UNIT – II

Production Management & Marketing Management:Types of Production; process of

planning, scheduling, Routing, material control; product concept concepts of productivity,
Core concepts of Marketing- Needs, Wants, Demand- Marketing Vs Selling- Products and
Markets- Pricing and its related factors- Channels of Distribution- Promotion-
Advertising- Market Research- Sales Forecasting.

Production

Production Management

According to Buffa “production is the process by which goods and services are created.”

Schematic representation of production system

Input Process Output

Men conversion of raw material finished goods

Machine

Money

Methods

Materials

Types of Production

Production

On the basis of Output On the basis of Flow On the basis of specification

Product Projects Customized

Services Job Shop Standardized

Flow shop

Continuous production
Product: Produced goods which can be seen are called as product. E.g. Consumer goods like
furniture, T.V, radio.

Services: Goods which cannot be seen and only can be felt are called as services. E.g.
Transportation, health, services, education system etc.

Project: It is complex non-routine one time effort limited by time, budget and resources. E.g.
dam constructions, starting new industries, fabricating boilers etc.

Job shop: This is a conversion process in which units of different types follow different
sequences through different shops. E.g. Hospitals, auto repair, machine shop etc

Flow shop: This is a conversion process in which successive units of output undergo the same
sequence of operations. E.g.T.V factory, auto factory.

Customized: A goods produced vary from person to person. E.g. production of shirts.

Standardized: A goods produced remains the same for all. E.g. insurance whole sale services.

Productivity

It is a relationship between output and the input of a business system.

Productivity = output

Input

There are several strategies for improving the productivity which are :

 Increased output for the same input.

 Decreased input for the same output.

 Proportionate increase in output with increase in input.

 Proportionate decrease in input with decrease in output

 Simultaneous increase in output with decrease in input.

Increased output for the same input: In this strategy the output in increased while keeping the
input constant. Let us assume that in a steel plant layout of the existing shops is not proper. By
altering the location of the billet-making section, i.e bringing it more closely produces hot metal
this would give more yields in terms of tons of billet gets produced. So this is an example where
the output is increased without any increase in input.

Decreased input for the same output. In this strategy, the input is decreased to produce the
same output. Let us assume that there exists a substitute of raw material to manufacture a product
which has the required properties and it is available at lower prices. If we identify such material
and use it for manufacturing the product then certainly it will reduce the input cost. The process
of identification does not involve any extra cost. So naturally, the productivity ratio will increase
because of the decreased input by using the cheaper raw material to produce the same input.

Proportionate increase in output with increase in input: consider the example of introducing
a new product into the existing product mix of an organization. The company gas identified a
new product which has a very good market and which can be manufactured with the surplus
facilities of the organization. If the new product is taken for production then the following will
be the result

There will be an increase in the revenue of the organization by way of selling new product hence
we find that proportionate increase in the revenue will be more than a proportionate increase in
the input cost.

Proportionate decrease in input with decrease in output: consider the reverse case of
previous example i.e. dropping an uneconomical product from the existing market. This will
result in the following:

There will be a decrease in the revenue of the organization because of dropping a product from
the existing market. Hence we find that proportionate decrease in input will be more than a
proportionate decrease in output.

Increase in output with decrease in input: let us assume that advanced automated technologies
like robot, automated guided vehicle system are available in the market which can be employed
in the organization of our interest. The outcome of these modern tools can be summarized as
following:

These advanced facilities would help in producing more number of goods because the machine
works faster than a human and it never gets tired. Hence the productivity ratio will increase at a
faster rate.

PROCESS PLANNING:

It is the systematic determination of the goods by which a product is to be manufactured

economically and competitively.

In a nutshell process planning is the preparation of detailed work plan.

Process planning procedure:

 It develops the broad plan of manufacturing a product or a component.

 Information required for Process planning:
 Quality of work to be performed
 Detailed specification of the product
  Availability of equipments, tools, and manpower
 Sequence of operations to be performed
 Standard time for each operation.

Steps involved in process planning:

1. Current production commitments, delivery date, and quality to be produced

2. Selection of materials: right quality, shape and size of raw material
3. Selection of jigs, fixtures and special attachment
4. Selection of cutting tools
5. Selection of inspection gauges
6. Documentation of process.

SCHEDULING

Concept. In brief, scheduling means-when and in what sequence the work will be done. It
involves deciding as to when the work will start and in certain duration of time how much work
will be finished. Scheduling deals with orders and machines, i:e., it determines which order will
be taken up on which machine and in which department by which operator. While doing so, the
aim is to schedule as large amount of work as the plant facilities can conveniently handle by
maintaining a free flow of material along the production line.
Scheduling may be called the time phase of Loading. Loading means the assignment of task or
work load facility whereas scheduling includes in addition, the specification of time and
sequence in which the order/Work will be taken up.
A production schedule is similar to a railway time table and shows which machine is doing what
and when.
Factors Affecting Scheduling.
The following factors affect production scheduling and are considered before establishing the
scheduling plan.
(a) External factors:
1. Customer's demand,
2. Customer's delivery dates, and
3. Stock of goods already lying with the dealers and retailers.
(b) Internal factors:
1. Stock of finished goods with the firm,
2. Time interval to process finished goods from raw material. In other words - how much time
will be required to manufacture each component, subassembly and then assembly (i.e., the final
Product),
3. Availability of equipment and machinery; their total capacity and specifications,
4. Availability of materials; their quantity and specifications,
5. Availability of manpower (number, type and kind of skills),
6. Additional manufacturing facilities if required, and
7. Feasibility of economic production runs.
Scheduling Procedure - and Techniques.(Refer Notes for the diagrams)
Scheduling normally starts with the Master Schedule. Figure 7.18 shows the master
schedule for a foundry shop.
A master schedule resembles central office which possesses information about all the
orders in hand. Master schedule, in Fig. 7.18, is a weekly breakdown of the production
requirements. The total capacity in any week is of 100 hours of work in the foundry shop.
As the orders are received, depending upon their delivery dates (or priorities, if any) they are
marked on the master schedule. When the shop capacity is full for the present week the newly
acquired orders are carried over to the next week and so on. A master schedule is thus updated
continuously; it depicts a running total of the production requirements and shows the work ahead
–yet to be completed. Master schedule is actually the 'basis for all subsequent scheduling
techniques.
Advantages
1. It is simple and easy to understand,
2. It can be kept running (i.e., current),
3. It involves less cost to make it and maintain,
4. It can be maintained by non-technical staff, and
5. A certain percentage of total weekly capacity can be allocated for rush orders.
Disadvantages
1. It provides only overall picture, and
2. It does not give detailed information.
Applications
It finds applications:
1. In big firms, for the purpose of loading the entire plant,
2. In Research and Development organizations, and
3. For the overall planning in foundries, computer centres, repair shops, etc.
Perpetual Scheduling.
Like master scheduling, it is also simple and easy to understand, is kept Current, involves less
cost and can be maintained by clerical staff. But, the information which it provides is very gross
and at the same time it is not clear from the chart -when the work will take place.
Making of perpetual schedule involves two steps ':

(i) Preparation of Load Analysis sheet from the orders in hand.

(ii) The total load against each section is added up and knowing the weekly capacity of a section
(Department), the number of weeks load against each department is calculated and plotted on a
Gantt load chart.
Order Scheduling.
It is a most elaborate technique. Fig. 7.21 shows an order schedule chart.
Time is marked horizontally and the vertical axis shows the particular facility (say a machine),
the information required to generate an order schedule is, regarding the number of parts to be
manufactured, name of the machines, their set-up times, total production time and the date of
completion of the order.
The scheduling is started by placing the last operation at the date of completion and then working
backwards. For example, if order X takes 3 days to complete and it is to be delivered to the
customer on 7th of January, the work will be started on 5th of January.
Order schedule chart has the following advantages and limitations.
Advantages
(1) It is very detailed.
(2) The earliest possible completion dates can be met.
Limitations
(1) It is very costly.
(2) It requires accurate (production) time standards and good communication system.
(3) It is difficult to maintain effectively if there are many active orders.

MANUFACTURING SCHEDULE
A master schedule is too general to permit adequate day-to-day planning by line supervision is
usually unnecessary in a small organisation.
Weekly departmental manufacturing schedules supplement the master schedule and must be
made to reflect immediate factors, some of which are
(1) Tool downtime due to broken and worn tools,
(2) Equipment downtime for repair and maintenance,
(3) Shortages and defects in materials,
(4) Absenteeism and
(5) Cancellations and rush orders.

ROUTING

Meaning:

 Defined as the selection of path, which part of the product will follow while being
transformed from raw materials to finished products.
 Path to be followed by department to department and machine to machine till raw
materials get its final shape.

Routing in industries:

A) Continuous Industry:
 Such industries are almost automatic therefore their routing is simple.
 Raw material enters the plant and automatically moves through different
process till it gets final shape.
 Once the route is decided in the beginning no further control is needed.
B) Assembly Industry:
  Such industries require various components to be assembled at a particular
time.
 The component should reach at the proper time and proper place to avoid
wastage of time and production delay.
 Eg: industries producing cycle, scooter, car, Radio, Typewriter, watch etc

C) Job Order Industry:

 Such industries always handle different products, therefore after receiving
manufacturing orders; the planning department has to prepare detailed
drawing and planning each time.
 The planning can be made after receiving manufacturing order.
MATERIAL MANAGEMENT

Meaning and Scope:

It includes several aspects connected with materials like

 Materials planning and programming
 Store keeping
 Purchasing, Transportation
 Inventory control, Materials handling
 Simplification, Codification and standardization in stores
 Disposal of scrap and surplus

Objectives of material management:

 Maintaining continuous production by ensuring a uniform flow of materials

 Reducing working costs by systematic use of scientific techniques

 Releasing working capital for productive purpose

 Increasing the competitiveness by ensuring right quality at right prices, especially in

foreign market

 Establishing good buyer-seller relations.

 Ensuring low departmental cost and high efficiency.

Function of material management:

 Material planning

 Procurement and purchasing of material

 Receiving and Warehousing

  Storage and store administration

 Inventory control

 Standardization, simplification and value analysis

 Disposal of scrap and surplus

STORES AND MATERIAL CONTROL

Introduction:

Materials and supplies are the most important assets in the majority of business. The success of
business depends to a large extent on the efficient storage and material control.

Materials pilferage, deterioration of material and careless handling of stores leads to reduce
profits.

STORES MANAGEMENT:

 Required material is never out of stock

 No material is available in excess

 Purchasing materials on the basis of economic order quantity

 Protect stores against damage, theft.

 This can be achieved through:

 Proper purchasing practice

 Proper methods of storing materials

 Effective system of physical control materials

 Proper method of keeping store records.

Definition for Market

An actual or nominal place where forces of demand and supply operate, and where buyers and
sellers interact (directly or through intermediaries) to trade goods, services, or contracts or
instruments, for money or barter.
Markets include mechanisms or means for (1) determining price of the traded item, (2)
communicating the price information, (3) facilitating deals and transactions, and (4) effecting
distribution. The market for a particular item is made up of existing and potential customers who
need it and have the ability and willingness to pay for it.

Dr. Philip Kotler defines marketing as “the science and art of exploring, creating, and
delivering value to satisfy the needs of a target market at a profit. Marketing identifies
unfulfilled needs and desires. ... Marketing are activities of a company associated with buying
and selling a product or service. It includes advertising, selling and delivering products to people.

It includes the coordination of four elements called the 4 P's of marketing:

(1)identification, selection and development of a product,
(2)determination of its price,
(3)selection of a distribution channel to reach the customer's place, and
(4)development and implementation of a promotional strategy.

Definition of Marketing

According to American marketing association “it is the process of planning and

executing the conception, pricing, promotion and distribution of ideas, goods and services to
create exchanges that will satisfy individual and organizational objectives”.

Marketing = Market +Consumer Satisfaction

Concepts of marketing

 Production concept :
It says that customers will favor those products which are widely available at low cost.
Hence such firms concentrate on reducing the cost of production and develop wide distribution
net work. Under this concept price and availability are the major influencing factors on the
customers while purchasing a product.

 Product concept :
It suggests that customers will favor those products which offer the best quality or
performance. The managers of such organization focus their energy on improving the quality of
products produced by them.

 Selling concept :

Customers will not buy enough of the products of an organization. The focus on this concept
is to somehow sell what the company manufactures. Hence the company must take an
aggressive selling effort to push its products like heavy advertising, large scale sales promotion,
heavy price discounts and public relations are the tools used by organizations that rely on this
concept.

 Marketing concept:
The marketing concept holds that the key to achieve organizational goals consists in
determining the needs and wants of target markets and delivering the desired satisfactions more
effectively and efficiently than competitors.

CONCEPT OF NEEDS, WANTS AND DEMAND

NEED is the unsatisfactory condition which get arise in human being.
Types of Needs
 Stated needs: The customer expects the particular product.
 Unstated needs: The customer expects to buy the particular brand in the product.
 Delight needs: The customer would like the dealer to include the additional service.
 Secret needs: the customer wants to be seen by friends as a savvy consumer.
WANTS deals with need for a specifying the particular object or event.
DEMAND it deals with the ability and willingness of the person to buy the particular product.
For example: many people want a Mercedes or BMW but only few are willing and able to buy
one.
Types of Demand
 Latent demand: consumer may have a strong need to purchase the product but may not
have the ability to buy it.
 Full demand: Consumers buy the product adequately.
 Over full demand more consumers want the product than supply can meet.
 Negative demand: consumers dislike the product.
 Seasonal demand: consumer buys the product for the particular time period.
 Declining demand: consumer buy less frequently.
 Nonexistent demand: consumers are unaware or uninterested in a product.
PRODUCT

Definition: Alderson defines “a product is a bundle of utilities consisting of various product

features for satisfying the customers.”

Important features of a product:

Tangibility: It should be perceptible by the touch. An item to be called as product should have a
tangibility character touch, seen or feeling, for instance: car shirt, book etc.

Intangible Attributes: The product may be intangible, in the form of services, for instance
banking insurance services; repairing etc. it is an associated feature. For instance: scooter is a
tangible product and when free servicing is offered by the seller, then the product is not only a
tangible item but also an intangible one.

Associated Attributes: Such attributes may be brand, package, warranty etc.For instance,
Hindustan lever’s vanaspathi ghee has a brand name DALDA and with its package it can be
identified by the consumers.

Exchange value: Whether the product is tangible or intangible, it should have exchange value
and must be capable of being exchanged between seller and buyer for mutually agreed price.

Consumer satisfaction: Products should have the ability to offer value satisfaction to the
consumer. The satisfaction may be either real or psychological.

Classifications of products or services:

Goods may also be called as product. They are tangible. They are:

A. CONSUMER‘S GOODS: These types of goods are purchased by ultimate users or

consumers for their personal use. For example: food, biscuits, toys, clothes etc. are purchased by
consumers to satisfy their non-business wants. These goods may be further classifies as:

Convenience goods: Consumers or purchasers get commodities such as bread, drug, soap, sugar,
toothpaste, newspapers, petrol, cool drinks, at minimum effort and at low cost. They are often
required by the consumers. These types of goods are available at places, where consumers need.
The purchase of such goods cannot be postponed because they are daily necessities of life.

Shopping goods: Before marking final selection, the consumers make an enquiry as to the
products .comparative prices, durability, style etc. from different shops. Goods like furniture,
readymade garments etc. are mostly costly than convenience goods.

Speciality goods: Certain products possess special attention to the customers. As such the
consumer may wait or suffer inconveniences to get the desired needs. These types of goods are
of high value and manufactured by reputed firms. For example: cars, diamond.
B. INDUSTRIAL GOODS: Goods are those which are used for further production of goods and
services.

Raw Materials: These are goods that enter physically into the final products. For example:
building stones, raw cotton. Raw jute etc.

Fabricated materials: Materials of this category will enter into the final products but some type
of processing is already undergone .for example: bricks, copper sheets, leather, yarn etc.

Installation: Machines, buildings equipments etc. do not enter into final products and are
durable for a long period. They are essential for production .for example: gas, power installation
etc. they need heavy expenses for installation and sometimes decide the nature, scope and
efficiency of an organization.

Accessories: They are light machines or tolls which are used for the operation of a business. This
is not used for manufacturing a product. For example: typewriters, calculators, accounting
machine etc

C.SERVICES: Services are intangible activities which are offered for sale as such or in
connection with sale of goods. For example: banking, consultation etc.

PRODUCT LIFE CYCLE (PLC)

When a Product is commercialized it enters into the market and competes with the rival products
for making sale and earning profit. Like human beings, products also have a length of life and
they pass through different stages in this life period. These stages are termed as product life cycle
of that product.

Stages of product life cycle

 Introductory stage
 Growth stage
  Maturity stage or saturation stage
 Decline stage

Introduction stage:

 The information on product acceptance, product image and distribution system are
needed.
 The new product means “a product that opens up an entirely new market, replaces an
existing product or significantly broadens the market for an existing product.
 Product is new one, awareness in market is low, cost of marketing is high, and profits are
low.
 In this stage, the product is introduced into market and made available to the customers
with a slow rise in sales
 The profit may be low, because of heavy advertising and sales promotion in order to
stimulate the demand.
Growth stage:

 During the growth stage the products start yielding very good profits but there is a threat
from the competitors who try to enter the market and take the market share
 The product given first satisfaction to the first buyers. Others follow: sales increases
rapidly and product start generates profits.
 This is the stage where competitors appear along with substitute products in large
numbers.
 The success of firms depends upon the efficient manufacturing and distributing system of
the product.
Maturity stage:

 In this stage, the product’s sales reach the highest point but the profits starts declining
slowly thereafter.
 The product reaching its maturity and sales are good. But battle for market share is about
begin.
 At this stage, keen competition increases. Market expenses increase, even after mark-
down price, which enable to face competition.
 Profit is thinned. Additional expenses are involved in product modification and
improvement in the marketing mix to attract the customer and retain the market.
Saturation stage:

 The sales are at peak and further increase is not possible.

 The demand for the product is stable. But battle for market share is about to begin.
 At this stage, a replacement of product is needed, because the sale of the existing product
cannot be increased.
Decline stage:

 When sales start declining buyers go for newer and better product.
 This is because of many reasons technological advances, consumers shifts in taste,
increased competition etc.
  It exhibits a sharp decline in sales of the product.
 The firm has to decide whether to drop the product or continue with it.

Classification of Markets

Markets have been classified, on the basis of different approaches, in various ways. They are
given below.

A. On the Basis of Geographical Area:

1. Family Market: When exchanges are confined within a family or close members of the
family, such a market can be called as family members.

2. Local market: When people –buyers and sellers, belong to a local area or areas, say a town or
village, participate in market it is called local market. The demands are limited. For example,
perishable goods like fruits, fish, vegetables etc…

3. National Market: For a certain type of commodities, a country may be regarded as a market,
through the fast development of industrialization; it is called as national market. At the present
stage, in India, the goods of one corner can reach another corner because of the efficient systems
of communications and transportation facilities.

4. World Market: international market comes up when the buyers and sellers of goods evolve
on world level. That is involvement of buyers and sellers beyond the boundaries of a nation.

B. On the Basis of Commodities /Goods:

Commodity markets are subdivided into:

Produce Exchange Market: One market deals in one commodity only. Generally sellers and
buyers of a particular commodity set up such markets and run them regulated and controlled by
certain rules. Ex: the cotton exchange market of Bombay.

Manufactured Goods Market: such type of markets deals with manufactured goods. Ex:
leather goods, machinery etc.

Bullion market: This type of market deals with the purchase or sale of gold, silver etc. Bullion
markets of Bombay, Calcutta, Kanpur etc, are examples of such markets.

C. On the Basis of Economics:

Perfect market: A market is said to be perfect if it satisfies the following conditions:

 Large number of buyers and sellers

 Prices should be uniform throughout the market
 Buyers and sellers have a perfect knowledge of market
  Goods can be moved from one place to another without restrictions.
Imperfect market: A Market is said to be imperfect when

 Products are similar but not identical

 Prices are not uniform
 There is a lack of communications
 There are restrictions on the movement of goods.

D. On the Basis of Transaction:

Spot Market: In such a market goods are exchanged and the physical delivery of goods takes
place immediately.

Future Market: In such a market contracts are made over the price for future delivery. The
dealing and settlement takes place on different dates.

E. On the basis of regulation:

Regulated market: These are types of markets which are organized, controlled and regulated by
statutory measures. Example: stock exchange of Mumbai, Chennai, Kolkata etc…

Unregulated market: This is free market. There is no control with regard to price, quality;
commission etc. demand and supply determine the price of goods.

F. On the Basis of Time:

Very short period market: Markets which deal in perishable goods like, fruits, milk, vegetables
etc., are for a very short period. There is no change in the supply of goods. Price is determined
on the basis of demand.

Short period market: In certain goods, supply is adjusted to meet the demand. The demand is
greater than supply. Such markets are known as short period.

Long period market: This type of market deals in durable goods.

G. On the Basis of Volume of Business:

Wholesale Market: In wholesale market goods are supplied in bulky quantity to dealers.

Retail Market: In retail market goods are sold in small quantities directly to the users or
consumers. The consumer gets the goods for consumption and not for profit making.

Pricing
Method adopted by a firm to set its selling price. It usually depends on the firm's average costs,
and on the customer's perceived value of the product in comparison to his or her perceived value
of the competing products. Different pricing methods place varying degree of emphasis on
selection, estimation, and evaluation of costs, comparative analysis, and market situation.

Factors affecting price fixation

1. Fair trade laws. Manufacturers make agreement, with dealers who retail their products, on
the price it can be sold to the public.
2. Nationally advertised prices and government restricted prices of different products.
3. Desired customer clientele. Pricing policy depends upon the buying habits of the customers
who buy the products and whether, they (i.e., customers) are price conscious people.
4. Company monopoly. Whether the company has a monopoly or it is in a competitive position.
5. Manufacturer’s suggested prices, depending upon the cost of manufacture and selling the
product.
6. Type of Merchandises, i.e., whether they are novelties or special interest items, etc.
7. Nature of sales. Whether the product sells seasonally, (e.g., refrigerators) or throughout the
year
(e.g., televisions and transistor radios).
8. Price lining is a policy of keeping merchandise in fairly well defined price range, e.g., selling
shoes at Rs. 139.95 Rs. 254.95 and Rs. 371.95, etc.
9, .Whether large volume with low unit profit or relatively small volume with high unit profit is
desired. .
10.. Suitable channels of distribution.
11. Sales promotional strategy.
PRICING PRACTICES

 Administered pricing:
Administered prices are those prices, which are statutorily fixed by the government,
taking into account the cost and the stipulated profit per unit .steel, fertilizer, coal etc are
generally fixed by the Government.

 Dual pricing:
Under this dual pricing system, a producer is required compulsorily to sell a part of his
production to the government or its authorized agency at a substantially low price. The rest of
the product may be sold in the open market at a price fixed by the producer.
 Sugar open market

Ration system

 Discriminatory pricing:

It occurs when company sells a products or services at two or more prices these
variations in price are not proportionate to the cost incurred. There are several forms of
discriminatory pricing:

 Customer segment pricing:

Here different customer groups are charged at different prices for the same product or
services. E.g.: Museums, entertainment, parks charge different admission fee from students and
others.

 Time price differentials:

In these case price may vary within 24 hours period. Example: gold rate.

 Calendar use pricing:

In these case prices may fixed on season basis or time of the usage. Example: in a tourist
place a hotel may charge different prices during season and off season.

 Product form pricing:

Here different versions of the same products are charged differently. For e.g.: liquid soap,
soap bar.

 Geographical pricing:
In this approach the company takes the location of manufacturing and buyers place into
consideration while fixing prices. Cost of transportation is a major component in this pricing
method.

CHANNELS OF DISTRIBUTION

DEFINITION

A set of independent organization involved in the process of making a product or service

available to the final customers for consumption.

Different Types of Channel Level

 Zero Level Channel or Direct marketing

In this case company does not depend upon any channel member to reach the customer. It
directly sells the product to the end consumer. Hence these level is also knows direct
marketing or direct selling. The manufacturer in this case directly interacts with the
 customer. Different method of direct marketing includes door to door selling, mail order,
telephonic order and selling through company owned shops.

Manufactures Customers

 One –level channels or single

When there is a single intermediary in between the producer and the buyer it is known as a
one level channel for eg. A company sells the product through a retailer to the customer.

Manufacturers Retailers Customers

 Two level channels or Double level channel

Here there are two intermediaries between the manufacturers as the customer eg. A
manufacturer sells the product to a wholesaler who sells it again to retailers who in turn
passes the product to the final customers
Manufacturers Wholesalers
Retailers Agents

 Three level channels or Triple Level channel

In these cases the product passes through the hands of three intermediaries before reaching
the final customers.

Manufacturers Agent Wholesalers Retailers Customers

SALES PROMOTION-Introduction

All the activities that go into the development of sales or those that are intended to raise
the demand level for a product very quickly can be grouped under the title Sales Promotion.
Sales promotion includes those marketing activities, other than personal selling, advertising, and
publicity, that stimulate consumer purchasing and dealer effectiveness, such as displays, shows
and exhibitions, demonstrations, and various non-recurrent selling efforts not in the ordinary
routine.
Sales promotion focuses the attention of the customer at the actual point of sales in the
shops with such effectiveness that both the advertiser and the dealer are benefited. The main
purpose is to increase sales.
 Sales promotion plays a critical role in introductory and maturity stages of the product
life cycle and also appears to be especially effective during periods of rapid inflation.
Sales promotion, intended to educate the consumers better and to bring about an increase
in sales is used more extensively in highly competitive businesses.
The whole idea behind sales promotion is to bring the name of product and that of the
manufacturer constantly before wholesalers, retailers and the consumers in order to stimulate
their interest in the product.
TYPES OF SALES PROMOTION

SALES PROMOTION

Consumer Sales Promotion Dealer’s Sales Promotion Sales Man Promotion

Coupons Price off Bonus

Samples Price Deal Meetings &conference

Premium Dealers’ Gift Sales contest

 Mail Premium Sales Contest

 Reusable Premium
 Direct premium

Sweepstakes

Money refund offer

Price off

Consumer Sales Promotion

Samples: Free samples are given to consumers to increase their interest in the product. It is an
effective device when the product is purchased often. Examples: soaps, detergent, tea and
expand.

Coupons: certificated entitling the bearer to a stated saving on the purchase of a specific product
mailed enclosed in other products or attached to them. The coupons are used to

 Introduce new products.

 To sell new and larger size of a product
 To encourage repeated sale.

Premium: Merchandise offered at a relatively low cost or free as an incentive to purchase a

particular product.

Direct Premium: Premium accompanies the product inside or outside the package. Example:
one bowl for good day biscuit.

Free in mail premium: The Company sends these items by mail to consumers who are
requested to send the proof of their purchase.

Reusable Premium: It is a container which can be reused after the product is used. Example:
plastic jar.

Sweepstakes: Consumers submit their names for inclusion in a list of prizes –winning contest.

Price off: It stimulates sales during a slump season. It gives a temporary discount to the
consumer’s i.e. goods are offered at a rate less than the labeled rate.

Money Refund Offer: if the purchaser is not satisfied with the product, a part or all of the
purchaser’s money will be refund. It is stated on the package.

Dealer’s Sales Promotion

Price off: A straight discount off the list price on each case purchased during a stated time
period.
Price deal: Apart from the regular discounts special discounts are also allowed to the dealers for
a specified quantity of purchase.

Dealers Gift: manufacturers give attractive and useful articles to dealers against their orders.
The articles are radio, T.V, clock, watch etc.

Salesman Promotion

Bonus: The manufacturer sets a target of sales for a year. If the sales force sell the students
above the targeted sales bonus is offered to them.

Meetings &conference: The idea behind these is to educate, inspire and reward the salesman.
New selling techniques are described to them and discussed in the conference.

Sales contest: A sales contest aims at inducing the sales force or dealers to increase their sales
over a stated period, with prizes going to those who succeed.

Objectives of sales promotion

 To increase buying response at the consumers level.

 To attract new customers.
 To capture the major market share
 To meet the competition of other firms.
 To create brand image
 To stimulate the demand by popularizing the product.

ADVERTISING
Introduction and Definition
 Advertising can become an established essential of a country's economy. It contributes to
broad Geographic system of distribution; to the volume sales, an essential corollary of
mass production ;and to the pricing of many products within the economic means of the
average man .
 Just as communication is vital to good internal management, so is advertising vital to the
earning of profit.
 Running a business without advertising is just like winking at a beautiful girl in the dark-
you know what you are doing but she does not know it.
 Advertising is generally regarded as a form of communication the purpose of which is to
convey concepts about companies, goods and services by means of words, pictures,
 diagrams, sound, music, color, shapes and symbol on two levels of significance-the
national and the emotional.
 Advertising is any paid form of non-personal presentation and promotion of ideas, goods
or services by an indentified sponsor.
 Advertising may be defined as commercial messages to the public, designed to inform
potential and established consumers and to encourage sales for the advertiser.
 Advertising can stimulate demand and, where necessary, can even create demand where
none exists.
 Advertising arouses public interest, fosters a buying attitude and raises consumer demand
for the products of a company.
Functions and Objectives of Advertising
1. Advertising introduces existing and new company products to the public.
2. Advertising enhances potential buyer's responses to the company and its offerings.
3. Advertising tells that a product which the customers want exists and from where it can be
procured and at what price.
4. Advertising is undertaken to reduce selling costs; because large volume of production will
lead to economies, if, through advertising, it can be supported by mass distribution.
5. Advertising makes a product stand against its competitor products.
6. Advertising
 finds new users
 supports salesmen
 increases profit
 reaches customers who would otherwise be inaccessible to sales staff,
 tells the public, the good qualities of the product, i.e.,why people should purchase only
this brand'
7. Advertising convinces retailers that they should keep the products of that company.
8. Advertising creates a confidence in the minds of buyers regarding quality of those goods or
products.
9. Advertising builds ,up reputation for the company goods and services.
Types of Advertisements

Advertisements

Product Advertising Institutional Advertising

Selective advertising Informative

Comparative advertising Persuasive

Competitive advertising Remainder

Primary demand advertising

Commercial advertising

Product Advertising: The Company tries to sell its product or services through advertising. It
may be referred to as product advertising.

Selective Advertising: The goal of advertisement is to influence demand for a specific product
on the particular period of time.

Comparative Advertising: It stresses on comparative features of two or more specific brands in

terms of product or services.

Competitive Advertising: Advertising may begin to stress subtle differences in brands, with
heavy emphasis on brand name recall.

Primary demand advertising: It is intended to stimulate primary demand for a new product or
product category.

Industrial advertising: It is also termed as business advertising, as the name suggests such
advertising is solely meant for effecting increase in sales. Usually the following forms of
commercial advertising are recognized.
  Trade advertisement: Advertisement relates to trade is trade advertisement.
 Professional advertising: Advertisements undertaken by professional people is
professional advertising.
 Farmers Advertising: advertisements exclusively used for selling farm products such as
fertilizers, insecticides, farm implements etc.

Institutional advertising: where the objective of advertising is to promote the image of a

company or its services it is called institutional advertising.

Informative Advertising: It is designed to inform about the product information to the targeted
customers.

Persuasive Advertising: It is designed to make the customers to buy the products.

Remainder Advertising: It is designed to make the customers to recall the products which is
existing in the market.

MEANING OF MARKET RESEARCH

“The systematic gathering, recording and analyzing of data about problems relating to the
marketing of goods and services”.

Objectives of market research:

 To define the probable market for a particular product

 To assess competitive strength and policies.
 To understand customer acceptance.
 To assess the probable volume of future sales.

Types of market research

Market research: it covers the aspects regarding size and nature of market including export
market, dividing the consumers in terms of their age, sex, income. It may include market trends,
market share, and market potential.

Sales research: it relates to the problem of regional variations in sales, fixing sales territories,
measurement of the effectiveness of a salesman, evaluation and impact of sales methods and
incentives.

Product research: it relates to the analysis of the strength and weakness of the existing product,
product testing problems related to diversification.
Packaging research: to know the impact and its response in the market has become as
independent research field.

Advertising research: it undertakes a study relating to the preparation of the advertisement

copy.

Business economic research : Problems relating to input – output analysis forecasting ,price and
profit analysis and preparation of break even charts are the main fields of this research .\

Process of market research

Define the problem:

In this step the problem is clearly and accurately stated to determine what issues are involved in
the research. What questions to ask and what types of solutions are needed. This is the crucial
step that should not be rushed.

Make a preliminary investigation:

The objective of preliminary investigation is to develop both a sharper definition of the problem
and a set of tentative answers. The tentative answers are developed by examining internal
information and published data and by talking with persons who have some experience with the
problem. Theses answers will be tested by future research.

Plan the research:

At this stage researchers know what facts are needed to resolve the identified problem and what
facts are available. They make plans on how together needed but missing data.

Gather factual information:

Once the basic research plan has been completed, the needed information can be collected by
mail, telephone or personal interviews, by observation or form commercial or government data
sources. The choice depends on the plan and the available sources of information.

Interpret the information:

Facts by themselves do not always provide a sound solution to a marketing problem. They must
be interpreted and analyzed to determine the choices available to management.

Report preparation:

The finals step in marketing research is summarizing the result and making a report. The findings
and recommendations are put in such a manner that the recipient of the report can understand
them clearly enough to use them effectively.
Market information system

It consists of people, equipment and procedures to gather, sort, analyze, evaluate and distribute
needed timely and accurate information to market decision makers.

Market Research Techniques

Some of the techniques used by persons engaged in market research for collecting the
data are as follows:
1. Desk research. The data is collected from the information published by the company
or outside sources, e.g. government agencies, trade associations, etc. Desk research is done on :
(a) Sales analysis, i.e. past sales, fluctuations sales and promotional expenditures, economics of
order size,etc.
(b) Correlation studies, concerned with finding the relationship between two or more variables,
e.g., number of new cars produced and number of car batteries sold.’
(c) Ratios, such as stock-turn (the relationship between sales and stocks), profit per rupee
invested (earnings/capital)etc.
2. Postal Questionnaire carefully prepared questionnaires, consisting of questions -short,
specific and statistical or open minded are posted to a selected sample of respondents for
collecting specific data from them.
3. Telephone interviews Telephone interviews are conducted at a personal level with a
selected sample of people for collecting their views.
4. Personal Interviews Personal interviews are conducted on a simple question and
answer basis. Such interviews give best lt Suits with greater reliability.
5. Observational Method The marketing research personnel silently observe others and
collect the desired information, e.g., ~standing outside or in a wine shop, the brands more
frequently purchased can be found out. 6. Statistical Methods – Statistical methods make use of
large precollected data and logically conclude the market investigations. – Bar chart, histogram,
frequency polygon, frequency distribution curve and the concepts of average, median, and
standard deviation help serve the purpose.
SALES FORECASTING:

Forecasting is essentially the art of anticipating what buyers are likely to do under a given
set of conditions. – The market research conducted by a firm plus the analyses of current sales
experience and trends form the basis for the construction of a sales forecast. – The sales forecast
is a commitment on the part of the-sales department and each of its division’s of the expected
sales likely to be achieved in a given period at stated prices. – Sales forecasting should be very
accurate because production and stock holding plans and the whole train of events following
from these are based on them.
Sales Forecasting Techniques
Forecasting is the formal process of predicting future events that will significantly affect th
functioning of the enterprise. Sales forecasting techniques may be categorized as
follows:

(a) Historic estimate,

(b) Sales force estimate,
(c) Trend line (or Time series analysis) technique,
(d) Market survey,
(e) Delphi method,
(f) Judgmental techniques,
(g) Prior knowledge,
(h) Forecasting by past average,
(i) Forecasting from last period's sales,
(j) Forecasting by Moving average,
(k) Forecasting by Weighted Moving average,
(l) Forecasting by Exponential Smoothing,
(m) Correlation Analysis,
(n) Linear Regression Analysis.
Historic estimate

 This technique makes use of the assumption that what happened in past will happen in
future. example if a concern has sold 5000 blankets in winter last year, it will be able to
sell the sales quantity in winter this year also.
 Historic estimate is useful if the activity is affected by pattern of seasonality.
 It is useful for determining model, size and colour distribution.
 Manager in consultation with other related factory executives formulates the final
estimate of sales.
 This technique is useful when an industry is making a limited number of products (e.g.,
commercial power generating equipment) and there are a few large customers.
Trend line technique
- Trend line technique is employed when there is an appreciable amount of historical
data. - This technique is more reliable than the historic estimate (a) above.
- This technique involves plotting historical data, i.e., a diagram between activity
indicator,e.g., tons of material (say past sales) on Y-axis and time on X-axis
- A single best fitting line (using statistical technique) is drawn and projected to show sales
estimate for future.

- This technique is more accurate as it makes use of a large past data and possesses scientific
validity.
Market Survey, ie: Market Research Technique
 - This technique finds application when a concern introduces a new product in the market
and is interested to estimate its sales forecast. For a new product, naturally, no historic or
past data regarding sales will be available.

- This technique may be very informal, utilizing the sales force to feel out the potential
customer’s inorder to establish the extent of the market or it may be a systematically
conducted survey using special mathematical tools.
Delphi Method
A panel of experts is interrogated by a sequence of questionnaires in which the response
to one questionnaire is used to produce the next questionnaire. Any set of information available
to some experts and not others is thus passed on to the others, enabling all the experts to have
access to all the information for forecasting. The method solicits and collates opinion from
experts to arrive at a reliable consensus.
Judgmental techniques.
They involve 1. Opinions of consumers and customers. Questionnaires related to
buying the product may be sent to selected group of consumers and to the customers who have
already purchased the product. The information thus received can be very useful in estimating
product performance and its probable demand in future. 2. Retail and wholesale dealers can
provide some insight into the pace of current and future sales. 3. The opinion of area sales
managers can also be quite useful.

Prior knowledge

This is used by ancillary units which are more or less a part of the large organisation. The large
organisation informs each ancillary unit how many component parts to make. The forecast
estimate is needed only to establish the material and tool requirements, etc.

Econometric Forecasting –

In econometric forecasting the analyst tries to uncover the cause-and-effect relationship between
sales and some other phenomena that are related to sales. For example, an appliance
manufacturer might discover that the sales of television sets respond to the disposable income of
customers with a I-month lag. That is, 1 month after a change in disposable income, there a
proportionate change in the sales of T.V. sets, this process is called econometric forecasting.
Here, the analyst tries to identify those factors that best explain the level of sales for a product. -
Econometric forecasting utilizes correlation and Regression techniques. The objective is to
establish a cause-and-effect relationship between changes in the sales level of the product and a
set of relevant explanatory variables.