Prnciple of Marketing Edited-1

PRINCIPLES OF MARKETING Temesgen A.
BLUE NILE COLLEGE

DEPARTMENT OF MANAGEMENT
PRINCIPLES OF MARKETING
UNIT ONE
AN OVERVIEW OF MARKETING AND MARKETING MANAGEMENT
Marketing Vs Market
What is marketing?
Many people think of marketing only as selling and advertising. However selling and advertising
is only one of the marketing mix (elements).
Marketing: is a social and managerial process by which individuals and groups obtain what they
need and want through creating, offering, and exchanging value with others.
Marketing means managing markets to bring about profitable customer relationship. It is the
craft of linking the producers (or potential producers) of a product or service with customers,
both existing and potential
 Distinguishing the social and managerial definition
Social Definition: marketing is a social process by which individuals and groups obtain what
they need and want through creating, offering, and exchanging products and services of value
freely with others.
Managerial Definition:marketing is the process of planning and executing the conception,

Pricing, promotion, and distribution ideas, goods and services to create exchanges that satisfy
individual and organizational goals.
What is market: is the set of all actual and potential buyers of a product and service. These
buyers share a particular need or want that can be satisfied through exchange
relationships.“Market includes both place and region in which buyers and sellers are in free
competition with one another” – Pyle.
EDUCATION MAKES A DIFFERENCE Page 1

Marketing management is the practical application of marketing techniques. It is the analysis,

planning, implementation, and control of programs designed to create, build, and maintain
mutually beneficial exchanges with target markets.
The marketing manager has the task of influencing the level, timing, and composition of demand
in way that will achieve organizational objectives.
Marketing management: is the process of planning, implementing and control of marketing

activities.
“Marketing management: is that field of business activity involving the establishment and
execution of the plans of all the phases or steps of a complete sales campaign” (Lewis K.
Johnson.)
“Marketing management: is concerned with the direction of purposeful activities towards the
attainment of marketing goals.” Cundiff& Still)
The Core Marketing Concepts
Customer needs, wants, and demands
Customer Needs – Human needs are the most basic concept underlying marketing. Human
needs are states of felt deprivation. Needs describe basic human requirements.Such asFood,
Shelter, Air, Water, and Cloth.
These needs become wants when they are directed to specific objects that might satisfy
needs.Wants are the form human needs take as they are shaped by culture and individual
personality. For example food is need but it changes Injera (want).
Demands are wants for specific products that are backed by ability and willingness to buy them.
Wants become demand when supported by purchasing power. When backed by buying power,
wants become demands.
 Marketers cannot create needs.

 Needs are exist marketers.
 Marketers influence wants that are shaped by ones society.

Value and Satisfaction
When the customers have so many choices to choose from to satisfy a particular need, how do
they choose from among these many products? They make their buying choices based on their
perceptions of a product’s value. The guiding concept is customer value. A customer will
estimate the capacity of each product to satisfy his need. He/ She might rank the products from
the most need-satisfying to the least need-satisfying. Of course, the ideal product is the one
which gives all the benefits at zero cost, but no such product exists. Still, the customer will value
each existing product according to how close it comes to his/her ideal product and end up
choosing the product that gives the most benefit for the rupee – the greatest value.
Exchange& Transactions
Marketing occurs when people decide to satisfy needs and wants through exchange. Exchange is
the act of obtaining a desired object from someone by offering something in return. Thought it is
only one of the many ways people can obtain a desired object, it allows a society to produce
much more than it would with any alternative system.
For exchange potential to exist, five conditions must be satisfied:
1. There are at least two parties

2. Each party has something that might be of value to the other party
3. Each party is capable of communication and delivery.
4. Each party is free to accept or reject the exchange offer.
5. Each party believes it is appropriate or desirable to deal with the other party.
These conditions simply make exchange possible. Whether the exchange actually takes place
depends on the parties’ coming to an agreement. If they agree, we must conclude that the act of
exchange has left both of them better off or at least not worse off. After all, each was free to
reject or accept the offer. In this sense, exchange creates value just as production creates value. It
gives customers more consumption possibilities.
A transaction is marketing’s unit of measurement. It consists of a trade of values between two

parties. A monetary transaction involves trading goods and services in return for money whereas
a barter transaction involves trading goods and services for other goods and services. Transaction

marketing is part of the larger idea of relationship marketing. Marketing is shifting from trying to
maximize the profit on each individual transaction to maximizing mutually beneficial
relationships with consumers and other parties. This is based on the assumption that if good
relationships are built, profitable transactions will simply follow.
Kinds of Demand
A marketer has to take into consideration different kinds of demand for his/her product before
he/she comes up with a strategy.
1. Negative demand:-customers dislikes the product and may even pay a price to avoid
it.The marketing task is to analyze why the customers dislikes the product and whether a
marketing program consisting of product redesign, lower prices, and more positive
promotion can change the customers beliefs and attitudes these marketing task/ activity is
known as“ conversional marketing”.
2. No Demand:-target consumers may be unaware of or uninterested in the product or
services.The marketing task is known as “stimulational marketing”.
3. Latent Demand:-many consumers may share a strong need that cannot be satisfied by
any existing actual product.The marketing task is called; “developmental marketing”.
4. Declining/ falling Demand:-Every organization, sooner or later, faces declining demand
for one or more of its products. The marketing task is, “remarketing” to reverse the
declining demand through creative remarketing of the product.
5. Irregular Demand:- demand that varies on a seasonal, daily, or even hourly basis,
causing problems of idle or overworked capacity.EgMuseums, Hotels, restaurants,
recreational areas are under visited on weekdays and overcrowded on weekends.
The marketing task, which is called ‘synchromarketing’, is to find ways to alter the
same pattern of demand through flexible pricing, promotion, and other incentives.
MARKETING ORIENTATION AND PHILOSOPHIES
There are five alternative concepts/philosophies under which organizations conduct their
marketing activities: the production, product, and selling, marketing and societal marketing
concepts.

These competing philosophies strongly influence an organization’s marketing processes.
1. The production concept
The production concept holds that consumers will favor products that are available and highly
affordable. Therefore, management should focus on improving production efficiency, low cost
and mostdistribution efficiency.
2. The Product Concept

The product concept holds that consumers will favor those products that offer the most quality,
performance or innovative features. In this concept, the marketers believe that by making
superior products and improving their quality overtime, they create customers by quality.
3. The Selling concept
The selling concept holds that customers, if left alone, will not buy enough of the products of an
organization. The organization must undertake, therefore, an aggressive selling and promotion
effort. Under selling concept, a company uses various selling methods to persuade customers to
buy its products.
4. Themarketingconcept
The marketing concept holds that achieving organizational goals depends on determining the
needs and wants of target markets and delivering the desired satisfactions more effectively and
efficiently than competitors do. Under marketing concept, companies produce what consumers
want, thereby satisfying consumers and making profits.
Many successful and well known companies have adopted the marketing concept. The marketing
concept does not mean that a company should try to give all consumers everything they
want.Marketers must balance creating more value for customers against making profits for the
company.The marketing concept rests on four pillars: target market, customer needs, integrated
marketing, and profitability.

Fig. Difference between selling of marketing concepts
Produce what manufacturer feels appropriate
Selling concept
Seller’s emphasis is only on higher sales volume
Consumption
(By End - user)
Identifying consumer needs
Marketing concept
Developing an appropriate product/service to

attain consumer satisfaction
Accomplish organizational goals through integrated

marketing approach
5. The Societal Marketing Concept

The societal marketing concept holds that the organization should determine the needs, wants
and interests of target markets. It should then deliver the desired satisfactions more effectively
and efficiently than competitors in a way that maintains or improves the consumers and the
society’s well-being.

NEW CONCEPTS OF MARKETING
1. Relationship Concept
Relationship marketing is the process of building long term, trusting, WIN-WIN relationship
with customers, distributions, dealers and suppliers”. Philip Kotlar
Relationship marketing promises and delivers high quality, efficient services and fair prices to
the other party over time. It is accomplished by strengthening, the economic, and technical and
social ties between members of the two organizations or between the marketers and the
individual customer.
2. Mass Marketing
Mass marketing techniques were invented to sell the mass produced goods when the industrial
Revolution took off. Mass produced uniform quality products, offered to large number of buyers,
allowed companies to reap economics of scale.
Flow Chart of Mass Marketing.
Tools of Mass Marketing
PRODUCERS
Large group of
 Mass Advertising customers
 Mass Promotion
 Mass Distribution
MARKETER
3. Niche Marketing
Success in marketing requires specific tactics. Niche marketing is a technique where marketer
plays a specialist role in a particular segment. There are several examples of niche marketing.
 Quality Specialist. The marketer operates at the low or high quality of the product. For
example, HEWLET-PACKARD specializes in the high quality, high priced and the hand-
held calculator market.

 Service Specialist. The marketer can offer the services which are not available from other
firms. Co-operative bank can provide special type of loans to its members.
 Product Line Specialist. The marketer produces only one product line or product. For
example, in the laboratory equipment industry, there are forms that produce only
microcopies.
The firms new to a market are generally wise to use a nicking strategy. In fact, many successful
entrepreneurs owe their beginning s to carrying out a niche that is big enough to be profitable,
but small enough to prevent bigger companies from entering immediately to offer competition.

UNIT TWO
MARKETING ENVIRONMENT
Marketing environment consists of the actors and forces outside marketing that affect
marketing management's ability to develop and maintain successful transactions with its target
customers. The marketing environment offers both opportunities and threats. Companies must
use their marketing research and intelligence systems to watch the changing environment and
must adapt their marketing strategies to environmental trends and developments
The Marketing Environment includes the Internal factors (employees, customers, shareholders,
retailers & distributors, etc.) and the External factors( political, legal, social, technological,
economic) that surround the business and influence its marketing operations.
Some of these factors are controllable while some are uncontrollable and require business
operations to change accordingly. Firms must be well aware of its marketing environment in
which it is operating to overcome the negative impact the environment factors are imposing on
firm’s marketing activities.
The marketing environment can be broadly classified into three parts:
1. Internal Environment:-The Internal Marketing Environment includes all the factors that are
within the organization and affects the overall business operations. These factors include labor,
inventory, company policy, logistics, budget, capital assets, etc.

Which are a part of the organization and affects the marketing decision and its relationship with
the customers. These factors can be controlled by the firm.
2.[1.] Microenvironment:-The Micro Marketing Environment includes all those factors that are
closely associated with the operations of the business and influences its functioning. The
microenvironment factors include customers, employees, suppliers, retailers & distributors,
shareholders, Competitors, Government and General Public. These factors are controllable to
some extent.
These factors are further elaborated:
1. Customers:- Every business revolves around fulfilling the customer’s needs and wants.
Thus, each marketing strategy is customer oriented that focuses on understanding the need of
the customers and offering the best product that fulfills their needs.
2. Employees:-Employees are the main component of a business who contributes significantly
to its success. The quality of employees depends on the training and motivation sessions
given to them. Thus, Training & Development is crucial to impart marketing skills in an
individual.
3. Suppliers:-Suppliers are the persons from whom the material is purchased to make a
finished good and hence are very important for the organization. It is crucial to identify the
suppliers existing in the market and choose the best that fulfills the firm’s requirement.

4. Retailers & Distributors:-The channel partners play an imperative role in determining the
success of marketing operations. Being in direct touch with customers they can give
suggestions about customer’s desires regarding a product and its services.
5. Competitors:-Keeping a close watch on competitors enables a company to design its
marketing strategy according to the trend prevailing in the market.
6. Shareholders:-Shareholders are the owners of the company, and every firm has an objective
of maximizing its shareholder’s wealth. Thus, marketing activities should be undertaken
keeping in mind the returns to shareholders.
7. Government:- The Government departments make several policies viz. Pricing policy, credit
policy, education policy, housing policy, etc. that do have an influence on the marketing
strategies. A company has to keep track on these policies and make the marketing programs
accordingly.
8. Public:-The business has some social responsibility towards the society in which it is
operating. Thus, all the marketing activities should be designed that result in increased
welfare of the society as a whole.
Types of Publics
 Financial Publics:- influence the company's ability to obtain funds. Banks, investment
houses, and stockholders are the major financial publics.
 Media Publics: carry news, features and editorial opinion. They include newspapers,
magazines and radio and television stations.
 Government Publics:- management must take government developments into account.
Marketers must often consult the company's lawyers on issues of product safety, truth in
advertising and other matters.
 Citizen action Publics:-a company's marketing decisions may be questioned by consumer
organizations, environmental groups, monetary groups, and others. Its public relations
department can help it stay in touch with consumer and citizen groups.
 Local Publics:- include neighboring residents and community organizations. Large
companies usually appoint a community relations' officer to deal with the community,
attend meetings answer questions and contribute to worthwhile causes.

 General Publics:- a company needs to be concerned about the general public's attitude
toward its products and activities. The public's image of the company affects its buying.
 Internal Publics:- include workers, manager, volunteers and the board of directors. Large
companies use newsletters and other means to inform and motivate their internal publics.
When employees feel good about their company, this positive attitude spills over to
external publics.
3.[2.] Macro Environment:-The Macro Marketing Environment includes all those factors that
exist outside the organization and cannot be controlled. These factors majorly include Social,
Economic, Technological Forces, Political and Legal Influences. These are also called
as PESTLE framework.
The detailed description of Macro factors is given below:
1. Political & Legal Factors:- With the change in political parties, several changes are seen in
the market in terms of trade, taxes, and duties, codes and practices, market regulations, etc.
So the firm has to comply with all these changes and the violation of which could penalize its
business operations.
2. Economic Factors:-Every business operates in the economy and is affected by the different
phases it is undergoing. In the case of recession, the marketing practices should be different
as what are followed during the inflation period.

3. Social Factors:-since business operates in a society and has some responsibility towards it
must follow the marketing practices that do not harm the sentiments of people. Also, the
companies are required to invest in the welfare of general people by constructing public
conveniences, parks, sponsoring education, etc.
4. Technological Factors: As technology is advancing day by day, the firms have to keep
themselves updated so that customersneeds can be met with more precision. Therefore,
marketing environment plays a crucial role in the operations of a business and must be
reviewed on a regular basis to avoid any difficulty.

UNIT THREE
CONSUMER BEHAVIOUR
What is consumer?
Any individual who purchase goods and services from the market for his or her end-use is called
consumer.
What is consumer behavior?
The buying behavior of final consumers, individuals and households who buy goods and services
for personal consumption.Consumer behavior is a branch of which deals with the various stages
of a consumer goes through before purchasing products and services for his or her end-use.
3.1. Consumer Buying Behavior
Meaning of Consumer Buying Behavior
Consumer buying behavior refers to the buying behavior of final consumer, individuals and
households who buy goods and services for personal consumption. It is all of these final
consumers that make up the consumer market.
Consumers around the world vary extremely in age, income, educational level, and tastes.
Therefore, marketers need to satisfy consumer needs. And in order to do this, they need to
understand the consumers or buyers behavior.
If customers are satisfied:
 They will buy more of a companies’ products
 They advocate or talk favorably about the companies and company's product
 They may advice the company for improvement
 They give little attention to other companies and their goods
 They may buy new products of the company.
Consumers or buyers behavior involves the activities of people engaged when selecting,
purchasing and using products, so as to satisfy the need and desire.
It also involves the study of:
 Who makes up the market?
 Possible reasons for purchasing?
 What kind of buying decisions are made?
 What are the key processes in purchasing?
 What influences the buying decision?

But the central question in marketing is: how do consumers respond to various marketing efforts
the company might use? The company that really understands how consumers will respond to
different product features, prices and advertising appeals has a great advantage over its
competitors.
Fig I. Model of Consumer Behavior
MKTG. AND OTHER BUYER'S BLACK BUYER'S RESPONSE

STIMULI BOX
Buying
Product
Buyer decision
Product Characteristic choice
process
Price Brand choice
Place Dealer choice
Promotion Purchase
timing
Economic
Purchase
Technological
amount
Political
cultural
Marketing stimuli consist of the 4Ps: Product, Price, Place and Promotion. Other stimuli
include major forces and events in the buyer's environment: Political-legal, Socio-Cultural,
Economic and Technological factors. All these inputs enter the buyer's black box, where they
are turned into observable buyer responses: Product choice, Brand choice, Dealer choice,
Purchase timing and Purchase amount.
The marketer wants to understand how the stimuli are changed in to responses inside the
consumer's black box, which has two parts.
 First, the buyer characteristics influence how he/she perceives and reacts to the stimuli.
 Second, the buyer's decision process itself affects the buyer behavior.
3.2 Major Factors Affecting Consumers Buying Behavior
Consumer purchases are influenced strongly by culture, social, personal and psychological
characteristics. For the most part marketers cannot control such factors, but they must take them
into account.

Fig. II. Factors Influencing Consumer Behavior
Cultural
Social
Personal
- Culture - Age and life

- Reference Psychological
- Sub cycle stage
groups - Occupation
culture
- Family - Economic
- Social
- Roles and situation
class
status - Life style - Motivation
- Personality and
Buyer
- Perception
self concept - Learning
- Beliefs and
attitudes
1. Cultural Factors
Cultural factors exert the broadest and deepest influence on consumer behaviour. The marketer
needs to understand the role played by the buyer’s culture, sub culture and social class.
 Culture: -the set of basic values, perceptions, wants and behaviours learned by a member
of society from family and other important institutions.
 Sub-culture:-a group of people with shared value systems based on common life
experience and situations.
 Social class: - relativelypermanent and ordered division in a society whose members
share similar values, interests and behaviours.
2. Social Factors
A consumer’s behaviour is also influenced by social factors, such as consumer’s small group,
family, and social roles and status. Because these social factors can strongly affect consumer’s
responses, companies must take them account when designing their marketing strategies.
 Group
 Membershipgroup: - groups that have a direct influence on a person’s behavior and to
which a person belongs.
 Reference groups: - groups that have direct (face-to face) or indirect influence on the
person’s attitudes or behavior.
 Aspirationalgroup: - a groupto which an individual wishes to belong.

 Family
Family members can strongly influence buyer behavior. We can distinguish two families in the
buyer’s life
 Social roles and status
A person belongs to many group- family, clubs, organizations etc. The person’s position in each
group can be defined in terms of both role and status. A role consists of the activities that people
are expected to perform according to the persons around them.
Each role carries a status reflecting the general esteem give to it by society. People often choose
products that show their status in society.
3. Personal Factors
A buyer’s decisions are also influenced by personal characteristics such as the buyer’s age and
life-cycle stage, occupation, economic situation, lifestyle, and personality and self-concept.
 Age and life-cycle stage
People change the goods and services they buy over their lifetimes. Tastes in food, clothes,
furniture and recreation are often age related.
 Occupation
A person’s occupation affects the goods and services bought. Blue-collar workers tend to buy
more work clothes.Whereas office workers tends buy more smart clothes. Marketers try to
indentify the occupational groups that have an above- average interest in their products and
services.
 Economic circumstances
A person’s economic situation will affect consumer’s product choice. Marketers income-
sensitive goods and services closely watch trends in personal income, saving and interest rates.
 Lifestyle
People coming from the same culture, sub-culture, social and occupation may have quite
different Lifestyles. Lifestyle is a person’s pattern of living as expressed in his or her activities,
interests and opinions. Lifestyle captures something more than the person’s social class or
personality.
The technique of measuring lifestyles is known as psychographics.

4. Psychological Factors
A person’s buying choices are further influenced by four important (major) psychological
factors: motivation, perception, learning and beliefs and attitudes.
 Motivation
A person has many needs at any given time. Some are biological, arising from states of tension
such as hunger, thirst, or discomfort. Others are psychological arising from the need for
recognition, esteem or belonging. Most of these needs will not be strong enough to motivate the
person to act at a given point in time. A need become a motive when it is aroused to a sufficient
level of intensity. A motive or drive is a need that is sufficiently pressing to direct the person to
seek satisfaction.
 Perception
A motivated person is ready to act. How the person acts is influenced by his or her perception of
the situation. Two people with the same motivation and in the same situation may act quite
differently because they perceive the situation differently.
 Learning
When people act, they learn. Learning describes changes in an individual’s behaviour arising
from experience.
 Beliefs and attitudes
Through doing and learning, people acquire their beliefs and attitudes. These, in turn, influence
their consumers buying behavior. A belief is descriptive thought that has about something. An
attitude describes a person’s relatively consistent, feelings and tendencies towards an object or
idea
3.3 Consumer buying decision process
Need Information Evaluation of Purchase Post

Recognition Search Alternatives Decision Purchase
Behavoour
 Need recognition
The buying process starts with need recognition, the buyer recognizing a problem or need. The
buyer Senses a difference between his or her actual sate and some desired sate.

 Information search
The stage of the buyer decision process in which the consumer is aroused to search for more
information; the consumer may simply have heightened attention or may go into active
information search.
 Consumer can obtain information from any of several sources:
 Personal sources:- family, friends, neighbors, acquaintances.
 Commercial sources:- advertising, sales people, the internet, packaging, displays.
 Public sources:- mass media, consumer-rating organizations.
 Experiential sources:- handling, examining, uses the product.
 Evaluations of alternatives
The stage of the buyer decision process in which the consumer uses information to evaluate
alternative brands in the choice set.
 Purchase decision
Purchase decision is the stage of the buyer decision process in which the consumer actually buys
the product.
 Past purchase behavior
Post purchase behavior is the stage of the buyer decision process in which consumers take
further action after purchase based on their satisfaction or dissatisfaction.
 The business market
The business-to-business market is huge:- Most businesses just sell to other businesses, and sales
to business far outstrip those to consumers. The reason for this is the number of times that part of
a consumer product are bought, processed and sold before reaching the final consumers.
 Characteristics of business markets
In some ways, business markets are similar to consumer markets. Both involve people who
assume buying roles and make purchase decisions to satisfy needs. However, business markets
do differ. The main differences are in market structure and demand, the nature of the buying unit
and the types of decision and the decision process involved.
Organizational buyers: are business firms and nonprofit establishments that buy goods and
services and then resell them, with or without reprocessing, to other organizations or ultimate
consumers.

Organizational buyers are those who buy goods and services for the purpose of further
production, resale and redistribution. The organizational buyer buys goods and services for the
purpose of increasing sales, cutting costs and supplying their products to the customers at the
lowest costs consistent with quality.
Organizational consumers include profit and non-profit businesses, governmental agencies and
institutions (schools, hospitals etc.)
 Types of Buying Decision Behavior
There are four types of consumer buying behavior based on the degree of buyer involvement and
the degree of differences among brands.
 Complex Buying Behavior: Consumers undertake complex buying behavior when they
are highly involved in a purchase and perceive significant brand differences. Consumers
may be involved when the product is expensive, risky, purchase infrequently, and highly
self-expressive (e.g. Car). Typically the consumer has to learn about the product
 Dissonance-reducing Buying Behavior: It occurs when consumers are highly involved
with an expensive, infrequent, or risky purchase, but see little difference among brands.
For example a consumer buying carpeting may face a high-involvement decision because
carpeting is expensive and self-expressive. Yet buyers may consider most carpet brands
in a given price range to be the same. In this case, because perceived brand differences
are not large, buyers may shop around to learn what is available, but buy relatively
quickly. They may respond primarily to a good price or purchase convenience.
 Habitual Buying Behavior: It occurs under conditions of low involvement and little
significant brand difference. For example, take Salt. Consumers have little involvement
in this product category- they simply go the store and reach a brand. Consumers appear
to have low involvement with most low cost, frequently purchased products.
 Variety-seeking Buying Behavior: Consumers undertake variety-seeking buying
behavior in situations characterized by low consumer involvement, but significant
perceived brand differences. In such cases, brand switching occurs for the sake of variety
rather than because of dissatisfaction.

 Buying situations
The organizational buyer faces many problems in buying a product or service. The buying centre
is a decision making unit of a buying organization. The organizational buyer makes decisions
that vary with the buying situation.
Mainly there are three types of buying situations:-
(i) Straight Rebuy: the buying situation in which the purchasing department reorders on a
routing basis (eg. Office Supplies, bulk chemicals)
(ii) Modified Rebuy: a situation in which the buyer wants to modify product specifications,
prices, delivery requirements, or other terms.
(iii) New task: is a buying situation in which a purchaser buyers a product or service for the first
time (e.g. office building, new security system etc.)
 Participant in organizational buying process
i) Initiators: Those who request that some thing be purchased.
ii) Users: Those who will use the product or service.
iii) Influencers: People who influence the buying decision.
iv) Deciders: People who decide on product requirements and/or on suppliers.
v) Approvers:People who authorize the proposed actions of deciders or buyers.
vi)Buyers: People who have formal authority to select the supplier and arrange the purchase
terms.
vii) Gate Keepers: People who have the power to prevent sellers or information from reaching
members of the buying centre.
 Buying process
1. Need Recognition
2. General need Description
3. Product Specifications
4. Supplier search
5. Proposal solicitation
6. Supplier selection
7. Order-routine specifications
8. Performance Review

 Organizational buying behavior

Organizational buying behavior is the decision-making process that organizations use to
establish the need for products and services and identify, evaluate, and choose among alternative
brands and suppliers. Some key characteristics of organizational buying behavior are
1. Market Characteristics
 Demand for industrial products and services I derived
 Few customers typically exist, and their purchase orders are large.
2. Product or Service Characteristics
 Products or services are technical in nature and purchased on the basis of specifications.
 There is a predominance of raw and semi finished goods purchased
 Heavy emphases is placed on delivery time, technical assistance, post sale services, and
financing assistance.
3. Buying process characteristics
 Technically qualified and professional buyers exist and follow established purchasing
policies and procedures.
 Buying objectives and criteria are typically spelled out, as are procedures for evaluating
sellers and products.
 Multiple buying influences exist, and multiple parties participate in purchase decisions.
 Reciprocal arrangements exist, and negotiation buyers and sellers is common place.
4. Other marketing mix characteristics
 Direct selling to organizational buyers is the rule, and physical distribution is very
important.
 Advertising and other form of promotion are technical in nature
 Price is often negotiated, evaluated as part of broader seller and product qualities,
typically in elastic owing to derived demand, and frequently affected by trade and quality
discounts.

UNIT FOUR
MARKET SEGMENTATION, TARGETING AND POSITIONING
Markets consist of buyers, and different in one or more ways. They may different in their wants,
resources, locations, buying attitudes and buying practices.
4.1. Market segmentation
Dividing a market into distinct groups of buyers with different needs, characteristics or
behaviour, who might require separate products or marketing mixes. The whole market has to be
subdivided to develop an understanding of its dimensions. This process of sub dividing market is
referred to as market segmentation
Thus, in market segmentation, consumers are grouped in terms of market dimensions and then
the firms attempt to match the needs of different consumer groups, through compatible
marketing inputs encompassing product, price, promotion, and distribution. It serves as a logical
vehicle of implementing the modern marketing concept.
"Market segmentation is the sub-dividing of market into homogenous sub-sections of customers,

where any subsection may conceivably be selected as a market target to be reached with distinct
marketing mix"
 Importance of Market Segmentation
The importance of market segmentation lies in a better understanding of the consumer needs and
behavior so that marketer can plan accordingly in brief, market segmentation helps:
i) Understand potential customers,
ii) pay proper attention to particular areas,
iii) Formulate marketing programs,
iv) Select channels of distribution,
v) Understand competition,
vi) Use marketing resources efficiently,
vii) Accurate measurement of goals and performance
viii) Advertise the products and launch sales promotion programs
ix) Design marketing mix-product, price, place, and promotion.

 Basis for Segmenting consumer markets

There is no single way to segment a market. A market has to try different segmentation variables,
alone and in combination, to find the best way to view the market structure.
Markets may be segmented on the basis of Geographic, demographic, psychographics and buyer
behaviour variables.
 Geographic segmentation:
Dividing a market in to different geographical units such asnations, states, cities, counties,
regions and countries. A marketer may decide to operate in one or more than one geographical
areas. The regional distribution of population is important to marketers because people within a
given region generally tend to share the same value, attitude and style preference.
 Demographic segmentation:
In demographic segmentation, a marketer divides the market on the basis of demographic factors
like age, sex, income levels, occupation, family size, material status, consumption levels caste
level, religion and language. For example, cosmetic manufacturers and food manufacturers
particularly keep in mind the age-categories.
 Psychographic segmentation:
Dividing a market in to different groups based on social class lifestyle or personality
characteristics. They engage in psychographics segmentation, which involves examining
attributes related to how a person thinks, feels, and behaves. It is dividing a market into different
groups based on social class, lifestyle or personality characteristics. Using personality
dimensions, life-style characteristics, and values, marketers are able to develop richer and
more complete descriptions of segments.
 Behavioural segmentation:
Behavioral segmentation divides buyers into groups based on their knowledge, attitudes, uses, or
responses to a product. Many marketers believe that behaviour variables are the best starting
point for building market segments.
 Occasion segmentation:
Dividing the market into groups’ according to occasions when buyers get the idea to buy,
actually make their purchase, or use the purchased items. Occasion segmentation can help firms
build up product usage. For example, orange juice more often is consumed at breakfast, but
orange growers have promoted drinking orange juice as cool and refreshing drink a to their times
of the day. Kodak uses occasion segmentation in designing and marketing its single-use cameras.

 Benefit Sought
A powerful form of segmentation is to group buyers according to the different benefits that they
seek from the product.
Benefit Segmentation requires finding the major benefits people look for in the product class, the
kinds of people who look for each benefit, and the major brands that deliver each benefit. One of
the best example of benefit segmentation was conducted in the tooth paste market. Research
found four benefit segments: Economic, medical, cosmetic, and taste.
 User status
Markets can be segmented into groups of nonusers, excusers, potential users, first time users, and
regular users of a product. Potential users and regular users may require different kinds of
marketing appeals. For example, one study found that blood donors are low in self-esteem, low
risk takers, and more highly concerned about their health; non donors then to be the opposite on
all three dimensions.
 Usage Rate
Markets can also be segmented into light, medium, and heavy user groups. Heavy users are often
small percentage of the market, but account for high percentage the market, but account for high
percentage of total buying.
 Loyalty status.
A market can be segmented by consumer-loyalty patterns. Consumers can have varying degrees
of loyalty to brands, stores (Sellers), and other entities. Suppose there are five brands: A, B, C,
D, and E.
Buyers can be divided into five groups according to their brand-loyalty status:
 Hard-core loyal: Consumers who buy one brand all the time. Thus a buying pattern of A,
A, A, A, A, A might represent a consumer with undivided loyalty to brand A.
 Split loyal: Consumers who are loyal to two or three brands. The buying pattern A, A, B,
B, A, B represents a consumer with a divided loyalty between A and B. This group of
people is rapidly increasing. More people now buy from a small set of acceptable brands
that are equivalent in their minds.
 Shifting loyal:Consumers who shift from favoring one brand to another. The buying
pattern A, A, A, B, B, B would suggest a consumer who has shifted brand loyalty from A
to B.

 Switchers:Consumers who show no loyalty to any brand. The buying pattern A, C, E,

B, D, B would suggest a non-loyal consumer who is either deal prone (buys the brand
sold on discount) or variety prone (wants something different each time).
 One caution: What appear to be brand-loyal purchase patterns may reflect habit,
indifference, a low price, a high switching cost, or the non-availability of other brands.
Thus a company must carefully interpret what is behind the observed purchase patterns. It
must determine whether users are loyal, switchers, or emergent, and it must craft its
marketing campaigns accordingly.
 Buyer-Readiness Stage
A market consists of people in different stages of readiness to buy a product. Some are unaware
of the product, some are aware, some are informed, some are interested, some desire the product,
and some intend to buy.
 Attitude
Five attitude groups can be found in a market: enthusiastic, positive, indifferent, negative, and
hostile.
 Requirements for Effective Segmentation
To be useful, market segments must have the following characteristics:
 Measurability: The size, purchasing power, and profiles of the segments can be
measured. Certain segmentation variables are difficult to measure.
For example, there are 24 million left-handed people in U.S, almost equaling the entire
population of Canada yet few products are targeted to wards this left handed segment.
The major problem may be that the segment is hard to measure. There are no data on
demographics of lefties, and the census Bureau does not keep track of left-handedness in
its survey.
 Accessibility The market segments can be effectively reached and served. Suppose a
perfume company finds that heavy users of its brand are single women who stay out late
and socialize a lot. Unless this group lives or shops at certain places and is exposed to
certain media, its members will be difficult to reach.
 SubstantialityThe market segments are large or profitable enough to serve. A segment
should be the largest possible homogenous group worth pursuing with a tailored

marketing program. It would not pay, for example, for an automobile manufacturer to
develop cars for person whose height is less than four feet.
 ActionabilityEffective programs can be designed for attracting and serving the segments.
For examples although one small airline identified seven market segments, its staff was
too small to develop separate marketing programs for each segment.
 Differentiable: The segments are conceptually distinguishable and respond differently to
different marketing-mix elements and programs. If married and unmarried women
respond similarly to a sale on perfume, they do not constitute separate segments.
 SEGMENTATION PROCESS
 Analyzing the needs of customers
 Analyzing the Characteristics of consumers
 Disaggregate the consumers into suitable segments
 Formulate different marketing mix for different segments
 Feed back of various segments
 Select the higher potential segment
 Evaluating market segments
In evaluating different market segments a firm must look at three factors
a. Segment size and growth
b. Segment structural attractiveness, and
c. Company objectives and resources.
The company must first collect and analyze data on current segment sales, growth rates, and
expected profitability for various segments. It will be interested in segments that have the right
size and growth characteristics. However, the ‘right size and growth’ is a relative mater.
The company also needs to examine major structural factors that affect long run segment
attractiveness. For example a segment is less attractive if it already contains many strong and
aggressive competitors. The existence of many actual or potential substitute products may limit
prices and profits that can be earned in a segment. The relative power of buyers also affects the
segment attractiveness. Finally, a segment may be less attractive if it contains powerful suppliers
who can control prices or reduce the quality and quantity of ordered goods and services.

Even if a segment has the right size and growth and is structurally attractive, the company must
consider its own objectives and resources some attractive segments can be dismissed quickly
because they do not mesh with the company’s long run objectives. Or the company may lack the
skills and resources needed to succeed in an attractive segment. The company should enter only
segments in which it can offer superior value and gain advantages over competitors.
4.2. Market targeting
Market targeting is the process of evaluating each market segment’s attractiveness and selecting one or
more segments to enter. Market targeting is the act of evaluating and comparing the identified groups
and then selecting one or more of them as the prospects with the highest potential.
 There are three basic market targeting strategies:
Undifferentiated Marketing, concentrated marketing and differentiated marketing. These
strategies can be used only after evaluating the market segments concerned.
1. Undifferentiated Marketing
Using an undifferentiated marketing strategy, a firm might decide to ignore market segment
differences and go after the whole market with one offer. The offer will focus on what is
common in needs of consumers rather than on what is different. The company designs a product
and a marketing program that appeal to the largest number of buyers. It relies on mass
distribution and mass advertising, and it aims to give the product a superior image in people
minds.
2. Differentiated Marketing:
Using differentiated marketing strategy, a firm decides to target several market segments and
designs separate offers for each. General Motors tries to produce a car for every "purse, purpose,
and personality" Nike offers athletic shoes for a dozen or more different sports, from running,
fencing, and aerobics to bicycling and base ball. By offering product and marketing variations,
these companies hope for higher sales and a stronger position within each market segment. They
hope that stronger position in several segments will strengthen consumers' overall identification
of the company with the product category. They also hope for more loyal purchasing, because
the firm's offer better matches each segment's desires.
3. Concentrated marketing:
This is a market-coverage strategy in which a firm goes after a large share of one or a few
submarkets.Through concentrated marketing, the firm achieves a strong market position in the

segments (or riches) it serves because of its greater knowledge of the segments' needs and the
special reputation it acquires. It also enjoys many operating economies because of specialization
in production, distribution, and promotion. If the segment is will chosen, the firm can earn a high
rate of return on its investment.
 Factors to be Considered in Choosing a Target Market Strategy
Companies need to consider many factors when choosing a target marketing strategy:
 Company resources.
 Product variability.
 The product’s life-cycle stage
 Market variability
 Competitors’ marketing strategies
4.3. Product positioning
Market positioning is arranging for a product to occupy a clear, distinctive and desirable place
relative to competing products in the minds of target consumers. In marketing, positioning is the
technique in which marketers try to create an image or identity for a product, brand, or company.
It is the 'place' a product occupies in a given market as perceived by the target market.
Positioning is something that is done in the minds of the target market. A product's position is
how potential buyers see the product. In other words, it is the act of designing the company’s
offering and image so that they occupy a meaningful and distinct competitive position in the
target customer’s mind. Positioning is expressed relative to the position of competitors.
 Essential Conditions for Positioning Strategy

For the strategy of product positioning to succeed, the following conditions are essential, namely,
1) There should be competition warranting positioning
2) The market segment to be served should be sizable and profitable
3) The market segment should be able to effectively receive communication messages
transmitted by the company.
4) Sufficient data about consumer behavior should be available;
5) Creative product proposition.
Re-positioning involves changing the identity of a product, relative to the identity of competing
products, in the collective minds of the target market.

The ability to spot a positioning opportunity is a sure test of a persons' marketing ability.
Successful positioning strategies are usually rooted in a product's sustainable competitive
advantage.
The most common bases for constructing a product positioning strategy are:
 Developing a positioning strategy
Companies use several tactics to differentiate their products and brands. Even in the case of
commodity products, the company must see its task as that of converting undifferentiated
product into a differentiated offering. But all brand differences are meaningful or worthwhile.
Not every difference is a differentiator. Each difference has the potential to create company costs
as well as customer benefits. Therefore the company must carefully select the way in which it
will distinguish itself from competitors.
A difference is worth establishing to the extent that it satisfies the following criteria.
1. Important- The difference delivers a highly valued benefit to a sufficient number of
buyers.
2. Distinctive- The difference either is not offered by others or is offered in a more
distinctive way by the company.
3. Superior -The
-The difference is superior to other ways of obtaining the same benefits.
4. Communicable - The difference is communicable and visible to buyers.
5. Preemptive - The difference cannot be easily copied by competitors.
6. Affordable - The buyers can afford to pay for the difference
7. Profitable - The Company will find it profitable to introduce the difference
Each firm will want to promote those few differences that will appeal most strongly to its target
markets. In other words, the firm will want to develop a focused positioning strategy.
 Different positioning strategies
Attribute Positioning - This occurs when a company positions itself on an attributes or specific
product features such as size, number of years in existence and so forth.
Benefit Positioning -Here
- the product is positioned, as the leader in a certain benefit or
solutions.
Use/Application positioning - This involves positioning the product as best for some use or
application. I.e. AutoCAD software can best be positioned as suitable to Architectural drawings.

User Positioning;-This
Positioning;-This involves positioning the product as best for some uses group. I.e.
AutoCAD software to Architects.
Competitor Positioning;-Here
Positioning;-Here the product positions itself as better in some way that a named or
implied competitor.
Product category Positioning;-Here
Positioning;-Here the product positioned as the leader in a certain product
category.
Quality/price positioning;-
positioning;-Here
Here the product positioned as offering the best value i.e., high
quality / high price, or lowest price.
 Generally, the product positioning process involves:
1. Identifying competing products
2. Identifying the attributes (also called dimensions) that define the product 'space'
3. Collecting information from a sample of customers about their perceptions of each
product on the relevant attributes
4. Determine each products' share of mind
5. Determine each products' current location in the product space
6. Determine the target market's preferred combination of attributes (referred to as an ideal
vector)
7. Examine the fit between:
 the positions of competing products
 the position of your product
 the position of the ideal vector
8. Select optimum position
 Six steps in market segmentation, targeting and positioning
Market Segmentation Market Targeting Market Positioning
1. Identify bases for 1.Develop measures of 1.Develop positioning for

segmenting the market segment attractiveness each target segments
2. Develop profiles of 2. Select the target 2.Develop marketing mix for

resulting segments segments each target segments

UNIT FIVE
PRODUCT MANAGEMENT
5.1. Meaning of Product
A product is anything that can be offered to a market for attention, acquisition, use or consumption
that might satisfy a need orwant. It includes physical objects, services, persons, places, organizations
and ideas. (Philip Kotlar).
Product is a bundle of utilities consisting of various product features and accompanying services. The
bundle of utilities is composed of those physical and psychological attributes that the buyer receives
when he buys the product and which the seller provides by selling a particular combination of product
features and associated services
 Product Concept/Levels of Product
To plan a successful product strategy, mangers must know what their product is. A product is
like an onion. It has several skins, or layers each of which contributes to the total product image.
Installatio Augmented
n Product
Packing Actual Product

Feature
Brand Core
Deliver benefit After
name
y and or Design sale
credit service service
Quality
level
Warranty
Core Product

Product planners need to think about the product on three levels. The most basic level is the core
product, which addresses the question: what the buyer really buying? As the figure illustrates,
the core product stands at the centre of the total product. It consists of problem solving services
or core benefits that consumers seek when they buy a product.
The product planner must next build anactual product around the core product. Actual products
may have as many as five characteristics: a quality level, features design, a brand name, and
packaging.
Finally, the product planner must build an augmented product around the core and actual
products by offering additional consumer services and benefits.
 Product classification
Marketers have traditionally classified products on the basis of three characteristics: durability,
tangibility and use. The following figure shows the product classification:
Product Classification
(1) Durability and Tangibility (2) Consumer goods (3) Industrial goods
(a) Non-durable goods (1) Convenience goods (a) Materials and parts
(b) Durable goods (2) Shopping goods (b) Capital items
(c) Services (3) Specialty goods (c) Supplies and
(4) Unsought goods business services
(1) Durability and Tangibility
 Non-durable goods
Non-durable goods are tangible goods normally consumed in one or a few uses. For example,
soap, salt and biscuits.since these goods are consumed quickly and purchased frequently, the
appropriate strategy is to make them available in many locations.
 Durable goods
Durable goods are tangible goods that can normally be used for many years. For example, color
TV., refrigerators, washing machines and vacuum cleaners Durable products normally require
more personal selling and service, command a higher margin, an require more seller guarantees.

 Services
Services are intangible, inseparable, variable and perishable products. For example, airline and
banking services.
(2) Consumer goods classification
Consumer products are those bought by final consumers for final consumption. Marketers
usually classify these goods further based on how consumers go about buying them. Consumer
products include convenience products, shopping products, specialty products and unsought
products.
 Convenience: these are goods that the customer usually purchases frequently,
immediately and with a minimum of effort. Examples include soaps and newspapers.
 Convenience goods can be further classified into three categories.
i) Staple goods: consumer purchases on regular basis
ii) Impulse goods: consumer purchases without any planning or search effort.
iii) Emergency goods: consumer purchases on urgent need.
 Shopping goods: These are goods that the customer, in the process of selection and
purchase characteristically compares on such bases as suitability, quality, price and style.
Examples are furniture, clothing, used cars and major household appliances. etc.
 Specialty goods: These are goods with unique characteristics or brand identification for
which a sufficient number of buyers are willing to make a special purchasing effort. For
example, cars, high-priced home entertainment system and photo graphic equipment,
luxury goods, designer clothes.
 Unsought goods: These are goods the consumer does not know about or does not
normally think of buying. The classic examples of known but unsought goods are life
insurance.
3, Industrial products
Industrial products are those bought for further processing or for use in conducting a business
There are three groups of industrial products: materials and parts, capital items and supplies and
services.
 Materials and parts:- industrial that enter the manufacture’s product completely, include farm
products (wheat, cotton, livestock, fruits, and vegetables) and natural products (fish, timber,

crude petroleum, and iron ore), manufactured materials and parts include components
materials.
 Capital items:- industrial goods that partly enter the finished product, including installation
and accessory equipment. Example are installations consist of buildings (factories, offices) and
fixed equipment (generators, drill presses, large computer systems, lifts), accessory equipment
include portable factory equipment and tools (hand tools, life trucks) and office equipment (fax
machines, computers, desks).
 Supplies and business services:- industrial products that do not enter the finished product all.
Examples include operating supplies (libricats, coal, computer paper, pencils) and repair and
maintenance items (paint,nails,brooms), business services include maintenance and repair
services (window cleaning, computer repair) and business advisory services include (legal,
management consulting, advertising).
5.2. New products
 New products development process
Step 1: new product strategy:a new product strategy statement formalizing management’s reasons or
rationale behind the firm’s search for innovation opportunities, the product/market and technology to
focus upon, and the goals and objectives to be achieved.
Step2: Idea generating: is the systematic search for new- product ideas.
Step3: Idea screening: screening new-product ideas in order to spot good ideas and drop poor ones as
soon as possible.
Step 4: concept development and testing
 Concept development
1. Product idea:an idea a possible product that company can seeitself offering to the market.
2. Product concept: a detailed version of the new product idea stated in meaningful consumer
terms.
3. Product idea: the way consumers perceive an actual or potential product.
 Concept testing
Testing new product concepts with a group of target consumers to find out where the concepts have
strong consumer appeal.
Step 5: Marketing strategy development:the marketing logic by which the business unit hopes to
achieve its marketing objectives.

Step 6: Business analysis: a review of the sales, costs and profit projections for a new product to find
out whether these factors satisfy the company’s objectives.
Step 7: Product development:- development the product concept into a physical product in order to
ensure that the product idea can be turned into a worktable product.
Step 8: Test marketing: The stage of new product development where the product and marketing
program are tested in more realistic market settings.
Step 9: commercialization:introducing new product into the market.
 Product life cycle
Product life cycle is the course of a product’s sales and profits over its lifetime. It involves five distinct
stages: product development, introduction, growth, maturity and decline.
 Product development stage
Product development begins when the company finds and developments a new-product idea, during
product development, sales are zero and company’s investment costs mount.
 Introduction stage
The product life cycle stage when the new product is first distributed and made available for purchase.
 Growth stage
The product life cycle stage at which a product’s sales start climbing quickly.
 Maturity stage
Maturity is the stage in product life cycle sales growth slows or levels off.
 Decline stage
Decline is the product life cycle stage at which a product’s sales decline.
5.3. product mix decisions
Product mix (product assortment) is the set of all product line and items that a particular seller offers
for sale to buyers.jewellery, fashions and household items, Each product line may consist of sub line.
For example, cosmetic break down into lipstick, powder, nail varnish, eye-shadowns and so on. Each
line and sub line may have many individual items. For example, eye-shadows and so on. Each line and
sub line may have many individual items. For example, eye-shadows contain a string of items, ranging
from different colures to alternative application modes (example, pencile, rool-on, powder).
5.4 . Product branding, packaging and labeling
Branding: is a name, term, sign, symbol or design, or a combination of these, intended to identify the
goods or services of one seller or group of sellers and to differentiate them from those of competitors.

Packaging: is the activities of designing and producing the container or wrapper for a product.
Labeling: is a key feature of most products. They help to market the product. Allow customers to
tell it apart from the competition and give important message including ingredients, instructions
and uses.

UNIT SIX
PRICING PRODUCTS
6.1. Meaning of pricing
The amount of money charged for a product or service, or the sum of the values that consumers
exchange for the benefits of having or using the product or service.
6.2. Factors affecting pricing decisions
 Internal factors
Internal factors affecting pricing include the company’s making objectives, marketing mix strategy,
Cost and organizations.
Marketing objectives: a firm that has clearly defined its objectives will find it easier to set price.
Examples of common objectives are survival, current profit maximization, market- share
maximization and product- quality leadership.
Marketing- mix strategy: price decisions must be coordinated with product design, distribution and
promotion decisions to form a consistent and effective marketing program. Decisions. Decisions made
for other marketing- mix variables may affect pricing decisions. For example, producers using many
resellers that are expected to support and promote their products may have to build larger reseller
margins in to their prices.
Costs: costs set the floor for the price that the company can charge for its product. The company wants
to charge a prince that both cover all its costs for producing distributing and selling the product, and
delivers a fair rate of return for its effort and risk.
Organizational considerations: management must decide who within the organization should set
prices. Companies handle pricing in a verity of ways. In small companies are often set by top
management rather than by the marketing or sales department. In large companies, pricing is typically
handled by divisional or product line manager. In industrial markets, sales people may be allowed to
negotiate with customers when certain price ranges.
 External factors
Pricing decisions are affected by external factors such as the nature of the market and demand,
competition and other environmental elements.
The market and demand: both consumers and industrial buyers balance the price of a product or
service against the be befits of owning it. Thus, before setting prices, the marketer must understand the
relationship between price and demand for its product.

Competitor’s costs, price and offers: other external factors affecting the company’s pricing decision
is cost and prices, and possible competitors’ reactions to the company’s own pricing moves.
Other external factors: When setting prices, the company must also consider other factors in its
external environment. Economic conditions can have a strong impact on the firm’s pricing strategies.
The government is another important external influence on pricing decision. Finally, social concerns
may have be taken into account.
5.3. Pricing strategies
 New- product pricing strategies
Market skimming pricing: setting a high price for a new product to skim maximum revenues layer
by layer from the segments willing to pay the high price, the company makes fewer but more
profitable sales.
Market- penetration pricing: setting a lower price for a new product in order to attract larger
numbers of buyers and a large market share.
 Product-mix pricing strategies
Product line pricing: setting the price steps between various products in a product line based on cost
differences between the products, customer evaluations of different features, and competitors’ piece
Optional- product pricing: the pricing of optional or accessory products along with a main product.
Captive product pricing: setting a price for products that must be used along with a main product,
such as blades for a razor and film for a camera.
By product pricing: setting a price for by-products in order to make the main product’s price more
competitive. By- products are items produced as a result of the main factory process, such as waste
and reject items.
Product- bundle pricing: combining several products and offering the bundle at a reduced price.

UNIT SEVEN
DISTRIBUTION CHANNEL
7.1. Meaning & importance of Distribution Channel
A distribution channel consists of the set of people and firms involved in the transfer of title to a
product as the product moves form producer to ultimate consumer or business user.
A channel of distribution always includes both the producer and the final customer for the
product in its present form as well as any middlemen such as retailers and wholesalers.
The channel for a product extends only to the last person or organization that buys it without
making any significant change in its form. When its form is altered and another product
emerges, a new channel is started. i.e. when lumber is milled and then made into furniture, two
separate channels are involved. The channel for the lumber might be lumber mill-broker-
furniture manufacturer. The channel for the furnished furniture might be furniture manufacturer -
retail furniture -store-consumer.
Beside producer, middlemen, and final customer, other institutions aid the distribution process.
Among these intermediaries are banks, insurance companies, storage firms, and transportation
companies. However, because they do not take title to the products and are not actively involved
in purchase or sales activities, these intermediaries are not formally included in the distribution
channel.
7.2. Major Channels of Distribution Decisions

Diverse distribution channels exist today. The most common channels for consumer goods,
business goods, and services are described as follows:
1. Consumer Goods
Five channels are widely used in marketing tangible products to ultimate consumers:
a) Producer -------->Consumer
The shortest, simplest distribution channel for consumer goods involves no middlemen. The
producer may sell from door to door or by mail.
b) Producer --------> retailer -------> consumer
Many large retailers buy directly from manufacturers and agricultural producers.
c) Producer --------> wholesaler --------> retailer------> consumer

If there is a traditional channel for consumer goods, this is it. Small retailers and
manufacturers by the thousands find this channel the only economically feasible choice.
d) Producer --------> agent --------> retailer --------> consumer
Instead of wholesalers many producers prefer to use agent middlemen to reach the retail
market, especially large-scale retailers.
e) Producer---->agent---->wholesaler---->retailer---->consumer
To reach small retailers, producer often use agent middlemen, who in turn call on wholesalers
that sill to large retail chains and/or small retail stores.
2. Business Goods
A variety of channels are available to reach organizations that incorporate the products into their
manufacturing process or use them in their operations. In the distribution of business goods, the
term industrial distributor and merchant wholesaler are synonymous. The four common
channels for business goods are: -
a) Producer--------> user
This direct channel accounts for a greater dollar volume of business products than any other
distribution structure. Manufactures of large installations, such as airplanes, generators, and
heating plants, sell directly to users.
b) Producer--------> industrial distributor--------> user
Producers of operating supplies and small accessory equipment frequently use industrial
distributors to reach their markets. Manufacturers of building materials and air conditioning
equipment are two examples of firms that make heavy use of industrial distributors.
c) Producer--------> agent--------> user
Firms without their own sales departments find this a desirable channel. Also, a company that
wants to introduce a new product or enter a new market may prefer to use agents rather than its
own sales force.
d) Producer ------->agent-------> industrial distributor------->user
This channel is similar to the preceding one. It is used when, for some reason, it is not feasible
to sell through agents directly to the business user. The unit sale may be too small for direct
selling. Or decentralized inventory may be needed to supply users rapidly; in which case the
storage services of industrial distributors are required.

3. Services
The intangible nature of services creates special distribution requirements. There are only two
common channels for services:
a) Producer--------> consumer
Because a service is intangible, the production process and/or sales activity often require
personal contact between producer and consumer. Thus a direct channel is used. Direct
distribution is typical for many professional services, such as health care and legal advice, and
personal services, such as hair cutting and weight-loss counseling. However, other services,
including travel, insurance, and entertainment, may also rely on direct distribution.
b) Producer--------> agent--------> consumer
While direct distribution often is necessary for a service to be performed, producer consumer
contact may not be required for distribution activities. Agents frequently assist a services
producer with transfer of ownership (the sales task) or related tasks. Many services notably
travel, lodging; advertising media, entertainment, and insurance are sold through agents.
7.3. Factors Affecting marketing Channel decisions
1) Factors relating to product Characteristics:
Product manufactured by a company itself is governing factor in the selection of the channel
distribution product characteristics are as follows:
a) Industrial/Consumer product:
When the product being manufacture and sold is industrial in nature, direct channel of distribution is
useful because of the relatively small number of customers, need for personal attestation, salesman1s
technical qualifications and after- sale servicing etc. However, in case of a consumer product indirect
channel of distribution, such as wholesalers, retailers, is most suitable.
b) Perishability
Perishable goods, such as, vegetables, milk, butter bakery products, fruits, sea foods etc. require direct
selling as they must reach the consumers as easily as possible after production because of the dangers
associated with delays in repeated handling.
c) Unit Value:
When the value of a product is high, it is usually economical to choose direct channel of distribution
such as company`s own sales force than middlemen. On the contrary, if the unit value is low and the

amount involved in each transaction is generally small, it is desirable to choose indirect channel of
distribution, i.e. through middlemen.
d) Style Obsolescence:
When there is high degree of sty obsolescence in products like fashion garments, it is desirable to sell
direct to retailers who specialize in fashion goods.
e) Standardized products:
When the products are standardized, each unit is similar in shape, size, weight, colour and quality etc.
It is useful to choose indirect channel of distribution. On the contrary, if the product is not
standardized and is product on order, it is desirable to have direct of distribution.
f) Purchase frequency:
Products that are frequently purchased need direct channel of distribution so as to reduce the cost and
burden of distribution of such products.
g) Newness and Market acceptance:
For new product with high degree of market acceptance, usually there is need for an aggressive selling
effort. Hence indirect channels may be used by appointing wholesalers and retailers as sole agents.
This may ensure channel loyalty and aggressive selling by intermediaries.
h) Seasonally:
When the product is subject to seasonal variations, such as woolen textiles in India, it is desirable to
appoint sole selling agents who undertake the sale of production by booking orders from retailers and
direct mills to dispatch as soon as they are ready for sale as per the order.
i) product Breadth:
When the company is manufacturing a large number of product items, it has greater ability to deal
directly with customers because the breadth of the product line enhances its ability to clinch the sale.
2) Factors relating to company characteristics፡
The choice of channel of distribution is also influenced by company`s own characteristics as to its
size, financial position, reputation, past channel experience, current marketing polices and product mix
etc. in this connection, some of the main factors are as follows:
i)Financial Strength:
A company which is financially sound may engage itself in direct setting. On the contrary, a company
which is financially weak has to depend on intermediaries and, therefore, has to select indirect channel
of distribution, such as Wholesalers, retailers, with strong financial background.

ii) Marketing policies:

The polices relevant to channel decision may relate to delivery, advertising, after-sale service and
pricing, etc. For example, a company which likes to have a policy of speedy delivery of goods to
ultimate consumers may refer direct selling and thus avid intermediaries and will adopt a speedy
transportation system.
iii) Size of the Company:
A large-sized company handling a wide range of products would prefer to have a direct channel for
selling its products. One the contrary, a small-sized company would prefer indirect sallied by
appending wholesalers, retailers etc.
Iv) Past Channel Experience:
Past Channel experience of the company also influences the with its past good experience of working
with certain kinds of intermediaries will like to opet for the same channel. However, different will be
the case in reverse situation.
V) Reputation:
It is said that reputation travels faster than man. It is true in the case of companies also who wish to
select channel of distribution. It case of companies with outstanding reputation like Tata Steel, Bajaj
Scooters, Hindustan levers etc indirect channel of distribution (wholesalers, retailers, etc) is more
desirable and profitable.
3) Factors relating to market or consumer Characteristics:
Market or consumers characteristics refer to buying habits, location of market, size of orders, etc.
They influence the channel choice significantly. They are:
I) Consumer Buying habits:
If the consumer expects credit facilities or desires personal services of the salesman or desires to make
all purchases at one place, the channel of distribution may be shorter long depending on the capacity
of the company for providing these facilities. If the manufacture can afford those facilities, the channel
will be shorter, otherwise longer.
ii) Location of the market;
When the customers are spread over a wide geographical area, the long channel of distribution is most
suitable. On the contrary, if the customers are concentrated and localized, direct selling would be
beneficial.
iii) Number of Customers:

If the number of customers is quite large, the channel of distribution may be indirect and long such as
wholesalers, retailers, etc. One the contrary, if the number of customers is small or limited, direct
selling may be beneficial.
iv) Size of Orders:
Where customers purchase the product in large quantities, direct selling may be preferred. On the
contrary, where customers purchase the product in small quantities frequently and regularly, such as
cigarettes, matches, etc, long (wholesalers, retailers, etc) of distribution may be preferred as cigarettes,
matches, etc., long (wholesalers, retailers, etc.)of distribution may be preferred.
4) Factors relating to Middlemen Considerations:
The choice of the channel of distribution is also influenced by the middlemen considerations.
They may include the following:
i) Sales volume potential:
In selecting channel of distribution, the company should consider the capability of the middlemen to
ensure a targeted sales volume. The sales volume potential of the channel may be estimated through
market surveys.
ii) Availability of Middlemen:
The company should make efforts to select aggressively oriented middlemen. In case they are not
available, it is desirable to wait for some time and then to pick up. In such cases, the company should
manage its own channel so long the right types of middlemen are not available.
iii) Middlemen`s Attitude:
If the company follows the resale the resale price maintenance policy, the choice is limited. On the
contrary, If the company allows the middlemen to a dopt their own price policy, the choice is quite
wide Quite a large number of middlemen would be interested in selling company`s products.
iv) Services provide by Middlemen:
If the nature of product requires after-sale services, repair services, etc., such as automobiles, cars,
scooters etc, only those middlemen should be appointed who can provide such services, otherwise the
company will adopt direct selling channel.
v) Cost of Channel:
Direct selling generally is costlier and thus distribution arranged through middlemen is more
economical.

5) Factors Relating to Environmental Characteristics:

The environmental factors which include competitors` channels, economic conditions, legal
restrictions, fiscal structure etc as given below, affect significantly the channel choice.
i) Economic conditions:
When economic conditions are bright such as inflation, it is desirable to ope for indirect channel of
distribution because there is an all- round mood of expectancy; market tendencies are bullish and
favorable. On the contrary, if the market is depressed (such as deflation), shorter channel may be
preferred.
ii) Legal Restrictions:
The legislative and other restrictions imposed by the state are extremely formidable and give final
shape to the channel choice. For example, in India M.R.TP. Act, 1969 prevents channel arrangements
that tend to substantially lessen competition, create monopoly and otherwise prejudice to public
interest. With these objectives at the backdrop, it prevents exclusive distributorship, territorial resale
price maintenance etc.
iii) Competitors` Channel:
This also influences the channel choice decision. Mostly, in practice, similar types of channels of
distribution used by the competitors are referred.
iv) Fiscal Structure:
Fiscal stricture of a country influences the channel choice decision. For example, in India, State Sales
tax rates vary from state to state and form a significant part of the ultimate price payable by a
consumer. As a result, it becomes an important factor in evolving channel arrangements.
Difference in the sales tax rates in two different rates would not only bring about difference in the
price payable by a consumer but also in the distribution channel selected. Hence the company should
appoint the channel in that stale where the sales tax rates are quite low, such as in Delhi, and that
would give price advantage to the buyer’s of those states where the sales tax rates are high.

UNIT EIGHT
PROMOTION
7.1. Meaning of promotion
Promotion is the marketing used to describe all marketing communication activities and includes
personal selling, sales promotion, public relations, direct marketing, trade and exhibitions, advertising
and sponsorship.
7.2. The promotion mix elements
The promotion mix is the specific mix of advertising, personal selling, sales promotion and public
relation that a company uses to pursue its advertising and marketing objectives.
7.2.1. Advertising
Any paid form of non-personal presentation and promotion of ideas, goods or services by an
identified sponsor.
7.2.1.1. Important decisions in advertising
Marketing management must make four important decisions when developing and advertising
program. These are setting advertising objectives, setting the advertising budget, developing strategy
and evaluating advertising campaigns.
Setting advertising objectives
Advertising objectives are a specific communication takes to be accomplished with a specific target
audience during a specific period of time. These objectives should be based on decision about the
target market, positioning and marketing mix, which define the job that advertising must achieve in the
total marketing program.
Setting the advertising budget
After determining its advertising objectives, the company next sets its advertising budget for each
product.
By- product pricing:- setting a price for by- products in order to make the main product’s price more
competitive. By-products are items product as result of the main factory process, such as waste and
reject items.
Developing advertising strategy
Advertising strategy cover two major elements: creating the advertising messages and selecting the
advertising media.

Evaluating advertising
The advertising program should regularly evaluate both the communication impact and the sales effect
of advertising. Measuring the communication effects of advertising or copy testing tells whether the
advertising is communicating well.
7.2.2. personal selling: is personal presentation by the firm’s sales force for the purpose of making
sales and building customer relationships.
7.2.2.1. The nature of personal selling
Selling is one of the oldest professions in the world. The people who do the selling go by many names:
sales people, sales representatives, account executives, sale consultants, sales engineers, filed
representatives, agents, district managers and marketing representatives to name a few.
7.2.2.2. the personal selling process
Step 1: prospecting and qualifying
The step in the selling process in which the sales person identifies qualified potential customers.
Step 1: pre- approach
The step in the selling process in which the salesperson identified qualified potential customers.
Step two: per-approach
The step in the selling process in which the salesperson learns as possible about a perosective
customer before making a sales call.
Step there: approach
The steps in the selling process in which the salesperson meets and greets the buyer to get the
relationship off to a good start.
Step four: peresentation
The step in the selling process in which the salesperson tells the product story to the buyers showing
how the product will make or save money for the buyer.
Step five :handing objections

In handing objections the sale person should use a positive approach, seek out hidden objections, ask
the buyers to clarify any objections, take objections as opportunities to provide more information
and turn the objections in the reasons for buying.
Step six: closing
After handing the prospect’s objections, the salesperson now tries to close the sale. Some sal people
do not get around to closing or do not handle it well. Sales people should know how to spot closing
signals for the buyer, including physical actions, comments and questions.
Step seven: follow-up
Follow up is necessary if the salesperson wants to ensure customer satisfaction and repeat business.
Right after closing, the salesperson should complete any details on delivery time, purchase terms
and other matters.
7.2.3. Sales promotion
Sales promotion is short-term incentive to encourage purchase or sales of a product or service. Sales
promotion includes consumer promotion, trade promotion, business promotion and sales force
promotion.
Consumer promotion:- sales promotion designed to stimulate consumer purchasing including

samples, coupons, rebates, price- off premiums, patronage rewards, displays, and contests and
sweepstakes.
Trade promotion:- sales promotion dersigned to gain reseller support and to imporove reseller
selling efforts including discounts, allowances, free goods, cooperative advertsing ,push mony, and
convettion and trade shows.
Business promotion: Sales promotion designed to gebrate business leads, stimulate purchase,
rewaedbusinss customers and motivate the sales force.
Sales force promotion:-Sales promotion designed to motivate the sales force and make sales force
selling efforts more effective, including bonuses, contests and sales rallies.
7.2.4. Public relation (PR)

Building good relation with the company`s various by obtaining favorable publicity, building up a
good corporate image, and handling or heading off unfavorable rumors, stories and events .Major
PR tools include press relations, product publicity, corporate communications, lobbying and
counseling.
Public relation (PR) departments perform any or all the following functions:
 Press relations or press agency: creating and placing newsworthy information in the news
media to attract attention to a person, product or serice.
 Product publicity: - publicizing specific products.
 Public affaires: building and maintaining local, national and international relations.
 Lobbying:- building and maintaining relation with legislators and government officials to
influence legation and regulation.
 Investor relations:- Maintaining relationship with shareholders and other in the financial
community.
 Development:- public relations with donors or members of nonprofit organizations to gain
financial or volunteer support.
The Promotional Mix Strategy
Producers aim their promotional mix at both middlemen and end users. A promotional program
aimed primarily at middlemen is called a push strategy, and a promotion program directed
primarily at end users is called a pull strategy.
1. Push Strategy
Using a push strategy means a channel member directs its promotion primarily at the middlemen
that are the next link forward in the distribution channel. The product is "pushed" through the
channel.
2. Pull Strategy
With a pull strategy, promotion is directed at end users usually ultimate consumers. The
intention is to motivate them to ask retailers for the product. The retailers, in return will request
the product from the wholesalers, and the wholesalers will order it from the producer. In effect,
promotion to consumers is designed to "pull" the product through the channel. This strategy

relies on heavy advertising and various forms of sales promotion such as premiums, samples, or
in-store demonstration.

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PRINCIPLES OF MARKETING Temesgen A.

BLUE NILE COLLEGE

 Distinguishing the social and managerial definition

Managerial Definition:marketing is the process of planning and executing the conception,

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Marketing management is the practical application of marketing techniques. It is the analysis,

Marketing management: is the process of planning, implementing and control of marketing

The Core Marketing Concepts

Customer needs, wants, and demands

 Marketers cannot create needs.

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Value and Satisfaction

For exchange potential to exist, five conditions must be satisfied:

1. There are at least two parties

A transaction is marketing’s unit of measurement. It consists of a trade of values between two

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MARKETING ORIENTATION AND PHILOSOPHIES

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These competing philosophies strongly influence an organization’s marketing processes.

1. The production concept

2. The Product Concept

3. The Selling concept

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Fig. Difference between selling of marketing concepts

Produce what manufacturer feels appropriate

Seller’s emphasis is only on higher sales volume

(By End - user)

Identifying consumer needs

Developing an appropriate product/service to

Accomplish organizational goals through integrated

5. The Societal Marketing Concept

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NEW CONCEPTS OF MARKETING

Flow Chart of Mass Marketing.

Tools of Mass Marketing

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The marketing environment can be broadly classified into three parts:

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These factors are further elaborated:

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The detailed description of Macro factors is given below:

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Fig I. Model of Consumer Behavior

MKTG. AND OTHER BUYER'S BLACK BUYER'S RESPONSE

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Fig. II. Factors Influencing Consumer Behavior

- Culture - Age and life

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3.3 Consumer buying decision process

Need Information Evaluation of Purchase Post

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