Communications, Ahmedabad), there are on an average, 1000 melas held in a state annually.
The average duration of a mela is anywhere from one to 45 days.
Manufacturer is one who recognizes a consumer need and produces a product
from raw materials, component parts or labor to satisfy that need.
Channel Design
At conceptual design level, deciding on the best channels or ideal ones might not be
a problem. But at operational level, there will be many problems that require modifications
to the ideal one. Examples include the following

To modify with latest technology to create a new channel, or

To convince one or few available middlemen to handle the line.

Therefore, keeping in mind the operational aspects, manufacturer has to make decisions.
Designing a channel system involves the following steps.
1.

Assess Customer Needs

Firms should adopt marketing concept and view channel management as the process
of creating value-added networks. Therefore, managers should begin the channel design
process with a thorough customer value assessment.

What is the core marketing offer?

What are the customer expectations about augmented product and services?
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What is the service output level desired by the customers?

How much are they worth to them?

What is the aggregate demand function for each of the service outputs?
2.

Establish Channel objectives

Channel objectives must be consistent with overall corporate and marketing

objectives. Some of the objectives used by the marketing managers are:
(1) Delivery of superior value to customers
(2) Low cost of operation
(3) Control
(4) Sales maximization
(5) Image
3.

Identify Channel Alternatives

Products and services flow from a supplier firm either directly or indirectly through
reseller to a market segment. When diagrammed, conventional channels resemble linear
pipelines. Various channel member firms appear as nodes in pipelines as shown below.
Level

Channel

Place

Level A

Company depot

National/State

Level B

Redistribution stockiest, C&F agents,

Semi-wholesalers and retailers

District Headquarters

Level C

Semi-wholesalers and retailers

Tehsil Headquarters
Mofussil towns
Industrial townships

Level D

Itinerant traders, Vans,

Large villages
Petrol bunks semi wholesalers,
retailers, Co operative societies, Haats

Level E

Retailers, Vans, sales people, NGOs,

Government agencies

Villages

Most companies have direct representation in the form of redistribution stockist at
level B and C. Level C in a district would comprise at best 7-10 towns. High outlet density
and large customer population permit economies in developing these markets through

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regular working of sales cum distribution van. On consolidating market penetration,

direct representation could be extended to the towns by way of sub-dealers or stockist.
To achieve a winning edge in rural sales the object is to maximize directed flow
and control of stocks at levels C to E. Approaching level D requires prior selection of haat
markets and villages located in contiguous clusters. Sorting of easily accessible census data
enable listing of villages above a predetermined population bracket and of occurrence
schedule of haat markets.
Various schedules with level C stockist at nodal points could be operated towards
self-sustaining distribution rates for level D markets.

The next level is E. the villages are too small to allow economies in van distribution.
But these villages form the bulk of the consumption in rural areas.
4.

Identify Channel Design Constraints

Now, operationally the objectives are to be considered in the light of constraints

stemming from the company and environment.
i)

Product characteristics. The nature of the product affects channel design.

ii) Company characteristics. The size of the company, its goals, financial resources,
product mix and marketing strategy influence channel design.

Larger the size of a company, larger the market it services

Long run growth goals specify the channel development requirements.

Financial resources impose investment and cost constraints

iii) Competitor Characteristics. What the competitors are doing and through which
channels they are delivering goods? Should we follow them or set up a different
channel? These are the relevant questions.
iv) Middlemen characteristics. Marketing intermediaries differ in their aptitude for
handling promotion, negotiation, storage, contact and credit. They differ in their
strengths and weaknesses. An evaluation of these aspects is primary in choosing the
middlemen.
v) Environmental characteristics. Legal regulations and restrictions state of the
economy; infrastructure developments and technology affect channel decisions.
For instance, inflation may require cost minimization and modifying channels to
achieve that.
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Channel Member Selection

Channel member selection involves several issues;
(i) Carefully Select Channel Partners
First, marketers prepare list of reseller firms using one or more of the sources.

Internally generate a comprehensive list of candidates for each reseller type targeted

Acquire them from governments-local, state and central.,

Obtain from database marketing firms,

Secure from trade associations

Next, they select the existing or potential channel partner firms that can best
perform some or the entire required channel functions. The factors considered in the
selection generally include the following:

Technical competence,

Sales force deployment,

Warehouse and delivery capabilities,

Financial stability, and

Leadership.
Managers eliminate those resellers that do not meet screening requirements.

Managers then conduct a market research survey to assess customer preferences
for, and satisfaction with, specific reseller firms. Then, they reconcile this list with the one
developed already to create a list of prospective resellers. Selection depends not only on
judgment of marketer but also the willingness of resellers to be a channel member. Reputed
companies like TISCO, BHEL, and WIPRO can attract any number of intermediaries. A
new company has to work hard to line up the desired number of qualified middlemen

(ii) Specify the Terms and Responsibilities
Business market managers now enter into partnership negotiations with preferred
resellers. Following, productive negotiations, the supplier and its resellers summarize
the terms of their relationship in the sales agreement. The agreement will identify the

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responsibilities of all parties for completing business processes and the rewards that each
will receive. The terms and responsibilities, when stated clearly pave the way for successful
performance and durable business relationships. The main elements in the trade relations
mix are:

Price Policies

Conditions of sale

Territorial rights

Specific services expected

Price policy establishes list price and discount structure. The discounts should be
attractive and equitable to middlemen.
Conditions of sales refer to the payment terms and to guarantees. Generally, the
payment terms induce early payment by offering discounts. For instance net 2/10, 30
payment terms offers 2% discount for paying on or before 10th day.
Guarantees are offered to replace defective merchandise or compensation in case
of price decline. Territorial rights grant right to operate in the specific market area. Full
credit for sales in that area is given to that particular middleman. Specific services expected
of the middleman, if any, are to be specified. Generally, exclusive dealers or franchisees are
provided with infrastructure and marketing support. In turn, they are expected to operate
their outlets and perform services as stipulated by the company.
Recently, one would have heard of the efforts of companies trying to work with
each other to benefit from distribution synergies. The thinking seems to have emanated
from the FMCG companies like HLL and Colgate which are known for their widespread
and intensive distribution reach. They are looking at distributing non-competing mass
consumption products which do not have a strong distribution presence for a fee. This will
help the other company to increase its reach and also help the service provider company
to share its distribution costs.
Channel Institutions
Retailing
The term retailer also implies that he deals directly with the end user or consumer.
Being the last link in the distribution channel by which the manufacturer reaches the end

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user consumer, the retailer has more knowledge of the customers aspirations and needs
and can influence the end user buying decisions.
Definition of Retailing
Any business entity selling products and services to consumers is retailing. The
goods may be sold in a shop, in person, by mail, on the internet, telephone or a vending
machine. It could be sold in a shop, on the street or in the home of the consumer. Just as for
products, retail also has a life cycle. Newer forms of retail come up to replace the old- this
is faster in the Western World, but it is catching in India.
Retailing includes all the activities involved in selling or renting consumer products
and services directly to ultimate consumers for their personal or home consumption. End
customers make most of their purchases in retail stores, which are independent of the
producer.
Functions of retailing include

Performing marketing functions that enable them to make available a wide variety
of products to the consumers.

Helping create time, place and possession utilities.

Adding form utility such as when a clothing retailer alters a trouser to fit a customer.

A retailers services also help create an image for the products he sells.

Retailers add value to products through;

1. The services they offer such as credit, delivery, and extended store hours.
2. The personnel they hire who help identify and solve customer problems.
3. The stores location, perhaps near other stores or in a bazaar to facilitate
comparison shopping.
A retail firm can be classified according to:

Form of ownership-sole ownership, partnership, corporation, consumer cooperatives

Operational structure-independent, chain, franchise

Service and price orientation-full service, limited service, self-service, normal

margin, discounter, off-price.
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Merchandise offering general, mass or speciality. Merchandise width refers to the
number of non-competing product lines offered for sale. Merchandise depth refers
to the number of brands, models or styles carried for each product category.

Where the sale takes place-in the store or non-store.

Kinds of retailers and its characteristics
Type of Retailer

Characteristics

Speciality store

Narrow product line with deep assortment-apparel, furniture, books

Department store

Several product lines in different departments-Shoppers stop, Big

bazaar

Supermarket

Large, low-cost, low-margin, high volume, self-service operation

with a wide offering

Convenience store Small stores located in residential areas, open long hours all days
(Kirana Store)
of the week-limited variety of fast moving products like groceries,
food
Discount store

Standard merchandise sold at lower prices for low margins

example Poorvika Mobiles

Corporate chains

More outlets commonly owned and controlled by one firm; like

Globus, Tata Chroma

Voluntary chain

Wholesaler sponsored group of independent retailers

Retailer Co-ops

Independent retailers with central buying operations and common

promotions

Consumer co-op

Co-operative societies of groups of consumers operating their own

stores-farmers, industrial workers and so on

Franchise
organisation

Contractual arrangement between the producer and retailersselling the producers products exclusively

Global Retailing Situation

The retail world globally is well organised and in most developed countries is
controlled by major companies. It is estimated that the global business is retail is worth
US$6.6 trillion, most of which in the developed world is organised retail. In developing
countries, the retail trade is mostly unorganised. The size of the retail market varies between
countries, out of which, organised retail in US share may be to the tune of 85%, China has
20%, Taiwan is big as 80% and India is around 5%.

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Retailers Terms
The packaged goods manufacturers were calling the shots in the retail sector. Today, with modern organised retail the retailer is gaining an upper hand. Even with the
limited growth of organised retail in India, the few modern retailers negotiate and get the
most favourable terms from their consumer goods suppliers, which are themselves big
companies like HLL, Nestle, Colgate, and P&G. Modern retailers get quantity discounts,
sell shelf and display space and get special discounts on promotional stocks. They also put
conditions for stocking and selling new products.
Reasons for the Retailers growth of power over manufacturers;
1. Consumer product margins for the retailer are low and in order to get higher
volumes they need to get a share from others and hence the situation has become
very competitive. To perform well the retailers has to put enormous pressure and
they need to spend more money on the stores to increase the footfalls.
2. Retailers have to run business models which are result oriented and as well a cost
effective ones. At the same time, competition does not permit them to increase the
prices. Without the support of the suppliers, they cannot bring down the cost unless
they reduce the customer service. They look for economies of scale while working
out terms with their suppliers
3. Merchandisers in retail are also in charge of buying. The profitability of the retailer
is decided to a great extent at the stage of buying itself. Buyers influence the service
levels, revenue, profitability, quality and competitiveness.
4. The number of new products introduction is becoming unmanageable. The new
products could be innovations, line extensions or substitutes. Even though store
sizes have also increased substantially they cannot accommodate all the new entrants
and hence have to be choosy which again gives them enormous power over their
suppliers. Again in the Us, retailers charge a penalty to companies whose products
do not succeed.
5. New developments in information tech ology are helping retailers to:

Analyse what are their fast moving and most profitable products/brands/packs,

Identify which are their profitable store locations, and

Recognise who are their most loyal and good customers. Each store can have
the daily data of the average and the individual shopping basket size of all their
customers for that day in addition to the composition of that shopping basket.

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They can tailor their promotions to suit these profitable units. Naturally the
order products, brands and SKUs get less priority, thus affecting the business of
those vendors.

Manage inventory, better way. Retailers have several different formats to

compete with-both brick and mortar. Example: traditional corner/grocery
stores in India still dominate the scene.
In order to overcome these difficulties, manufacturers face as a result of the increased
power of retailers over them, they have started offering additional benefits to continue to
be in the good books of the retailers.
Benefits Manufacturers Get

Hiring specific shelves for displays. The practice can be seen in all major cities in
India even with small retailers

Selling with discounts on quantity purchases

A fees to be paid to the retailer if the product does not do well

Sharing of press advertising expenses featuring the store and the manufacturer
brands.

Payments for displays and shelf space very true of India also

Guaranteed taking back of slow moving or damaged stocks again prevalent in the
Indian context
Retailers Possess own Brands/Private Labels
Modern retailers in the Western countries particularly in Europe, have resorted very
strongly to keep their own developed brands to compete with the better known company
brands on their shelves. This practice is yet to catch up in India, though Shoppers Stop, Big
Bazaar and Nilgiris are already into developing and selling their own brands.
Advantages Retailers get through owning of brand

They are as good as the major brands but are priced less as they have cost advantage

They provide higher margins to the retailer

If successful, they give better bargaining power to the retailers. They can demand
better terms from the national company brands.

The task of merchandising becomes simpler.

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Manufacturers Responses
Most of these responses are because of retail power are increasing because of growing
big and influential.

Manufacturers are taking the help of new technologies to manage organised retail
better. Two such technologies are EDI (Electronic data interchange)and VMI
(Vendor managed inventory)to manage the physical possession and ordering flows.

Producers are putting less reliance on higher discounts to get better sales. Price
cut promotions result in excess stocking during the promotions and hampers the
planning at the suppliers level.

Suppliers plan to reduce frequent price cuts and use the savings for other customer
driven promotions

Develop and introduce new products and pack sizes-very true in Indian context
also. Ofcourse, convincing the retailer to stock additional products, brands or SKUs
is not an easy exercise.

In the apparel industry, manufacturers use their own outlets to counter the pressure
from the major retailers. These outlets, which are abundant in India, are meant to
sell seconds and export surplus items. In due course they may even stock and sell
regular goods.
Retail scene in India
It is estimated that there are over 12 million retail outlets in India of various sizes
and varieties, most of them being in the unorganised sector. This works out to over 10
outlets per 1000 population. Unorganised sector, which has scores of independent, small
stores, contributes to about 95% of retail business. The average per capital space of retail
in India is 2sqft compared to about 15 sqft in the US. This is in line with the population of
India itself, which is dispersed.
Moreover, nearly three fourths of the population is rural in hundreds of small
villages that cannot support bigger retail formats. Organised retail still forms only 5 to 7 %
of the total retail trade in India but is steadily growing. It is estimated that the retail sector
in India is the second biggest employer after agriculture and currently provides livelihood
to about 7 to 8% of the adults. It is expected that in the next 10 years, about one million new
jobs are likely to be created in the retail sector.

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Modern retailers of India- Table contains Modern Retail formats in India (2003)Table contains Modern Retail formats in India (2003)
Name

Numbers of outlets

Super markets
Apna Bazaar

114

Foodworld

72

Samavijka

10

Triveny

10

Vesta

10

Discount stores chain

Margin Free

87

Trinethra

51

Amudham

27

KendiyaBhandar

36

Maratha Stores

18

Nilgiris

16

JanathaBazzar

12

Hyper Markets
Big Bazaar

Giant

Department Chain
Shoppers stop

14

Pantaloon

10

Westside

Grocery chain
Five star

Shreyas

Convenience chain
BPCL In & Out

79

Convenio

15

HP speedmart

14

Akbarallys

Club HP

Health & Pharmacy chain

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Apollo

85

Health & Glow

14

Himalaya Aurvedic

13

Medicine Shoppe

Source: Business World Marketing White book, 2005, pg.289

One of the arguments used in support of the fact that the percentage contribution
of organised retail in India to the total retail business is still very low, is that Indians prefer
to buy fresh good and hence depend on traditional small outlets.
The Indian consumers looks for Value for money and the large formats are able
to provide this. The growing trends in organised retail are attracting the interest of global
players. However, the government of India is considered to permit foreign direct investment
(FDI) in the retail industry. Foreign players have taken the route of franchising to operate
in India. Renowned brands like Marks and Spencer, footwear brands like Reebok, Adidas,
Nike and others have already in India, in addition Mc. Donald, KFC, Marry Brown and
others too have registered their presence.
Real estate space available for organised retail is getting saturated in the metros and
tier 1 cities in India and is now looking at tier 2 cities for expansion. Unlike in the West,
where the large store formats are located in the outskirts of cities or the suburbs, in urban
India, the consumer wants the additional convenience of the large format store to be located
in the heart of the business or residential district. This creates a tremendous pressure on
real estate to find such spaces in the heart of the cities, which are already congested. This is
forcing retailers to either limit the size of their stores or look for tier 2 cities for expansion.
Again depending on the space available and the location, large organized retailers may have
to look at 3 or 4 different formats for their stores.
Problems in Channel
Since there is heterogeneity of market appears, the manufacturers along with channel
partners/intermediates tries to create a homogenous market to curb the cost and to limit the
customer knowledge drive. These so happens because of presence of unorganised players
in large and most of the business are still in dependency of them. Large retail formats are
unable to recover the cost in certain areas due to stiff competition given by the unorthodox
players. The cost of technology implementation by the large formats is very high and hence
they depend on manufacturers to support them with high margin to recover the cost and as
well to fight with unorthodox market players.
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Summary
Channel design objectives may include delivery of superior value to customer, low
cost operation, control, sales maximization and image. Various constraints to channel
design comprise characteristics of product, company, competitor, middlemen and
environment. The new retailers formation with super chain stores even in rural market.
Proper understanding about the channel of movement in urban and rural markets is known
in a better ways. Problems faced by organizations involving small retailers and the modern
retailers with respect to allocation of margins and other promotions to support the channel
of distributions.

****

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Lesson: 5.4 Economic Reforms

Learning Objectives
After studying this lesson, you should be able to:

Explain the economic reforms carried out by the Govt.

Describe the corporate response to the change

Discuss marketing in pre-reforms era.

Introduction
Since 1991, India has been going through a process of economic reforms and
liberalization. The reforms have embraced almost all aspects of the countrys economy.
Policies relating to industrial licensing trade and foreign investment have undergone
major changes. In addition significant macroeconomic adjustments have also taken place.
Economic institutions too have undergone significant change the banking sector and
capital markets in particular have been major targets of the change. And finally structural
adjustments covering areas like subsidies the price environment and the public sector have
also taken place.
Collectively these reforms aim at modernization of the countrys industrial system
removal of unproductive controls strengthening of private investment including foreign
investment and integration of Indias economy with the global economy In one word it
can be said that all round opening up of the countrys economy has been the essence of the
reforms ( Ramaswamy and Namakumari 2002 p 37). The programme of macroeconomic
adjustment and structural reforms has stabilized the economy and integrated it with world
economy the board content of the structural reforms programme are not new they are an
elaboration and intensification of changes were aimed at increasing productive efficiency
of the economy by creating a ore open and competitive environment for both the public
and private sector (Ahluwalia 1993 p 80) there seems to be a general consensus on the
desirability of reforms to dismantle the bureaucratic regulatory apparatus evolved over the
years that may have out lived its utility ( Kumar 2000 p 803).

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Corporate Response to the Change

How did the Indian corporate sector respond to these economic liberalization
measures? Basant (2000) suggested that;
1. The Indian corporate sector is vigorously restructuring itself to retain competitiveness.
Restructuring is mainly geared towers consolidation in a few chosen areas to correct
the inefficiencies created by over diversification in the pre reform era.
2. MNCs have actively participated in the mergers and acquisitions process to get
market entry or to strengthen their presence.
3. MNCs are better poached vis--vis domestic firms in the acquisition game because
of their deep pockets and relatively cheaper access to capital.
4. The reliance of the Indian corporate sector on foreign technology purchase has in
creased. More and more technology flows are now tied with equity.
5. Firms are making efforts to improve manufacturing capability. This is being done
through building alliances as well as through initiatives within the firms. Quality
up gradation seems to be their key priority. The effort at Improving manufacturing
capability may still prove to be inadequate to meet the competitive challenges.
6. Product differentiation strategy seems to be dominating over strategies of building
distributed and market related complementary assists.
7. Export based growth strategies are being adopted by some of the corporate sector
firms but such strategies are not widespread export orientation increased appreciably
in he early years of reforms but has been a major collapse since 1997- 98.
8. The performance of the Indian corporate escrow in the 1990s has shown mixed
tendencies. Profitability rates export performance as well as export to import ratios
has shown varied trends across industry groups.
Tougher the competition in the business environment increased efficiency became
a must for a corporate enterprise to survive. This implied business reengineering process
to be adopted in an enterprise. This involves a fundamental change that affects multiple
business functions. This required the company to look back and rethink the way it did
business and reshape and re align its strategies business processes technology people and
infrastructure with what the customer needed fundamentals of business changed and
flexibility team work customer focus speed to market quality management became very
important for an enterprise and the realization that being complacent with the status quo
is certainly the fastest way to lose one leadership position.
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According to Khanna (1993 p 144) following emerged to be important in him
changed business environment:
1. Customers perspective is the only perspective
2. Management commitment and involvement
3. Far reaching goals combined with continuous measurement of performance
4. End to end view of processes across all functional and organizational boundaries
5. Cooperationist focus around customer driven business results.
6. The elimination of non value added activities
7. Ownership at all levels of the organization and people empowered with knowledge
tools and authority.
8. Timely dissemination of information and
9. Continuous improvements.
Marketing in Pre - Reforms Era
Despite the fact that the Industrial Policy Resolution (6th April 1948) emphasized a
very important role of cottage and small scale industries in national economy and despite
having realized marketing as a key economic activity marketing in India had faced a
stepchild treatment. This way clearly a fall out of the over regulated economic development
molded pursued. Neelameghan (2000 p. 4) summarized he main ingredients of these models
pursued in the past.
1. Within the overall framework of mixed economy public sector was given the role
and responsibility of occupying commanding heights of the economy.
2. There was active government intervention in fields such s investment and imports
mainly through regulatory and promotional measures such as subsidies concessions
reservations controls licensing permits and tariffs
3. Heavy emphasis on self reliance and high priority to building up heavy and capital
goods industry and.
4. Pursuing import substitution strategy with a view to reacting dependence on foreign
supplies and achieving self sufficiency stage over as wide an area as possible.
It was often perceived that since rural consumes largely comprised of poor, there
was inadequate motivation for (rural) marketing to take shape and for corporate sector

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to tap rural markets. Lets see this situation. Gaikwad (1972) provided a comprehensive
classification of rural consumers, as following six categories:
Category 1: A class of proprietors of land (comprising of old zamindars, malguzars,
money-lenders and traders with hold over land and plantations or mine
owners)
Category 2: A small group of rich farmers (generally belonging to the dominant
caste of the region).
Category 3: A class of small peasants with tiny uneconomic holdings;
Category 4: A class of tenant farmers;
Category 5: A growing class of agricultural labour; and
Category 6: A
 class of ruined artisans and others (Gaikwad, 1972, pp. 160-161, as
quoted by Jha, 1988, p. M-12).

The rural consumers as per category-1 (The landlords) and Category-2 (Rich
Farmers) were few, and were largely inaccessible and less-severed due to several problems
of rural marketing, such as scattered ness of village, poor communication and infrastructure
in rural areas. The remaining others (Category-3 to Category-6) were large chunk out of
rural population, with very less per capita monthly expenditures, were extremely poor
and live most often below subsistence level. Their needs for consumer products are the
bare essentials-food and clothing (Balakrishnan, 1978). Low agro-production, lack of basic
amenities, facilities and infrastructure, poor communication as well as movement links.
Very low purchasing power resulting in low standards of living, and blinkered attitudes of
marketers were the major highlights of the rural markets four decades ago (Vyas, 1997, p.
54). Since the mid-eighties, a silent revolution has occurred in rural India. With successive
years of bumper crops, an indicator of increased purchasing power and accessibility the
most woeful and cost-effective communication media in the form of television, the rural
consumer has begun to play a vital role. Acceptance and adoption of new agronomic
practices selective mechanisation, multiple cropping to include non-food crops, and
growth of dairying have resulted in a substantial increase in the disposable incomes of rural
consumers (Vyas, 1997 p. 54) .
Rural Marketing in Changed Scenario

The rural scene is now undergoing a sea-change, resulting from the multi-pronged
activities undertaken for the overall development of rural areas. There have been significant
improvements in the rural sector in respect of agricultural production, spread of education,
banking facilities, electrification, transportation, communication, etc. All these changes
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have led to the creation of general awareness for achieving a new and better style of living.
With the increased purchasing power accessed to communication and awareness about
modern life styles the rural sector needs a better marketing thrust. The recent economic
policy initiatives of the government have resulted in increased investments in the corporate
sector by domestic as well as overseas investors. The growth of the corporate sector means
increased production and this in turn requires identification and penetration into high
growth potential markets. In this contest rural markets have good prospects for most of the
goods and services of this liberalized economy. It also indicates that the twenty first century
is going to see the full blossoming of the Indian rural market (Chahal and Pal 1997 p 223).
A change came in 1991 when government took a series of bold initiatives to take the
economy away from controls. The programme included for reaching trade fiscal marketing
and industrial policy measures with a major thrust on improvement of competitive
efficiency of Indian industries by utilizing foreign investment and technology to a much
greater degree than in the past. Moreover the new reform measures ended the regime of
licensing and controls and made the industry virtually independent. Significantly the new
policy permitted the free import and export of virtually all products with some exceptions.
Plan Period
1.
2.

3.

Programmes

Years of Induction

Community Development Programme

1952

National Extension Scheme

1955

Khadi and Village Industries

1957

Multipurpose Tribal Development Block

1959

Package Programme and Intensive Agriculture

District

1960

Development Programme

1962

Applied Nutrition Programme

1964

Intensive Agricultural Area Development Programme

1966

HYV Seeds Programme

1966

Farmers Training Education

1966

Well Construction Programme

1967

Rural Works Programme

1968

Tribal Development Block

1969

Rural Manpower Programme

1969

Composite Programme for women and Pre school

1968

Going Children

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4.

Drought Prone Area Programme (DPAP)

1969

Crash Scheme for Rural Employment

1970

Marginal farmers and Agricultural Labourer Scheme

(MFAL)

1971

Small farmers Development Agency (SFDA)

1971

Tribal Are Development Agency (TADA)

1971

Intensive Rural Employment Programme (Pilot)

(IREP)

1972

Minimum Needs Programme (MNP)

5.

6.

7.
8.

1972

Hill Area Development Programme Special livestock

Production Programme (SLPP)

1974

Food for work Programme (FWD)

1975

Desert Development Programme (DDP)

1977

Whole village Development programme (WWDP)

1977

Training of Rural youth for self Employment

(TRYSEM) Integrated Rural Development Programme (IRDP)

1979

Rural landless Employment Guarantee Programme

(RLEGP) National Rural Employment Programme
(NREP)

1981

Development of Women and Children in Rural Areas

(DWCRA) Jawahar Rojgar Yojana (JRY)

1985

Scheme for Rural Artisans (all traditional artisans

living below rashtriya mahila Kosh Credit Fund for
women)

1992

Mahila Samridhi Yojana

1993

Revamped Public Distribution Scheme (PRDS)

1975

1979

1981

1988
1992
1992

Imports of capital goods and raw materials were made more liberal. Introduction of
automatic approvals of foreign technology agreements and foreign investment restructuring
of public sector. Under takings and the thrust on export were other measures announced
by the government with a view to improve the competitiveness of Indian industries and
promotion of exports In short determining the countries future growth and development
for the first time the government came out in favor of outward oriented trade and industrial
policies where export marketing was given prime importance. Under the new policy
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industries could expand modernize diversify and internationalize their operations with
greater freedom (Neelamegham 2000 p 5) This changed economic scenario gave future
stretch out to tap the so far largely untapped rural sector markets.

Economic reforms have enabled GDP to grow at an average annual rate of about
6.4 per cent between 1992 -93k and 1999 - 2000. Consumption too has gone up especially
the consumption of manufactured FMCGs (Fast moving Consumer Goods). For 1997-98
market size of a basket of 20 consumer expendable goods in the household sector is estimated
at ` 801 billion (at current prices). consumption of the same commodities was estimated
to be ` 71 billion in 1992 - 93 showing an average annual growth of 16.7 per cent These
figures also indicate that per household consumption expenditure on the goods considered
has doubled from ` 2387k in 1992- 93 to ` 4736 in 1997- 98 Rural India in particular with
a share of over 55 [per cent in total consumption of FMCGs has also witnessed a growth of
about 14 percent per annum during the same period. This seems to be a fairly good growth
by any standard (Brahmankar and Gupta 2000.)

Indian market is undergoing a significant metamorphosis because of economic
liberalization and globalization. Many players (Both national and global) are trying to
capture the urban market of our country. but this market has already reached a saturation
level and it is extremely difficult to tap the urban market with high profit margin. It is also
not easy to penetrate profitably into the export market because of fierce competition. in
export market a firm has to face challenges from MN Cs (Multinational Companies) other
foreign companies and domestic firms of the concerned export market in this cut throat
competition everybodys market share will shrink as everyone in chasing the same market
(Dey Adhikari 1998 p 1) this realization is forcing companies to go rural.

The 1990s have ushered in far reaching changes that influence the customers profile
and therefore the market Literacy levels have risen (especially female literacy). The average
size of the household is reducing; nuclear families are increasing. This development
has particular significance for durable goods marketers; for instance, instead of a large
refrigerator for a joint family, a household may now need two or three smaller refrigerators.
Also, sizeable youth segment is emerging, with its own income or pocket money, which
marketers need to recognized (Godrej, 1993,. p. 155). Rural India is also in the way of change,
perhaps in an even more significant manner. There has been a boom in those markets,
fuelled by the penetration of media; vast improvement in infrastructure facilities, like
roads, and shops; telecom connectivity, successive good monsoons, and high government
spending. As a result, the rural component is now bigger than the urban in many product
categories (Godrej, 1993). Gone are the days when a rural consumer went to a nearby city
to buy branded products and services. Time was when only a select household consumed

256

branded goods, be it tea or jeans. There were days when big companies flocked to rural
markets to establish their brands. Today, rural markets are critical for every marketer - be
it for a branded shampoo or an automobile (Kannan, 2001). Lifestyles and habits of rural
people are changing. Yesterdays luxuries are becoming todays necessities. There is a boom
of (both domestic and foreign) brands of products.
Government Exercises in the Last Few Decades

The Government of India has designed and implemented several issue-based
programmes aimed at rural development. The developmental activities under the Ministry
of Rural Development cover infrastructure development and reforms in the agricultural
sector, the non-farm sector and the social sector., Within these sectors, issues related to
production., productivity, skills, access to institutional credit, marketing of produce or
services, education, health, social restructuring, empowerment of women and other socially
deprived section, etc. have been the areas of focus for the policies.
1. Changing Rural Infrastructure
Under the Pradhan Mantri Gramodaya Yojana (Prime Ministers Village
Development Programme) (PGGY), announced in the 2001-02 budget, at fund of ` 5,000
crore was earmarked for infrastructural development in village, primarily village roads for
which 50 per cent of the fund was reserved. The remainder was planned for rural housing,
drinking water and sanitation. The Central Government has achieved considerable success
in meeting the drinking water needs of 91 per cent of rural habitations, with an investment
of more than ` 40,000 crore on the rural drinking water supply
Road Connectivity
The Pradhan Mantri Gramin Sadak Yojna (PMGSY) is a 100 per cent Centrallysponsored scheme launched in 2000 to provide connectivity to all unconnected habitations
(around 1.60 lakh) with all-weather roads by the end of the Tenth Plan Period (2007).
Expenditure has been estimated to be ` 60,000 crore. The programme will connect 70 per
cent of our villages by 2007 compared with only 40 per cent villages having road connectivity
till the Ninth Five-Year Plan.
2. Employment Opportunities
With the objective of promoting self-employment among the educated unemployed
rural youth, government programmes such as the Pradhan Mantri Rojgar Yojna (PMRY)

257

and the Integrated Rural Development Project, were developed. These programmes,
implemented at the grass-roots level under the system of Panchayati Raj Institution, aim to
provide skill-based training and link access to bank credit (subsidized).
3. Sampoorna Grameen Rojgar Yojana
The Employment Assurance Scheme and the Jawahar Gram Samridhi Yojana (JGSY)
are two schemes under the programme. The EAS is meant to create additional employment
opportunities during periods of acute shortage of wage employment through manual world
for the rural poor living below the poverty line. The JGSY aims at the creation of needbased rural infrastructure at the village level. Under these programmes, about 3,100 lakh
man days of work were provided in 2002-03 and ` 2,200 crore were disbursed as wages. The
programmes have contributed to alleviating rural poverty.
Salient Features of Sapoorna Grameen Rozgar Yojana (SGRY)

The objective of the Sampoorna Grameen Rozgar Yojana (SGRY) is to ensure food
security and gainful employment and in the process strengthen rural infrastructure. The
salient features of SGRY are:

* The SGRY is a centrally sponsored Scheme (CSS), with a total outlay of ` 10,000
crore.

* Under the scheme, 50 lakh tons of food grains amounting to about ` 4,000 crore (at
economic cost) is being provided every year, free of cost, to the State Governments
and Union Territory Administrations.

* ` 4,000 crore in cash is allocated for wages and material costs.

* About 100 crore man days of employment are envisaged to be generated every year
in the rural areas under the SGRY.

* Every worker seeking employment under the SGRY is provided a minimum 5 kg.
of food grain (in kind) per man day as part of the wages.

* The balance of the wags is paid in cash so that the workers are assured of the
notified minimum wages.

* Panchayati Raj Institutions (PRIs) undertake this scheme as per the felt need of
the area.

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4. Rural Housing
The 1991 Census revealed the presence of 1.4 crore household without shelter or
residing in unserviceable kuccha house. The Central Government announced a National
Housing and Habitat Policy in 1998 aiming to provide Housing for All by facilitating the
construction of 20 lakh additional housing units (13 lakh in rural areas and 7 lakh in urban
areas) annually. With an emphasis on extending benefits to the poor and the deprived, the
Government is committed to ending all shelterlessness by the end of the Tenth Plan period.
By the year 2002-03, a total of 93 lakh houses at an expense of ` 16,000 crore had
been built under the Indira Awaas Yojana (IAY). The ceiling on construction assistance
under the IAY is currently ` 20,000 per unit for plain area and ` 22,000 for hilly/difficult
areas. The ceiling on the upgradation of a kuccha house to a semi-pucca/pucca is ` 10,000.
Under the IAY, the Gram Sabha is empowered to select the beneficiaries. Further, the
allotment of dwelling units should be in the name of the female member of the beneficiary
household. Alternatively, it can be allotted in the name of both husband and wife.
5. Swaranjayanti Gram Swarozgar Yojana
Swarnjayanti Gram Swarozgar Yojana (SGSY), an ongoing programme for the sleemployment of the rural poor, has been in effect since 1999 after the restructuring of the
erstwhile Integrated Rural Development Programme (IRDP) and allied programmes like
Training of Rural Youth for Self Employment (TRYSEM) Development of Women and
Children in Rural Areas (DWCRA), Supply of Toolkits in Rural Areas (SITRA) and Ganga
Kalyan Yojana (GKY), besides the Million Wells Scheme (MWS) With the launching of the
SGSY the earlier programmes are no longer in operation.
Swaranjayanti Gram Swarojgar Yojana (SGSY) - a holistic programme for promoting
self-employment among the rural poor

* Covers all aspects of the self-employment of the rural poor-organization of the

rural poor into Self Help Groups (SHGs), capacity building of the group through
financial assistance, training, selection of key activities, infrastructure build-up,
technology and marketing support.

* Self Help Groups (SHGs) to be a national movement-11.47 lakh Self Help Groups
have already been formed.

* Involvement of NGOs, CBOs Animators for social mobilization, training, and

capacity building of Self Help Groups.

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* 15 per cent of the Central allocation earmarked for the development of infrastructure
and activity clusters.

The programme has been able to provide access to institutional finance to about 1.7
crore women, i.e. 1.7 crore households, across the country. It has enhanced opportunities
for initiating small-scale income-generating activities, thereby increasing household
income and has also contributed to the empowerment of women.
6. District Rural Development Agency
DRDA has been the principal organ over the years at the district level for overseeing
the implementation of various anti-poverty programmes.

The DRDA must emerge as a specialised agency capable of managing the anti-

poverty programmes of the Ministry, on the one hand and effectively relating these to the
overall efforts of poverty eradication in the district.
Each DRDA should have the following wings:
(i)

Self-employment wing

(ii)

Womens wing

(iii)

Wage Employment wing

(iv)

Engineering wing

(v)

Accounts wing

(vi)

Monitoring and Evaluation wing

(vii)

General Administration wing

7. Providing Institutional Finance in Rural India

NABARD has been the primary government institution dedicated to developing
systems and delivering institutional finance in rural for both the farm sector and the nonfarm sector. It refinances the loans extended by grameen banks and cooperative banks
under various government schemes.
Farm Sector

NABARD refinances assistance for financing farm mechanization, i.e. purchase of
tractors, power tillers and also the accessories.

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It also provides agricultural credit through the Kisan Credit Card. As a pioneering
credit delivery innovation, the Kisan Credit Card Scheme aims at the provision of adequate
and timely support from the banking system to the farmers for their cultivation needs,
including the purchase of inputs in a flexible and cost-effective manner.
At the end of the 2003-04 financial year, about 4 crore credit cards had been issued
to farmers with cultivable land and a total of ` 84, 000 crore had been disbursed.
Swarnajayanti Gram Swarozgar Yojana (SGSY)
SGSY, formed by restructuring ongoing self-employment programmes, viz. IRDP,
TRYSEM, DWCRA, etc., is under implementation from 1 April 1999. The programme
envisages the formation of SGSY Groups and their linkage with the banks. Individuals as
well as SGSY groups members below the poverty line are assisted under the programme.
Scheme for setting up of Agriclinic and Agribusiness centres
A scheme for financing agriculture graduates to set up agriclinics and agribusiness
centres was launched in 2001-02 aimed at supplementing the existing Extension Network.
The objective of the scheme is to accelerate the process of technology transfer to agriculture
and supplement the efforts of State agencies in providing inputs and other services to
farmers.
The salient features of scheme are as under:

* The scheme is open to agriculture graduates in subjects allied to agriculture.

* The outer ceiling of the project cost will be ` 10 lakh for individuals and ` 40 lackh
for groups.

* Margin money assistance from NABARDs Soft Loan Assistance Fund up to 50

per cent of the margin prescribed by banks to meet any shortfall in the borrowers
contribution.
The National Bank has prepared Model Project Profiles in respect of a few activities
indicating the estimated cost and income streams. The banks have the freedom to select the
borrowers entrepreneurs and the activity depending on the potential of the area subject to
technical feasibility and the financial viability of the proposals.

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Refinance Scheme for financing Farmers Service Centre (FSC)

NABARD has decided to extend 100 per cent refinance facility to banks for financing
Farmers Service Centres (FSC) set up in collaboration with Mahindra Shubhlabh Services
Ltd. (MSSL) for providing various extension services to farmers, including supply of agriinputs. FSC is intended to benefit farmers by way of higher yields and productivity through
private-sector participation in technology transfer and extension services.
8. Land Reforms
Land reforms aim at redistributing ownership holding from the viewpoint of social
justice and reorganizing operational holdings as a method to optimize land utilization.
The reforms measures were as follows:

* Distribute land among the landless by taking procession of surplus land from large
landholders.

* Provide security to sharecroppers or tenants on tenure and ownership rights by

regulating rent payable by them to landlords.

* Protect the interests of tribals in landownership against encroachment by nontribals.

* Induce improvement in productivity through the consolidation of landholdings.

* Development of public land for the rural poor to give them access to fuel wood and
fodder.

* Make land and other productive assets accessible to women.

* Protect the homestead rights of the rural poor on lands owned by them and provide
them with house sites to enable them to construct their own houses.
Land Ceiling

The land was described as an economic unit and an economic holding was defined
as one that could provide a reasonable standard of living to the cultivator and give full
employment for a family. The land ceiling stated that no individual farmer should own
more than three times the economic holding. Factors like soil fertility, irrigation, methods
of cultivation and the nature of crops were considered when fixing the ceiling. Under this,
4 hactre or 10 acres of the best land and 7.5 acres or 18 acres of average land were fixed as
the ceiling, considering that an annual net income of ` 15,000 would accrue to a family at
1970 prices.

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Budget 2004-05: The Governments Rural Initiatives and the Indicators for Corporates

The 2004-05 budgets is a definite attempt to redress the neglect of the agriculture
and rural sectors in recent years. Though 58 per cent of Indias workforce is engaged
in agriculture, this sector today contributes only 22 per cent of GDP because of the
inadequate availability of agriculture credit, lack of crop diversification from staple wheat
and rice to more profitable cash crops and restrictions on agri marketing. The Finance
Minister hopes to correct this situation by announcing a series of measures, such as the
doubling of agriculture credit in the next three years (RRBs./cooperative banks will be
revamped), increasing the expenditure for rural infrastructure development to ` 8,000
crore in the current years, leveraging the SHG micro finance programme to ensure that
5.7 lakh of the 10.79 bank-linked groups take up micro enterprises and thereby enhance
their incomes (read purchasing power) and increasing budget allocation on accelerated
irrigation programmes to ` 2,800 crore (last year ` 2,00 crore). Simultaneously, the Rural
Infrastructure Development Fund, set up under NABARD in 1994-95 and discontinued
last years, is being revised to give a fillip to infrastructure development in our rural areas.

Although the per capita income in rural is less than half of urban, the rural sector
already accounts for 53 per cent of FMCGs and 59 per cent of durables bought in India.
However, rural penetration and consumption levels for most product categories
are much lower than urban because of limited purchasing power with villagers. Improved
irrigation facilities, infrastructure, and better roads, free trading in agri produce, removal of
excise duty on tractors, agri implements; and the insurance scheme for farmers announced
in the Budget should all give a boost to the rural economy and generate a greater demand
for corporate products. However, to benefit from this new opportunity, urban marketers
will have to gain a better understanding of rural lifestyles, needs and aspirations and design
appropriate products. Corporates will need to extend their distribution reach to service this
new segment living in six lakh old villages, offer smaller packs at lower price points, and
communicate in the local idiom to connect with rural audiences. A rural India marketing
strategy will not work. Corporate will have to not only think local, but also act local.
Summary
Since 1990s onwards Government of India has positively viewed that unless
liberalization and reforms are being undertaken, countrys improvement cannot be made.
At the same time to restrict the immigration from the rural to urban for in search of job
or for livelihood needed attention. Also countrys economic position was dwindling down
and to reduce the external borrowings, Government of India took steps in promoting

263

liberalization and brings in more reforms to upgrade rural lifestyles. Indias population is
dependent on directly and indirectly towards agriculture and related products on a day to
day basis. Since agriculture is our backbone of our economy, initiatives were taken towards
development of rural markets and enabled to reach to farmers directly to support them
with cash and incentives as a motivation. Thereby, arresting them to move from rural to
urban and development of two-tier and three-tier cities emerged as a factor of facilitating
the produce movement.

****

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Lesson 5.5 - New Approaches in Distribution

Learning Objectives
After you have studied this lesson, you will be able to

Identify the problems in distribution

Explore the emerging approaches of distribution

Explain the need for new approaches to address the problems in distribution.
Introduction
The burgeoning rural markets have become a great opportunity for many companies
to expand sales. However, many of them back out as they find distribution as a major
problem. Used to the developed distribution network in the urban markets, they try the
same tricks in rural markets, namely, extensive retailing and sustained pull generation
through mass media advertising.
As a result they fail and place the blame on the less developed infrastructure of the
rural markets. Creative companies like HLL, have been experimenting to find innovative
ways of reaching the rural consumers.
Problems in Rural Distribution
(i) Difficulty in reaching rural consumers
The major problems are:

Lack of adequate transport facilities,

Large distances between villages,

Lack of pucca roads connecting villages to nearest townships,

Lack of proper retail out lets, and

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There are about 576,000 villages in India, 79 per cent of them with a population
less than 1,000. Almost 80 per cent of the villages do not have all-weather roads. Rural
consumers are also far less homogenous than their urban counterparts and differ from
region to region. Therefore, it is not possible to merely extend urban production to rural
markets.
The low density of population and inaccessibility makes the problem of servicing
these villages individually difficult and often uneconomical. Direct delivery of goods to
even the top one per cent of villages costs twice as much as servicing urban markets.
Therefore, in the initial stage, it may be better to concentrate only on the larger
villages, and towns with large agricultural hinterlands that act as foci for distribution. The
semi-wholesalers and retailers servicing smaller villages can obtain stocks from these places
or the villagers themselves can buy the necessary items.
Studies conducted by the Marketing Research Department of Hindustan Level
showed that about 20 per cent of the farmers visit the nearest town at least once a month
to sell their produce and purchase their requirements. In other words, the towns with large
agricultural hinterlands can become the gateways for entry into the rural market.
(ii) Multiple Tiers, Higher Costs and Administrative Problems
In the first place, the rural distribution chain requires a larger number of tiers,
compared to the urban one. The long distances to be covered from the product points and
the scattered locations of the consuming households cause this situation. At the minimum,
the rural distribution chain needs the village-level shopkeeper, the mandi-level distributor
and the wholesaler/stockiest in the town.
And on top of them are the manufacturers own warehouses/branch office operations
at selected centers in the marketing territory. Such multiple tiers and scattered outfits push
up costs and make channel management a major problem. The scope for manufacturers
direct outlets such as show rooms or depots is quite limited in the rural market unlike in
urban areas. Lit become expensive as well as unmanageable.
The dependence of the firm on intermediaries is much greater in rural areas as
direct outlets are ruled out. But controlling such a vast network of intermediaries is a
difficult task. Control is mostly indirect. And because of these factors the firm has to be
more careful while selecting channel members in rural areas.

266

(iii) Non-availability of Dealers

Another problem is the availability of dealers. Many firms find that there are a
limited number of suitable dealers. Even if the firm is willing to start from scratch and try
out rank newcomers, the choice of candidates is really limited.
(iv) Poor Viability of Retail Outlets
Retail sales outlets in the rural market suffer from poor viability. A familiar paradox
in rural distribution is that the manufacturer incurs additional expenses on distribution;
still the retail outlets find that the business is non- remunerative. The scattered nature
of the market and the multiplicity of tiers in the chain use up the additional funds the
manufacturer is prepared to part with. And no additional money comes to any of the
groups. Moreover, the business volume is not enough to sustain the profitability of all the
groups and the retail outlet suffers the most.
(v) Inadequate Bank Facilities
Distribution in rural markets is also handicapped due to lack of adequate banking
and credit facilities. Rural outlets need banking support for three important purposes:

To facilitate remittances to principals and to get fast replenishment of stocks.

To receive supplies through bank (retiring documents with the bank).

To facilitate credit from banks.

As banking facilities are inadequate in rural areas, rural dealers are handicapped
in all these aspects. It is estimated that there is only one bank branch for every fifth village.
(vi) Inadequate Credit Facilities
Inadequacy of institutional/bank credit is another constraint. Rural outlets are
unable to carry adequate stocks due to lack of credit facilities.
They are unable to extend credit to their customers. Thus there is a vicious circle of
lack of credit facilities leading to inadequate stocking and loss of business, finally resulting
in poor viability of outlets.

267

Need for an Intelligent Approach

There are wide regional variations in the prosperity levels of the districts and hence
in their market potential. These need to be analyzed and understood sectorally in order to
determine the methods for approaching them.
A socio-economic survey undertaken in four progressive districts, one from each
part of the countryTanjore, Ludhiana, Burdwan and Kolhapurrevealed a healthy per
capita income growth of 5 per cent per annum among big and small farmer against a nation
average of 1.5 per cent.
This has come about through improved use of land coupled with a reduction in
family size.
Further if one takes a closer look at the characteristic features of rural market, it
will be clear that distribution in fact, is no problem at all. The perceived problem is only a
misconception of the old timers who are not aware of the changing scenario in rural areas
and the potential of the existing selling outlets.
Under the rural road construction programme, the Government plans to link
villages with a population of 1,5000 or above withal-weather roads. Progress in this has
been somewhat tardy. The end of 1985 would link at least 20,000 such villages. If this
project succeeds the entire complexion of the rural market could change.
The New Players
Selling in rural India followed a pattern, till recently. But with the entry of new
players, and the surge in rural demand, the structure and dynamics are altering.
Unofficial Channels
Consider Hero Honda Motors. Its 360 dealers all over the country has reported
the emergence of an unofficial channel of distribution village mechanics, local real
estate agents, shopkeepers who sell non-durables and so on. These people are taking
motor-cycles from the official dealers-usually in twos and threesdisplaying them
outside their premises and closing a sale. The paper work, though, is left to the dealer
to complete.

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Such instances are facilitating as well as forcing companies to review their distribution
set-ups to ensure that they are present even in the smallest villages.
(i)

Cooperative Society

In terms of their coverage of population and their share in total supply of agricultural
inputs, including credit, Cooperatives occupy an important place in Indias rural economy.
India has largest network of cooperatives in the world. Rural scan reports that there are 4398
primary marketing societies and 2933 large agricultural multipurpose primary marketing
services (LAMPS) in the country. Other members are:

District level cooperative marketing societies: 191

State Level cooperative marketing federations: 29

Commodity cooperative marketing federations: 22

Regional cooperative marketing societies: 11

Generally, a cooperative exists for 2 or 3 villages. Farmers service cooperative
(FSCs) is a mini super market. Such an arrangement can be tried with others.
(iii) Public Distribution System (PDS)
The fair price shops run by government can be utilized to sell consumables and low
value durables.
(iv) Petrol Bunks
Petrol bunks have become multi-purpose distribution centers at some places. Such
a concept can be effectively promoted.
(v) Agricultural Input Dealers
Fertilizer companies have retail outlets within a range of 5 km to any village. They
offer a scope for marketers.
(vi) NGOs
Non government organizations (NGOs), can reach interiors of villages. Most
NGOs have programs focusing on sustainable development through providing avenue
for income generation. They command substantial influence in the villages covered by
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them. Companies may join hands with them to mutual benefit. With NGOs undertaking
distribution, companies realize benefits accruing from infrastructure and grass roots
level networking. Also organization security would provide a buffer against delayed retail
collections. From the NGOs standpoint, such association with companies could yield
employment opportunities for local residents.
(vii) Barefoot Salesmen
One useful option is to train sons of-the soil to operate as barefoot salesmen. The
important requirements like fluency in the local dialect and familiarity with persons and
terrain will be the advantage in hire the persons form villages.
A barefoot salesman, operating on a retailer-cum-commission basis, could book
orders from retailers in villages with in a limited radius of his village. When orders are
aggregated and served there will be economies in distribution.
(viii) Syndicated Distribution
A new alternative approach is syndicated distribution. Under this approach,
marketers of household products could group together and consider the formation of
a syndicated trading organization, which could jointly distribute collective group of
household products in the rural market and enjoy shared economies. Distribution Trends
The changes in distribution are not only baffling but also challenging. Table
identifies the changes in various elements of a distribution.
Changes in Distribution
Element of sales From

To

Time

Restricted,
timings

limited Unrestricted, any

time

Place

Own
retail
outlet, Any where
occasionally public place
for example, exhibitions

Choice

Limited to brands

270

Any product-toany specification,

unlimited

Sales

Products

Products
Experiences
Relationships
Achievement

Result

Customer satisfaction

Customer
Participation and
satisfaction.

(Direct-to-Home Selling
Companies are embarking on Direct-to-Home selling (DTH) even in rural area. It
provides one-to-one communication as well as sales without reliance on retailers.
The two forms of DTH are: Network marketing and internet marketing.
(ix) Network Marketing
Network marketing is a form of direct selling. It can take place at two levels.

Single leveldistributor appoints sales persons. He earns profits on sales, made by

him.

Multi-level-distributor introduces another distributor (a friend or relative, in

general), who in turns introduces another distributor. Like that the network is
created.

The network markets products. Each distributor gets profits on his sales and also
a percentage on sales made by his network. Thus one earns by retailing and
recruiting.
In India direct selling is still very nascent, with very few players. Some of them are:
Product Group

Organization

Cosmetics

Aviance, Avon, Biotique, Oriflamme

Kitchen ware

Tupper ware

Home care personal

Aviance, Quantum, Modicare products,

Books

Time-life Books, LB publishers and Distributors

Jewellery

Dianet

Health care

Conybio-Far-Infra Red products

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Amway is the pioneer of direct selling and the largest selling organization in India
and the world. It has a network encompassing 30 lakh independent business owners,
worldwide.
The introduction of network marketing in rural side will be beneficial not only to
the companies but also to the villagers. Already innovative companies like HLL have their
schemes in the pipeline.
(x) Internet Marketing
Also referred to as cyber marketing, it is the latest in the series of innovations in
retailing-catalogue marketing, special interest mail order, telemarketing and television
shopping.
Though it started off in 1960s, it was only in 1993 its potential as a commerce
medium was realized.
By 1998, individual sites among the hundreds of thousands, already in existence,
were measuring hits in the hundreds of millions and marketers were leading in to the
medium because everybody else is there.
Today we have success stores of e-tailors like FAB MART, SUBHIKSHA which have
motivated many companies to set up their websites.
Several corporate enterprises have facilitated rural consumers transacting through
internet facility. Prominent among them are EID parry, ITC and Nagarjuna Fertilizers.
ITC has launched 3 web based in initiatives (e-choupals in company-speak) as
a part of its strategy to vertically integrate its sourcing operations aquachoupal.com in
AP. Soya choupal. Com in MP and planters net. Com in Karnataka. The choupals act as
facilitators for inputs to farmersin the aqua, soya and coffee domains.
Currently in three states ITC has set up 235 internet kiosks which cater to 10,000
farmers and cover over 2,50,000 hectares of land.
The idea is to use this network as a distribution channels for other products. In
fact, a pilot project to sell LPG cylinders using the network is already on.

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Coverage Strategy
The following issues might confront a marketer aiming to extend distribution to rural areas,

Which villages merit direct coverage at all?

What would mode of coverage be?

Direct distribution to village settlements less than specific population or number of
retail outlets would not be viable.
Yet for future payoffs, systematized distribution efforts are imperative to consolidate
brand shares and monitor product movement in a high growth market segment. Marketer
has to evaluate plans to cover the villages by vans and participation in that market.
Differential development of infrastructure, divergent geo-climatic conditions and
variations in location density of village settlements preclude the application of uniform
approach across rural markets.
Pockets of similarity need to be identified and strategies by determined in consonance
with individual pockets. Further refinements would be necessitated by local conditions and
unique improvising.
An example of unique solution to unique condition is the case of brook bond.
Broke bond used mules for distribution of Tata chaap packaged tea to rural consumers
in Gashwal-kumaon.
Electronic Echoupal Applications
ITC is setting up eChoupals across the agricultural belt in India to offer the farmers
of India all the information, products and services they need to enhance farm productivity,
improve farm-gate price realization and cut transaction costs.
Farmers can access latest local and global information on weather, scientific
farming practices as well as market prices at the village itself through this web portal - all
in Hindi. Choupal also facilitates supply of high quality farm inputs as well as purchase of
commodities at their doorstep.

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Digital Transformation
The following have been some of the initiatives of e-choupal

ITC began the silent e-volution of rural India with soya growers in the villages of
Madhya Pradesh. For the first time, the stereotype image of the farmer on his bullock
cart made way for the e-farmer, browsing the e-Choupal website. Farmers now log
on to the site through Internet kiosks in their villages to order high quality agriinputs, get information on best farming practices, prevailing market prices for their
crops at home and abroad and the weather forecast all in the local language. In the
very first full season of e-Choupal operations in Madhya Pradesh, soya farmers sold
nearly 50,000 tons of their produce through the e-Choupal Internet platform, which
has more than doubled since then. The result marks the beginning of a transparent
and cost-effective marketing channel. No doubt, this brought prosperity to the
farmers doorstep.

Farmers grow wheat across several agro-climatic zones, producing grains of varying
grades. Though these grades had the potential to meet diverse consumer preferences,
the benefit never trickled down to the farmers, because all varieties were aggregated
as one average quality in the mandis.

ITCs e-Choupal intervention helped the farmers discover the best price for their
quality at the village itself. The site also provides farmers with specialised knowledge
for customising their produce to the right consumer segments. The new storage and
handling system preserves the identity of different varieties right through the farmgate to dinner-plate supply chain encouraging the farmers to raise their quality
standards and attract higher prices.

ITCs Aqua Care Centre in Kakinada, Andhra Pradesh, has revolutionized the
concept of shrimp seed testing. Its sophisticated laboratory detects the deadly White
Spot virus in the shrimp seed and advises farmers on appropriate remedial action.

E-Choupal.com has become popular among coffee growers as an effective platform

for global trade. Coffee planters in India have for years been tossed between the highs
and lows of the international coffee market. The information needed to manage
risks in the volatile global coffee market, price updates and prevalent trends in coffee
trading were just not available to them. Launch of e-Choupal.com has equipped
Indias coffee planters with appropriate knowledge base and risk management tools.
The site arms them with the latest prices posted on commodity exchanges like
CSCE in New York and LIFFE in London. Planters have access to technical analysis
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by experts to help them comprehend trends, trading ranges and chart patterns in
simple language. Parity Chart and the Calculator on the site convert the coffee
prices quoted in international auctions into raw coffee equivalent for the benefit
of the small growers in India. Tradersnet, a special link on the site, brings together
a large number of coffee planters, traders and roasters, creating a virtual market
for transparent price discovery. ITC empowers Indian coffee growers with expert
knowledge in logistics and risk management, thereby enabling them to face global
competition.

ITC has shown how the rural market can be tapped for mutual benefit of the
customer and the marketer.
Summary
A wide array of problems hinders marketers in approaching rural areas with
confidence. The lack of fair weather roads, widely dispersed villages, low density of
population, lack of bank and credit facilities, multiple tiers, higher costs and administrative
problems, and lack of retailers are the problems in rural distribution.
Intelligent way of approaching rural areas is required. The emerging distribution
approaches include: Cooperative societies, petrol bunks, agricultural input dealers, NGOs,
etc. Latest approaches include the direct to home selling methods: network
Self Assessment Questions
1.

Explain the concept and significance of marketing channels

2.

Discuss the merits and demerits of direct and indirect marketing

3.

Explain the role of technology in direct marketing.

4.

Identify the different players in indirect marketing.

5.

Explain the concept and importance of integrated logistics system.

6.

Discuss the concept and process of supply chain management.

7.

Discuss the application of supply chain in a firm known to you.

8.

What are reforms and how India has considered reforms important?

9.

Mention various measures taken up by Indian Government towards post reform

period.

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10. Discuss different types of schemes being introduced by Indian government for
reforms.
11. How the rural initiatives introduced by government of India benefit the corporate?
12. Rural distribution is not without problems. Highlight some of the problems in
rural distribution.
13. What are the recent approaches to rural distribution?

CASE STUDY
Do We Need Middlemen in Rural Marketing?
A.R. Rao was angry and fed up. He had just delivered a large consignment of packed
broilers to the local buyer and understood that the prices he received did not even cover the
costs of production. His business friend Kumar who was discussing with Rao sympathised
and said I was in the main market an hour ago and prices f broilers are up. There is
something wrong here, Both Rao and Kumar agreed.
The next day Rao and Kumar met a number of other unhappy and grumbling
broiler producers to discuss the problem. In the meeting, one of the members said: it is
the middlemen who create problems and get large business.
They buy low, sell high and pocket our profit. What can we do about it? said
Kumar. One member suggested we need to eliminate the greedy middlemen from the rural
market. We must operate our own marketing facilities and sell direct to customers or end
users. This is the only way we can get 100% of consumers money.
Rao interfered and cautioned It would cost a lot of money. Are we capable of
entering into wholesaling and retailing?
Kumar replied, That is not my cup of tea. I am a chick and broiler producer. Iam
not a market man.
An elderly villager in the meeting said: It sounds risky and complicated. Marketing
has so many if and buts and the area are vast.

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Questions
1. W
 hat advice will you give to Rao, Kumar and their friends in broiler marketing or on
their plan of entering into wholesale and retail business?
2. W
 hat are the pros and cons of the proposal to eliminate middlemen from rural
marketing? Discuss with reference to poultry, eggs, broilers and the meat business.
3. Examine the factors influencing channel design decisions
4. How do you select channel members?

****

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REFERENCES
1. James A. AndeRSON AND JAMES A. NARUS AND (2004), BUSINESS MARKET
MANagement, Pearson Education Asia PVT. LTD, SINGAPORE, 2004
2. RAMKISHEN Y. Rural & Agricultural marketing, JaICO PUBLLISHING HOUSE,
MUMBAI, 2004.
3. Risley, George, Modern Industrial Marketing, Mc Grew Hill, New York, 1970,
4. Rural Marketing, R.V. Badi & N.V.Badi, Himalaya Publishing House, 2004
5. SaLES AND DISTRIBution Management, Text and Cases, Krishna K. Havaldar &
VASANT M. CAVALE, THE MC GRAW-HILL COMPANIES, 2009
6. S Neelamegham, Marketing in India, Vikas public house ltd., Delhi, 2004.

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