MCO 06 MARKETING MANAGEMENT

UNIT 1 INTRODUCTION TO MARKETING

UNIT 2 MARKETING ENVIRONMENT
UNIT 3 MARKETING INFORMATION AND RESEARCH
UNIT 4 BWER BEHAWOUR
UNIT 5 MARKET AND MARKET SEGMENTATION
UNIT 6 MARKET TARGETING AND POSITIONING
UNIT 7 PRODUCT CONCEPTS AND CLASSIFICATION
UNIT 8 PRODUCT DEVELOPRIHENT AND PRODUCT LIFE CYCLE
UNIT 9 BRANDING, PACKAGING AND SERVICING
UNIT 10 OBJECTIVE AND METHOD OF PRICING
UNIT 11 PRICING ADJUSMENT STRATIGIES
UNIT 12 REGULATION OF PRICE
UNIT 13 DISTRIBUTION CHANNEL
UNIT 14 MARKETING INTERMEDIARIES
UNIT 15 MARKETING LOGISTICS
UNIT 16 MARKETING COMMUNICATION
UNIT 17 PERSONAL SELLING AND SALES PROMOTION
UNIT 18 ADVERTISING AND PUBLICITY
UNIT 19 EMERGING ISSUES IN MARKETING

By CA MD IMRAN

camdimran.com
UNIT 1 INTRODUCTION TO

Structure
1.0 Objectives
1.1 Introduction
1.2 The Meaning of Marketing Management
1.3 Marketing Management Philosophies
1.3.1 Production Concept
1.3.2 Product Coilcept
1.3.3 Selling Cotlcept
1.3.4 Marketing Concept
1.3.5 Societal Concept

1.4 Difference between Sellil~gand Marketing

1.5 Evolution of ~ a r k e t i n g ~ a n a ~ e l n~e1n1t i l o s o ~ l 1 ~
1.6 Marketing Management Process: An Overview
1.7 Marketing Manage~nentin India11Context
1.8 Jmportance of Marketing as a Subject of Study
1.9 Let ZJs Sum Up
1.10 Key Words
1.11 Answers to Check Your Progress
1.12 Terininal Questions

1.0 OBJECTIVES
After studying this unit, you sl~ouldbe able to:
Explain the meaning of the term marketing and various marketing concepts;
e Describe the difference between selling and marketing;
Explaiil the marketing management process;
Explain marketing in Indian context; and
State the irnportarlce of marketing as a subject of study.

1 1 INTRODUCTION
Marketing is one of the key ful~ctionsof management. It brings success to business
organizations. A business organization performs two key functions : (a) producing
goods and services, and (b) making them available to the potential customers for use.
An organization's business success largely depends on how efficiently the products and
services are delivered to the customers, and how differently do the customers perceive
the difference in delivery in comparison to the competitors. This is true of all firms -
Nstr~reand Scope fro111large business enterprises to small firms, from multinationals operating in different
of Marketing
countries to small firms operating in a small market and fro111giant enterprises like
Sony, Lever, General Motors to the next door kirana shop. Quality production and
efficient marketing are the key success factors in building sustainable competitive
advantage for every business corporation.
In this introductory unit on Marketing Management, you will study the meaning of
marketing and various marketing concepts, evolution of marketing management
philosophy, the difference between selling and niarketingand importance of marketing
in a country like India. It will also higliliglit few issues related to contemporary
marketing.

1.2 THE MEANING OF MA TJNG

- -
-

Marketing is a process in a social system by which tlie demand pattern for product
and services can be anticipated, enlarged, created and satisfied tlirougli tlie conception,
prodi~ction,promotion and physical distribution of goods and services in an exchange
process.
The American Marketing Association defined marketing as "tlle performance of
busi~iessactivities that direct tlie flow of goods and services ii.0111 producer to
consumer or user". This definition seems somewhat narrow because of its emphasis
011flow of products that have already been produced. Tlius, according to this definition,
marketing starts with the product.
According to Pliillip Kotler "marketing is a societal process by which individuals and
groups obtain what they need and want througli creating, offering and freely
exchanging products and services of value witli others. Marketing is an ongoing
process of discovering and translating consumer needs and desires in to products and
services, creating demands for these products and services, serving the consumer and
liis demand through a network of marketing channels and expanding the market base
in the face of competition".
Paul Mazur defined marketing as "the creation and delivery of a standard of living to
society." A broader approach views the firm as an organized behavior system
designed to ge~ierde.outputsof value to consumers. Marketing is defined as the
development and efficient distributioli of goods and services for chosen consumer
segtnelits by which profitability is achieved through creating customer satisfaction.
Marketing activities begin witli new product concepts and designs analyzed and
developed to meet specific consumer needs.
This elaborate defi~iitionof marketing includes many other organizational activities
than Inere distribution function. A correct marketingeffort is in accordance with
ethical business practices and is effective from the standpoint of both society and the
individual firm. This approach emphasizes the need for efficie~icyin distribution. The
nature, type and degree of efficiency are largely dependent upon the kind of marketing
environment within which the firm operates. The final assumption is that the c ~ ~ s t o ~ n e r
determines the marketing program. The marketer identifies those consumer seglne~its
who will be satisfied through production and marketing activities of the firm before
production.
There are various misconceptions about marketing. Unfortunately these
lnisconceptions have emerged out of grapevine than solid research background. A
student reader of introductory tnarketing at this stage of learnillg needs to test liis
misconceptions before proceeding further, This checklist will help him to do
illtrospection regarding his previous knowled,geand subject orientation towards
6 marketing.
Check Your Progress A Introduction to
Marketing
!
Test YourseIfAgainst Marketing Misconceptions
r I I 1
Marketing Misconceptions Yes

1. Marketing is part of Economics

2. Advertising is a waste of money
'3. Middlemen are necessary
4. Marketing forces fashion changes
5. Advertisements that fail to please are ineffective
F ~ . I l e r swho sell directly can sell' for less
objective ofmarketing is to efficiently
allocate scarce resources
--

Marketing is unnecessary for not for profit organizations I I I

fii.keting for services and products are vastly different I I I
10. Socialistic economies need marketing
1 I . Middleinen can be bypassed not his activities
12. Marketing can regulate itself if permitted by government
13. The best way to sell products is through lowering pricing
,I 14. Marketing is a parasite on society I I
15. Marketing is exploitatio~iof consumer
Source: Marketing Pririciples and nzctlzods, Canna17and UH1. P

So we can take the definition propounded by American Marketing Association.

According to the Alnericai~Marketing Associati011"marketing is the performance of
business activities tliat directs the flow of goods and services from producer to
c o ~ i s u ~or
~ ~i~ser".
e r Tliis definition is undoubtedly an improven~enton the description
of marlteting as selling. According to this definition, nlarketing also enconipasses other
activities alongwitl~selling.
Marketing has a process orientation nlso. Based on the above, we cnn develop n
process-oriented definition of marketing, as "the process of ascertaining
consumer needs, converting them into products or services, and moving the
product or service to the .final consumer or user to sntisjj certain needs nnd
wants of specific consumer segment or segments with enzphasis on profitability,
ensuring the optimum use of the resources available to the organization"

1.3 MA TING MANAGEMENT PHILOSOPHIES

There are five different marketing concepts under which business enterprises conduct
their marketing activity:
1) Production concept
2) Product concept
3) Selling concept
4) Marketing concept
5) Societal concept
Nature and Scope 1.3.1 Production Concept
of Marketing
The Production Concept emerges out of the production orientation. The basic
proposition is that customers will choose products and services that are widely
available and are of low cost. So managers try to achieve higher volume with low cost
and intensive distribution strategy. The managers believe that consumers prefer
products that are priced low and are widely available. This seems a viable strategy in a
developing market where market expansion is the survival strategy for the business.
Companies interested to take the benefit of scale economies persue this kind of
orientation. It is natural that the companies can not deliver quality products and suffer
froin problems arising out of impersonal behavior with the customers.

1.3.2 Product Concept

The Product Concept has the proposition that consumers will favor those products that
offer the most attributes like quality, performance and other innovative features. The
managers focus on developing superior products and i~nprovingthe existing product
lines over a period of time. The illnovations in tlie scientific laboratory are
commercialized and the consumers get an opportunity to know and use these products,
This is called "Technology Push Model". The problem with this orientation is that the
managers forget to read the customers mind and launcll products. Many tiines it is
observed that the innovations enter in to the market before the market is ready for the
product. Innovative products are launched without educating the custolners about tlie
innovation and the probable advantage that the customer is going to get. Tlle Golden
Eye Technology was brought to the Indian Market by the television major Videocon but
the market could not perceive the benefit of this advantage. On subsequent period at
at1 advance stage of the market LG brought the technology and made its Unique
Selling Proposition for marketing success.

1.3.3 Selling Concept

The Selling Concept proposes that customers, be individual or orga~lizatiorlswil I not buy
enough of the organisation's products unless they are persuaded to do so through
selling effort. So organisations should undertake selling and promotion oftheir
products for marketing success. The consumers typically are inert and they need to be
goaded for buying by converting their inert need in to a buying ~ilotivethrougl~
persuasion and selling action.
This approach is applicable in the cases of unsought goods like life insurance, vacuum
c.leaner,fire fighting equipments including fire extinguishers. These industries are seen I
having a strong network of sales force. This concept is applicable for the iirms having l
over capacity in which their goal is to sell what they produce tllan what the customer !
really wants. In a modern marketing situation the buyer has a basket to choose from
and the customer is also fed with a Iligh decibel of advertising. So often there is a
misconception that marketing is all about selling. The problem with this approacll is
that the customer will certainly buy the product after the persuasion and if dissatisfied
will not speak to others. In reality this does not happen and co~npaniespursuing this
concept often fail in the business.

1.3.4 Marketing Concept

The Marketing Concept proposes that the reason for success lies in tlie company's
I
ability to create, deliver and com~llunicatea better value proposition tlirougll its
marketing offer in comparison to the competitors for its chosen target market.
According to Theodore Levitt "Selling foc~~ses on the needs of the seller and
marketing focuses on the buyer. Selling is preoccupied with the seller's need to
convert his product in to cash, marketing with the idea of satisfying the needs of the
customer by means of the product and the whole cluster ofthings associated with
 Intr'oductiort to
creating, delivering and finally consuming it". The ~narketingconcept is an elaborative Marketing
attempt to explain the phenolnenon that rests on four key issues like target market,
custo~nerneed, integrated marketing and profitability.
Colnpanie are interested to increase their return on investment. Instead of spending
011a mass market, they have started looking for specific markets to
their product will best match and accordingly design a marketing program that
suits to the taste of this target market. The next important act is the understanding
of the need of the custo~nerin that target market so that a suitable marketing offer
can be designed. Needs are the inner state of felt deprivation. They can be spelt
and un-spelt also. It is difficult to understmd the un-spelt need of the customer.
Marketers use various sopllisticated techniques of consumer rescarch to understand
tile customer need. It is important to ~lnderstarldand act upon the need of the
customer because theeffort to keep a satisfied customer is almost one fifth of the
effort expended to get a new customer. The whole organization 11as to be integrated
to this mantra of custolner satisfaction. So business needs an integrated approach.
The integration has to start at marketing department level where various key
marketing filnctions like product design, distribution channel selection, advertising and
promotion, customer service and marketing research need to be integrated with
common marketing goal understanding.
Marketing culture should be adopted by other departments of the enterprise also.
While external marketing targets customers outside, internal marketing targets
customers inside the organizatio~lwho can be trained to serve the customer better.
The ultimate goal of any business house is to earn profit. Toclay's world not only
looks at profit but also tries to bench mark the effort and cost required to achieve this
level of profit. 111this situation profitability of the enterprise througli sole goal of
efficient ~narketingis the key success criteria. This profitability is now treated as a
byproduct of creation of superior custonler value and better understanding of the
custon~erneed.

1.3.5 Societal Concept

The Societal Concept proposes that the enterprise's task is to determine the needs,
wants and intentions of the target market and to deliver the expccted satisfaction
more effectively and efficiently than the co~npetitorsin a way to preserve or
enllarlce the consume^.'^ and society's well being. It combines tlie best elernents of
marketing to bring social change in an integrated planni~lgand action framework with
the utilization of communication technology and marketing tecl~niques.It also looks
for ~narlcetersto build social and ethical conside~*ations
in to the marketing practices.
The goals of profit maximization should match with the goals ofcusto~nersatisfaction
and responsible corporate citizenship. Social marketing often termed as cause
related ~narketingutilizes concepts of market seg~nentation,consumer research.
product concept development and testing, communication to maximize the target
adopters response.
With the growing awareness of the social relevance of business, there is an attempt
to make marketing also relevant to the society. In a sense, marketing is not a
business activity alone but milst take into account the social needs. Excessive
exploitation of resources, environmental deterioration and the customer movements
in particular have necessitated the recognition of the relevance of marketing to 1lie
society. Marketing then must be a socially responsible or accountable activity. The
societal concept lholds that the business organization must take into account the
needs and wants of tile consulners and deliver tlie goods and services eflicieritly so
as to ellllance consumer's satisfaction as well as the society's well being. The
societal concept is an extension of the marketing concept to cover the society in
addition to the consu~i~ers.
Nature and Scope Check Your Progress B
of Marketing
I) Distinguish between ~roductconcept and selling concept.
...............................................................................................................................
...............................................................................................................................
...............................................................................................................................
2) Distinguish between marketing concept and societal concept.
...............................................................................................................................

3) Distinguish between production concept and sellingconcept.

............................................................................................................................... 1
4) Match the organisational objective with the marketing concepts given below:
v

Organisationrl Objectives Marketing Concept

i) Effective distribution a) Product concept
ii) Large scale selling and b) Societal concept
Promotional effort
iii) Produce what consumer need c) Selling concept
iv) Product improvement d) Production coi~cept
v) Improve society's well being e) Marketing concept

1.4 DIFFERENCE BETWEEN SELLING AND

MARKETING
Many managers use 'marketing' and 'selling' as synonyms though there is a
substantial difference between both the concepts. It is necessary to understand the
differences between them for a successful marketing manager.
Selling has a product focus and mostly producer driven. It is the action part of 1
marketing only and has short term goal of achieving market share. The emphasis is on
price variation for closing the sale where the objective can be worded as " I must
somehow sell the product to the customer'. This short term focus does not consider a
prudential planningfor building up the brand in the market place and winning
competitive advantage through a high loyal set of customers. The end means of any
sales activity is n~aximizingprofits through sales maximization.
When the focus is on selling, the businessman thinks that after production has been
I
completed the task of the sales force starts. It is also the task of the sales department
to sell whatever the production department has manufactured. Aggressive sales
methods are justified to meet this goal and customer's actual needs and satisfaction
are taken for granted. Selling converts the product in to cash for the company in the
short run.
 Introduction to
Marketing as a concept and approach is much wider than selling and is also dynamic Mnrketing
as the focus is on tlie custonier rather tlian the product. While selling revolves around
tile needs and interest of the manufacturer or marketer, marketing revolves around that
of consumer. It is the whole process of meeting and satisfying tlie needs of the
consumer. Marketing consists of all those activities tliat are associated with product
planning, pricing, promoting and distributing the product or service.
The task of marketing commences with identifying consumer needs arid does not end
till feedback on consumer satisfaction from tlie consu~nptionof tlie product is received.
It is a long cliain ofactivity, which comprises production, paclting, promotion, pricing,
distribution and then the selling. Consu~nerneeds become the guiding force behind all
these activities. Profits are not ignored but they are built up on a long run basis. Mind
share is more important than market share in Marketing. According to Prof. Theodore
Levitt 'The difference between selling and marketing is more tlian semantic. A truly
marketing minded firm tries to create value satisfying goods and services which the
consumers will want to buy. What is offered for sale is determined not by the seller but
by the buyers. The seller takes his cues from the buyer and tlie product beconles the
colisequence of the marketing effort, not vice versa. Selling merely concerns itself with
tlie tricks and tecliniques of getting the customers to exchange the,ircash for the
company's products, it does not bother about the value satisfaction tliat tlie excliange is
all about. On the contrary, marketing views the entire business as consisting of a tightly
integrated effort to discover, create, arouse and satisfy customer needs'. The
differences between selling and marketing are summarized in Table 1 .I

Table 1.1: Differences between Selling and Marketing

Selling Marketing

1 ) Emphasis is on the product. 1 Emphasis is on consumer needs and wants

2) Company manufactures the product Company first deter~ninescustomers
first and then decides to sell it. needs and wants and then decides liow
to produce and deliver a product to
satisfy these wants.
3) Management is sales volume oriented. Management is profit oriented.
4) Planning is short-ri~n-oriented,in Planning is long-run-oriented, in ternis
terms of today's products and markets. of new products, tomorrow's markets
and future growth.
5) Stresses needs of seller. IStresses needs and wants of buyers.
6) Views business as a good producing Views business as consumer satisfying
process. process. '
7) Emphasis 011staying with existing Emphasis on innovation on evely sphere,
technology and reducing costs. on providing better value to the customer
by adopting a superior technology.
8) Different departments work as All departments of the busi~iessoperate
in a highly separate water tight integrated manner, the sole purpose
compartments. being generation of consumer
I satisfaction.
I
9) Cost determines price. Consumer determines price, in turn price
determines cost.
10) Selling views customer as the last Marketing views tlie customer as the link
very purpose in business. of the business.
Nature and Scope
of Marketing 1.5 EVOLUTION OF MA TING
NAGEMENT PHILOSOPHY
The origin of marketing management dates back to prehistoric period when people
started settle~nentsand there was a division of labor for tlie community living. As it
was difficult for every one to engage in activities to satisfy all the need requirement,
a mutual cohabitation led to this division of labor in the society. The birth of a barter
system where two parties are involved in the physical exchange of goods and
services for mutual benefits and voluntary agreement of both the parties for the
transfer of ownership of the physical goods exchanged, started the evolutionary
growth of modern day marketing.
When the volumes grew beyond the individual and community consumption, then the
intermediaries emerged in the social system that became part of the trade. These are
the people who aided in the transfer of ownership between two parties at two
different periods of time. At the time of production, the producer had the need or the
value of the output for his survival and business where as the end consumer was not
ready to own the final product as the demand for consumption was at a future period
of time. So intermediaries took over the ownership, stored and distributed the
ownership at the future period of time in different assortment as desired by end
consumer for s benefit which was subsequently marked as trades man's profit. The
industrial revolution and progress in transportation and communication made the
business of marketing to cross geographic borders of country and marketing grew as
an economic activity.
In the initial stages of Industrial Revolution, producers were able to sel I whatever
they have produced. So they concentrated on higher production. At that stage most
of the enterprises adopted the production concept. Later when the competition
started building-up, producers faced difficulties to sell whatever they produced and
the need to improve the product arose. This led to the emergence of product
concept and selling concept. With the increase in competition, producers realised the
advantage of producing what consumer's need instead of selling whatever is
produced.
This lead to the consumer orientation and tlie emergence of marketing concept. As
the industry was expected to play the role of corporate citizen and care about the
welfare of the modern society, the industry was expected to produce products and
services that are contributing to the greater cause of the society and in the process
of making profit, contribute towards the building of the nation. This give rise to the
modern day concept of social marketing. In the developed countries where the
markets are developed, most of the producer adopts tlie marketing concept. In tlie
developing countries markets are heterogeneous and one can see the co-existence of
all tlie five concepts. Thus, the concept of marketin,g has grown along wit11 the
process of economic development.
The growth ofcivilization, the increasing standard of living, the changing life styles
and technological growth have created new wants. These can be satisfied only with
a wide variety of new goods and services apart from changes and improverneilts in
the existing goods and services. This however the general trend, and iliere are
several exceptions. Markets for all products and services have to reach a certain
maturity to experience this evolutionary trend. It may not be so in the case of each
and every product or market. The rural market in India, for example, is fairly
different from the urban market. Even among a set of consumer goods, for example,
cosmetics which serve the middlehpper income groups are much more consumer
oriented than the market for undergarments for men. Besides, there is a seller's
market in some goods and services, and a buyer's market in some others.
Another feature in tlie evolutionary process of marketing is the growing role of Introduction to
Marketing
service marketing. The demand for service contracts to maintain the gadgets in use
]lave to become more easily marketable and a reliable service comlnands a
premium in the market. Some of the developed economies are now thriving more on
service industry than manufacturing, as the customers are looking for better service
facilities with the product and the success of a company is decided on the basis of
quality of product support services. The globe is now treated as a single market
place because large numbers of players are manufacturing and delivering products
and services in a global scale where by they can achieve economies of scale and
offer a lower price to the customers. Global life styles, tastes and products have
emerged due to rapid advent of television and global media. So brands like Coca
Cola, Sony, Honda are no more identified by their country of origin. They have
become global brands in true sense.
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1.6 MARKETING MANAGEMENT PROCESS:

AN OVERVIEW
As already dis;cussed, the effective marketing starts with the identification of
consulner and his need. The marketer develops marketing program for satisfying
custolner neecls with a firm's products and services. One of the myths of
marketing rests with the fact that people wants and needs vary greatly, and it is
unlikely that any particular product or service can adequately satisfy everyone.
The marketing process consists of four steps: (i) analysing t l ~ emarketing
opportunities, (2) selecting target markets, (3) developing the nlarkethg
mix, and (4) im~plementingand controling. Now let us study each of them
briefly.
1. Analysing the Marketing Environment: As discussed earlier, marketing
task starts with the idelitification of consumer needs. Therefore, the first step in the
marketing process is the analysis of marketing opportunities to identify tlie
consuiner needs. Marketer has to identify the new needs or the existing needs not
satisfied by any product offer or the needs which can be satisfied through better
produ~ctofferings. For this purpose, you have to analyse tlie opportunities by
scann ing the marketing environment.
Marketing analysis talks about finding out the current position of the company in the
form of current market share, market power, the relevant strengths and
weaknesses of the company in relation to competitors and market opportunity and
threats it is likely to face in the marketing environment. The marketer uses various
techn~iqueslike SWOT analysis, scenario building, cross impact analysis and other
environmental scanning techniques.
2. Selecting Target Markets: At the second stage, the marketer has to decide
aboult the target, the co~npany'sbusiness mission, the category of customer markets
it wants to serve, tlie type of strategy to arrive at the set goals. For this reason, one
of the first tasks in marketing planning is to divide the heterogeneous market into
relatively homogeneous segments. Once a particular customer group is identified
and analyzed, the marketing manager can direct company resources and activities
to profitably satis,@ the selected segment.
Thus, at this stage marketer divides the market into various segments, called
marlket segmentation. Each segment co~~sists of consumers wlio respond in a
silni llar way to a given set of marketing efforts. Then the marketer evaluates each
segment and selects one or more segments in which lie can generate the greatest
custonler value and sustain it over a long period. This i s called market targeting.
After identifying the t a ~ g emarket,
t you must decide market positioning, that is
the place product occupies relative to the competitors product in consumers' mind.
Nature and Scope If the product is perceived to be exactly like competitor's product, consumers
of Marketing
would have no reason to buy it
3. Developing the Marketing Mix: The third step in the marketing process is
deciding the marketing mix. It is easier to divided the marketing activities into four
basic elements which are together referred to as the marketing mix. These four
basic elements are: 1) product, 2) price, 3) promotion and 4) physical distribution.
As all these four start with the letter 'P', they are referred to as the four Ps of the
marketing mix or the four Ps in marketing. Thus, marketing mix may be defined
as the set of controllable marketing variables/activities that the firm
blends to produce the response it wants in the target markets. Let us
understand the four Ps in detail.
The word product stands for the goods or services offered by the organisation.
Once the needs are identified, it is necessary to plan the product and after that
keep on analysing whether the product still satisfies the needs which were
originally planned for, and if not, to determine the necessary changes. Decisions
such as branding packaging, after sale service etc., are to be decided.
Price is the money that the consumer has to pay. Price must be considered as
worth the value of the product to become an effective marketing tool. The product
has to be reasonably priced. The manufacturer has to take into account cost
factors, profit margin, the possibility of sales at different price levels and the
concept of the right price.
Promotion is the aspect of selling and advertising or cominuilicating the benefits
of the product or service to the target customers or the market segment in order to
persuade them to purchase such products or services. It includes selling through
advertising as well as the sales force. Besides, a certain amount of proinotion is
also done through special seasonal discounts, competitions, special price
reductions, etc.
Physical Distribution refers to the aspect of the channels of distribution through
which the product has to move before it reaches the consumer. It also includes
the logistic aspects of distribution such as warehousing, transportation, etc.,
needed for geographical distribution of products. It is also concerned with the
selection of distribution channels. The organisation must decide whether it should
sell through wholesalers and then to retailers, or whether directly to the
consumers. There are many ways in which a product can be moved from the
producer to the consumer. The optimum method has to be determined in terms of
both consumer satisfaction and profitability to the organisation, or optimum use of
the organisation's resources.
4. Implementing and Controlling: At the fourth stage marketing plan is to be
implemented. Without a proper implementation program, marketing planning
exercise is just a paper work. The marketing implementation revolves around
executing the strategy and resources for achieving the marketing goals or targets.
The marketing managers execute the strategy by converting it to operational plans
which are achievable within a specified period of time frame.
The fourth stage also includes marketing control, which is a process of
benchmarking the expended effort and resources with the set goals. You have to
get the feedback from the market whether the consumers received the desired
level of satisfaction from the product offering or not. Based on this feedback you
further plan to enhace the consumer satisfaction or overcome the deficiencies in
the product offerings, if any. The achievements are evaluated with the objectives
set at the planning stage to find out the deficiencies if any and to take modified
action in the future so that the efficiency of the resource expended increases and
gets translated in to profit.
 Introduction to
Every organization has a structure and culture that reflects its readiness and Marketing
effectiveness to the ever changing need of the customers in providing a sustained
level of satisfaction. Marketing function confined to a particular departmental
structure in the organization seldom brings success. It creates goal confusion due to
functional myopia in the organization. In this context the whole organization has to
understand the urgency of market orientation and understanding of customer need
for greater success. The concept of organization structure revolves around two
issues. The first is the relative importance of marketing departnzent inside the
organization and second, its relationships with other jirnctional deparlntenls
and external players in the valtre chain.
A marketing manager has to take decisions regarding various aspects of marketitlg.
He takes these decisions under certain environmental situations. The decision
variables over which he makes decisions are called marketing mixes and which are
controllable factors for a marketing manager. He takes these decisions under
certain environnlental conditions. These environmental conditions are called
uncontrollable forces and the decisions are taken in relation to immediate players
affecting business. These players constitute the part of the micro environnlent and
are called as actors. You will study in detail about marketing environment in Unit 2
later.

1.7 MA TING MANAGEMENT IN INDIAN

CONTEXT
The development of marketing in India and emergence of Indian market as a force
to reckon in the global busi~lessfront is an interesting subject for marketing
students. There are three distinct phases in the growth o f Indian nzarket. The
first phase counts to the period of independence where the ecoliolny was
subsistent in nature. The imperial government controlled the output and large
number of customers did nod have adequate purchasing power. Custon~erswere
largely agriculti~ristsdebarring few salaried people working in the British
establishinents. Most of the products were froill British and the stakes of
ownership in large enterprises were vested with them. The consumers did not have
any choice, a s there were few alternatives available. It was a seller's market with
product orientation and consumer welfare was unheard of.
The second phase started immediately after the independence and the new
government dlecided to follow the socialistic principles where the public sector
dominated the ownership of large enterprises. There was a rationing and quota
system for the: private players and the production was limited to the whim of the
government d~ecisions.Mos~tof the markets remained as seller's market. The seller
was in a dominating positioil due to the protection froin government and no formal
conlpetition. ?'he seller doln inated the pattern of coasumption with product
alternatives, price propositicms and on the availability front. There were few
manufactures those who be1 ieved about product quality and consumer satisfaction.
r7
1here was a ban to the direct entry of foreign participants for giving protection to
the domestic sector.
P 7

1 he consumer 1i.ad very Iinli ted opporti~nityto complain about the pseudo promises
and hamrdous plractice of t l ~ manufacturer
e until the Consumer Protection Act of
1994. Lack of ef'fectiveness and non-availability of competition allowed the
manufacturer to sell the sul, standard products. The per capita income was low
and people had 1 ess purchasiing power. Majority of people spent money ill buying
necessities, whic:ll allowed ithe co~nmoditiesmarket to grow in a snail's pace to
cater to the coinlmoll person\. Cities grew in size due to establishment of large
manufacturing units and the1 rural and urban divide started to emerge in urban
market. Demandl for quality education, decent housing and entry of women to the
Nature and Scope active workforce brought radical change to the Indian urban market. The rural
of Marketing
Indian market remains unex~loiteddue to poor econonly of average rural
consumer, resultant lower purchasing power of the rural consumer, irregularity in
saving and occupation pattern. Non-availability of transportation and
c~ommunicationfacility also restricted the growth of the rural market in India.
The urban Indian market was undergoing radical changes due to emergence of a
large middle class with constant and regular income pattern. Adequate savings,
support from the rural agricultural income flow to the urban middle class and the
benefits given by the welfare state to this class increased the consumption level
and demand for various prodi~ctsunheard before for thern. The strength of this
markct increased due to increase in consumer's knowledge about their rights and
redress mechanism introduced by the government. Various products became the
mark of the class and a pseudo consumption culture emerged in the Indian market
until early 1990s.

Whatever the argument may be I~ldianindustry and consumer wake up to the

global reality in the early nineties due to the liberalizatioll process. 'This is the
starting of the third phase.

The role of the public sector as seller and as buyer came down as efficiency and
competition became the mantraof survival in place of protection. The abolition of
Monopoly Restrictive Trade Practice allowed firms to have both organic and ,
I
inorganic growth. Firms started producing higher capacity for the market as there I
was no quota restriction. Mergers and acquisitions saw the emergence of large
conglomerates and co~~solidation of business in Indian market. Government allowed
foreign equity participation in the domestic business, whicll brought large global
players to Indian market. The domestic con~paniesliquidated a part of their
ownership and allowed joint ventures for smooth flow of foreign equity capital and
technology. Large ~nultinationalslike Mindustan Lever, Proctor and Gamble, LG
Electronics, Ford, Mitsubishi, Honda, Sainsung entered in to the markel with morc
financial muscle and better teclinology for Indian consumer.
Domestic and Foreign financial institutions reposed their faith on Indian industry
and the industry got a good funding through both long-term debt and equity route.
The government brought drastic changes in various draconian and imperial
legislations for smooth conduct of business. The Indian indust~yalso responded
positively by offering better products and services to the consumers. The free
market co~npetitiongave rise to a new mechanism of market power. Marketers
started bridging the gap between the ~ ~ r b aand
n rural, rich and poor by offering
products and services at all price points. They also strengthened t l ~ emanagement
ofthe distribution channel tl~roughnew metl~odologieslike S~upplyChain
Management, Just in TimeTechnology and increased productivity through
continuous improvement, Because of such radical changes in the market, product
prices came down, the quality level went 1111to ~natcllthe global standard,
customers at various sub urba~lplaces could access the availability of varioi~s
products suiting to their pockets,
On the other hand, advent oftelevisio~~
and cable television revolution provided a
larger platform to the marketers to take their marketing communication to
consumers. Tt was possible to disseminate product informatio~~ to a wider audience
than tlle urban noveaue rich were. Higher demand in t l ~ cproduct put a time
I
pressure for the companies who had to follow shorter product ~ n a l ~ u f a c t ~ ~ r i n g
cycles and deliver products with global standards as c u s t o ~ n e had
~ s many options
to choose from the market. Finaucial institutio~lsstarted provisions of periodic
payments and instant ownership through installment scl~e~nes Tor Inany prodi~ct I
categories. This kind of si~pportIlelped in the 111arketpenetration of llew products
1
 Introduction to
in a faster rate. 'The attitude cr!ndian consumer also underwent swapping Marketing
changes.
People started spending money in acquiring products and services for a comfortable
stay than saving as in the past. This spending orientation gave birth to a viable
service sector. The service sector grew in leaps and bounds in last few years due to
advent of modern technology. People started enjoying life like never before,
businesses like airline, professional education, tourism, restaurants and hotels,
telecoms, hospitals and quality health services and computer related services grew
in matching order with the manufacturing sector. The telecom revolution brought
changes in communication services expected by customers through adoption of
mobile telepliony, WLL, intenlet telepho~lyand subseq~~ent reduction in the
c o ~ ~ ~ m u ~ ~ icost.
c a t i Rapid
o ~ i penetration of Personal Co~nputersand internet selvices
are also a significant change happening in urban and semi urban India.
Indian market has changed from a developing market to an emerging market. The
market is enroute to a developed market as the choices in the consu~nptionbasket
of consumers have increased in the last decade. However, one can~iotignore the
negative effects also. The divide between the rich and poor is increasing day by
day. A large section of tlie society is staying away from the use of benefits of these
changes. Marketing managers have to rethink at all these issues and try to take a
develop~nentalorie~ltatiorlso that more and more custo~nerswill enjoy tlie benefit of
liberalization and free market economy.
The recent thrust by Hindustan Lever through its operation Bliarat, Procter and
Gamble's tie up with Marico for enhancing rural distribution, the e-Choupal strategy
by ITC are indicators that the marketers are trying to woo the rural customers for
increasing their consumption. This will be only possible when tlie income power of
the rural consumer increase. Marketers have to take the developlnental approach
for building such a strategy. Ilindustan Lever is now trying to market the products
through self-help groups where by the socially backward arid vulnerable people can
become part of the mainstream and earn to consume. In the long run, marketing
manager's success will be measured on different parameters than the current
approach of market share, as the revenue as well as the profits fro111the urban
market will sure to dry down in future. There is no doubt that tlie status ofthe
Indian consumer has increased but the percentage is so small that tlie task now is to
bring [nore people to the field of consumption.

1.8 IMPORTANCE OF MARKETING AS A

SUBJECT OF STUDY
In one of liis classic articles, Peter Ducker said that Marketing is everything. Rest
other activities in tlie organization are support services to tlie niarketirig strategy
that a firm pursue. Marketing has higher significance in an emerging economy like
that of India where it not only has to satisfy tlie custo~nerneed, but also to support
tlie process of econo~nicdevelopment. The success of business is k~lownby its
achievement in marketing front i n the form of market share and return on
investment on marketing programs. Marketing has significance to tlie consumer as
it provides more alternatives to consumers, controls the price meclianisn~,allow tlie
consumers to bring a balance between his income and consumption. It is important
to the economic progress of tlie country as it opens up new vistas of research by
supporting product innovation and enhancing the quality of living for the ultimate
consumer.
Marketing generates resources that are ploughed back to the co~lomicsyste~nand
it fastens the process of growth for the country. Over a period of time people in
Nature and Scope industry, government and academia have realized the macro level importance of
of Marketing
marketing. Therefore, special concentratio11is available under the domain of
marketing to understand consumer behavior, marketing for services and industrial
products, advertising and sales pro~notioneffects on consumers. Marketing brings
revenue and earns goodwill for a manufacturer or marketer, provides alternatives
of choice in goods and services to consumer and enables the society for
redistribution of income, generation of additional employment through
manufacturing and trading and i~nprove~nent in the over all standard of living of the
citizens of a country.
Marketing looks in to the business management challenges like environmental
scanning, identification of marketing opportunities, formulation ofniarketiag
programs, evaluation and tracking of consumer choice and response to business.
Marketing aids the consumers to have choices and final say in tlie acceptance of
a inarketing offer available to Ilim. The easy availability of high quality goods and
services at competitive prices is made possible by efficient marketing system.
Marketing management createstime, place and possession utility to products and
services. Products and Services are useful if they are available for consumption
at the right time and place. Management of marketing creates sucli utility.
Marketing generates additional employnient, increases per capita inconie and
helps in the over all progress of an economy. The per capita availability of
essential goods is an indicator of the level of consumption and poverty in an
econornic systenl.

1.9 LET US SUM UP

Marketing is a dynamic subject in business. The success of a business largely
depends on the success of marketing. There are various definitions to Marketing.
We can generalize the definition through the definition of the famous inarketing
author, Phi! lip Kotler. According to him, "Marketing is a social activity directed at
satisfying needs and wants through exchange process". It is a lnanagement
process of identifying consumer needs, developing products and services to satisfy
consumer needs, making these products and services available to the consumer
through an efficient distribution network and pro~notingthese products and services
to obtain greater competitive advantage in the market place. This emphasizes the
optimum utilization of resources and deliveringvalue to custoiners through efficient
process and with a profit to tlie organization.
Marketing as a concept has evolved over a period. It has augmented the process of
exchange as an economic activity and there are five concepts associated with
marketing. They are 1) Production Concept, 2) Product Concept, 3) Selling
Concept, 4) Marketing Concept, and 5) Societal Concept.
The greatest confusion in uiiderstandiiig marketing is the confused line of difference
.between selling and marketing. While selling is product focused and looks after the
interest of the seller, marketing takes a more welfare view and the key focus of
marketing is consumer satisfaction than sales. Marketing explaiils the whole
process of identifying consumer needs, developing products and satisfying
consumers through a ~narketingprogram.
Marketing plays a pivotal role in tlie develop~nentprocess of a country like India.
Different phases of development in Indian market are indicators that there is a
revolution undergoing in Indian market. We envisage a greater role for marketing in
Indian market whereby marketing can help in bringing more and more people to the
fold of enhanced and qualitative consumption. The recent eco~iomicand social
changes in Indian market bring a new and enterprising picture of growth of
marketing in Indian business. ivlarketing has to play a greater role than just Introduction to
Marketing
satisfying the consumers in an emerging economy like that of India. Marketing
should bring significant changes affecting the quality of life eof everybody in a
country like India

1.10 KEYWORDS
Marketing: Marketing is an ongoing process of discovering and translating
consumer needs and desires in to products and services, creating demands for these
products and services, serving the consumer and his demand through a network of
~narlcetingchannels and expanding the market base in the face of competition.
Marketing Mix: The set of four co~ltrollablemarketing tools viz, product, price,
promotion and place (Physical Distribution) that the marketer blends to achieve the
outcome of desired level of custo~nersatisfaction. Marketing mix is also known as
'Four Ps'.
Marketing Orientation: It requires the firm to loolc for consumer needs and the
necessity to search for new opport~unityto satisfy the consumers in a better way
than the competitor Profits result from meeting customers' needs effectively and
efficiently.
The Exchange Process occurs when the buyer with a demand and a seller with a
product offering confront each other. The customer gets the ownership of the
product in lieu of something to offer in the form of price, physical transformation
through barter or a f ~ ~ t upromise
re for any of the two.
Tlle Marketing Concept proposes that the reason for success lies in the
company's ability to create, deliver and co~nmunicatea better value proposition
through its marketing offer in comparison to the competitors for its chosen target
market.
Tlle Product Concept has the proposition that consumers will favor those
products that offer the most attributes like quality, performance and other innovative
features.
The Prodaction Concept emerges out of the production orientation. The basic
proposition is that customers will choose products and services that are widely
available and are of low cost.
T l ~ eSelling Concept proposes that customers, be individual or organizations will
not buy enough of the organization's products unless they are persuaded to do so
through selling effort.
Tlle Societal Marketing Concept proposes that the enterprise's task is to
determine the needs, wants and intentions of the target market and to deliver the
expected satisfaction more effectively and efficiently than the competitors in a way
to preserve or enhance the consumer's and society's well being.

ANSWERS TO CHECKYOLTR PROGRESS

A) 1. Yes 2. No 3. Yes 4. Yes 5. No
6. Yes 7. Yes 8. No 9. No 10. No
11. Yes 12. Yes 13. No 14. No 15. No
B) 4) i(d) ii (c) i i i (e) iv (a) v (b)
Nature and Scope
of Marketing INAL QUESTIONS
1) Define Marketing and explain its implications for an emerging economy like
India?

2) 'Marketing involves satisfaction of ConsumerNeedsY.Elucidate the Statement.

3) What are the marketing Concepts? Explain the evolution process of Marketing
Management Philosophy.

4) Explain the profile ofa company Marico Industries by visiting to its website
www.marico.com.

5) Explain the importance of Marketing for a consumer durable company in Indian

context.
I
6) Explain the difference between selling and marketing for industrial products.

7) Explain the growth of consumerism in Indian context with five suitable examples.

Note: These questions will help you to understand the unit better. Try to write
answers for them. But d o not submit your answers to the University.
These are for your practice only.
UNIT 2 MAR TING ENVIRONMENT
Structure
2.0 Objectives
2.1 Introduction
2.2 What is Marketing Environment?
2.2.1 Micro Environment
2.2.2 Macro Environment

2.3 Relevance of Environment in Marketing

2.4 Marketing Environment in India
2.5 Government Regulations Affecting Marketing
2.6 Marketing Ilnplications of Some Regulations
2.7 Let Us Sum Up
2.8 Key Words
2.9 Answers to Check Your Progress
2.10 Terminal Questions

2.0 OBJECTIVES
After studying this unit, you should be able to:
e state the meaning of marketing environment, both in terms of micro environment
and macro environment;
e explain the marketing environment in India;
o discuss how the environment affects marketing decisions; and
0 describe the government regulations in India which have implications for
marketing decisions.

2.1 INTRODUCTION
Marketing functions are to be carried out in a given environment. Even the marketing
opportunity has to be scanned and identified by carefully observing the environment.
The marketing mix is also decided in the context of a given marketing environment.
Though marketing managers cannot control the forces in a marketing environment,
they must take them into account when making marketing decisions. While
formulating the marketing strategies, the marketers must closely observe the
environment in which they are functioning, In this unit, you will study the factors that
constitute the marketing environment, and the marketing environment in India. You will
also study how various Acts and Statutes influence the marketing decisions in India.

2.2 WHAT IS MARKETING ENVIRONMENT?

Marketing activities are influenced by several factors inside and outside a business
firm. These factors or forces influencing marketing decision making are collectively
called marketing environment. It comprises all those forces which have an impact on
market and marketing efforts of the enterprise. ~ c c o r d i to
n ~Philip Kotler, marketing
environment refers to "external factors and forces that affect the company's ability to
develop and maintain successful transactions and relationships with its target
Nature and Scope
of Marketing INAL QUESTIONS
1) Define Marketing and explain its implications for an emerging economy like
India?

2) 'Marketing involves satisfaction of Consumer Needs'. Elucidate the Statement.

3) What are the marketing Concepts? Explain the evolution process of Marketing
Management Ph ilosophy.

4) Explain the profile of a company Marico Industries by visiting to its website

www.marico.com.

5) Explain the importance of Marketing for a consumer durable company in Indian

context.
1
I

6) Explain the difference between selling and marketing for industrial products.

7) Explain the growth of consumerism in Indian context with five suitable examples.

Note: Tliese questions will help you to understand the unit better. Try to write
answers for them. But do not submit your answers to the University.
These are for your practice only.
UNIT 2 MAR TING ENVIRONMENT
Structure
2.0 Objectives
2.1 Introduction
2.2 What is Marketing Environment?
2.2.1 Micro Environment
2.2.2 Macro Environment

2.3 Relevance of Environment in Marketing

2.4 Marketing Environmei~till India
2.5 Government Regulations Affecting Marketing
2.6 Marketing I~nplicationsof Some Regulations
2.7 Let Us Sum Up
2.8 Key Words
2.9 A ~ ~ s w eto
r s Check Your Progress
2.10 Terminal Questions

2.0 OBJECTIVES
After studying this unit, you should be able to:
a state the meaning of marketing environment, both in terms of micro environment
and macro environment;
a explain the marketing environment in India;
a discuss how the environment affects marketing decisions; and
a describe the government regulations it1 India which have implications for
marketing decisions.

2.1 INTRODUCTION
Marketing functions are to be carried out in a given environment. Even the marketing
opportunity has to be scanned and identified by carefully observing the environment.
The marketing mix is also decided in the context of a given marketing environment.
Though marketing managers cannot control the forces in a marketing environment,
they must take them into account when making marketing decisions. While
for~nulati~lgthe marketing strategies, the marketers must closely observe the
environ~nentin which they are functioning. In this unit, you will study the factors that
constitute the marketing environment, and the marketing environment in India. You will
also study bow various Acts and Statutes influence the marketing decisions in India.

2.2 WHAT IS MARKETING ENVIRONMENT?

Marketing activities are influenced by several factors inside and outside a business
finn. These factors or forces influencing marketing decision making are collectively
called marketing environment. It comprises all those forces which have an impact on
market and marketing efforts of the enterprise. According to Philip Kotler, marketing
environ~ne~~trefers to "external factors and forces that affect the company's ability to
develop and maintain successfill transactions and relationships with its target
Nature and Scopc customers." For example, the relevant environment to a car tyre manufacturer may
of M ~ r k c t i n g
be the car manufacturers and buyers, the tyre manufacturing technology, the tax
structure, imports and export regulations, the distributors, dealers, competitors, etc. In
addition to these, the company may have to consider its internal environment interms of
Finance, Purchasing, Accounting, Manufacturing Technology, R&D. Top Management,
etc. However, this internal environment is controllable to a large extent. The external
environment becomes important due to the fact that it is changing and there is
uncertainty. Most of these external environmental factors are uncontrollable. There is
both a threat and opportunity in these changes.
The external marketing environment may be broadly divided into two parts:
1) Micro environment
2) Macro environment
Micro Environment refers to the company's immediate environment, that is, those
environmental factors that are in its proximity. They include the company's own
capabilities to produce and serve the consumer needs, the dealers and distributors, the
competitors, and the customers. These are also the groups of people who affect the
company's prospects directly.
Macro Environment refers to those factors which are external forces in the
company's activities and do not concern the immediate environment. Macro
environment are uncontrollable factors which indirectly affect the concern's ability to
operate in the market effectively.
These incIude demographic, economic, natural, technological, political and culturat
forces. The influence ofthese factors are indirect and often take time to reach the
company. Look at Figure 2.1 carefully which presents these forces.
 Marketing Environment
The forces in the outer circle may be taken to constitute the macro environment and
those in the irtner circle as the micro environment of a company.

2.2.1 Micro Environment

Micro environmental factors whicli influence the marketing decisions of the company
are: i) organisation's internal environment, ii) suppliers, iii) marketing intermediaries, iv)
competitors, and v) consumers.
Let us now study about each of these factors briefly.

Organisation's Internal Environment

Organisation's financial, production and human resource capabilities influence its

marketing decisions to a large extent. For irzstance, while deciding about the sales
targets, it is necessary to see whether tlie existing production facilities are enough to
produce the additional quantities or not. Ifthe existing facilities are not enough and
expansion to plant and machinery is required, it is necessary to think about financial
capabilities.

You may have a responsivc research and develop~nentdepartment to develop a new

product. So also the production department may have its own facilities for producing
the new product. It is also necessary to consider how non-marketing departments in
the organisation cooperate witli the marketing department. Tlie top management may
not agree with the views of the marketing department on the marketing strategies or
their implementation. Besides, tlle marketing department must work in close
cooperation with the other departments, especially the quality control and production
departments. Sometimes it is the sale force that must bear the major task in
the strategy.

Suppliers

For production of goods or services,'you require a variety of inputs. Tlie individuals or

firms who supply such inputs are called suppliers. Success of the marketing
organisation depends upon the smooth and continuous supply of inputs in required
quantities on reasonable terms. Hence suppliers assume importance. The timely
supplies of specified quality and quantity ~nakesthe producer to keep up the delive~y
schedule and the quality of the final product. The dependence on tlie supplier is
~iaturallymore when the number of suppliers is more. During periods of shortages,
solne suppliers may not supply materials on favourable terms. Each supplier may
negotiate his own terms and conditions, depending upon the competitive position of his
f i r ~ n Some
. suppliers, for example, expect payment in advance, and goods are
supplied on the basis of a waiting list, whereas others may be ready to supply on
credit basis.

Intermediaries

Normally, it is not possible for all the producers to sell their goods or services
directly to the consumers. Producers use the services of a number of
intermediaries to move their products to tlie consumers. The dealers and
distributors, in other words the marketing intermediaries, may or may not be willing
to extend their cooperation. These persons normally prefer we1 I-establislied brands.
Newcomers may find it extremely difficult to find a willing dealer to stock his
goods. From newcolners they may de~nandfavourable terms by way of discount,
crcdil, etc., and the producer may find it difficult to satisfy tliem. There are also
otl~erintermediaries like transpo~-torganisations, warehousing agencies, etc., who
assist in physical distribution. Their cost of service, accessibility, safe and fast
delivery, etc., often inlluence the marketing activities.
Nature and Scope Competitors
of Marketing
Competitors pose competition. Competitors' strategies also affect the marketing
decisions. Apart from competition on the price factor, there are ,other forms of
competition like production differentiation. There are also competitors who use brand
name, dealer network, or close substitute products as the focal point. Their advertising
may present several real or false attributes of their product. If one advertises that his
product has an imported technology, the other may say that he is already exporting his
product. Con~petitor'sstrategies sometimes may change an opportunity in the
environment into a challenge.
Customers
There are many types of customers. A firm may be selling directly to the ulti~nate
users, the resellers, the industries, the Government or international buyers. It may be
selling to any one or all of these customers. Each type of consumer market has certain
unique characteristics and the marketer should be fillly acquainted with the art of
persuading and selling to these consumers. The environment presented by customer
profile will have a direct influence on these marketing activities.
The population also corltains the potential consumers of the company's product. It may
not be easier to identify the persons who are likely to become the customers of a
company. The goodwill built-up by a company sometimes influences the consumers to
become the customers of acompany. Companies generally try to build good public
relations and create a favourable attitude among the people or groups o f people.
Government and consumer action groups are special categories with whom a negative
attitude is to be avoided. Thus, the public also constitute an element in the
environment.

2.2.2 Macro Environment

The macro environmental factors that exert influence on an organisation's marketing
system are: I ) physical environment, 2) technological environment, 3) political and legal
environment, 4) economic environment, 5) demographic environment, and 6) social-
cultural environment.
Let u s discuss about these factors in a little more detail.
Physical Environment
The earth's natural renewable resources (e.g. forest, food products from agriculture,
etc.) and finite non-renewable resources (e.g, oil, coal, minerals, etc.), weather
(climatic) conditions, landscapes and water resources are co~nponentso f an
environment which quite often change the level and type of resources available to a
marketer for his production. For exanlple, India does not have enough petroleum
resources, and imports petrol and other products. Recently, the Gulf War drastically
affected the supply of petrol and diesel in the country. This had lot of i~nplicationsfor
the co~npaniesconsuming petro-products.
Technological Environment
Technology is shapingthe destiny ofthe people. The revolution in computers,
electro~~icsand communication in general may make one's production out oftune with
the current products and services. For exanlple, new printing technology like Insel.
printing and desk top publishing, has already made the labour-intensive type-set printing
uneconomical.
Political and Legal Environment
Political changes bring ill new policies and laws relevant to industry. Government
regulation continues wit11 different intensities and the law and the rules framed
thereunder are becoming complex. Many areas of business are brought under one law Marketing Environment

or the other, and the marketer cannot escape from the influence of these laws. The
tax laws for exnmnple, the sales tax. excise duty, income-tax, etc., have direct bearing
on the costs and prices of the products and services marketed. So also the policies
relatirig to imports and exports. Since these factors affect all the units, (they do not
affect a single marketer alone), these are considered as the forces in the macro
environment.
Economic Environment
Under economic environment, a marketing manager generally studies the following
factors and trends:

i) Trends in gross national product and real income growth;

ii) Pattern of income distribution;
iii) Variations in geographical income distribution and its trends;
iv) Expenditure pattern and trends.

v) Trends of consumer savings and how consumers like to hold their savings, i.e.,
either in the form of bank account, investments in bonds arid securities; purchase
of real estate, insurance policies, or any other assets;

vi) Borrowing pattern, trends and governmental and legal restrictions; and
vii) Major economic variables, e.g., cost of living, interest rates, repayment terms,
disposable income, etc.
These factors determine the purcllasing power, along with savings and credit
availability. Study and knowledge of economic forces is essential for preparing
effective marketing plans. No firm is immune to econo~nicforces altl~ougl~ some are
less vulilerable than others. Anticipation of future eco~lomicconditions will enable the
firm to devise appropriate marketing strategies.
Marketing organisations are susceptible to econo~nicconditions, both directly and
through the medium of market place. Econo~nicconditions affect marketing directly
because such organisations are tllemselves a part of market place. For instance, the
cost of a1 l inputs positively respond to upward swing of economic condition. This will
affect the output price and consequently affect the sales. The effect on ~narketplace
(consumers) also influences the marketing through changes in collsulner habits. 'This
is an indirect influence. For exunzple, in tlle event of spiraling prices, cousurners often
curtail or postpone their expenditures for luxury products. Conversely, during times of
relative affluence, consumers are much less conscious of small price differences and
would buy luxury products.
Demographic Environment
Marketers are keenly interested in tlle demographic characteristics such as the size of
the population, its geographical distribution, density, mobility trends, age distribution,
birth rate, death rate, the religious composition, etc. The changing life styles, habits and
tastes of the population, have potentials for the marketer to explorc. For exxatnple,
when both husband and wife go for jobs, the demand for gadgets that make llouse
keeping easier and tlle semi-cooked food products increase.
Socio-Cultural ~nvironm'ent
There are core cultural values which are found stable and deep rooted, and hence
change very little. There are also secondary cultural values which are susceptible to
fast changes. Some of them like hair styles, clothing, etc. just fade. Even in a given
 Nature and Scope culture, the entire population may not adopt the changes. There are different degrees
of Marketing with which people adopt them. Religion is also an important co~nponentof culture
which has implications for the marketer. For example, Hindus worship the cow and
do not eat beef. So the products made out of beef meat do not have demand. Thus,
the culture of the society influences the consumption pattern to a certain extent.
Culture also pervades other human activities by determining their values and beliefs.

2.3 RELEVANCE OF ENVIRONMENT IN

TING
You have studied that the marketing environment of a company comprises a variety of
forces. Most of these forces are external to the company and may not be controllable
by the marketing executives of the company. So the marketing system of the company
has to operate within the framework of these ever-changing environmental forces.
This uncertain marketingenvironment offers both opportunities, and shocks and
threats. Therefore, it is necessary for a company to scan the changing environment
continuously, and change the marketing mix strategies in accordance with the trends
and developments in the marketing environment.

The company responds to these environmental factors and forces by its policies
depending on its own capabilities particularly the finance, sales force and technical
facilities. Among all these environmental factors, some ofthem may be controllable by
the organisation to some extent, and others may be uncontrollable. Macro
environ~nentalfactors are totally uncontrollable by the firm whereas micro
environmental factors may be controlled to sonie extent. For instalzce, organisation's
interna1 environ~nentcan be controlled by the firm to a large exteht. Sinlilarly, the firm
can exert some influence on suppliers, dealers and distributors by offering liberal terms.
And through its advertising effort, a finn can influence the prgspective and present
consumers.

Each aspect of the environment has some relevance in marketing. It is easy to

imagine how various environmental factors affect the demand atid supply, the
distribution and proniotional policies, etc. For exatnple, with the oil crisis there will be
demand for more oil-efficient machines. Similarly, the popularity of co~nputerswill
create demand for more computer operators, voltage stabilizers, etc.
I

I
I
The following benefits ofenvironnient scanning have been suggested by varioils
authorities:

It creates an increased general awareness of environmental changes on the part ,I

of management.
I

I
o It guides with greater effectiveness in matters relating to Government.
I
f
o It helps in marketinganalysis. I

0 It suggests improvements in diversification and resource allocations.

It helps firms to identify and capitalize upon opportunities rather than losing out to
co~npetitors. v-

It provides a base of 'objective qualitative information' about the business I

I
environment that can subsequently be of value of designing the strategies.
,
1 1

It provides a continuing broad-based education for executives in general, and the

strategists in particular.
 Marketing Environment
2.4 MA TING ENVIRONMENT IN INDIA
India is a vast country populated by around 100 crore people. Its unique feature is its
diversity of religions, languages, social customs, regional characteristics, which is both
a boon and a bane for the marketer. Boon because there is tremendous scope for a
wide variety of products and services to be successfully marketed and a bane because
the marketer often needs to adapt the marketing strategy to suit different tastes and
values. There are marketers who may find that the Indian eiiviron~nentis full of profit
potential. It means that there are buyer for anything one may produce and there is
inarket for everytl~ing.There are others who take a somewhat pessimistic view by
considering the poverty and shortages of requisite inputs. However, one can
confidently say that the market is vast, quality consciousness among consumers is
increasing, and there is demand for new and improved products and services and these
trends may continue for a long time.
Despite more than 55 years of independence, India is still domi1;ated by villages and
almost 70 percent of population is located in the rural areas. But these rural areas are
today enjoying the fruits of the Green Revolution and the purchasing power of the rural
population is increasingly demanding attention from the marketer who had so far
concentrated only in urban areas. No doubt tlie urban areas with their concentration of
numbers and inarket potential are the priority target markets, but a firn~which wants
to ensure its future su~vivalmust start making inroads into the rural inarket as well.
Government expenditure on rural development has increased the purchasing power of
the rural public. Improvements in transport, communicatioii, literacy, etc. have made
inany new markets accessible. The capacity to see the opportunity and work out an
appropriate marketing strategy can open the doors to the marketers.
There are a large ni~mberof companies, public sector undertakings, factories and
small-scale units, all of which comprise the orgarlisational consumers, operating in the
country. While the public sector usually follows a bureaucratic long winded and time
consuming procedure for making even the smallest purchase, the private sector
decision-making is relatively quicker and free of bureaucratic procedures. If you are
marketing your products/services to both the public and private sectors, you may like to
think about l~avingseparate marketing organisations for them. Another inajor
difference between the public and private sector is in the ti~iiingofthe purchase
decision. The public sector cornpanies have an annual budget sanctioned to them by
the governmerit and the money from this is used for purchasing a variety of products.
The public sector units feel compelled to use tlie entire budget amount, because if they
do not, they run the risk of having a reduced budget in the subsequent years. You
would find a flurry of purchases during the quarter preceding March when the financial
year e ~ ~ dSos . if t.lie public sector companies are your major consumers, you should
bear the timing factor in mind. I11 case of private sector companies, you would
generally not find such a peaking of purchases in any particular non nth of the year
unless it is linked to seasonality ofproduction or sales.
In the context of 'Marketing Environment in India: you may also stz~dysection
1.7 'Marketing Management in Indian Context' in Unit I in this block,
Check Your Progress A

1) What is marketing environment?

................................................................................................................................
Nature and Scope 2) Distinguish between micro environment and macro environment.
of Marketing

3) You are a manufacturer of VCRs and TVs. What will be the effect if
Government abolishes import duty on these products?

................................................................................................................................
4) Go to a travel agency and ask how the Iraq War affected their business.

5) What will be the impact on autotnobile industry if a new cheaper source of energy
is invented?

6) Research findings showed that consu~nptionofa particular edibleoil is injurious to

health. Is this finding relevant to a sweet shop?

7) If the winter season is severe, which industries lose and which gain?
 M~rketingEnvironment
2.5 GOVERNMENT REGULATIONS AFFECTING
TING
A number of laws affecting business have become operational over the years. The
important ones affecting marketing are listed below:
1) The Indian Contract Act, 1872

2) Sales of Goods Act, 1930

3) The Industries (Development & Regulation) Act, 1951

4) The Prevention of Food Adulteration Act, 1954

5) The Drugs and Magic Remedies (Objectionable Advertisement) Act, 1954

6) Tlie Essential Commodities Act, 1955

7) Tlie Companies Act, 1956

8) T l ~ Trade
e Marks Act, 1999

9) The Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act)
10) Tlle Patents Act, 1970
11) The Standal-dsof Weights and Measures Act, 1976
12) The Consumer Protection Act, 1986
13) The Environment Protection Act, 1986
14) The Bureau of Indian Standards Act, 1986
15) The Agricultural Produce Grading and Marketing Act (AGMARK), 1937
Some of the legislations mentioned above apply to every undertaking, irrespective of
the nature of tlie product sold or the service provided by it like the Indian Contract Act,
tlie Sale of Goods Act, tlle Co~npaniesAct, the Trade Marks Act and the standards of
Weights and Measures Act.
As against this, there are certain legislations listed above which seek to regulate certain
decisions of the undertakings engaged in the specific industries. These include The
Industries (Development & Regulation) Act, 1951; The Drugs and Magic Remedies
(Objectionable Advertisement) Act, 1954; The Prevention of Food Adulteration Act,
1954; The Essential Commodities Act, 1955.
It would be too much to expect a marketer to know all about the various Acts listed
above. But nevertheless, it is essential for you to have a good working knowledge of
the inajor laws protecting competition, consuniers and the larger interest of society.
Such an understanding would help you to examine the legal i~nplicationsofyour
decisions.
The main reasons for government control can be summarized as follows:
Protectingthe welfare of individuals and promoting higher standards of public
health, general well being, safety, etc.
e Maintaining equality of opportunity for all persons irrespective of sex, nationality,
race or re1 igion.
Restraining business from engaging in practices harmful to the interests ofthe
public like making false and misleading statements about a product or service,
manipulating prices for personal gains, failing to suppoi-t warranties, etc.
Nature and Scope 0 Protecting small firms fro111the threats of unfair competition by big firms.
of Marketing
e Preventing unfair practices resulting from mergers or other forms of combinations
like price fixing.
o Conserving national resources especially forests, fuels, water, energy, etc.
o Preventing pollution ofthe environment.
e Preventing concentration of economic power and industrial wealth.
e Encouragingwidely dispersed industrial growth and the growth of small scale
industries.
e Protecting the economy from dominance by foreign inventors and helping save
the valuable foreign exchange resources.
I

Let us now briefly discuss about the Acts listed above.

The Indian Contract Act, 1872
Regulates the economic and com~nercialrelations of citizens. The scope of this Act
extends to all such decisions which involve the formation and execution of a contract.
The essentials of a valid contract are specified and examined in detail. A contract is an
agreement enforceable at law between two or more persons by which rights are
acquired by one or more to act or forbearances on the part of the other or others. The
Act also specifies provisions for the creation of an agency and the rights and duties of
a principal and an agent.
Sales of Goods Act, 1930
Governs the transactions of sale and purchase. A contract of sale of goods is defined
as a contract whereby the property in goods is transferred or agreed to be transferred
by the seller to the buyer for a price. The Act also lays down rules about passing of
property in goods, the rights and duties of the buyer and seller, rules regarding the
delivery of goods as well as the rights ofthe unpaid seller.
The Industries (Development & Regulation) Act, 1951
It is through this Act that the industrial I icensing system operates, in effect, it
empowers the government to licence (or permit) new investment, expansion of
licensed units, production of new articles, change of location by the licensed units and
also to investigate the affairs of licensed units in certain cases and to take over the
management thereof, if cotiditions so warrant. The objectives behind these powers
are, of course, development and regulation of important industries involving fairly
large investments which have an all-India importance. It is in the actual
ilnplementation ofthese objectives that the relevant aspects of the industrial policy
are expected to be fulfilled.
Industrial licensing is a form of direct state intervention in the market to overrule its
forces. The underlying assumption here is that the government is the best judge
about the priorities from the national point of view and also that it can do the
allocatio~~ in a better and socially optimal way. It must, however, be understood that
there are ecollomic costs involved in the measures of control and the benefits that are
expected to accrue at least equal to or more than the costs involved.
Prevention of Food Adulteration Act (1954)
Prohibits the publication or issue of advertisement tending to cause harm to the
ignorant consulner by consuming certain food articles. It also ensures purity in the
articles of food.
 Marketing Environment
Drugs and Magic Remedies (Objectionable Advertisement) Act (1954)
This Act proliibits the publication or issue ofadvertisements tending to cause the
ignorant consumers to resort to self-medication with harmful drugs and appliances.
Advertise~nentsfor certain drugs for preventing diseases and disorders like epilepsy,
prevention of conception, sexual impotency, etc., are also prohibited. Tlie Act also
prohibits advertisements making false claims for tlie drugs.
Essential Commodities Act (1955)
This Act provides for the control of production, supply and distribution in certain
co~nmoditiesdeclared as essential under Section 2(a) of the Act, in the public interest.
Under Section 3(a) of this Act, the government can fix the price of such a
commodity.
Companies Act (1956)
It is a piece of legislation wliicli has far-reaching effects on business by regulation of
the organisation and fu~lctioningof companies. With more tlian 650 sections, it is one
of the longest legal enactments. It is meant to regulate the growing uses of the
conipany system as an instrument of business and finance and possibilities of abuse
inlierent in that system.
Trade Marks Act (1999)
It deals with the trade and merchandise marks registered under this Act.
A mark includes a device, brand, heading, label, ticket, name, signature, word, letter,
numeral, shape of goods, packaging or co~nbinatioliof colours or any combination
thereof. A Trade Mark is a distinctive symbol, title or design that readily identifies the
colnpany or its product. The owner of the trademark has the right to its exclusive use
and the Act provides legal protection against infringement ofthis right. A trademark
is registered for a ~ n a x i ~ n uperiod
~ n of 10 years and is renewable for a similar number
of years, eacli time tlie period of 10 years expires.

However; no sucli trademark shoi~ldbe used wliicli is likely to be deceptive or

conf~~sing,or is scandalous or obscene or which hurts tlie religious se~lti~nents
ofthe
people of India.

Monopolies a n d Restrictive Trade Practices Act (1969) (MRTP Act)

'This Act provides for tlie control of monopolies, for the prohibitio~iof~nonopolistic,
restrictive and i~rifairtrade practices and for matters connected therewith or
incidental thereto.

It may be of interest for yo11 to know that the first country to pass such a legislation
was tlie United States wliicli lias a free enterprise system. There, sucli an Act was
passed as far back as 1890 and is called the Sherman Antitrust Act, But, so far as
tlie UnitedKingdom is concer~iedit was only in 1948 that the Mo~iopoliesand
Restrictive Practices (Inquiry Control) Act was passed. In 1956 and 1964 two more
Acts were added, viz., Restrictive Trade Practices Act and Resale Prices Act,
respectively. Our Act is modelled on tlie lines of the above three Acts.

Patents Act (1970)

Provisions of tliis Act are attracted especially where the company intends to produce
patented products. A patent is tlie exclusive right to own, use and dispose of an
invention for a specified period. Tlie patent is granted by the Central Govern~nentto
the first inventor or his legal representative.
Nature and Scope Standards of Weights and Measures Act (1976)
of Marketing
This Act specifies the quantities in which products can be packed. The products
covered include bread, butter, cheese, biscuits, cereals and pulses, cigarettes. cigar,
cleaning and sanitary fluids, cleaning power, co~idensedmilk, tea. coffee, cooking oils,
cosmetics, honey, ice cream, jams, sauces. milk powder, soaps, spices, toothpaste, etc. I

Consumer Protection Act (1986) 1

i
Consu~nerProtection Act, 1986, as amended by the Consumer Protection
(Amendment) Act, 2002, is the latest addition to the list oftlie legislations regulating
marketing decisions in India. The Act is in addition to and not in derogation of the
provisions ofany other law which influence marketing decisions. The Act is intended
to provide better protection of the interests of consumers and for that purpose make
provision fortlie establishment of Central Consumer Council, State Consumer
Cou~icils,District Consu~nerCouncils and other authorities for the settlement of
consumers' disputes and for matters connected therewith.
The Act lias sharper teeth. One of tlie weaknesses of earlier legislations wlac tlle
confusion regarding the burden of proof. They never made it sufficiei~ilyclear
whether the onus of proof rested with the manufacturer, t k irader or the consumer.
This Act establishes a landmark in the sense that fs, ine first time the onus has been I
shifted to the manufacturer and the seller. Lesides, no court fee is payable. Also, the I
I
aggrieved consumer can himself argue his case. Moreover, decision lias to be
dispensed within a given Lime-frame - 3 months, where no testing is required and 5
montlis where testing ofthe goods complained of is required.
The Act provides the consumer the right:
i
I

0 to be protected against marketing of goods which are hazardous to life and

Propel%';
to be informed aboutthe quality, quantity, potency, purity, standard and price of
goods thereby protecting the consumer against unfair trade practices;

to be assured, wherever possible, access to a variety of goods at competitive

prices;
0 to be heard and to be assured that consumers interest will receive due
co~isiderationat appropriateforurns.
to seek redressal against unfair trade practices and unscrupulous exploitatio~iof
consumers.
o to consumer education.
These objects are sought to be promoted and protected by the Consu~nerProtection
I
Cou~icilsestablislied at the Central, State and District levels.
I
To provide speedy and simple redressal to consumer disputes, a quasi-judicial
macl~iuery(special cou~*ts) has been set up at the District, State and Central levels. ,
Tliese (Special Courts) quasi-.judicial bodies observe the principles of natural justice
and have been empowered to give reliefs of a specific nature and to award, wherever I

?
appropriate, compensation to consumers. Penalties for non-compliance of tlie orders
given by tlie quasi-judicial bodies (Special Courts) have also been provided.
Environment Protection Act (1986)

It provides for the protection and improvement of environment and the prevention of
hazards to liuman beings, otlier living creatures, plants and property.
Environment includes, water, air and land and the inter-relationship existing between Marketing Environment
them and tlie human beings, livi~igcreatures, plants, etc. Any solid, liquid or gaseous
substances present which may tend to be injurious to environment is an environmental
pollutant and the presence thereof is pollution.
The present enactment covers not only all matters relating to prevention, control and
abatement of environmelltal pollution but also powers and functions of the Central
Government and its officers in that regard and penalties for committing offences.
Bureau of Indian Standards Act (1986)
Provides for the establisll~nentof a Bureau for the harmonious development of the
activities of standardisation, marking and quality certification of goods and for matters
connected therewith or.incidenta1 thereto.
It has been provided that the Bureau of Indian Standards will be a body corporate and
there will be an Executive Co~n~nittee to carry on its day-to-day activities. Staff,
assets and liabilities of the Indian Standards Institution will perform all fu~~ctioits
ofthe
Indian Standards Institution. It has also been stipulated that access will be provided for
to the Bureau's Standards and Certification Marks to suppliers or like products
originating in General Agreement on Trade and Tariff (GATT) code countries.
The Act does not make any change in existing law except to provide a new forum for
deciding the cases effectively and without delay.
When the Indian Standards I~istitutionwas establislied in 1947, the industrial
development in the country was still in its infancy. Since then there has been
substantial progress in various sectors of the Indian econolny and hence the need for a
new thrust to be given to standardisation and quality control. A llational strategy for
according appropriate recognition and importance of standards is to be evolved and
integrated with the growth and development of production and exports in various
sectors of the national economy. Tlle public sector and private sectors, including small
scale industries, have to intensify efforts to produce higher standard and quality goods
to help in inducing faster growth, increasing exports and making available goods to the
satisfaction of the consumers. It was to achieve the these objectives that the Bureau of
Indian Standards has been set up as a statutory institution.
Agricultural Produce Grading and Marketing Act (AGMARK) (1937)
This Act provides for grading and standardization of agricultural commodities. The
main commodities graded are -vegetable oil, ghee, cream, buttel; eggs, wheat flour,
rice, cotton, gur, maize, honey and ground spices. The graded goods are stamped with
the seal of the Directorate of Agriculture, Marketing and Inspection, Millist~yof Rural
Areas and Employment - AGMARK. The seal is an assurance of quality and purity
to the buyers of the agriculti~ralproducts. In case AGMARIC goods are found to be of
poor quality or defective, the consumer can co~nplai~i to the Agriculture Marketing
Advisor at Directorate of Marketing and Inspection. Defective goods are replaced free
of cost or money ref~~nded. Witli amendments of 1986, there is now a provision for
penalty for misgrading and counterfeiting grade, designation mark- imprisonment upto
6 months and fine not exceeding Rs.5,000. Consumer organisations have been
authorized to draw samples for testing.
Government Agencies
To enforce tlie laws, the Government has established a ~iumberof regulatory agencies
like the Bureau of Industrial Costs and Prices, the Agricultural Prices Co~nlnissionand
tlie MRTP Commission.
The Bureau of Industrial Costs and Prices was establislied by the Gover~imentin
1971 to collduct enquiries about industrial products and recommended prices.
Nature and Scope The Agricultural Prices Commission was set up in January 1965 to advise the
of Marketing
government on pricing policies for agricultural commodities.
The Governmerit has also framed rules like the Prevention of Food Adulteration
Rules, 1955 and the Standards of Weights and Measures (Packaged
Commodities) Rules, 1977 to enforce the provisions of the related Acts. The
enforcement of these Acts is the responsibility of the Central and the State
Government.
The MRTP Commission has been established by tlie Government under Section 5 of
the MRTP Act, 1969. The Com~nissionmay inquire into (a) any restrictive trade
practice; (b) any monopolistic trade practice; and (c) any unfair trade practice.
I
In the case of restrictive and unfair trade practice, the Com~nissionmay proceed:
i) upon receiving a complaint of facts which constitute such practice from ally
trade association orfuom any consumer or a registered consumers'
association, whether the affected consumer is a member of that consumers'
i
association or not;
ii) upon a reference made to it by the Central Government or a State Government;
or
iii) upon an application made to it by the Director General; or
iv). upon its own knowledge or information.
In the case of monopolistic trade practice, however, the Commission may proceed:
i) upon a reference made to it by the Central Government; or
ii) upon a reference made to i L by tlie DGIR; or
iii) upon its own knowledge or information.
In respect of co~liplaintsreceived from a consumer, registered consumers association
I
and trade associations directly, the MRTP Cornmission has to make a preliminary
investigation through its Director General of I~lvestigationto satisfy itself that the
complaint deserves a full-scale inquiry. Public interest groups have also grown up
during the last two decades or so. These groups try to influence both governlnent as
well as business to pay more attention to consumer rights. They even take the matter
to a law court to get justice to affected consumers against unfair dealings on the part
of business enterprises.

2.6 MARKETING IMPLICATIONS OF SOME

REGULATIONS
The objective of MRTP Act, as amended by the Amendment Act, 199 1, is to curb
monopolistic, restrictive and unfair trade practices and these have relevance from
the point of view of decision making with respect to 4Ps of tlie marketing mix.
If the Consumer Protection Act becomes effectively enforceable, it would be really
difficult for marketers to ignore the interests of consumers in taking decisions about
different components oftlie marketing mix.
The Industries (Development & Regulation) Act also is one of the major economic
laws of the country which has been designed to regulate tlle industrial activity.
Certain legislations which affect marketing decisions like the Indian Contract Act
1972, the Sale of Goods Act 1930, the Companies Act 1956, the Trade Marks Act.
1 999 and the Bureau of Indian Standards Act 1986, apply to every undertaking,
irrespective of the nature of product sold or service rendered.
As against tliese, there are other laws which seek to regulate marketing decisions Mnrketing Environment
of undertakings engaged in specific industries only. Some of these are the
Industries (Development & Regulation) Act 1951, the Prevention of Food
Adulteration Act 1954, tlie Drugs and Magic Remedies (Objectionable
Advertisements) Act 1954, tlie Essential C~mmoditiesAct 195 5, and the Sales
Promotion Employees (Conditions of Service) Act 1976.
All these Acts, thus, affect decision-making in relation to different elements of the
marketing mix. The following are some examples to illustrate these. In the area of the
product, the government control may affect decision-making with regard to product-
line expansion, product quality and safety, provision of adequate and efficient services,
packaging, labelling, and branding, sizes and shapes of packages, information to be
given on tlie wrapper or container, claims with regard to sponsorship, performance,
characteristics, etc., warranty or guarantee provisions and the after-sales service. The
decisions that may get affected in the context of regulation of pricing practices by tlie
Government may concern collusive price fixing agreements, re-sale price maintenance
and agreements for price control to eliminate conipetition, or competitors and also
excessive, deceptive, bargain or bait pricing. So far as advertising, sales promotion and
personal selling is concerned, the government tries to regulate activities like false,
misleading and deceptive advertising, bait advertising and prize contests and other sales
promotion devices. T l ~ other
e decision areas concern t l ~ euse of deceptive or
confusing trade marks, use of advertisen~entsto cause the ignorant consumer to resort
to self-medication with harmful drugs and appliances and regulation ofthe service
conditions of sale personnel of pliar~naceuticaland other industries that may be
covered. Tlie main aspects in relation to wliich the government tries to exercise
control in respect of cl~annelsand distribution decisions relate to restrictive and unfair
trade practices like lloardingand cornering ofgoods, refusal to sell goods or provide
services, etc., and arrangements like sole selling agency agreements, tie-up sales,
boycott, exclusive dealing, territorial restrictions, full-line forcing, re-sale price
~nai~ltenance, etc. The marketer must ensure that his decision in all these fields
conror~nto the relevant provisions of the various Acts.
Check Your Progress B

1) List tlie legislations wliich apply to all business undertakings.

.................................................................................................................................
2) List tlie legislations wliich affect certain specific industries.
 i) One of the reasons for Government control of business is to prevent
environmental pollution.

ii) One of the main objectives of the Consumer Protection Act is to provide
redressal meclianism to the consumers against unfair trade practices.

iu) Agricultural Prices Commission advises the Government on pricing policies

for agro-based industrial products.

iv) All the regulat6ry measures that affect marketing are within the purview of
Central Government only.

v) The MRTP Act intends to control concentratioli of economic power.

4) Fill in the blanks:

i) The Act which prohibits the sale of adulterated food products is ............

ii) ............... Act governs the transactions of sale and purchase of goods.
iii) .......................... Act specifies the quantities in which certain products
can be packed.,

iv) ........................... Act provides for the protection of environment.

LET US SUM UP
Marketing decisions of every business organisation is influenced by a large number of
uncontrollable factors that surround tlie company. A company's marketing
environment consists of the factors and forces outside the mal-keting that affect
marketing management's ability to develop and maintain successful transactions with
its target consumers..
These enviro~imentalfactors may be classified as micro environment and macro
environment. Micro environment refers to the companies immediate environment,
that is, those environmental factors that are in its closer circle. They include the
company's own capabilities to produce and serve tlie consumer needs, the dealers and
distributors, tlie competitors, and the customers. Tliese are also tlie groups of people
who affect tlie company's prospects directly. The macro environment consists of
larger societal forces, which may be placed in an outer circle. These include
demographic, economic, natural, tech~iological,political and cultural forces. Tlie
influence of these factors are indirect and often take time to reach the company.
Macro environmental factors are totally uncontrollable by the firm whereas micro
environmental factors may be coiltrolled to some extent. It is necessary for tlie
cornpany to scan the ever-changing environment continuously, and adopt marketing mix
strategies in accordance with tlie trends and developments in the marketing
environment.
A number of laws' affecting business have become operational over the years in India.
Some of the legislations apply to every ~~ndel-taking, irrespective-of the nature of tlie
product sold or the service provided by it like the I ~ ~ d i aContract
n Act, Sale of Goods
Act, tlie Companies Act, the Trade Marks Act and tlie Standards of Weights and
Measures Act. As against this, there are certain legislations which seek to regulate
certain decisions ofundertakings engaged in tlie specific industries. These include tlie
Industries (Development & Regulation) Act; the Drugs and Magic Remedies
(Objectionable Advertisements) Act; tlie Preventive of Food Adulteration Act; the
Essential Commodities Act.
 Marketing Environment
2.8 KEYWORDS
Macro Ellvironment : Large societal forces which exert influence on firm's
marketing system. It includes demographic, economic, natural, technological, political,
legal and c~llturalforces.
Marketing E~lvironment: Tlie factors and forces outside the marketing tliat affect
marketing ~na~~agement's
ability to develop and maintain successful transactions with
its target customers.
Marketing Intermediaries : Firms which help the company in promoting, selling
and distributing its goods to ultimate consumers. They include middlemen,
transporters, marketing ser.\liceagencies and financial intermediaries.
Micro E n v i r o ~ ~ r n e:~Tlie
~ t environmental factors that are relevant to the firm. It
includes organisation's internal environ~nent,suppliers, market inter~nediaries,
customers and competitors.
Suppliers : Firms tliat supply c o ~ i s ~ ~ ~ n aand
b l eraw
s ~naterialsto tlie company.

2.9 ANSWERS TO CHECK YOUR PROGRESS

B. 3) i) True ii) True iii) False iv) False V) True
€3. 4) i) Prevention of Food Adulteration Act, 1954

ii) Sale of Goods Act, 1930

iii) Standards of Weights and Measures Act, 1976
iv) Environment (Protection) Act, 1986

INAL QUESTIONS
1) What is marketing environment? Describe the macro environlneut and micro
environment of marketing.

2) I-low do environltlental factors affect marketing policies and strategies?

3) What is marketing environment? Briefly explain tlie marketing environment in

India?

4) Compare and contrast a company's micro and macro environments.

5) Briefly explain various regulations that affect the marketing decision in India.

6) State various regulatio~isaffecting marketing in India and explain their

iniplications.

Note: Tliese questions will help you to understand tlie unit better. Try to write
answers for then?. But do not submit your answers to the University.
Tliese are for your practice only.
UNIT 3 MA TING INFO ATION
AND SEARCH
Structure
3.0 Objectives
3.1 Introduction
3.2 Marketing Information System and its Components
3.3 Information Needs in Marketing
3.3.1 Market OpportunitylThreat Analysis
3.3.2 Search for Causes or Alternatives
3.4 Developing an Effective Marketing Information System
3.5 Marketing Research -Meaning and Nature
3.6 Purpose of Marketing Research
3.7 Scope of Marketing Research
3 -8 Marketing Research Process
3.8.1 Problem Definition
3.8.2 Determining Research Design
3.8.3 Field Work and Data Collection
3.8.4 Data Analysis
3.8.5 Report Preparation and Presentation

3.9 Marketing Research in India

3.10 Summary
3.11 Key Words
3.12 Terminal Questions
3.13 Further Readings

3.0 OBJECTIVES
After studying this unit, you should be able to:
to explain importance of information in marketing decision making;
to state meaning and components of marketing information system;
to identifjl marketing managers' information needs and understand as to how one
should go about developing marketing information system for an organisation;
to describe meaning and nature of marketing research;
to develop an appreciation of purpose of marketing research and its scope;
to explain the process of conducting marketing research; and
to gain familiarity with the usage of marketing research in India.
 Mnrketing lnformntion
3.1 INTRODUCTION and Research

We have observed in the preceding units that marketing management is

esserltially a decision making process. Be it marketing planning, organization or
co~ltrol,the marketing manager has to make decisions as to which markets to
enter, how ~nucllto sell different types of products, how to organize marketing
activities, what marketing strategies to use and how to deal with sho~tfallsin
sales observed at llle end of a given period. Earlier the decision making was quite
sirnple and a straight forward task because of slnaller scale of operations and
lower level of co~npetitionin the market. But tlle decision making today has
become very complex in the wake of increased competition and fast changing
marketing environment. It is 110 longer possible for the marketers to make
decision simply on tlle basis of their gut feelings or past experiences. They need
to collect all the relevant information before arriving at any decision. Somebody
has riglltly said that the success of any business depends i~pontlle quality of
decision making, and tlle quality of decision making in turn depends upon the
quality of information used in the decision making. Little w~rprisingthat marketing
managers are today constantly seeking high quality informatio~~ to improve the
quality of their decision-making.Tllis essentially requires an efficient marketing
information systeln and marketing research.
Tlle present unit aims at discussing as to wliat marketing information system is
and how one goes about designing a marketing infonnation system. Marketing
research which is a major component of marketing information and most widely
used by the marketing managers to collect various types of informatio~~ for
decision nlaking is discussed ill detail and tlle unit ends with a note on usage of
marketing research in India.

3.2 MARKETING INFO ATION SYSTEM

AND ITS COMPONENTS
Marketing Managers often conlplain that there is not enough marketing
information ofthe right kind for good decision making. At the same time, the
problem of some managers is that they suffer from oversupply of wrong kind of
infor~nationand they have to waste a lot of time in searching the right kind of
information from the whole lot of infor~nationsupplied to them. Another nlajor
con~plaintmade by the marketing lnanagers is that the required infor~nationis so
widely dispersed Il~roughoutthe organisation that they have to make a great deal
of efforts to locate simple facts. Important marketing information is quite often
suppressed by the si~bordi~lates if they feel it will unfavoul-ablyreflect on their
performance. Marketing managers in many organizations are equally critical of
the fact that the important infor~nationarrives too late. All these proble~ns
co~npoundt l ~ emarketing manager's decision making tasks and, ~ ~ n l e s s
satisfactorily solved these call severely affect the business performance. A
properly planned and executed marketing information systeln goes a long way in
assessing the information needs of marketing managers and supplying them with
the required information iu time to facilitate better decisioil making.
Marketing information system can be defined as a set of procedures and
methods for the regular and planned collection, analysis and presentation
of information for use in making marketing decisions. As a set of
procedures and methods, ~narketinginforrnatio~~ system ellsures timely collection
and supply of objective, reliable and valid ii~formatio~l
to the marketing managers
on a regular basis to enable them to make informed decisions. Marketing
infonnation system is an elaborate system that comprises of various subsystems
Nature and Scope used by an organizatioli forcollecting, processing and storing information
of Marketing
required from time to time by the marketing managers.
Figure 3.1 shows various components of the marketing information system and
also depicts linkages of the marketing information system and its sub-systems
with the marketing environment and marketing managers. Marketing
managers make decisions keeping in view the marketing environment wliicli
comprises of target market customers, competitors, distribution channels,
general publics and the broader environmental forces such as demographics,
technological breakthroughs, income levels, economic policies, marketing
legislations and political ideology and stability ofthe ruling government.
Marketing information system is so designed that it collects the relevant
information on a regular basis form the marketing environment external to the
organization and supplies the same after necessary editing and processing to
the marketing managers to aid their planning, organization and control
activities. Marketing decisions made by tlie company executives and action
plans developed by an organization in the light ofthe collected information
soon get conveyed to other players in the market and all sucli information
becomes a part of the larger marketing environment. Other firms using their
marketing information systems come to know of these competitive actions and
other market, and evolve their marketing policies and strategies. Like in the
case ofthe first firm, the decisions made and actions taken by tlie competitors
soon become part of the larger environment and get known to other
participants in the market. The process thus continues in a circular way,
enabling each organization to know through its marketing information system
as to what is happening in the market and how it should respond to the
changing milieu.
Components of Marketing Information System
As shown in Figure 3.1, a company can make use of four subsystems - also
called as the components of the marketing infomzation systenz - to collect
tlie information about its marketing environment. The four components are:
internal reporting system, marketing intelligence system, marketing
research system and analytical marketing systenz. These are discussed in
detail in the following paragraphs.

a) Internal Reporting System: Every company has a system of reporting

events and decisions within the organization. This is known as internal
reporting system. The internal reporting system supplies management
with variety of information, including tlie ones related to mal-keting
operations and decisions. The internal reporting system basically
disseminates result data such as orders received, sales made, inventory
levels, accou~itsreceivables and bills payables. Tlie system enables the
marketing managers to know as to which one of its products and brands
are selling well in wliicli markets and in which seasons. All tliis
information can be very ~ ~ s e fto
u ltlie managers in deciding as to in which
product lines and markets to invest more, and from which pl-oduct lines
and markets the firm should divest. The system can be extremely useful
to the marketing managers if it is able to provide all such information
quickly and accurately.
Not much additional costs or efforts are needed to evolve tliis system in
an organisation. Wliat is required is simply greater cooperation among
various departments in preparing product, market and period-wise sales
and expense statements, and passing on tlie same on a regular and timely
basis to the marketing managers so as facilitate their decision making.
 I I Marketing Information
Marketing Information System and Research

Marketing

Marketing Analytical
intelligence marketing
system system

Marketing decisions and communications '

I Figure 3.1: Marketing Information System

Source : Adapted from Philip Kotler, Marketing Management: Analysis, Planning and Control, 5"'
edition, Prentice Hall, Englewood Cliffs, 1984.

b) Manrketing Intelligence System: It supplies the management with the

happening data. Marketing intelligence system refers to informal search of
information on a continuous basis from various sources- both internal and
exter~ialto the organisation. Managers, for example, can gather valuable
information by talking to different executives working in the company, company
sales force, dealers, wholesalers, retailers, customers and other participants in the
market.
Observation of events as and when they occur in the market is an important way
of collecting the market information. Just walking around tlie market place and
observing what products are displayed in the window displays and shelves in tlie
retail stores, which types of people are buying which types of productslbrands and
how competitors are,advertising and promoting their products in tlie market can
provide valuable insights to the marketing managers in devising their marketing
strategies. Reading newspapers and magazines, buying competitors' products,
and buying marketing reports from marketing research agencies and industry
associatio~isare other ways of gathering information about market developments.
Marketing Research System: While tlie other two systems discussed above
( c)
provide information of general nature to the marketing managers, marketing
research system aims at collecting and disseminating informati011relating to a
specific marketing problem faced by the decision makers of the firm. First a
formal plan is developed to decide as to which specific information is needed and
then this information is collected from such specific secondary and primary data
sources as can supply the required information at ~ninirnu~n costs to the firm.
Though marketing intelligence system appears quite similar to marketing research
system, the two systems are different from each other. While marketing
intellige~lcesystem collects information of general nature on a regular basis,
marketing research system is employed for gathering specific information as
required to solve a speczjic marketingproblem. The other major point of
difference between the two subsystems is that while the former collects
information more on a regular basis through ways such as daily reading of
Nature and Scope newspapers or frequently visiting the marketplace to observe retailers' and
of Marketing
competitors' behaviours, marketing research studies are conducted mostly on
adhoc basis as and when some a specific marketing problem arises.
Furthennore, while marketing intelligence system employs informal methods of
data collection, marketing research makes Lise of more jbrmal and scient$c
methods of data collection so as to ensure higher degree of accuracy and
reliability of the collected infornlation. We shall refer to some of these aspects ill
more detail in Section 3.5 while discussing meaning and nature ofmarketing
research.

d) Analytical Marketing System: It is concerned with building and using

marketing models and techtiiq~~es to analyse the information available with the
organisation and/or to better understand, predict and control the marketing
process. It so happens that the three systems describe above provide so
voluminous data to thz managers that is not possible for the marketing managers
to directly assimilate and use them in decision making. Analytical ~narketing
system comes to a great rescue to the marketing nlanagers by condensing and
simplifying the collected data, and presenting them in a form easily understandable
to the marketing managers.

Activity A
Talk to marketing manager in your film (or else in some other firm you can easily
approach) about different types of information used by him during the last three months
for making marketing decisions. Try to ascertain as to which one(s) of the f o ~ ~ r
co~nponentsof the marketing information system explained above are used in the firm
for generating and dissen~inatingthe required to information the marketing manager.
Information Used Component of marketing
information system used for
r ion
collecting informqt'
-
P l

1.

2.

3.
4.
5.
b "

6.
7.
-
8.
9.
10.

INFORMATION NEEDS IN MARKETI[NG

Marketing information system plays an important role in providing all that information that
the marketing managers need in making strategic as well as tactical marketing decisions.
Marketing managers need a variety of i~lfor~nation so as to be able to discover market
opportunities and threats, select target markets, develop suitable marketing mix strategies
and periodically evaluate the firm's marketing perfdrmance. Exactly what information is
 I

needed depends upon the specific marketing management task being faced by the manager Marketing Information
and Research
and his accumulated experiencehowledge and time frame involved in tlie decision making. I

Broadly speaking, a marketing manager faces two broad types of marketing tasks:
(1) nzarket opportunityhhreat analysis, and ( 2 ) search ,for causes/alternatives, ,for
making marketing decisions. Each of these types of marketing management tasks
along with the specific inforn~ationneeds is discussed below.

( 3.3.1 Market Opportunity Threat Analysis

The first task relates to market opportunity/threat analysis. This is accomplished
by undertaking either situation analysis or company performance analysis.
Situation analysis involves a detai.led analysis of various components of company's
marketing environment. The information needed by the marketing manager to
understand marketing environment is as follows:
a Demographic environment: Population size and growth rate, gender ratio, age
structure, population density and mobility.
Competitive environment: Extent and liature of competition in the market.
( a

Support environment: Availability, quality and cost of power, labour, raw

~naterials,compone~~ts and ~nacliines;quality and costs of advertising and
research services, availability and costs of middlemen, etc.
a Economic environment: GNP and per capita income; interest rate; inflation;
econolnic and commercial policies.
/ Technological environment: Level and cost of technology adoption.
.a Socio-cultural environment: Religions, languages, education levels, aesthetics,
beliefs and attitudes, lifestyles and business customs.
Political and legal environment: Ideology of different political parties, stability
of goven~ment,various marketing legislations.

I Most of this i~lfor~nation

is usually collected from the external secondary data sources.
The other kind of analysis il*dertaken to ilnderstarid market opportunitiesltlireats is
referred to as company performance analysis. By undertaking an analysis of thc
company's past performance, a manager is able to identify productslbrands and
market segments where company is doing well, and as such constitute opportunities
for the cornpany for further growtl~and investments. Product lines or market segments
where company is not performing well or where company is witnessing constant
decline in its saleslprofits represent areas of threats and concerns for the company.
For undertaking such an analysis, a ~narketiiigmanager requires sales and nlarketing
expenses data for the colnpaliy as well as for the industry as a wliole. For an effective
analysis, overall sales and marketing expenses figures alone are not sufficient. What is
required is product-, brand-, area- and period-wise breakup of the company and
industry sales and marketing expenses. Most of this information is colleqted from the
company's accou~itingrecords and tlie trade and indust~ypublications.
3.3.2 Search for Causes or Alternatives
Tlie other kind of managerial task faced by a nlarketi~igmanager relates to search for
causes or alternatives pertaining to a marketing problem. In case a lnarketing
manager finds a product not performing as per the compa~iy'sexpectations, he needs
information about possible causes of poor product performance in the market. Since
the reasons might relate to short term as well as long term factors, and ~niglithave
their origin in price and non-price factors sucli as product quality, image, promotion or
distribution; a marketing manager needs detailed infor~nationon all sucli aspects before
he car1 be sue as to what exactly are the factors responsible for poor product
performance. In a similar vein, a marketing manager requires infortnation from a
Nature rnd Scope variety of sources such as customers, retailersldistributors, salesman and competitors
of hlarketing
to identify possible alternatives for improving the product acceptance and sales in the
market. The information needed in this connection is generally collected from the
secondary as well as primary data sources both internal and external to the company.
Once the marketing manager knows as to what reasons are responsible for poor
performance of a product in the market and what alternatives exist to improve the
company sales in future, he needs to make a final decision about the specific course of
action to be taken among several alternatives. To be able to make a final decision,
marketing manager requires information about the possible costs and outcomes
associated with each ofthe identified alternatives along with the information about
uncertainties associated with each outcome. Most of this information is collected first
hand from the sources internal and external to the organization.

DEVELOPING AN EFFECTIVE MA TING

INFO ION SYSTEM
To be useful to the marketing managers, it is imperative that the marketing information
system be carefully designed and set up in the organization. A system developed
haphazardly 01. copied blindly form other organisations might prove to be a drag on the
company resources. The following steps can be helpful in developing an effective
marketing information system:
I) Determining Decision Makers' Information Require~nents:The first and
foremost step in designing an efficient and effective marketing information system
is to ascertain information needs of the decision makers. The system should be so
designed that it is able to timely and efficientlysupply the information requi~.edby
the managers in decision making. A marketing information system should be able
to supply the information for making both the strategic and tactical decisions.
Strategic decisions are the decisions which have long term implications and entail
major investments. Whether to enter into a given market or not, which market
segments in the given market to be targeted and what positioning strategy should
be used are examples of strategic decisions. The tactical marketing decisions, on
the other hand, are the decisions having short term implications and are made at
the lower levels of management. Sllould a company react to changes in price by
the competitors, and, if yes, by what amount; what distribution mode to adopt to
deliver the goods to a particular customer by a stipulated date, etc. are the
decisions which come under the category of tactical decisions.
The determination of information needs of the managers is a delicate task and
sllould be handled with utmost care. Supply of more information is as
dysfunctional as is the provisio~iof less than sufficient information for effective
decision making.
2) Establishing Data Collection and Storing Procedures: Elaborate procedures
sl-lould be laid down to ensure timely and efficient collection, processing and
storage of infor~nationin the organization. In the absence of such procedures and
guidelines, either right type of data might not be gathered or else these might not
be properly processed and stored to be of any use to the decision makers. Tllere
should also be a clearly laid down provision for periodically updating the data so
as to keep the management abreast of latest developments in the market.
3) Determining Procedures for Information Utilisation: Procedures are also
required in respect of the analysis and usage of the collected marketing
information in the organization. Marketing managers should be well aware of
what information is available in the organization and how they can use the same in
decision making. Steps must be taken to ensure that the information is timely
supplied to the managers as and when the require it. The decision makers should
 be made familiar with the procedure used in data collection and processing stages Marketing Information
and Research
so that they can assess the extent to which they can rely upon tlle information.
The system sl~ouldbe so designed that it is user friendly and, if required,
managers on their own should be able to retrieve and make use ofthe stored
information.
4) Proper Linkages among Compone~itsof Marketing Information System:
Each of the four co~npo~lents or sub-systems of the marketing information system,
viz., internal reporting system, marketing intelligence system, marketing research
system and analytical marketing system, should be properly linked with each other
and their should be utmost coordination among them to ensure attainment ofthe
colnlnon end, i.e., provision oftimely and reliable information to the marketing
decision makers. In a nutshell, what the company should strive for is an integrated
marketing information system.
5) Efficient, Reliable and Flexible System: A good marketing system is one that
is able to provide quickly and reliable information to the decision makers at the
minimum possible costs to the company. Furthermore, the marketing information
should be so designed that it is capable of coping with the changing marketing
environment and informatio~lrequireme~ltsofthe decision makers in the
organization.
In brief, a good marketing information system is one that is user oriented. It should be
able to meet the ~nanagers'current as well as future infor~nationneeds. Both the
operating and suppol-tingsystems should be installed as capable of supplying
information required for day to day decision making as well as for strategic marketing
analysis and planning.
Activity B
FIold discussions with tlle marlceting manager(s) in your organization so as to ascertain
wlletller a system exists in the organization to collect and provide the information
required by the marketing managers and, if yes, to whal: extent the system can be
considered effective in ~neetingtheir information requirements. After talking lo the
managers, answer each of tlle questions given below. (Alternately you nlay get in
l l another organization and complete this activity in respect of that
t o ~ ~ cwith
organisation).
a) Does the organization have a formal marketing information system?

b) Which of the conlponents of a marketing information exist in the organization for

collecting and analyzing the marketing information?

c) Is the ~narketinginformation system able to quickly provide the information to the

nlarketing decision makers? ( >Yes ( ) N o

d) Is the marketing information system able to provide the managers all the
infornlation they need for effective decision making? ( >Yes ( )No

e) Do the managers find the iufor~nationsupplied to tllellt as reliable and accurate?

f) Is the information supplied easily understandable and usable by the marketing

managers? ( >Yes ( ) N o
Nature and Scope
of Marketing 3.5 MARKETING RESEARCH -MEANING AND ,
NATURE
In the preceding sections, we observed that marketing researcli is one of tlie
components of marketing i~iforrnatio~isystem. Since marketing researcli is an
important way of collecting information needed by marketing managers for decision
making, we must discuss it in detail.

Simply speaking, research means a systematic and objective investigation of a

subject or a problem in order to discover relevant information or principles. When
applied to solving marketing problems, it is known as marketing researcli. In order
to understand the'term marketing researcli more tliorouglily, let us have a look at a
few definitions provided by the experts in tlie field.

Green, Tull and Albaum (1997) defined marketing research as "The syste~naticand
objective search for and analysis of i~ifonnationrelevant to tlie identification and solution
of any problem in tlie field of marketing."

The definition provided by Malhotra (1 999) - a leading marketing ~.esearcllexpert in

the United States - is almost similar. According to him, iiiarl<etingresearch is "the
systematic and objective identification, collection, analysis and use of information
for the purpose of improving decision making related to the identification and
solution of problems (and opportunities) in marketing."

Let us also have a look at the definition provided by American Marketing

Association (AMA) which is considered to be the leading body of marketing
professionals and academicians in the world. Earlier, AMA had defined marketing
research as "the systematic gathering, recording and analysing of data about
problems related to the marketing of goods and services". In 1986, AMA adopted
a new definition ofmarketing research wliicli is give11below in Exhibit 3.1. Though
the new definition is more elaborate, it is riot as succinct as the earlier one. For
purposes of better comprehension, we can continue to fall back upon AMA's earlier
definition of marketing researcli.

II Exhibit 3.1

AMA Redefines Marketing Researcl~

"Marketing research is the [unction which links the consumer, customer, and public to the marlteter
through information information used to identify and define marketing opportunities and problems:
generate, refine, and evaluate mnrketing actions; monitor marketing performance; and improve
undcrstanding of marketing as a process.

Marketing research specifies the information required to address these i s s ~ ~ edesigns

s: the method for
collecting information; manages and implements the data collection process; analyses the results; and
communicates the findings and their implications."

Source: "New Marketing Research Definition Approved", A4arketing News, VOI.2 I , January 2, 1087.

Tliese definitions clearly point to the following three liey c1hn~acteristic~s

of
marketing research which enable 11s to differeiitiatc it from oilier components of
marketing information system discussed in Section 3.3.

a) Marketing research is a systematic process of data collection. By the term

'systematic' we mean llint marketing rescarcl~is a Sornial arrd ylarined
process. It is decided beforehand as to what ilte nrarketing problem i s and
 what information is required to be collected to solve the given marketing Marketing Information
and Research
problem. It is also decided in advance as to whicli methods will be used to
collect the desired information and from whicli sources. These aspects that we
will explore in detail in Section 3.7. Unlike in marketingresearcli, one does not
go in for collecti~iginformation systematically under the marketing intelligence
system. Moreover, while using marketing intelligence system one is neither
clear as to wliat information is to be collected nor one l<nowswhat source(s)
and inetliod(s) to be used for collecting tlie information. One collects the
information whateves he or she comes across while talking to the salesmen,
dealers or custoniers and lnoving around the market.

b) Objectivity in data collection and analysis is the second important

cliaracteristic feature of marketing research. The marketing researcher does
liis or her best lo ensure that tlie information being collected is free from
persolial biases and prejudices. Those data collection methods and sources are
used which appeal- to be relatively more objective and reliable.

c) The other major characteristic of ~narlcetingresearcli is its clear cut focus on

a given marketing problem. Tliis is quite in contrast to internal reporting
and marketing intelligence systems where information of general iiature is
collected witliout any specific problem in mind. For instance, wliile going
tlirougli tlie montlily sales report or talking to a salesman, one miglit come to
know that sollie products are not doing well in tlie market. This insight though
i~sefulis not a part of niarketing research as it has not been collected
pi~rposivelyin a formal manner. The rnanage~nentlias conic to know of this
development j ~1stby chance while casually glancing over the monthly sales
rcport or talking to salesman in a routine manner.

PURPOSE OF MARKETING RESEARCH

The basic purpose of marketing researcli is to facilitate decision inakii~;:procclss.
Marlteting researcli lielps the decision maker by clarifying the sit~lationor p r ~ b l e ~ i i
hc is confronted with and by diag~iosingthe reasons responsible lol.!Iie protiem ~ n d
idenlifying various alternatives that can help solve the given marketing problelii. I n
tlie absence of marl<etingresearcli in tlie present day marketing environment,
neither the marketing proble~iiwould be correctly identified, nor is it likcly ihat a
right marketing decision would be arrived at. By identifyinga number of alternates
to choose from along with tlie lil<elyoutco~neof each choice, marketing researcli
makes tlie task of making. 11ial.ketingdecision much easier.

Marl<etingresearch not only makes tlie decision making process sinipler, but it also
reduces tlie risks associated with the decision-making proccss. Tlie risks arise
because of uncertainty of what will Iiappen in future. For instance, it is never
certain as to how the custo~nersor distributors would beliave in fi~tureor the
manner in which tlle conipetition will react. To tlie extent tliat researcli provides
information about tlie fi~ture,it anticipates ilie fi~tureand provides tlie manager
with a soi~ndbasis for liis decision-making. However, one cannot overlook tlie fact
that researcli callnot provide perfectly exact or accurate information. U~icertainty
about the expected outcome oftlie decisions will always reliiain there, no matter
how nii~chinforniation one has collected to base one's decision on hard facts.
Example provided in Exhibit 3.2 is a case in point. But since tlie ~narketing
research is based on scientific ~nelliodsof data collection and analysis, its tindings
and projections, at the least, provide a definite trend of scenarios for filture
clecision-mal<ing.
Nature and Scope
of Marketing Exhibit 3.2

Marketing Predictions Can Go Away

Unforeseen factors have the uncanny ability of upsetting even the most stable apple cart. In the nlid
1950s, Ford Motor Company in USA had a 25 per cent market share of the automobile market segment.
The company wanted to introduce a new car model which would appeal to young executives and
professionals. The decision was based on research which revealed that this market segment accounted
for 25 per cent market and was expected to grow to about 40 per cent. Ford spent colossal amounts
researching and designing the new model which was named Edsel. When introduced in the market the car
was a total flop. This happened because of occurrence of three unforeseen events. Firstly, the youlhful
car market segment did not grow as rapidly as the market research had indicated. Secondly, the recession
also set in at about this time and people began looking for more economical means of transportation.
Thirdly, there was a sudden change in customer tastes, with people turning away from flashy exteriors,
and the flamboyant Edsel was totally out of tune with new taste for austerity and functional simplicity.
This example highlights the fact that despite best research effort the outcome can still be unpredictable.
As Reynolds, a former Ford executive, commenting on the Edsel fiasco, commented, "If is hard to see
how anyone could, given the kind of car market !hat existed in 1955 and 1956 have anficipated such
trends... ".

The third purpose of market research is to help firms discover market opportunities
which can be profitably exploited. These opportunities may exist in the form of
untapped customer needs and wants not catered to by the existing firms. Food
Specialities Limited (marketers of popular brands such as Nescafe Coffee and
Lactogen milk powder) in India someti~neback introduced a dairy whitener (as a
substitute for milk) called 'Every Day' for making tea and coffee. The product turned
to be a big success for being most convenient to use in offices where tea and coffee is
consu~nedin large quantities, but fresh milk is not easy to procure. Every Day fulfilled
a slot in the market which was not being catered to by the existing milk powders.
Activity C
Does your organisation make use of marketing research to improve the quality of
marketing decisions? Give one or two specific instances, describing the marketing
situations/problems in which marketing research was used. Alternately you may get in
touch with anotller organization and colnplete this activity in respect ofthat
organisat ion.

........................................................................................................................................

3.7 SCOPE OF MARKETING RESEARCH

I

Marketing research is quite pervasive in nature and call be used by the marketing
managers at all levels of managerial hierarcliy for discharging various managerial
responsibilities. Be it marketing planning, organisation or control; rnarketingresea~.ch
comes to a great help to the marketing lnatlagers in performing their duties. At the
marketing planning stage, marketing research can be used to develop an ui~derstanding
ofthe market situation and identi@ market opportunities and threats. It can also be
used for estimating market and sales potentials, fixing sales targets and marketing
budgets, dividing the market into different segments, selecting the target niarket(s) and
developing appropriate positioning and ~narketingmix strategies.
E q ~ ~ a limportant
ly is the use of marketing research in organization and control of Marketing Information
and Resenrch
marketing operations. Marketing managers make use of marketing research to decide
about tlie appropriate organizational structure - product or area based, laying down
sales territories and determining the number of sales people to be recruited for
adequately covering the target market customers. At the end of a given period - may
be towards tlie end of a month, quarter or a year, marketing research can be used to
gather sales data for comparing them witli tlie sales targets for purposes of marketing
control. If any shortfalls in sales targets are detected, reasons responsible for such
shortfalls can be identified with the help of marketing research. With an equal zest,
marketing research can be employed by the marketing managers to explore
alter~iativesto correct the shortfalls in sales in future.
The other way of understanding the scope of marketing research is to have a look at
its applications in various marketing decision areas. Based on the nature of marketing
decisions for wliich it is used, marketing research is classified as (a) market researcli,
(b) colisulner researcli, (c) product researcli, (d) pricing researcli, (e) advertising
research, (f) distribution research and (g) sales research. Each of these types of
marketing research applications are discussed below.

i) Market Research: Market research is a part of marketing research, and as

such it should not be confi~sedwitli marketing researcli which is much broader
activity and includes market research as well as other kinds of marketing
researcli applications such as consumer research, product research, pricing
researcli, advertising researcli and sales research.
Market research is a study of market that is undertaken with a view to determine
size and growth of tlie market, and to identify factors affecting the market.
Before entering into a market, a marketing manager needs to ascertain whether it
is wortliwliile to enter into the market. Even at tlie marketing planning stage, it is
essential tliat managers know the nature of tlie market and various threats and
cliallenges present in it. It enables the marketing manager to know as to wlio
broadly speaking its customers are anci whether their needs and wants are
Iiomogeneoi~sor heterogeneous. Besides gauzing tlie market potential, forecasting
sales, and estimating market share that a company can possibly attain given its
marketing programme; market researcli helps marketing manager in -
understanding tlie extent and nature of competition present in the market. It also
supplies the information relating to distribution infrastructure and other support
services available in the market. Througli provision ofall tliis information, market
researcli enables a marketing manager to ascertain the opportunities and threats
present in the market.

ii) Consumer Research: You know tliat marketing is an activity wliich is primarily
concerned with identifying and fulfilli~igcustomer needs and wants. Marketing
researcli should, therefore, precede marketing planning and organization.
The u~lfulfilledneeds and wants should be first identified and translated into
technically and economically feasible product ideas, which then should be
marketed to tlie customers. To be able to decide about promotion, pricing and
distribution decisions, you as a marketing manager should know wlio the
customers are for your products (wlietlier housewives, teenagers, children), what
tlieir socio-economic profile is in terms of income, education, cultural, religious
and professional background; and where they are concentrated in terms of
location. Besides this information, it is also important for you to know the process
by wliicli a prospective customer arrives at a decision to buy your product. If you
know the sequential steps in the purcliase process and tlie influencing variables at
each stage, you can design appropriate strategies to exert a positive impact on
them, and thus ensure an actual purchase of your products. All tliis is
Nature and Scopc acco~iiplisliedthrough the use of consunier research - a specialised and distinct
of Marketing
application of marketing research.
Sometime back, Doordarshan conducted audience researcli for determining the
most popular and unpopular programmes, and the consumer preferences for
changes in programme contents and timings. For conducting this research,
Doordarshan inserted a detailed questionnaire in the leading national newspapers
and invited viewers to fill it in and send it back to them. Using this information,
Doordarshan developed plans to revamp its programmes and timing schedules to
cater to the large majority of viewers.
iii) Product Research: The other important application of marketing research
pertains to product development and planning. It is known as product researcli.
Product research is undertaken to determine tlie final design of the product and its
physical attributes such as colour, size, shape, packaging, and brand name. It is
also useful in arriving at the right combination of product attributes and right
product portfolio, i.e., number of variants of tlie basic product, accessories and
attachments which need to be offered to the customers. Product research is
equally used by the marketing managers for evaluating new product ideas, testing
product positioning a~idestimating future sales levels.
iv) Pricing Research: Pricing research is used to fix the wliolesale as well as retail
prices of tlie products. Price research helps in estimating the level of demand at
different price points. Such an analysis reveals tlie extent to which customers are
sensitive to price changes, and provide valuable clues to the marketers in deciding
the final price of the product.

v) Advertising Research: Most companies use advertising to make the consumers

aware of their products and also to provide a boost to their sales. In some cases,
the amount spent on advertising may be small, while in others it may run into
crores of rupees. Irrespective of tlie actual amount spent on advertising, each
company wants to maximise the return on every rupee that it spends on
advertising. Advertising research lielps the firm to accomplish this objective. It
provides infor~nationon the most cost-effective media and provides insights for
determining advertising budget. It is also used for measuring effectiveness of
specific advertisements; advertising campaigns and the entire advertising strategy.
Another important use of advertising research is to collect infortnation on the size
and type of audiences for different advertising media such as different radio
programmes, TV channels, newspapers and magazines. This information is used
to refine the advertising strategy to make it more relevant and sharply focused.
Advertising research is also used for determining the image that tlie customers
hold about the cotnpaliy and its products.
vi) Distribution Research: Distribution research helps in identifying different types
o f distribution channels and retail outlets that are available in the market and
assessing their quality and costs. On the basis of comparative information for
different channels and different types of outlets, one can clioose tlie combination
that is most suitable for a company's product.
Let us consider an example. A firm is marketing refrigerators tliro~~gh distributors
and retailers in tlie Eastern zone. The understanding between tlie firm and
distributors is that tlie latter will provide after sales service to the customers.
Analysing tlie sales figures, tlie firm finds that tlie sales level in Eastern zone is
much lower than in tlie other zones. Marketing research reveals tliat one of the
reasons for this low sales performance is the poor after sales service provided by
the distributor. I11 a liigli value durable product such as refrigerator, quality of after
sales service is an important factor influe~ici~ig the customers' purchase decision
regarding the specific brand to buy. Based on tliis research finding, the firm can
 decide to do away witli the distributor and instead open its own branch office. Marketing Information
and Research
The new distribution channel comprising branch office and retailers is
operatio~lallymore expensive, but the company can now control the quality of
after sales service as well as the other marketing inputs. Though the new
arrangement will entail incremental distribution costs, but this might be more than
compensated by increased sales and higher customer satisfaction.
Distribution research can also be useful in determining the best possible location
for setting LIP a warehouse. A marketing manager can study the movement
patterns of goods to different cities and identify high and low sales potential areas.
The finding coupled with information on rail/road connections can be helpful in
deciding the ideal location for the company's wareliouse in a given region.
vii) Sales Research: Sales research is undertaken by a company to ascertain its
sales performance. More specifically, sales analysis enables a company to know
tlie extent to which company has been able to achieve its sales target and where
it stands in coniparison to its competitors in the marker. When analysed in terms
of brands, customer groups, sales territories arid time period, sales research can
provide useful insights as to whicli brands with which customers groups in which
sales territories and time periods are doing well. This in turn can be helpful in
identifying areas for future investments and divestments. Sales research is also
used for analyzing costs and profitability associated witli different brands,
customers groups and sales territories. This enables the marketing manager to
know whicli brands, ci~stomergroups and sales territories are more profitable and
where tighter cost control measures are needed.

3.8 MARKETING RESEARCH PROCESS

Marketing research is undertaken in order to improve the understanding about a
marketing situation or problem, and improving the quality ofdecision-making. But much
depends on how well tlie whole research process has been planned and carried out.
Marketing research process refers to a series of steps which taken together ensure a
systematic and planned investigation of a marketing problem. Broadly speaking, a
marketing research consists of fol lowing five steps:
i) Problem definition
ii) Determining research design
iii) Field work and data collection
iv) Data analysis
v) Report preparation and presentation

3.8.1 Problem Definition

A problem is any situation which requires further investigation. However, not all
marketing problems need formal investigation or research. Many proble~nsare o f a
routine and trivial liatilre whicli can be solved immediately after ascertaining relevant
facts already available witli the company. Suppose your distributor wants 90 days
credit against tlie usual 60 days because he is facing certain financial problems. You
call immediately check this distributor's past records in honouringliis outsta~idingsand
ascertain the genuineness of his problem and make a decision.
Sometimes marketing managers face marketing problems where tliey do not have
facts with them. What tliey have is some past experience and intuition, and they make
use of them in solving the problems. Such decisions made on judgement may not
Nature and Scope always turn out to be correct, but the problern may not be important enough to justify
of Marketing
substantial time, money and effort being spent on solving it. This usually is the case
with marketing problems which are of routine nature and do not entail much costs.
But when the problem is critical, spending resources on marketing research is
warranted. Also when the problem 'is such that the manager has no past experience to
guide him (as in the case of a new product launch) or when the decision is likely to
have a critical impact on the future of the company (such as diversification into new
markets), it is worthwhile to undertake research and make decisions on tile basis o f
research results rather than depending on gut feelings or hunches.
It is imperative that you properly define the problem to be investigated. Problem
identification and definition is the first and foremost step in marketing research and
should be carried out very carefully. Any haste at this stage can lead to wrong
identification and definition of the problern, and can result in collection of wrong
information. It is correctly said that 'a problem well defined is half-solved.' A clear,
precise and to the point statement of the problem itself provides cues for the solution
and enables the researcher to identify specific information needs to solve the given
marketing problem. On the other hand, a vague, general, or inaccurate statement of the
problem only confuses the researcher, and can lead to wrong problelns being
researched and useless results generated.
Contrast the two following statements of the same marketing problem:
a) Wrong problem definition
Product ......................: Typewriter
Market .......................: West Zone
Marketing research problem: Sales not picking up at the rate at which they
should.
This is a poorly defined problem because it does not specify as to what
information needs to be collected by the researchers.
b) Correct problem definition
Product.. ......................................
: Typewriter

Market ........................................: West Zone, with special emphasis on Bombay,

Pune, Nasik, Ahmedabad, Baroda
Current market share ..................: 17 percent
Market segment ........................ : Non-office customers, i.e., professionals such as
lawyers, doctors, accountants, consultants,
journalists and writers.
Current market share ..................: 3.5 per cent in the non-office segment
Marketing manager's problem .... : In the year 2002-03, our brand of typewriters
achieved only a 2 per cent growl11rate as against
the projected 5 per cent.
Marketing research problem .......: To find out the reasons for the s h o ~ ~ f ainl l the
growth rate in the non-office market segment
and suggest a specific strategy to achieve a 10
per cent market share in this s e g ~ n e n tby
December 2003.
This is correct definition of the problem and researcher can determine in advance
as to what information he is expected to supply to the decision maker.
 Marketing I n f o r l n a t i o n
3.8.2 Determining Research Design a n d Research

Once a problem has been correctly and precisely defined and the researcli objectives1
i~lformationneeds clearly stated, the next step is to determining the researcli design. A
researcli design is a plan tliat guides the conduct ofan investigation and collection of
lieeded information. The decisions concerning data sources, data collectiori methods
and specific research instrument and sampling plan that you will use for collecting the
data come under the purview of the researcli design.
a) Data Sources
There are two important sources of data viz., secondary data and primary data.
Secoridary data are tlie data tliat have been already collected in the past and you can
make use of tliem in solving your ~narketingproblem. A great deal of data such as
those relating to population size and growth, major competitors in tlie market, total
industry sales and market shares of different competitors ancl type of distribution and
marketingsuppol-l services available in a market is collected and publislied periodically
by tlie government organizations, trade and industry associations and research firms.
Various goverliment depal-tments and ministries such as Planning Commission, Central
Statistical Organisation, Reserve Bank of India, Census Co~nmissionas well as private
organizations sucli as FICCI, CLI and PHD regi~larlycollect and disseminate a variety
of information, One can also make use of the dataco~npiledby international bodies like
WTO, UNCTAD, Internatio~ialLabour Organisation, World Bank and International
Monetary Fund. Sucli data are especially useful for the firms operating internationally.
With develop~nentsin infor~iiationteclinology, many a secondary data are nowadays
available online.
Since seco~idarydata already exist in an accessible form, tliese only liave to be
located. You n~ustalways first check whetlier any secondary clata are available on tlie
subject matter into which you are researching and make use of it, since it will save
considerable time and money. But the data must be scrutinised properly because tliese
were origi~iallycollected perhaps for another purpose. Tlie data must also be checked
for reliability, relevance and accuracy.
Activity D
Talk to tlie marketing executives i n your organization to ascertain whether they make
use of secondary data? Describe two specific decisions in which the secondary data
were used in the recent past. Also list various secondary data sources that your
organization migllt liave used in ~iiakingmarketing decisions. In case you are not
employed in an organization, you may get in touch with another organization and
co~npletetliis activity.

Primary Data refers to original data collected specifically for tlie current researcli.
Primary data can be collected from customers, retailers, distributors, lnanufacturers or
other infomatio~isources. Though collection of primary data is a costly and time
co~lsu~ning process, it does pay itself by providing usefill insights and perspectives to
the ~iiarketingmanagers in solving marketing problems. Primary clata may be collected
tlirougl~any of tlie three methods: observation, interviews and experimentation.
Nature and Scope In observation method, the researcher gathers information by observing, i.e.,
of Marketing
noting down things and behaviours. This method is generally used to observe buyer
behaviour in a shop or to assess the impact of shelf placemelit and point of
purchase promotional material. For instance, you, may like to observe the movement
of sliopping traffic through a department store, the number of shoppers wlio
stopped before a particular display, etc. The obvious limitation of the observatioll
method is that it allows observation ofonly overt behaviour. It provides no cues as
to why a customer behaves in a particular manner, what product attributes appeal
most to him, whether he would like to buy the product again, etc.
Interviewing nzeihod is used when one wants to collect information about
consumer motives, perceptions, attitudes, past behaviours and fi~tureintentions -all
of wliich are not observable. The interview method can also yield information about
the socio-economic profile of your customers. The interviews can be conducted'on
either s~nallgroup of persons or a large group of persons.
The mail questionnaire is appropriate when your sampling units are distributed
over a wide geographical area and tlie cost of reaching them personally is very
high. In such case you can send a questionnarie (list of questions), wliich the
respondents fill and send back by mail. However, the return rate of mail
questionnaires is usually very low, ranging between three to seven per cent. On an
average, you would have to mail 1,000 questionnaires to get back thirty filled-in
questionnaires. Another drawback is that you have no way of checking tlie
authenticity and accuracy of the response. The respondent may fill totally wrong
information and you may never be able to detect it.
Experinlentation method is basically a simulation of the real-life situation, but in a
controlled environment in which you systematically introduce certain elements to
study their impact. This method is used for finding the best sales training technique,
the best price level, the most effective advertisement campaign, etc. However, its
use requires an extremely skilled researcher to ensure useful results. Also, this
method is expensive.
b) Resenrclt Instrument
In the observation method, tlie researcher may use a camera, tape recorder or tally
sheet (that is a sheet in wliicll the number of times an event occurs is recorded).
Whatever the instrument used, tlie researcher inlist ensure that the itistri~~ne~it
is
appropriate to the occasion and is reliable.
In the survey method, the most commo~llyused instruinelit is the questionnaire.
This is a written and organised format containingall tlie questions relevant to
soliciting tlie required information along wit11 tlie spaces provided to record the
answers. The preparation of a questionnaire requires great ski I I. To check that the
questionnaire serves the research objectives, it should be tested on a limited scale
and this is technically known as apilot survey. The objective of a pilot survey is to
weed out unnecessary questions, questions which are difficult to answer, and
improve the phrasing of certain questions which are difficult to comprehend.
Tile wording of tlie questions is a vely important in ensuring correct response.
Clearly worded and precise questions are not only easy to understand, but they also
increase respondents' cooperation in providinganswers. Consider the following
three alternatives in this context :

a) Where did you buy this toothpaste?

I

b) Can you please tell lne the na~neof the shop from where you bought this
toothpaste?

c) From which shop did you buy this toothpaste?

On the other hand, suppose you are trying to find out the custom& perceptions Marketing Information
and Research
about the perfornlance of foreign brands of televisions versus Indian brands. The
manner in which you phrase the questions is extremely critical as it can influence
the response. Consider the following three alternatives:

a) Do you think there is any difference in the performance of Indian TV sets as

compared to foreign sets?

b) Don't you think foreign TVs perform better than Indian ones?

c) Most people feel that foreign TVs perfor111better than Indian ones. Would
you agree with this statement?
The first one is a better alternative for being neutral in wording. The phrases 'by
and 'c' are not good choice as these entail interviewer and respondent induced
biases.
It should, moreover, be kept in mind that when asking questions about qualitative
aspects it is better to use open ended questions rather than close ended
questions. Open-ended questions are the ones where respondent is free to give
answer in his own words. "How would yozr describe the taste of this
toothpaste?" is an example of open-ended question. But a question like "Would
you describe the taste of this toothpaste as tingling? Yes/No" is a close-
ended question because here respondent is not free to provide answer in his own
words. He gives his answer si~llplyby ticking one of the alternatives provided at
the end of the question.
'The advantage of i~singthe open ended questions is that they give the respondent
freedom to answer in his or her own words. And this often provides information
and insights about the product which the researcher had not even thought of.
Close-ended questions, on the other hand, are easy to summarise and there is no
scope for misinterpretation.
The sequencing of the questions in the questionnaire should be such that the
opening q~kstionscreate interest in the respondent and are easy to answer. The
questionnaire should gradually move from relatively simple to difficult questions.
Activity E
Using open-ended and closed-ended questions, construct a brief questionnaire for
gathering information about consumer attitudes towards coffee and their coffee
consu~nptionbehaviour.

c) Sampling Plan
After selecting your research instrument for observation or preparing a questionnaire
for survey, you need to identify the source of your information. The source is also
known as the 'population' or 'universe'. For conducting marketing research, you
would rarely gather information from the entire population. Rather you would select a
small group of persons or units - referred to as sample. A sample is, therefore, a small
group of persons or units which has all the characteristics ofthe population used for
conducting the research. The reasons for not using the population for marketing
research are:
I

Nature and Scope a) number of units in the population may not be known,
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b) population units may be too many in number andlor widely dispersed, thus making
research an extremely time consuming process,

c) it may be too expensive to include each population item.

I

When the number of items in the population is small and known (say, the number of
cinema halls, colleges, government hospitals in a city), you may use the population as
your source of information. But in most cases, a representative group which has all the
characteristics of the population and is known as sample is drawn from the pop~~latio~i
and this is used for conducting research. Having decided to use a sample, your next
step is to draw up a sampling plan. There are three decisions to be made in connection
with the sampling plan:

e Who in the populatio~~

should be surveyed, i.e., determining sanzpling unit,

e How many units are to be surveyed, i.e., determining satnple size, and

e How the units are to be selected, i.e., determining sampling method.

The choice of sampling unit will depend on the product with which you are dealing
and the kind of information you need. In case of a product such as lipstick if you need
information on the reasons which motivate a customer to buy your brand, your
sampling unit would obviously be a female. But would the population comprise all tlte
females? Obviously not, because all the females do not use lipsticks. You then need to
collect information about females who use lipsticks in terms of their socio-ecouoniic
background, education, occupational profile (student, housewife, professional), age and
marital status. The sample which you choose must be representative of the universe in
terms of all these characteristics. If you want to find out the montllly sale of all brands
oflipsticks in a particular market, your qampling unit would be the distributors or retail
outlets who deal in cosmetics. Suppose the product being researched into is toys for
the under 7-years age category. Who w o ~ ~constitute
ld your sampling nit: the cllild
who actually plays with the toys or the parents who exert a strong influence in tlte final
decision to purchase a particular toy? Here you would have to consider not only the
kind ofi~tformationthat you need, but also who is most likely to have it and his ability to
communicate, and choose your unit accordingly.

Activity F

Suppose you are assigned the job of conducting a survey to determine the levels of
post-purchase satisfaction of the customers of your car. Who would you choose as
your sampling unit? What socio-economic variables would you consider in detailing the
profile of your customers?

......I ......................................................*.. .......................................................................

........................................ ................................................................................................

In deciding on the sampling size, you have to make a trade-off between the desired :
accuracy of the results and your budget. The larger the sample, the Inore accurate are
the results likely to be, but the cost would also be correspondingly ltigll, Anotller factor
affecting the sample size is the kind of research which is being conducted. In an
exploratory research, even a small sample may be sufficient. In focus-group
interviews, for example, sa~nplesof sizes 8 to 12 persons are sufficient becailse here
the purpose is to just Icnow about tlieir views rather than making any quantitative Marketing Information
.and Research
estimate of their consumption levels or intensity of given marketing problems.
A marketing researcher has to decide as to which sampling method he would use
for selecting tlie given number of units from the universe. The choice is between
two broad types of sampling methods: probability sampling and non- probability
sampling. In the former, each item of the universe has a known and non-zero
chance of being selected as a sample unit. In non-probability sampling, on the other
hand, researcher selects the units on the basis of his or her judgment. Generally a
researcher prefers those units which are either conveniently located (such as shops
on tlie main shopping street) or such units which in his or her opinion are
knowledgeable and will be willing to provide information. Non-probability sampling
is mostly used in exploratory research where a representation of the universe is not
important. But where true represelltation is important, probability or random
sanipling is used. Random sampling enables the researcher to make an accurate
estiniate of tlie populatioli characteristic but it is more expensive than non-probability
sampling. The cost that you can bear and the degree of accuracy which you require
liave to be weighed to arrive at a decision.

3.8.3 Field Work and Data Collection

This is the stage where tlie research design has to be converted from the planning
stage to that of implementation. It involves goingto tlie field and beginning the data
collection work. Two stages in field work are: ( I ) organising the fieldwork and
(2) supervising the data collection work.
Organising Field Work: It has to be decided how l~ianypeople will be assigned to
tlie field, what will be their qualifications, what will be tlieir geographical areas of
coverage and , how they will be trained. It is necessary to select those persons who
are familiar with the place where the survey is to be done. Preference should be
given to those persons who delnograpllically match with the profile of the
respondents to be interviewed. Appointilig a Inale to interview the female
respondents regarding their cosmetic purchase behaviour will be a mismatch.
Females will not feel free in expressing their feelings about various brands of
cosmetics or motives for using a particular brand. It will be desirable that a female
fieldworker is appointed to carry out this task.
Before sending the fieldworkers to the field for conducting interviews, it is always
desirable to properly train tlicln and acquaint them with the survey objectives and
procedures. Specific instructions concerning sample selection can be issued to them
such as selecting every fourth household in a lane, all flats with an even number in
an apa~tlnent'block' etc., to ens~lrethat they select tlie sampling units as per the
sampling plan.
Supelrision of Data Collection: Supervision of field work is important to ensure
tliat tlie data collected are genuine and accurate. Most field work is carried out by a
team of field surveyors, and each team is assigned to a supervisor. The team
members plan their daily area of field work in consultation with tlie supervisor. The
supervisor may accolnpany different team members on different days. Usually in the
evening, tlie team members meet the supervisor and hand over the data which they
have collected and sort out any problems they might have faced in the field.
Apart froni actually accompanying team members on data collection missions, the
supervisor can also make random check to ensure that the data collected is genuine.
The check can be conducted either over telephone (wherever possible) or by
visiting the sampling unit. The supervisor may either ask tlie respondent whether lie
or she was visited by the field interviewer and cross check the accuracy of tlie
data. Random checking is carried out to ensure that the field workers do actually
Nature and Scope collect the data from the genuine source of inforrnatiol~and notjust fill i n the data
of Marketing
using their own i~naginationand ingenuity.
The collected data has also to be checked for its objectivity and accuracy. The data
lias to be carefully checked to ensure that there is no disto~Tionbecause of the field
worker's bias or the respondent's bias. Respondent bins arises because people
generally like to project an image about themselves and their life-style whicli is
more flattering than the reality. This bias would operate Inore in q~~estions relating to
income; possession of certain items (VCR, air-conditioner), and habits relating to
life-style (frequently traveling abroad, visiting clubs or restaurants). Interviewer
bins arises because of the interviewer's own pre-conceived notions and ideas. A
female interviewer may select more of female respondents in her sample because
she may feel that it is easy for her to gather infortliation from women rather than
men, thus introducing interviewer bias in sample selection.

In conducting field work, it may happen that the person from whom information is
to be collected is not at home or does not wish to be interviewed. The supervisor
must give guidelines for tackling such situations. Field worker can be instructed to
visit a designated respondent a given nu~nberoftimes andlor visit the respondent at
other times of the day when lie or she is more likely to be at home. If the
respondent is still not approachable, he may eventually be dropped. On not finding
the designated respondent at home, the field workers Inany a time si~bstitutehim or
her by a person living next to his house. This, however, is 1101a good policy and can
lead to over representation of one particular type of persons who happen to be at
home at the time of visit of the field workers.

3.8.4 Data Analysis

After yo11liave collected the data, you need to process, organise and analyse the
raw data so as to make them easy to understand and use in decision-making
process. There are four phases involved in data analysis:

b) Tabulation and graphical representation

c) Data summarisation

d) Statistical inference

e) Correlatio~iand additional dataanalysis.

Data Editing: The collected data are first edited to ensure some minimu~nquality
standards. Each and every filled i n questionnaire is screened to ascertain wl~ell~cr
answers provided by a respondent are adequate and consistent wit11 each other. It is
also checked whether different respondents liave used the same unit for answering
the given question. Suppose we are editing the answers to a question "What is your
income?" If we find that while some have ariswered this question in terms of
monthly income and otliers have provided annual income figures, then we should
edit the answers to ensure that all answers are in the same illlit -either in monthly
income value or the income annual figure. This call be done by either converting
monthly income figures into annual income figure by ~nultiplyingthe mo~~tlily
reported incomes by 12, or else the reported anili~alincomes can be converted into
monthly incomes by dividing the reported annual income by 12 to maintain
consistency in the answers provided by the respondents. Questionnaires are also
checked to see whether most of the questions have been answered or not.
Questionnaires with too many answered questions are dropped from further
analysis.
Tabulation and Graphical Representation: To draw inferences for use in Marketing Information
and Research
decision making, data are tabulated and presented in terms of graphs. Individual
observations or data are placed in suitable classes in which they occur and then
counted. Thus we know the number of times or the frequency with which a
particular event occurs. Such tabulation leads to a frequency distribution as
illustrated in Table 3.1

Table 3.1: Frequency Distribution

r

No. of units No. of shops which

sold in April 2005 achieved this sale

Up to 100 18

101-120 25

121 - 140 33

141 - 160 29

161 - 180 19

Above 200
I 4
I
The frequency distribution may involve a single variable as in Table 3.1 or it may
involve two or more variables which is known as cross-classification or cross-
tabulation. You can make use of different types of graphs and diagrams to provide a
bird's eye view of the information contained in the tables easily understandable,
Data Summarisation: The frequency distribution presentedper se may not yield any
specific result or inference. What we want is a single representative figure which can
help us to make useful inferences about the data and also provide yardstick for
comparing different sets of data. Measures of average or central tendency such as
mean, mode and median are computed to summarise the data in single figure. Exhibit
3.3 provides an example of how the collected data are summarized to aid the decision
making process.

Exhibit 3.3

Determining Pack Size for New Bread

Suppose a firm wants to introduce a new packing of sliced bread aimed at the customer segment of
small nucleus families of four members. It wishes to introduce the concept of a single-day pack i.c., a
pack which contains only that number of bread slices that is usually eaten in a single day. This
strategy would help to keep thc price of the pack well within the family's limited budget. The firm
has many opinions on the ideal number of slices that the pack should contain - ranging from three lo
as high as twelve. The firm decides to hire a proressional marketing agency to conduct market
research and recommend the number of' bread slices it should pack.
The research agency goes about the task in two steps. In the first step, it randomly chooses five
families (who are consumers of bread) in each ofthe four colonies in the city. These families are asked
to maintain for one week a record of the exact number of slices they consumed each day. From this
data, the agency calculates the average (or mean) number of bread slices eaten per family per day.
There would be twenty such mean values (5 families in 4 colonies each; sample size 20). In the
second step, from these mean values, the modal value would provide the answer to the number of
bread slices to be packed in each pack.
Nature and Scope
of Marketing
1 Step I
I
Family 1

Day Number of bread slices consumed

Monday 4

Tuesday 3

Wednesday 2

Thursday 5

Friday 6

Saturday 5

Sunday 3

I Mean =
4+3+2+5+6+5+3
7(no. of days)
- -28
7
=4.

I Step I1

I In a similar manner, mean values for rest of lhe sample units are computed. Suppose the mean values
for 20 sample units are as follows:

Rearranging these mean values in a frequency distribution, we have:

Mean value Frequency

(No. of bread slices eaten daily) (No. of families)

The mode in this frequency distribution is 8. Eight slices is the most commonly occurring consumption
pattern. The agency's recommendation is to pack eight bread slices in the single-day pack.

Statistical Inference: These procedures involve the use of sample data to make
inferences about the population. Tile three approaches used here are: estimates of
population values, hypotheses about populatio~ivalues and tests of association between
values in the population. Statistical inference as an analytical tool for marketing,
decisions is gaining wide acceptance.
Correlation and Additional Data Analysis: Besides having a sulnlnary o f the data,
the marketing manager also would like information on inter-relationships between
variables and the qualitative aspects ofthe variables. The interrelationships among
variables can be examined with the help of correlation and other statistical tools and
techniques.
Correlation coefficient measures the degree to which the change in one variable is Marketing lnforrnntion
and Research
associated with change in the other variable. AS a marketing manager, you would like
to know if there is any relation between the amount of ~noneyyou spend on advertising
and the sales you achieve. Correlation coefficient, in this case, would tell you the
extent of relationship between these two variables, whether the relationship is directly
proportional (increase or decrease in advertising is associated wit11 increase or
decrease in advertising) or it as an inverse relationship (increase in advertising is
associated with decrease in sales and vice versa) or there is no relationship between
the two variables. However, it is important to note that correlation coefficient does not
indicate a causal relationship. Sales is not a direct result of advertising alone, there are
many other factors which affect sale. Correlation only indicates that there is some kind
of association - whether it is casual or causal can be determined only aRer further
investigation. You may tind a correlation between the height of your salesmen and the
sales, but obviously it is of no significance.
For deternli~lingcasual relationship between two variables, you may use regression
analj~sis.Using this technique you can predict the dependent variables (say sales) on
the basis of the independent variables (say advertising expenditure).
So far we have considered relationship only between two variables for which
correlation and regression analysis are suitable techniques. But in reality you would
rarely find a one-to-one causal relationship, rather you would find that the dependent
variables are affected by a number of independent variables. Sales is affected by the
advertising budget, media plan, co~lte~lt of the advertisements, number of salesmen,
price of the product, efficiency of the distribution network and a host of other
variables. For determining causal relationship involving two or more variables, multi-
variate statistical techniqtres are applicable. The most ilnportarlt of these are the
~nultiyleregrsssior~alzalysis and discriminant analysis. Marketer also use these
days cluster analysis and factor analysis for studying relationships anlong variables
or observations. Because of space constraints, we are not providing any details here
concel.ning these techniques. You can consult any standard book on lnarketing
research to gain familiarity with these techniques.
3.8.5 Report Preparation and Presentation
The final step is the research report preparation and presentation. A typical format of
the report may comprise of the followi~lgsections:
a) Objectives and methodology: This section lists research objectives and provides
an overview of the research design and methodology used in the study.
b) Exectltive Summary of conc1usion.s and reconzniendutions: This section
contains lnairl findings of the research study. On the basis of the findings of the
study, recommendations are made to assist marketing managers in their decision
making.
c) Sa17p1edesign: This section provides a detailed description of the sampling
method used in the study and profile of the respondents in terms of their
geographical location, socio-economic status and other characteristics.
d) DetailedJindings and observations: In this section, collected data are
presented in a form which is easily comprehensible to the user. The data may be
presented in tabular form or graphically in a bar chart, pictogram or pie diagram;
or in a combination of all these.
e) Appendices: Questiollnaire and supporting research instruments are presented in
the last section.
A nleeting is fixed with the marketing managers and an oral presentation of the report
is made to enable the marketing managers understand the findings of the study and its
ilnplicatio~lto decision making.
Nature and Scope
of Marketing 3.9 MA - -
TING RESEARCH IN INDIA
Despite importance of marketing research in decision making, its usage has somehow
been conspicuously low among Indian busi~iessfirms in the past. Only a few big firms
(especially the ones which were subsidiaries of multinational corporations) were making
use of marketing research in the fifties and sixties. Even among such firms, only a select
few were carrying out research studies on a regular basis or liad set up marketing
research departments within the firms. Presence of a seller's market in the cou~itrydue
to highly restrictive industrial licensing policy and restrictions on imports was amongst
the major reasons responsible for this phenomenon. Constant scarcity of products and
lack of market competition provided a sort of monopolistic and oligopolistic powers to
the then existing firms. As the firms were able to easily sell all that they were producing,
there was hardly any incentive for these firms to be innovative and make use of
marketing research. Moreover, as the majority of the Indian firms were operating on a
small scale, they were in direct touch with their customers and felt hardly any need for
marketing research. Indian firms, moreover, did not show much interest in ~narketing
research as they lacked a professional approach to decision making. The firms were
managed largely by people who did not have professio~ialqualifications or specialised
training in marketing. Since the managers did not know much about marketing research,
they failed to appreciate its usefulness in decision making and considered any
expenditure on it as a total waste of money.
Of late, however, the situation has changed. Especially since the eighties, tlie Indian
market has undergone a significant meta~norphosisas a result of changes in the
government policies and other developments in the country. Due to entry of a large
number of Indian as well as foreign firms in the market, co~npetitionhas considerably
hot up. 'The erstwhile seller's market has now paved way to buyers' markets for a
variety of products. Technological upgradation has received a new thrust in the
economy and has provided a spurt to product innovations. Product life cycles have
become shorter. Firms are increasingly getting interested in diversification of their
business and have begun exploring rural and foreign markets. New means of
commu~~ication and channel arrangements have emerged on the scene. A shift from
price to non-price competition has also started taking place in the market. All these
changes have made the marketing tasks today greatly complex and risky. Marketers,
especially those in the organized sector, have started finding it difficult to make decisions
solely on the basis of their past knowledge and experiences. They have started
increasingly realising the need for ma]-keting research in marketing decision making.
In the absence of any latest information, it is difficult to categorically state as to how
much Indian firms spend on marketing research. Nonetheless based on whatever little
information is available, it can be observed that marketing research expenditure in tlie
country still continues to be quite low in comparison to what is incurred by the firms in
other countries. In a study of 130 Indian business firms in tlie mid-eighties, Consulting
and Research Enterprise (CORE), Hyderabad, found that v~liileabout 40 percent of the
firms had spent less than Rs. 1 lakh, 46 percent were spending between Rs.1 lakli and
Rs.10 lakhs. 011ly about four percent of the surveyed firms had expenditure more than
Rs.10 lakhs. As a percentage of sales, tlie expenditure on marketing research was
abysmally low, ranging from less than 0.01 percent to a ~naximumof 1.3 percent. For
the majority of the firms (viz., 91 percent), tlie expenditure was just 0.4 percent or even
less (see Table3 -1). The study further reported that as against industrial goods firms, tlie
consumer goods firms were spe~idi~ig more on marketing 1.esearc11.
A similar conclusion was arrived at by a niarketing research professional-Mr. Ranjit Chib.
According to his estimate, a majority of regular research spenders (1 50 out of I 70) had
a research spending budget between just Rs.20,000 and Rs.5 lakh. Only about 19 firms
were spending more than Rs.5 lakh on marketing research (see Table 3.2). It is, thus,
obvious that majority ofthe Indian firms have so far been small marketing research spenders.
Table 3.3 contains information about the major uses of marketing research in India. Marketing Information
New product decisions constitute the most frequent usage of marketing research, and Research
followed by research applications such as estimating market share, gathering
competitive information, demand estimation, product modification, ~neasuringcustomer
satisfaction, and diversification decisions. It is quite surprising that despite heavy
advertising expenditure, firms do not make much use of marketing research for making
copy decisions. Use of marketing research for evaluating advertising effectiveness is
much less. Customer service decisions also do not appear alllong the major
applications of marketing research in the country.
Table 3.1: Marketing Research Expenditure by Indian Firms in 1985-86
Expenditure Respondents
(percentage of firms)
Marketing researclz expenditure ( Rs.)
Less than Rs. 1 lakl~ 40.0
Rs. 1 lakh to Rs. 10 lakhs 46.0
More than Rs. Rs. 10 lalchs 14.0
100
Marketing resenrclr expenditure as
percentage of sales
Up to 0.01 28.0
0.02 to 0.09 34.0
0.10 to 0.40 29.0
More than 0.40 9.0
100.0
1

Sonrce: As reported in Sanjay K. Jain, "Marketing Resewch in India: A Perspective", Manageme~zt&

Change, Volume 1, No. 1, 1997. pp, 71-100.

Note: Inclusive of expenditure on in-house as well as outside research agencies.

Table 3.2: Volumewise Break-lip of the Regular Spenders of Marketing
Research in Iiidia
Category Volrime of spending Approximate number
(Rs.1 of companies
A1 More than Rs. 50 lakhs 1
A2 Rs. 25-50 lakh 1
B1 Rs. 10-25 lakh 5
B2 Rs. 5-10 laMl 10-12
C1 Rs. 2-5 lakh 18-20
C2 Rs. 1-2 lakh 30
Dl Rs. 20,000 - Rs. 1 lakh 100

Sonrce: Same as Table 3.1.

Note: Inclusive of expenditure on both in-house and outside research.
Nnture and Scope Table 3.3 : Areas of Most Frequent Use of Marketing Research in India
of Marketing
Area Percent of Firms*
New product decisions 58
Estimating market share 49
Gathering competitive information 47

Demand estimations 46
Product modification decisions 44
Measuring customer satisfaction 43
Product positioning decisions 42
Diversification decisions 40
Market segmentation decisions 38

Advertising tlieme/message decisiolis 31

Pricing decisions 30
Customer service decisions 27
Product elimination decisions 21
Evaluating advertising effectiveness 20
Channel modification decisions 09
Source: Same as of Table 3.1.

* Refers to firms that reported using marketing research frequentlylalways in the given area.
Information regarding the way Indian companies get marketing research conducted is
presented in Table 3.4. It is evident that the companies get the research conducted in
different ways. Use of firms' own sales stafftops the list. The other important modes
include marketing research agencies and in-house marketing researchers, with only
44 percent of the firms having their own in-house research staff. Advertising
agencies, consultants and syndicated research services come next in order of
importance.

It may be mentioned liere that while tlie sales staff has been used by the firms of all
sizes, use of in-house marketing researchers, marketing research agencies and
syndicated research services has bee11 more prevalent among the large sized firms.
Smaller firms show greater incidence of using advertising agencies for their research
studies conducted. Important differences can be seen to be prevalent among firms
selling different types of products. While industrial goods and service firms more
often use their own sales and in-house marketing research staff, consumer goods
firms depict a marked preference for marketing research agencies and syndicated
research services to meet their research requirements.

The last two decades have witnessed phenomenal growth in tlie importance of
outside agencies for meeting the marketing research needs of Indian firms. Seeing
growth in demand for various types of marketing research services, a number of
marketing research agencies have been set up in the country. 'These research
agencies provide customised as well as syndicated research services to their clients.
While customized research entails collection of data as per the specific needs of a
single client, syndicated research is undertaken by a research agency to meet the
colnmon information needs of a group of firms.
 Table 3.4: Ways of Conducting Marketing Research in India
Way a firms get Percent Nature of firms using
Marketing Information
and Research I
research conducted of firms* the research mode
Firms' sales staff 59 Firms of all sizes, industrial
goods and service firms
Marketing research agencies 52 Large firms, consumer goods
firms
In-house marketing researchers 44 Large firms, industrial goods
and service firms
Advertising agencies 35 Smaller firms
Consultants 34 -
Syndicated research services 22 Larger firms and consumer
goods firms
Source: Same as of Table 3.1.

Since the firms use more than one channel, the percentage tigures will not add up to 100.

In recent years, marketing research has undergone several changes. It has come up as
a versatile tool for market analysis, planning, and control. In the past, generally big
multinational companies used to be the users of marketing research. But of late, Indian
companies liave also started making use of marketing research. 'The number of smaller
co~npaniesas well as industrial goods firms using marketing research has considerably
increased. Another noteworthy change pertains to larger use of marketing research in
non-traditional areas such as family planning, immunization programme, literacy
campaign, energy conservation, nutrition, and liygiene plans, Various government
departments and social organizations liave started realising that such studies are
imperative for effective development as well as execution of social welfare schemes.
Qualitative research has fast gained importance in India. I11 the wake of market place
getting too cluttered with products and advertisements, marketers are finding pure
demographic profiles oftheir customers highly insufficient. Marketers have come to
realize that their customers are more than simply being niales or females or belonging
to a particular age and income group. They have unique personality, life style and
aspirations. Marketers have, therefore, started demanding qualitative descriptions of
their customers. Psychographics, as it has come to be called, is being increasingly
used to develop a qualitative profile of the customers which the marketers find very
useful in segme~itingtheir market and evolving positioning and advertising strategies.
It may, however, be pointed out that conducting marketing research in India is not an
easy task. Being a big and diverse country, a national survey requires India to be
divided into at least 1000 sampling districts and interviewing at least 10,000 people
spread over a vast area. This implies employing a large field force and spending
considerable time and money in completing the research projects. Multiplicity of
la~iguagesrequires translation of a questionnaire in a minimum of five to six languages.
Itifrastructural problems also come in a big way in executing the national surveys. As
the communication and transport networks are not yet fully developed, it becomes very
difficult to reach tlie people residing in far-flung areas. And if such people are
excluded from the survey, the sample ceases to be tlie true representative of the
country's population. Absence of secondary data is another problem. Though census is
conducted after every ten years in the country, yet the full results are never released in
time. Non-availability of suitable sampling lists forces tlie researchers to make use of
non-probability sampling methods which in turn adversely affects the reliability and
validity of tlie collected data.
Nature and Scope Attitudinal problenis on the part of the marketing managers have also been equally
of Marketing
responsible for limited use of marketing research in India. A study by Consulting and
Research Group (CORE) in the mid-eighties found many marketing mangers to be
holding the opinion that researcli findings do not represent the real world and marketing
research data are not reliable enougll to be used in decision making. Respondents
considered gut feeling to be of more importance than marketing research results in
decision making. Especially the executives from the smaller co~npaniesmore strongly
held this belief. Further, many executives opined that benefits of marketing researcli
are not high enough to just@ tlie costs incurred on marketing research. The surveyed
marketing managers also complained that marketing research often takes too long to
be of any real use.
Notwithstanding these problems and attitudi~ialconstraints, use of marketing researcli
in India is poised for phenomenal upsurge in the coming years. With liberalizatio~iof
government's industrial and trade policies and hotting up of the co~npetitionin the
market, more and more business firms as well as public utilities and non-profit making
organisations would start making greater use of marketing researcli.

SUMMARY
Information is an important input used in making marketing decisions. Marketers need
a variety of information about their customers, competitors and support service
providers in the market. They also need infor~nationabout macro marketing
environment. Marketing information system wliich is a set of procedures and methods
for tlie regular, planned collection, analysis and presentation of information IleIps the
marketing managers in their decision making endeavours. Marketing i~lformation
system consists of four sub-systems, viz., internal reporting system, marketing
intelligence system, marketing research system and analytical marketing system.
Marketing information system needs be so designed that it is user friendly and is able
to provide relevant, up to date and objective information to the decision ~ilakerson a
regular basis.
Marketing reseal-ch, which is a part of broader marketing system, is a planned and
objective process of collecting and disseminating information relating to a specific
marketing problem faced by the decision makers in a firm. Marketing research helps
the decisio~lmaker by clarifyirtg the situation or problem he is confronted with and by
diagnosingthe reasons responsible for the problem and identifying various alternatives
that can help solve the give11 marketing problem.
Marketing research is quite pervasive in nature and can be used by the marketing
managers at all levels of managerial hierarchy for carrying out different rnarlagerial
tasks. Be it marketing planning, organisation or control, marketing researcli conies to a
great llelp to the marketing managers in performing their duties. Some of tlie major
applicatio~isof marketing research include: market research, consumer researcli,
product research, pricing researcli, advertising researcli, distribution researcli and sales
research.
In order to ensure that the researcli provides all the relevant and objective data to the
decision makers, marketing researcher needs to follow a series of steps known as
marketing research process. The major steps involved in marketing research process
are: (1) problem definition, (2) determining research design, (3) field work and data
collection, (4) data analysis, and (5) report preparation and presentation.
Witli liberalistion and opening up tlie markets, Indian firms have started making
greater usage of marketing research. A number of research firms have come into
existence and provide both the syndicated and c~~stomised research services to their
clients. In view of India being a vast and diverse country, doing research in the
country is not a simple task and it is beset with several infrastructural and attitudinal M a r k e t i n g Information
and Research
problems. But with competition fast hotting up in the market for almost all types of
products, marketing research is poised for significant growth in future.

3 . 1 KEY WORDS
Analytical Marketing System: It is concerned with building and using marketing
lnodels and techniques to analyse the information available with a tirm andlor to
better understand, predict and control the marketing process.
Internal Reporting System: A system which disseminates result data such as
orders received, sales made, inventory levels, accounts receivables and bills
payables.
Marketing Information System: It is a set of procedures and methods for the
regular and collection, analysis and pl-esentationof information for use in
making marketing decisions.
Marketing Intelligence System: It supplies the management with the happening
data as collected through informal search ofvarious internal and external information
sources on a continuous basis.
Marketing Research: It is a systematic and objective process of collecting and
disseminating information relating to a specific marketing problem faced by the
decision makers in a firm.
Primary Data: Data which are collected originally for the current investigation.
Questionnaire: A list of questions along with spaces to obtain the information from
the respondents.
Respondents:An individual in his personal capacity or representing an institution
who fulfils all the requirements of a sampling unit and is used for collecting data. He
is known as respondent because he responds to the questionnaire. .
Sample: A s~nallgroup drawn from the population or universe and which has all the
characteristics of the population and is a true representative of it.
Secondary Data: Data whicl~have already been collected by an agency or
individual and is available in apublished or unpublished form.
Survey: A method of collecting primary data. In the survey method, data are
gathered from the sample with the help of a questionnaire. The data may be
gathered personally, over telephone or by mail.

3.12 TERMINAL QUESTIONS

1) What are the different types of information that a marketing manager needs for
making marketing decisions?

2) What is marketing information system? What are its major components?

3) What considerations one should keeping mind while designing a marketing

infomlation system for a fir~n?
4) What is marketing research? How does it differ froin marketing informatiod
system?

5) Discuss some important uses of marketing research.

Nature and Scope 6) What steps are involved in conducting a marketing research study? Briefly
of Marketing
discuss them with the help of a hypothetical marketing research project.

7) Write a note on the state of art of marketing research in India.

8) Differentiate between the following:

a) Marketing infonnation system and marketing intelligence system

b) Customised and syndicated researches
a c) Primary and secondary data

d) Market research and marketing research

Note: These questions will help you to understand the unit better. Try to write
answers for them. But do not submit your answers to the University for
assessment. 'These are for your practice only.

3.13 FURTHER READINGS

Aaker, David A., V. Kurnar and George S. Day, Marketing Research, John Wiley &
Sons Inc., New York,l 999.
Beri, G. C., MarketingResearch, Tata McGraw Hill Ltd. Publishing Co., 1993.
Boyd, Harper W., Ralph Westfail and Stanley F. Stasch, Marketing Research: Text a n d
Cases, 7th edition, Richard D. Irwin Inc. 1999.
Green, Paul E., Donald S. Tull and Gerald Albaum, Researchfor Marketing Decisions,
5th edition, Prentice Hall ofIndiaLtd., New.Delhi, 1997.
Jain, Sanjay K., "Marketing Research in India: A Perspective", Management & Change,
Volume I, No. 1,1997, pp. 71-100.
Jain, Sanjay K., "Marketing-Research Services Marketing" in Ravi Shankar, ed., Services
Markeling: The Indian Perspective, Excel Books, New Delhi, 2002, pp. 528-554.
Luck, David J. and Ronald S Rubin, Marketing Research, Prentice Hall of India Ltd,
New Delhi, 1995.
Malhotra, Naresh K., Marketing Research: An Applied Orientation, Pearson Education
Asia, New Delhi, 1999.
Rao, Sushila, "Marketing Research in India: The State of the Art", Business India,
November, 17-30,1986, pp. I 1 1-112.
UNIT 4 BWER BEHAWOUR
Structure
4.0 Objectives
4.1 Introduction
4.2 Meaning of Buyer Behaviour
4.3 Importance of Understanding Buyer Behaviour
4.4 Types of Consumers
4.5 Factors Influencing Buyer Behaviour
4.5.1 Psychological Factors
4.5.2 Personal Factors
4.5.3 Social Factors
4.5.4 Cultural Factors
4.6 Consumer Buying Decision Process
4.6.1 Types of Buying Behaviour Situations
4.6.2 Stages in Buying Decision Process
4.7 Let Us Sum Up
4.8 Key Words
4.9 Answers to Check Your Progress
4.10 Terminal Questions

4.0 OBJECTIVES
After studying this unit, you will be able to:
discuss the meaning of buyer behaviour;
analyse the importance and applicability of buyer behaviour in the field of
marketing;
explain various types of consumers and their behavioural pattern;
describe various factors that influence the buyer behaviour;
explain various types of buying behaviour situations; and
discuss the stages involved in consumer buying decision process,

4.1 INTRODUCTION
One of the few common features among all of us is that we are all buyers
iirespective of what we are. As buyers, we play a vital role in the economy-local,
national, and international. We need to study buyer behaviour to gain insights into our
own consumption related decisio~lslike what we buy, why we buy, how we buy, and
the promotional influences that persuade us to buy. Marketers too need to adapt and
dovetail their strategies by taking the buyer into consideration. In this unit, you will
learn various dimensions of buyer behaviour, types of buyers, factors influericing the
buyer bel~aviourand the buying decision process. Before proceeding further, the
students should note that in this unit, the terms buyer behaviour and consumer
behaviour are used interchangeably and should not lead to any confusion.
Understanding Consumers
and Selecting Target 4.2 MEANING OF BUYER BENAVIOUR
Markets
While marketing a product the firm aims at satisfying the needs and wants of actual
and potential users of that product. But to achieve this, first it is essential to
understand the tastes, preferences, likes, dislikes, consumption patterns, process of
purchase, etc. of the buyers of that product. You may prefer to use Babool
toothpaste, LUX toilet soap, and Clinic shampoo while your friend may prefer
Miswak toothpaste, Rexona soap and Shikakai shampoo. It is interesting to note
that your preference vis-h-vis food, clothing, books, magazines, recreation, banks;
stores ]nay be different not only from those of your friends but also your neighbours
and colleagues. For example, take the case of banks. You may prefer to maintain a
savings bank account with State Bank of India while your friend may prefer Central
Bank of India. Thus, each buyer is unique and this uniqueness is reflected in the
consumption behaviour and pattern as well as process of purchase.
Various experts have defined buyerlco~isumerbehaviour differently. According to
Schiffman and Kanuk consumer behaviour is the behaviour that buyers or
consumers display in searching for, purchasing, using, evaluating, and
disposing of products and services that they expect will satisfy their needs.
Moven has defined it as the study of decision- making units arid the process
involved in acquiring, consuming, and disposing of goods, services,
experiences, and ideas,
Both the above definitions of buyer behaviour say more or less the same thing except
that Schiffman and Kanuk used the buyers whereas Moven has used the term
decision-making units. Here decision-making units mean the group of people in the
family who may be involved in the purchase process instead of all individual. So
behaviour occurs either for the individual, or in the context of a group (e.g., friends
may influence what kinds of clothes a person wears) or an organization (people on
the job make decisio~isas to which products the firm should use). From these
definitions we can identify three phases of buyer behaviour as follows:
a) Acquisition Phase: This refers to how buyers acquire the products and
services for their consumption. Much of the research in the buyer behaviour has
focused on the acquisition phase. When investigating the acquisition phase
marketers should analyse the factors thal influence the product and service
choice of buyers or consumers.
b) Consumption Phase: This refers to how buyers use or consume the products
and services. Here the marketers should analyse how buyers actually use a
product or service and the experiences that the buyer obtains from such use.
The investigation is important both for tangible products as well as for services.
c) Disposition Phase: It refers to what buyers do with a product once they have
completed its use.
Therefore, the marketers in understanding the buyer behaviour should take into
account the acquisition, consun~ptionand disposition phases. If they do so they will be
in a position to develop viable marketing strategies in terms of right product
positioning. Buyer behaviour illvolves purchase of services and ideas as well as
tangible products.

4.3 IMPORTANCE OF UNDERSTANDING

I
BUYER BEHAVIOUR
All inarketing sh-ategiesand tactics are based on explicit or implicit beliefs aboul
buyer behaviour. The study of buyers helps firms and organizations improve their
marketing strategies by understanding issues such as: I 1
I
 e How buyers think, feel, reason, and select between different alternatives (e.g., Buyer Behaviour
brands, products)?
0 How is the buyer influenced by his or her environment (e.g., culture, family,
signs, and media)?
0 Helps in understanding the behaviour buyers display while shopping or making
other marketing decisions
9 How buyer motivation and decision strategies differ between products that differ
in their level of importance or interest that they entail for the buyer; and
e How marketers can improve their promotional campaigns and marketing
strategies to target the buyer more effectively'?
1 There are four main applications of buyer behavior which are discussed below:
e The most obvious is for marketing strategy-i.e., for making better marketing
decisions. For example, by understanding that buyers are more receptive to food
advertising when they are hungry, we learn to schedule snack advertisements
late in the afternoon.
e A second application is public policy. In the 1980s, when Accutane, a near
miracle cure for acne, resulted in severe birth defects in pregnant women,
Federal Drug Administration (FDA) of US took the step of requiring that very
graphic pictures of deformed babies be shown on the medicine containers.
e Social marketing involves getting ideas across to buyers rather than selling
something. Understanding buyer behaviour will help in espousing for social
causes such as planned families,, prohibition, equality of girl child etc.
Government agencies with the help of buyer behaviour knowledge may develop
appropriate promotional strategies for greater acceptance of social causes.
e As a final benefit, studying buyer behaviour should make us better buyers.
Common sense suggests, for example, that if you buy a 200 ml liquid bottle of
laundry detergent, you should pay less per ml than if you bought two 100 ml
bottles. In practice, however, you often pay a size yremicmt by buying the larger
quantity. In other words, in this case, knowing this fact will sensitize you to the
need to check the unit cost labels to determine if you are really getting a
bargain.
In today's world of high technology, buyer tastes are also changing rapidly. To survive
in such a rapidly changing market, a firm has to constantly understand the latest
consumer trends and lastes. Buyer behaviour provides invaluable clues and guidelines
to marketers on new technological frontiers which they should explore. For example,
let us consider the advent of colour television in India. When we switched over from
black and white transmission to colour transmission in the early eighties, the buyers
exhibited a desire to purckrase colour TVs for closer-to-life picture viewing.

I 4.4 TYPES OF CONSUMERS

People purchase thousands of products and services for their consumption and use.
They may purchase these products and services for different purposes and they
may have myriad objectives, So the term consumer is often used to describe two
different kinds of consuming entities: (1) pel-sonal consumer and (2) organizational
consumer.
1) Personal Consumer: Personal consumer buys goods or services for his 01. her
own use (e.g, shaving cream, shampoo, lipstick) ar for use af the household (TV,
VCR) or family. In each of the above, the goods are brought for final use by the
individuals who are referred to as "end users" or "ultimate users".
Understanding Consumers 2) Organizational Consumer: Organizational consumer can be for profit and not-
and Selecting Target for-profit businesses, government agencies, institutions (schools, colleges,
Markets
hospitals). In each of the above examples we note that the products/services are
being bought in order to run the organization. For example, a travel agency
purchasing a computer and printer so as to render services they sell.
Buyers and Users: Buyers are not always the users or the only users, of the
product they buy, nor are they necessarily the persons who make the product
selection decisions. Individuals buy products for themselves and their family. The
person who makes the actual purchase decision may be usel-Inon-user and or only
user. For example, mother may buy toys for her children (actual users); she may buy
food for dinner (and may be one of the users); or she may buy handbag or lipstick
(and may be the only user). Marketers have to decide at whom to direct their
promotional efforts: buyer or user. For some products they must identify the person
who is most likely to influence the decision. We will discuss various roles played by
the family members in the purchase decisions in the section dealing with factors
influencing buyer behaviour.

Check Your Progress-A

1) In what way buyer behaviour helps you purchasing various products or
services?

......................................................................................................................
2) Based on your experience describe what activities have you performed in the
three phases of buyer behaviour for the following products?
a) Two-Wheeler, b) Washing Machine, c) Toothpaste, d) Insurance Policy.

......................................................................................................................
3) Distinguish between personal consumer and organizatio~ialconsumer.

4.5 FACTORS INFLUENCING BUYER BEHAVIOUR

The central question for marketers 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.
For a clear understanding of the various factors that influence buyer behaviour, the
stimulus-response model of buyerbehaviour can be considered as the starting point.
According to this model, marketing and other stimuli enter the consumer's "black Buyer Behaviour
box" and produce certain responses. Marketing stimuli consist of the four Ps: product,
price, place, and promotion. Other stimuli include major forces and events in the
buyer's environment: economic, technological, political, and cultural. All these inputs
enter the buyer's black box, where they are turned into a set of observable buyer
responses: product choice, brand choice, dealer choice, purchase timing, and purchase
amount. Look at Figure 4.1 which shows model of buyer behaviour.

Economic
Technological
Political
Promotion Cultural

Characteristics Decision
Process

Brand choice
Dealer choice
Purchase timing
Purchase umount

Figure 4.1: Model of Buyer Behaviour

The marketer wai~tsto understand how the stimuli are changed into responses inside
the buyer's black box, which has two patts. First, the buyer's characteristics
influence how he or she perceives and reacts to the stimuli. Second, the buyer's
decision process itself affects the buyer's behaviour.
We as consumers do not make the purchase decisions in a vacuum. We are being
continuously influenced by a number of factors. These are: psychological, social,
personal, and cultural factors. For most part marketers cannot control such factors,
but they must take them into account. These influences are shown in Figure 4.2.
Let us learn them in detail.

4.5.1 Psychological Factors

Consumers are being influenced by a number of psychological factors in the purchase
of various products and services. These factors influence consumers in a differentjal
way i.e., some factors may influence more and some less. The influence of these
factors may vary from product to product and from time to time. There are four
psychological factors which may influence buyer behaviour. They are: motivations,
perception, learning, and beliefs and attitudes. Let us discuss them in detail.
Understanding Consumers
and Selecting Target Psychological Factors Social Factors
Markets Reference groups, Family,
Motivation, Perception,
and Roles and statuses

Age and life cycle stage,

Occupation, Economic
circumstances,Lifestyle,
7
1 Culture, Subculture, and

Figure 4.2: Factors InfluencingBuyer behaviour

Motivation: A consumer may be interested to buy a specific product or service.

One question comes to the mind that why s/he wants to buy this product or service?
The possible answer is that s/he is motivated to buy this product. Then what is
motivation? We may define motivation as the driving force within individuals that
impels them to take action. This driving force is produced by a state of tension, which
exists as the result of an unfulfilled need, Individuals strive-both consciously and
unconsciously-to reduce this tension through behaviour they anticipate will fulfill their
needs and thus relieve them of the stress they feel. The specific goals they select and
the patterns of action they undertake to achieve their goals are the result of individual
thinking and learning. Whether gratification is actually achieved depends on the
course of action being pursued. For example, if a high school boy expects to become
a great cricket player by wearing the same brand of sports shoes that Sachin
Tendulkar wears, he is likely to be disappointed; if he takes cricket lessons and
practices diligently, he may succeed. Psychologists have developed a number of
theories of motivation. Two of the most popular motivation theories which are
relevant in the context of buyer behaviour are 1) Abraham Maslow's Hierarchy of
need theory, and 2) Sigmund Freud's Psychoanalytical theory of personality.
These two theories have different meaning and interpretations with regard to
marketing and consumer analysis
Maslow's Hierarchy of Need Theory of Motivation: Abraham Maslow tried to
explain that people have hierarchy of needs at particular time, which they want to
satisfy. According to him the most pressing human needs are required to be satisfied
first and the least pressing are at the last. In terms of hierarchy they may be arranged
as 1) physiological needs, 2) safety needs, 3)social needs, 4) esteem needs, and 5 )
self-actualization needs.
Maslow's Hierarchy of needs theory is based on the following premises:
* All human beings acquire a similar set of needs through genetic endowment and
social interaction.
* Some needs are more basic or critical than others.
 The Inore basic neeas must be satisfied to a minimum level before other needs Buyer Uehaviour
are activated.
As the basic needs become satisfied, more advanced needs come into play.
e These needs can be arranged in a hierarchy.
Let us take an example to explain this theory in the context of buyer behavioul:
Suppose a consumer is interested in buying digital video camera. We may presume
that this consumer has satisfied his physiological, safety, and social needs and his
interest in buying digital video camera might come from a strong need for fulfilling
esteem needs or it might have come from satisfying self-actualization need he wants
to be a creative person to show his talent in photography.
Maslow's theory is a good guide to general behaviour. It is important to remember
that any given consumption behaviour can satisfy more than one need. Likewise, the
same consumption behaviour can satisfy different needs at different times.
The major problem with Maslow's theory is that it can not be teslecl empirically; there
is no way to measure precisely how satisfied one need must be before the next higher
need becomes operative. But despite the criticisms Maslow's hierarchy is a useful
tool for understanding consumer motivations and is a readily adaptable to marketing
strategy, primarily because consumer goods often serve to satisfy each of the need
levels. This hierarchy offers a useful, comprehensive framework for marketers trying
to develop appropriate advertising appeals for their products. Look at Figure 4.3
which depicts Maslow's theory of motivation.

Figure 4.3: Maslow's Hierarchy of Need Theory

Freud's Psychoanalytical Theory of Personality: According to this theory, which

is considered to be the cornerstone of modern psycl~ology,much of individual's
personality stems from a fundamental conflict between a person's desire to gratify his
or her physical needs and tlie necessity to function as a responsible member of
society. This struggle is carried out among tlie three subsystems of a person's
personality. These subsystems he called as id, superego and ego.
a) 'The id was conceptualized as a repository of primitive and impulsive drives-
basic physiologjcal needs such as thirst, hunger and sex-for which the individual
seeks immediate gratification without concern for the specific means of
gratification. The id operates according to the pleasure prbzciple; behaviour is
guided by the primary desire to maximize pleasure and avoid pain. It directs a
person's psychic energy towards pleasurable acts without regard for any
consequences.
Understanding Consumers b) The superego is the counterweight to the id. It is conceptualized as the
nnd Selecting 'Igrget individual's internal expression of society's moral and ethical code of conduct.
Murkets
The superego's role is to see that the individual satisfies needs in a socially
acceptable manner. Thus, the superego is a kind of brake that restrains or
inhibits the impulsive forces of the id.
c) Finally, the ego, the third subsystem, mediates between the impulsive powers of
id and the repressive powers of superego. In a way it works as a referee
between the id and superego. The ego tries to balance these opposing forces
according to the reality principle, whereby it finds ways to gratify the id that will
be acceptable to the moral values of the superego. The conflicts among these
three subsystems occur on an unconscious level, so the person is not necessarily
aware of the underlying reasons for behaviour. The Figure 4.4 represents the
three subsystems and their interrelationships.

Subsystem Subsystem

u Subsystem

Figure 4.4: Interrelationshipbetween Three Subsystems of Personality

Some of the Freud's ideas have been adapted by consumer researchers. 11-1particular,
his work highlights the potential importance of unconscious motives underlying
purchases. The implication is that consumers cannot necessarily tell their true
motivations for choosing a product, even if someone devises a sensitive way to ask
them directly. One of the major applications of Freud's theory is the development of
motivational research, which is based on certain psychoanalytical tools. The main
purpose is to uncover the underlying motives of purchase which are normally not
divulged by the consumers if conventional marketing research tools are used.
Motivation researchers collect in-depth infoi-rnation from small samples of consumers
to uncover the deeper motives for their product choices, They use non-directive depth
interviews and various projective techniques. Motivation researchers have reached
some interesting and sometimes odd conclusions about what may be in t h e buyer's
mind regarding certain purchases. For example, one motivational research says men
smoke cigars as an adult version of thumb sucking, females like killing the
cockroaches and other insects with sprays like "Hit" as they derive sadistic pleasure.
Despite its sometimes bizarre findings, motivational research remains a useful tool for
marketers seeking a deeper understanding of consumer behaviour.
Perception: Another important psychological factor, which may influence the
consumers, is perception. How a motivated person acts depends on his or her
perception of the prevailing situation. It has been found quite often that two people
with the same level of motivation and in the same situation act differently because of
differing perceptions. For example a consumer who visits a superstore for the
purpose of purchasing a colour television, on being confronted with an over
enthusiastic salesperson may consider this sales person as being too pushy without
understanding his needs. Another consumer may perceive the same salesperson as
being genuine and sincere. This happens because the difference in the perception of Buyer Behaviour
the salesperson by the two consumers.
Why do people have different perceptions of the same situation? The answer is that
people learn by the flow of information through their five sense organs. However,
they receive, organize and interpret this sensory information according to their prior
experiences in an individual way. We may define perception as a process through
which individuals select, organize, and interpret information into a
meaningful and coherent picture of the world. Perception is an individual
process; it depends on internal factors such as a person's beliefs, experiences, needs,
moods, and expectations. The perception process is also influenced by the
characteristics of a stimulus (such as its size, colour, and intensity) and the context in
which it is received.
People can form different perceptions of the same stimulus because of four
perceptual processes or selective perception. These are: selective exposure, selective
attention, selective distortion, and selective retention. Look at Figure 4.5 which shows
selective perception. Let us learn them in detail.

I . . . -

Selective exposure Selective altention

+.l,.'* XX I&%* V<',il 'd. ""Kaj'

Selective distortion

Figure 4.5: Selective Perception

a) Selective Exposure: Everyday people are exposed to a great number of stimuli

including marketing stimuli. One study has indicated that a typical consumer is
exposed to more than 1000 ads per day. Since, it is impossible to pay attention to
all these stimuli, nost of them are screened out. Research has shown that
~ e o p l are
e more likely to notice stimuli that relate to a current need. People are
also more likely tonotice stimuli that they expect (for example, in a retail store
dealing in apparels a shopper is unlikely to notice mobile phones on sale, because
slhe did not expect them to be there). Finally, people are more likely to notice
stimuli that deviate from the normal. Thus, marketer's ads must stand out from
the rest for people to notice them.
b) Selective Attention: This occul*swhen the consumer chooses to focus
attention on certain stimuli while excluding others. For example, out of the large
nu~nberof advertisements a consumer is exposed, he perceives or attends to a
few advertisements. This means advertisers must make considerable effort to
get their messages noticed. Advertisers often use the creative aspects of their
ads to gain consumer's attention. For example, some advertisers set their ads off
from others by showing their products in colour against a black-and-white
background.
c) Selective Distortion: Each person tries to fit incoming information into an
existing mind-set. People tend to interpret information in a way that will support
wliat they already believe. For example, an advertiser compares its brand with a
consumer's favourable brand which may be seen as biased or untruthful, and its
claim may not be accepted. Selective distortion means that the marketers must
try to understand the mind-sets of consumers and how they will effect
Understanding Consumers interpretation of advertising and sales information. Thus, marketer's need to
and Selecting Target understand consumer's mind-sets.
Markets
d) Selective Retention: People tend to retain only that information which
supports their attitudes and beliefs. Even messages that are received undistorted
are subject to selective retention. Consequently, ads are repeated many times.
The hope is that numerous exposures will etch the message into the recipient's
memory. This also partially explains why a firm with very familiar products, such
as Pepsi, Coke, KFC, McDonald's spend billions of rupees annually on
advertising.
Learning: Learning involves changes in an individual's behaviour arising from
observation and experience. Learning plays an important role at every stage of the
buying decision process. No universally workable and acceptable learning theory has
emerged. However, from marketing perspective consumer leanling can be thought of
as the process by which individuals acquire purchase and consumption
knowledge and experience that they apply to future purchase related
behaviour.
Despite their different viewpoints, learning experts in general agree that for occurring
learning, certain basic elements must be present. Four basic elements that are
fundamental to learning process are:
Drives: A drive is a strong internal stimulus that calls for action. A drive
becomes a inotive when it is directed toward a particular stimulus.
Cues: Are minor stimuli or signals from the environment that determine the
pattern of response. Cues are the stimuli that give direction to Lhe drives. For
example an advertisement of a brand of soft drink may serve as a cue for those
who are feeling thirsty. Cues serve to direct consulner drives when they are
consistent with consumer expectations. Therefore, it is necessary for the
marketers to provide only those cues, which are in tune with the co~~suiner
expectations.
Response: How individuals react to drives and configuration of cues-how they
behave-constitute their response. It is the behavioural reactions to the drives and
cues. Learning can occur even when responses are not overt. Many cues may
lead to the formation of positive attitudes and in future these attitudes may lead
to behaviour.
Reinforcement: This results when the response'is rewarding. Reinforcement
can be either positive or negative. For example, if a consumer purchases a
specific brand and he finds it satisfying and next Lime lle needs that product
there is likelihood that he may purchase the same brand. The response has been
reinforced. In addition the same consumer may develop a positive attitude
towards other brands manufactured by the same company. In case the response
is not rewarding, then the consumer may not purchase the brand and may
develop negative feelings towards other products manufactured by that
company.
If the response is rewarded by either positive or negative reinforcement, a
connection among the drive, cues, and responses will be established. Learning,
then, emerges from reinforcement, and repeated reinforcement leads to a habit
or brand loyalty. The practical significance of learning to the marketers is that
they can build demand for a product or brand by associating with strong drives,
using motivating cues, and providing positive reinforcement, However, learning
is not a peifect predictor of behaviour because a variety of other factors also
influence a consumer. For example, a pattern of repeatedly purchasing the same
 brand may be disrupted by a person's desire for variety or novelty. Or a Buyer Behaviaur
temporary situation such as being short of money or pressed for time may
produce behaviour different than a learned response. Thus, a learned response
does not necessarily occur every time a stimulus appears.

Check Your Progress-B

1 . How does Maslow theory of motivation.influence the buying decision?

2. Distinguish among Id, Ego and Superego.

......................................................................................................................
3. Distinguish between selective attention and selective distortion.

......................................................................................................................
4. How does reinforcement facilitate purchasing the,same brand of a product?

4.5.2 Personal Factors

A buyer's decisions are also intluenced by personal characteristics. They include: age
and life-cycle stage, occupation, economic circumstances, lifestyle and personality.
Age & Life-cycle Stage: People change the goods and services they buy over their
life time. For example, we all rely on some sort of baby food during infancy, most
other foods during growing years and may rely on special diets in later years. The
clothes that we wear, furniture we buy, and recreation are all age-related.
Because product needs and interests often vary with consumer's age, marketers
have found age to be a particularly useful demographic variable for distinguishing
segments. Many marketers have carved themselves a niche in the marketplace by
concentrating on a specific age segment. For example, Cartoon Network channel on
cable is aimed at children. Buying is also shaped by the stage of the fanlily life
cycle-the stages through which families might pass as they mature over time. The
basic assumption underlying the family life cycle approach is that most families pass
tlirough an orderly progression of stages, each with its own characteristics, financial
situations, and purchasing patterns. Each stage in the family life cycle poses a series
of problems, which the family decision makers must solve. For example, young
married couples with no children have time for relaxation and recreation. They may
consume tickets to the cinema, theater, restaurant meals etc. Each stage presents
Understanding Consumers unique needs and wants as well as financial conditions and experiences.
and Selecting Target
Markets Occupation: The importance of occupation as a social class indicator is highlighted
by the fact that we often "size up" people by enquiring about it. A person's
occupation affects the goods and services bought. Marketers frequently think in
terms of specific occupations when defining a target market for their products or
broader occupational categories. Truck drivers and auto mechanics may earn as
much as a young retail executive or college teacher, but the buying patterns of the
first two are likely to be different from the second two because of differing attitudes
and interests. Thus, occupation may be more meaningful criterion than income in
segmenting some markets. A company may even specialize in making products
needed by a given occupational group. For example, computer software companies
design software for engineers, accountants, lawyers, doctors, managers etc.
Economic Circumstances: A person's economic situation may greatly affect
product choice. People alone do not make a market; they must have money to spend.
Consequently incoine distribution is one of the most commonly used bases for
segmenting consumer markets. Marketers should analyze the spending patterns of
people at different income levels. Marketers of income-sensitive goods closely watch
trends in personal income, savings, and interest rates. If economic iildicators point to
a recession, marketers can take steps to redesign, reposition, and re-price their
products.
As discussed earlier, some consumer researchers argue that income alone does not
provide us a clear picture of the consumer spending patterns. For example, a blue-
collar automobile mechanic and a white-collar assistant bank manager may both earn
Rs. 15000 per month, yet because of social-class differences each will spend that
income in a different way. How they decide to spend their incomes reflects different
vnlcles. Within this context, it is the difference in values that is an important
determinant of social class between people, not the amount qf'inconle they earn.
Life-Style: People belonging to the same subculture, social class, and occupation
may exhibit different lifestyles. Lifestyle is defined simply as how orie lives in the
world, which is expressed in his activities, interests and opinions. It influences all
aspects of our consumption behaviour. It is influenced by the factors such as culture,
values, demographics, subculture, social class, reference groups, family, and individual
characteristics such as motives, emotions, and personality. Individuals and households
both have lifestyles. Our desired lifestyle influences our needs and attitudes and thus
our purchase and use behaviour. Buyers are seldom explicitly aware of the role
lifestyle plays in their purchase decisions. For example, some ti111cpoor families who
pursue an active lifestyle may think it appropriate to serve cold drinks to their guests;
or instant coffee etc. because of its convenience, since time is in~portantin an active
lifestyle.
The technique of measuring lifestyles is known as p,sychographics. It is the science
of using psychology, sociology, anthropology, and demographics to understand buyers.
Psychographics can help marketer fine-tune its offering to meet the needs of
different segments. Psychographic research attempts to place consumers on
psychological-as opposed to purely demographic-dimensions. Psychographic research
has been heartily embraced by marketing practitioners in the promotion of such a
diverse group of products as AT&T services, Kentucky Fried Chicken, Nescafe,
Newport Jeans, and Timex Watches etc.
Probably the best-known psychographics segmentation tool is Ki1ue.s nttd Lijestyles
(VALS), developed in 1978 by the research film SRI International in USA. The
VALS system was developed from a large study of the US populatiol-r that divided
adults into nine segments based on similarities in their values (beliefs, desires and
prejudices) and their lifestyles-hence the acronym VALS.
Personality: Marketers have long been intrigued by the possibility of appealing to Buyer Behaviour
consumers In terms of personality traits. They have felt that what consumers
purchase, and when and how they consume, are likely to be influenced by personality
factors. For this reason, advertising and marketing people have frequently depicted
specific personality traits or characteristics in their advertising messages. Personality
refers to those inner psychological characteristics that both determine and reflect how
a person responds to his or her environment. The emphasis in this definition is on
inner characteristics - those specific qualities, attributes, traits, factors, and
mannerisms that distinguish one individual from the other individuals. The deeply
ingrained characteristics that we call personality are likely to influence the individual's
product choices (and even certain brand choices); they also affect the way the
consumer responds to a firm's promotional efforts, and when, where and how they
consume particular products or services.
Therefore, identification of specific personality characteristics associated with buyer
behaviour may be highly useful in the development of a firm's market segmentation
strategies.
Some marketers use a concept related to personality-a person's self-concept. The
basic premise is that people's possessio~~scontribute to and reflect their identities: that
is "we are what we have." Self-concept can be defined as the totality of the
individual's thoughts and feelings having reference to him or her as an object. It is,
therefore, argued by some marketers that to understand consumer behaviour, one
must understand the relationship between consumer self-concept and possessions. All
of us have complex mental pictures of ourselves. For example, a consumer may see
himself or herself as outgoing, creative and active. Thus, he may favour a car that
projects the same qualities.

4.5.3 Social Factors

In addition to psychological and personal factors, buyer behaviour is influenced by
social factors. These social factors influence the buyers in different ways. For some
products the intluence of social factors is quite pronounced and for others it may not
be that pronounced. Important social factors which have certain bearings on buyer
behaviour are: reference groups, family, and social roles and statuses. Let us learn
them.
Reference Groups: A reference group is any person or group that serves as a point
of comparison (or reference) for an individual in forming either general or specific
values, attitudes, or behaviouc From the buyer behaviour perspective, reference
groups are groups that serve as frames of reference for individuals in their purchase
or consumption decisions. This may consist of all the groups that have a direct (face-
to-face) or indirect influence on the person's attitudes or behaviour.
Reference groups can be classified in terms of a person's membership or degree of
involvement with the group, as well as in terms of the positive or negative influences
they have on his or her values, attitudes, and behaviour. These groups are as follows:
a) A co~~tractual Group: This is a group in which a person holds membership or
has regular face-to-face contact and of whose values, attitudes, and standards
he or she approves. Thus, a contractual group is likely to have a congruent
intluence on an individual's attitudes or behaviour. This group includes friends,
family members, neighbours, and company-workers.
b) An aspirational Group: In this group, a person does not hold membership and
does not have face-to-face contact but wants to be a member. Thus, it often
serves as positive influence on that attitudes or behaviour. Young
people would like to be associated as well as like to emulate sports heroes,
Understanding Consumers movie stars, prominent personalities etc. for them these work as aspirational
and Selecting Target groups.
Markets
C) A disclaimant Group: In this group, a person holds membership or has face-
to-face contact but disapproves the group's values, attitudes or behaviour. Thus,
the person tends to adopt attitudes and behaviour that are in opposition to the
norms of the group. For example, neighborhood friends who have been dropped
out of school.
d) An avoidance Group: In this group, a person does not hold membership and
does not have face-to-face contact and of whose values, attitudes, and
behaviours he or she disapproves. Thus, the person tends to adopt attitudes and
behaviour that are in opposition to those of the group. For example, one may
vocally reject the actions of those peers who do not demonstrate adequate
respect for their parents and religion. These four groups influence on the buyer
have been shown in the Table 4.1.
'Pdble4.1: Reference Groups and Types of Influence

Q p e of Influence Membership Group Non-membershipGroup

Positive Influence Contrnctual Group Aspiratio~~al
Group
Negative Influence Disclaimant Group Avoidance group

Marketers are of the view that people, including consumers, are significantly
influenced by their reference groups particularly with those reference groups which
exert positive influence such as contractual and aspirational groups. These reference
groups influence a person in at least three ways: 1) Reference groups expose the
person to new behaviours and life-styles. 2) They influence the person's attitudes and
self-concept because he or she wants to "fit in". 3) They create pressures to conform
that may affect the person's product and brand choices.
The importance of group influence varies across products and brands, but it tends to
be strongest for conspicuous purchases. A product or brand can be conspicuous for
one of the two reasons. Firstly, the product is used or owned by very few people in a
society. For example, luxuries are more conspicuous than necessities. Secondly, a
brand may be more conspicuous because it is consumed in public where others can
see it. By cornbilling these two dimensions i.e. luxury products and public products
one may get four categories of products: public luxuries, public necessities,
private luxuries and private necessities. Research has found that the reference
group influence varies in terms of product and brand choice decision on these four
categories of products.
If an item is a luxury as opposed to a necessity, the decision to buy or not to buy the
product is influenced by the reference groups. If the item will be co~lsumedpublicly
rather than privately, reference-group influellce tends to affect the brand cl~oice.The
relative influence of reference group is shown in figuare 4.6.

Strong Weak
-
M

m
I Public Luxuries
(Luxury cars, boats,
Private Luxuries
(Water Purifier,TV
etc) Video games)
Public Necessities Private Necessities
(Two-Whelers,Cars, (Refrigerators,
clothers. Wristwatch) Mattress)

Figuare 4.6: Extent of Group Influence on Product and Brand Choice

Advertisers are relying on reference group influence when they use celebrity Buyer Belinviour
endorsers to work as aspirational reference group. Professional athletes, musicians,
and actors can influence people who would like to be associated with them in some
way-for example Michael Jordan for Nike Shoes, Narayan Karthikeyan for JK Tyres,
Shahrukh Khan for Santro car, Ustad Zakir Husain Khan for Taj Mahal tea.
If the marketers come to know that their products and brands are susceptible to
strong group influences they must figure out how to reach opinion leaders in these
product areas with their marketing messages. Opinion leaders are people within
reference groups who, because of special skills, knowledge, personality or other
characteristics, exert influence on others. Opinion leaders are found in all areas and
strata of society, and one person may be an opinion leader in certain product areas an
opinion follower in others, Therefore, marketers must try to identify the personal
characteristics of opinion leaders in their respective product areas and then find out
what media they use so that they may direct marketing messages to them.
a) Family: A family is a group of two or more people related by blood, marriage,
or atloption living together in a household. Because of strong bond and close
continuous interaction family members may strongly influence buyer behaviour.
During their lives many people belong to at least two types of families:
b) Family of Orientation: The buyer's parents make up the family of orientation:
Even if the buyer no longer interacts very much with his or her parents, the
parents can still significantly influence the buyer's unconscious behaviour. In
countries like India where parents continue to live with their childreti;their
influence can be profound.
Family of Procreation: It consists of the buyer, hislher spouse and cl~ilclren.It exerts
a more direct influence on everyday buying bel~avior.
The family is the most important consumer buying organization in society, and it has
been researched extensively. Marketers are especially interested the relative roles
and influence of husband, wife, and children on the purchase of a large variety of
products and services. Research has shown that husband-wife involvement varies
signiricantly across different product categories and the stage in the buying process.
Marketers have acknowledged the role of family in general and involvement of
husband-wife dyad in the purchase decision-making process in particular. However,
one of the trickiest problems for marketers is to figure out who makes purchase
decisions for a household. The problem being that there is rarely consensus among
couples themselves. The information about who influences the purchase decision
within a family setup serves as the basic input in designing the marketing
cornmunicalion and subsequently in media selection.
Researchers who worked on the role and influence of family in the purcllase
decisions have classified family decision-making as lz~~sband domilzated, wife
dominated,joint (i.e., equal or syncratic), and autolzomic (i.e., individualised or
solitary or unilateral),
Research on family-member influence in durable goods buying is ]nore abundant than
that on frequently purchased items. Even a casual observer would probably agree
that important, one-time purchases are likely to involve more than one household
member. In contrast to non-durables, purchases of durable goods are often preceded
by a progression of interrelated decisions and activities through time. Husbands,
wives, and children have more opport~~nities to become involved at one or inore steps
in the process. One can presume that family members are also more motivated to
participate, since the purchase of an automobile, for example, often precludes other
acquisitions, given families' budget constraints.
Understanding Consumers Another important aspect of family decision-making is the role played by the family
and Selecting Target members in the purchase of various products and services. There are nine distinct
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roles in the family decision-making process which provide an insight into how family
members interact in their various consumption- related roles:
a) Initiators: The family member(s) who first recognizes the need or starts the
purchase process.
b) Influencers: Family member(s) who influence the alternatives evaluated, the
criterion considered, and the final choice.
c) Gatekeepers: Family member(s) who control the flow of information about a
product or service into the family. It is generally the individual who has expertise
and interest in a particular purchase.
d) Deciders: Family member(s) with the power to determine unilaterally or jointly
whether to shop for, purchase, use, consume, or dispose of a specific product or
service.
e) Buyers: Family member(s) who make the actual purchase of a particular
product or service.
t Preparers: Family member(s) who transform the product into a form suitable
for consumption by other family members.
g) Users: Family memberts) who use or consume a particular product or service.
h) Maintainers: Family member(s) who service or repair the product so that it will
provide continued satisfaction.
i) Disposers: Family member(s) who initiate or carry out the disposal or
discontinuation of a particular product or service.
The number and identity of the family members who fill these roles vary from family
to family and from product to product. Therefore, marketers should identify what
roles are being performed by various family members in their respective product
areas and accordingly may develop marketing communication strategies.
Finally, it is important for the marketers to know which family member is likely to
make the purchase decision. This knowledge will influence a company's entire
marketing mix. For example, if it is found that children are the key decision makers,
as is often the case with toys, confectionaries and breakfast cereal, then a
manufacturer should come out with a product in consonance with the children
preferences; design the package children in mind, and advertise in those media, which
cater to the children.
Roles and Status: In life a person performs various roles and may belong to many
groups such as family, clubs and work environment. The person's position can be
defined in terms of both role and status. A role is a prescribed pattern-of behaviour
expected of a person in a given situation by virtue of the person's position in that
situation. Each role carries a status reflecting the general esteem given to it by
society. For example the role of a product manager has more status in a society than
the role of a son. As a product manager, a consumer will buy the kind of clothing that
reflects his role and status. People often choose products that show their status in a
society.

4.5.4 Cultural Factors

Cultural Factors exert the broadest and deepest influence on buyer behaviour. The
marketers need to understand the roles played by the buyer's culture, sub-culture and
the social class Let us learn these factors in detail.
Culture: Culture is that complex whole which includes knowledge, belief, art, law,
morals, customs, and any other capabilities and habits acquired by humans as a
member of society. In the context of buyer behaviour we may define culture as the Buyer Behaviour
sum total of learned beliefs, values, and customs that serve to direct the buyer
Sehaviour of members of a particular society. It is the most basic cause of a person's
wants and behaviour. Human behaviour is largely learned. Growing up in a society, a
child learns basic values, perceptions, wants and behaviour from the family and other
important institutions.
The nature of cultul-a1 intluences is such that we are seldoin. aware of them. One
behaves, thinks, and feels in a manner consistent with other members of the same
culture because it seems "natural" or "right" to do so: Culture typically evolves and
changes slowly over time. However, there can be major changes during relatively
short time periods due to rapid technological advances, conflicts between existing
values, exposure to another culture's values, or dramatic events such as war.
Marketing managers must understand both the existing cultural values.and the
emerging cultural values of the societies they serve. They must always try to spot
c~~ltliral
shifis in order to imagine new products that might be wanted. Some cultural
trends affecting the buying behaviour of Indian consumers include the following:
e Gender roles are losing their identity
Greater concern about health and fitness (has created a huge industry for
exercise equipment and clothing, low calorie foods, health and fitness services)
e There has been a shift toward informality (it has resulted in more demand for
casual clothing, sports shoes, lighter entertainment etc.)
e There is an increased desire for leisure time (it has resulted in more demand for
convenience products and services such as microwave ovens, fast food etc.)
e I11 metros, two-income families are becoming the norm (some view it as a
necessity to achieve a reasonable standard of living; this is also bound to affect
their ability to buy, choice of products, time available for purchase and
consumption)
Sub-culture: In any society as heterogeneous as the one in India, there are bound to
be subcultures. Subcultures are groups in a culture that exhibit characteristic
behaviour patterns sufficient to distinguish them from other groups within the same
culture. The behaviour patterns that distinguish subcultures are based on factors such
as race, nationality, religion and urban-rural identification. A subculture takes on
importance in marketing if it constitutes a significant part of the population and
specific purchasi~igpatterns can be traced to it. Each subculture has different
attitudes, beliefs, customs and languages that must be taken into consideration by the
firms attempting to sell to them,
Social Class: Social class is a ranking within a society deter~ninedby the members
of the society. Social classes are relatively permanent and ordered divisions in a
society whose member share similar values, interests, and behaviours. Social class is
not determined by a single factor such as. income but is measured as a combination of
occupation, income, education, wealth, and other variables. The lilies between social
classes are normally not fixed and rigid; people belonging to one social class call
move to a higher class or lower class. Marketers are interested in social class
because the buying behaviour of people is strongly influenced by the class to which
they belong or which they aspire. Social class is not an indication of spending
capability; rather it is an indication of preferences and life-style. For example, a young
manager might be having the same income as that of a middle aged foreman in a
steel factoly, but they probably have quite different family backgrounds, tastes, and
aspirations. Social scientists have come out with a number of social class
classifications, where they have divided the society in five, sevetl or nine divisions.
We provide the five division of classification of social class below.
Understanding Consumers a) The Upper Class: People who are in the top strata of the society. This class
and Selecting Target includes two groups: (1) socially prominent "old families," often with inherited
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wealth, and (2) newly rich corporate executives, owners of large businesses, and
highly-paid professionals. They live in large houses in exclusive neighbourhoods
and exhibit a sense of social responsibility. The upper class patronises exclusive
and fancy shops. They go for expensive goods and services, but they do not
display their wealth in a conspicuous manner. They form a very small part of the
society. In tenns of percentage they may range between 2 to 3 percent.
b) The Upper-middle Class: This class comprises moderately successful
businessmen, professionals and owners of medium to small size companies.
People belonging to this class are well educated, and they crave for success in
life. They may engage in conspicuous consumption as compared to upper class.
This class buys products that signifies its class status. In terms of percentage
they may range between 12 to 15 percent.
C) The Lower-middle Class: This class comprises office employees-both
government and private, junior executives, teachers, technicians, and sinall
business owne1.s. People from this class crave for respectability by engaging i n
those activities, which are approved by the society as "right things". They are
future oriented, strive to move up in the next higher socialclass, exhibit self-
confidence, and are risk takers. In terms of percentage they may range between
30 to 40 percent.
d) The Upper-lower Class: People in this class are blue-collar workers, semi
skilled workers, and lower grade service personnel such as clerks etc. they are
more tied with their families and inaIe female roles are s h a i ~ l ydefined. They
live in smaller houses. They patronize products keeping an eye on economy
aspect of purchase. In terms of percentage they may range between 30 to 35
percent.
e) The Lower-lower Class: They belong to the lowest strata of the society. 'This
class includes unskilled workers, the unemployed, uneducated and low-income
earners. They live in substandard houses. Their priority is to purchase only
essential thiugs. They are not in the position of purchasing durable products. In
terms of percentage they may range between 20 to 25 percent. In some
developing and poor countries their percentage may go up to 40 percent.
The conclusions from social class research are:
a There are substantial differences among these classes with respect to buying
behaviour.
0 Because of this diversity, different social classes are likely to respond difl'ere~itly
to a seller's marketing program. Thus it may be necessary to tailor marketing
programs, which are in tune with the characteristics of a specific social class.

Check Your Progress-C

I) On the basis of your own experience write the factors which influenced you in
the purchase of following products.
a) Refrigerator, b) Colour Television, c) Toothpaste, d) Personal computer,
e) Two- wheeler, f) Music system, g) Washing machine.
 What do you mean by reference group? Buyer Behaviour
2)
......................................................................................................................

......................................................................................................................
3) Distinguish between initiators and influencers.

......................................................................................................................
4) State whether the following statements are True or False:
i) Highest order need is self-actualization need.
ii) Superego is the reservoir of basic needs.
iii) People can move one social class to another social class.
iv) Filin stars and sports heroes work as aspirational reference group for old
people.

4.6 CONSUMER BUYING DECISION PROCESS

In the preceding section we have discussed the various factors that influence buying
behaviour. Understanding the influence of these factors is importanl for the marketers
for designing effective marketing strategies. However, this is not sufficient.
Marketers should also develop an understanding of how consumers actually make
their buying decisions. Understanding buying decision process requires the knowledge
of three things. Firstly, marketers should find out in their respective product
categories the roles played by difrerent family members in the buying decision
process. Secondly, the types of buying behaviour consumers display in different
buying situations. Finally, the different stages through which, a consumer goes
through in the buying decision process. We have already discussed the different roles
played by various family members in the context of family influences on buying
behaviour. Therefore, in this section we will discuss the different buying situations,
and stages of buying decision process,

4.6.1 Qpes of Buying Behaviour Situations

Marketers are required to know that consumer decision-making varies with the type
of buying behaviour in different buying situations. The buyer decision making process
varies considerably if he is buying a soap, clothing, a scooter, a personal computer or
a major home appliance. In general, buyers are highly ii~volvedwhen purchasing
complex and expensive products and Inore members of the family are expected to
take part in the decision making process. Consumer decision-making is also
influenced by whether the consumers perceive significant differences among
available brands in a specific product category or not. Based on these two dimensiolis
(i.e., degree of buyer involvement and the degree of differences among brands)
Henry Assael, a consumer behaviour specialist, has identified following four types of
buying behaviour situations:
1) Complex Buying Behaviour: In this situation, firstly, buyers are highly
involved with the product as the product is expensive, bought infrequently, risky
Understanding Consumers and self expressive. Secondly, buyers perceive significant differences between
and Selecting Target the available brands. Therefore, buyers first develop beliefs about the product,
Markets
then deveIop attitudes about it, and finally make a thoughtf~~l
choice. Knowing
this, marketers can help educate buyers about product attributes, differentiate
and describe the brand's features, and motivate store personnel and others to
influence the final brand choice.
Dissonance Reducing Buying Behaviour: Here also the buyers are highly
involved with the purchase but they may consider most brands in the given price
range as being similar in product attributes. This situation also occurs in case of
expensive, and infrequently purchased products. The buyer takes less time in
purchasing the product but later experiences somesamountof post purchase
dissonance if he notices certain disquieting features or hears favourable things
about other discarded brands. Marketers should therefore supply beliefs and
evaluations that help consumers feel good about their brand choices.
3) Variety Seeking Buying Behaviour: This situation applies to low involvement I

pl-oducts. However, buyers perceive significant differences among the available

brands in that product category such as biscuits, ice creams etc. Here, buyers
may switch brands because they want variety and not because of
dissatisfaction. Mostly buyers have some beliefs about the product, choose a
1
brand with little evaluation, and later evaluate the product during consumption.
Marketers should therefore try to encourage habitual buying behaviour by
i
dominating retailers' shelf space, keeping shelves fully slocked, running reminder
advertisements, and resorting to consumer sales promotion campaigns.
4) Habitual Buying Behaviour: This situation applies to low involvement
products as well as where the buyers do not perceive significant differences
among the available brands. Here the products are low-cost and purchased
frequently. Buyers keep buying the same brand out of habit and not because of
brand loyalty. Buyers make decision on the basis of brand familiarity. Marketers
of such products should try to create brand familiarity by of advertisements
repetition, with competitive pricing, and frequent consumer sales promotion
campaigns. These four buying behaviour situations are shown in Figure 4.7:

between Brands

Figure 4.7: Types of Buying BehaviourSituations

Source: Henry Assael, Cons~lnlerBelznvior and Marketing Action (Boston: Ken1 Publishing
Company,1987)

4.6.2 Stages in Buying Decision Process

Buyers make large number of buying decisions in their daily life. Marketing savvy
compar~iesresearch consumer buying decisions process involved in their respective
product categories. Marketing experts have developed a "five-stage model" of the
buying decision process wahich has been shown in Figure 4.8. This model shows that
the consumer passes through five stages in the buying decision process. These stages
are: 1) problem recognition, 2) information search, 3) evaluation of alternatives, 4)
actual purchase decision, and 5) post purchase behaviour.
 Buyer Behaviour
Post
recognition
behaviour
arousal

Figme 4.8: Five- Stage Model of Consumer Buying Decision Process

Though this model is a useful starting point for examining purchase decision process,
the purchase process is not always as straightforward as it may appear. Certain
important points are to be noted before we proceed to explain this model. These are:
e This model emphasises that the buying process starts much before the actual
purchase and continues after the purchase has been made.
e This model seems to imply that consumers pass through all five stages with
every purchase. As discussed earlier, consumers are more likely to pass through
all the five stages when they face either complex or dissonance reducing buying
behaviour situations. However for frequently purchased, familiar products,
purchasing may be a routine matter and problem recognition may be followed by
repurchase of a familiar brand, and thus, the second and third stages of the five-
stage model are bypassed,
e The consumer may withdraw at ally stage prior to the actual purchase, If for
example, the need diminishes or no satisfactory alternatives are available, the
process will come to an abrupt end.
e The stages are not necessarily of the same length. For complex buying
behaviour situation consumers may take longer time in information search and
evaluation of alternative stages as compared to other buying situations.
However, we discuss all Lhe stages of this model because it captures the full range of
considerations that arise when a buyer faces a highly involving new purchase.
Stage 1: Problem Recognition or Need Arousal
This stage starts whenever the consumer sees a significant difference between his or
her current state of affairs and some desired or ideal state. The consumer perceives
there is a problem to be solved, which may be small or large, simple or complex. This
problem recognition is experienced because people have needs and unsatisfied needs
create tension and discomfort. Acquiring and consuming goods and services can
satisfy some of the needs. Many experts are of the view that needs are aroused by
factors both internal and external to the individual.
Marketers need to identify the circumsta~lcesthat activate a particular need. By
gathering information from a number of consumers, marketers can identify the most
frequent reasons that kindle an interest in a product category. On the basis of this
knowledge they may develop marketing strategies that trigger consumer interest in a
product.
Stage 2: Information Search
A consumer who is in the state of need arousal may or may not go for information
search. If the consumer's need is strong enough and a satisfying product is readily
available, the consumer is likely to buy it immediately. However, in many situations
the aroused consumer may engage in more information search.
The consumer may engage in two types of information search depending on his
intensity of need. These are heightelzed attention and active inforr?~ationsearch.
In the first case the consumer becomes more receptive to~information,which comes
to him aboul the product, which may satisfy his need. For example, an aroused
consumer may pay more attention to advertisements for various brands, pwducts
Understunding Consumers used by friends, and conversations related with the product and brand!;. Here [he
and Selecting Target information search is passive in nature. In the later case, the consumer seeks
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information from various sources. He spends time and efforts to obtain product
information. For example, in active information search aconsumer may read
magazines, seek information from friends or visit retail outlets to see the actual
brands. Here the consumer is the seeker of information rather than the receiver of
information. The amount of information search activity increases as the consumer
moves from habitual buying behaviour situation to complex buying behaviour situation.
There exists number of information sources from where a consumer can obtain
information. Some of these sources are company coiltrolled or dominated and while
others emanate from the environment. The marketers should have knowledge about
these sources and the influence each source exerts on buying decision process.
Consumer information sources fall into four categories:
Personal sources: family members, friend circle, neigl~bourhoods,coworkers, peers
Commercial sonrces: advertising, sales personnel, marketing intermediaries (dealers,
retailers, distributors), point-of-purchase displays
Public sources: mass media (newspapers, magazines, television channels),
consumer-rating organizations
Experiential sources: actual handling of a product,
Consumers whether they are in heightened state or in active information search state,
get information from the above mentioned information sources. In the former case
they are receivers of information and in the later they are the seekers of information.
Look at Figure 4.9 which shows information search process.

< - ,"' 1 I

Heightened Attention Active Information Search

Information Sources
'
personal sources, commercial sources, public sources, and
- experiential sources

Figure 4.9: Il~formzltionSearch Process

Note: Arrow originating t'ronl the source(s) toward the buyer indicates that the buyer
is passive recipient of information while iice versa is indicative of the buyer actively
seeking out information.
The marketers need to find out in respective product categories the relative influence
exerted by these informati011sources on the consumer buying decision process. The
relative influence of these information sources varies with the product and the buyer.
Generally, a buyer receives most information from commercial (marketer-dominated)
sources, although the most effective information comes from personal sources. Each
information source performs n different fi~nctionin influencing the buying decision
process. Commercial information normally performs an injbr17zir1g$~fictio1z, and
personal information sources perforln a legiti~zizitzgor evczluative f~uictiolz.For
example, a collsumer may learn about a new product from commercial sources such
as advertisements but may turn to social sources such as friends and colleagues for
evaluation.
As more infoimation is obtained, the consumer's awareness and knowledge of
available brands increases. For example, if a prospective buyer is contemplating to
purchase an expensive product such as a refrigerator, he may gather i~lforination
 li.om various sources aidut many refrigerator brands available in the market. A Buyer Uel~aviaur
company must design its marketing mix to make prospective buyers aware of and
knowledgeable about its brand. If it fails to do this, the company loses an opportunity
- to sell.

Stage 3: Evaluation of Alternatives

This stage of buying decision process is the most complex and least understood.
Important question for the marketers is once a buyer has progressed through the
information search stage how he or she processes the infortnation relating to
competing brands and makes a final decision? The marketer needs to know about
alternative evaluation-that is, how the buyer arrives at brand choice set. Research in
this area has indicated that buyers use different evaluative criteria in choosing
different products and services. The same buyer may use one criterion for one type
of product and another criterion for other product. There are several evaluation
procedures at work; the most current models view the evaluation process as being
cognitively orieizted i.e., buyers form judgments largely 011 a conscious and rational
basis.
Before discussing the buyer evaluation process one has to understand certain basic
concepts, which are used in it. These are:
Product Attributes and Benefits: In the purchase of a product, a buyer is basically
trying to satisfy some of his needs. Hcre he is looking for certain henejits, which he
may obtain by purchasing that product. Further each consumer sees a product as a
bundle of prod~rctattributes with varying capacities for delivering these benefils. For
example, for a motorcycle, the product attributes that may be considered are fuel
consumption, power, ease in handling, style, and price. Buyers may differ regarding as
to which of these attributes they consider relevant. For some motorcycle buyers all
the attributes inay be relevant and for others only some may be relevant.
Attribute Importance: Consumers do not attach same importance to all the
relevant attributes and instead they may attach different &g~-ees of il?z~~orr~zrzce
to
each attribute.
Brand Beliefs: On tlle basis of the obtained information the consumer may develop
a set of brand beliefs about each brand's ranking on each attribute.
Brand Image: The Lola1 set of beliefs held about a particular brand is known as
brand image. The consumer's beliefs may vary from true attributes because of his or
her experience and also due to the effect of selective perception, selective distortion
and selective retention.
Utility Function: The congumer assumes that each attribute to which he gives
importance has a utility [unction. The utility function describes how the consurner
expects total product satislaction to vary with different levels of different attributes.
For example, ill case of motorcycle purchase, a consumer's satisfaction is likely to
illcrease with better fuel consumption, more power, ease in handling, better style and
lower price. If we combine the attribute levels at which each attribute utility is
highest, then it may lead to his ideal motorcycle.
Evaluation Procedure or Criterion: o n the basis of brand beliefs, brand attributes,
brand iinage, and utility fu~lctionthe consumer inay use some evaluative procedure or
criterion for selecting the brand. As mentioned earlier buyers have been found to use
one or more of several evaluation criteria, depending on the consumer and buying
decision situation.
After explaining the above mentioned basic concepts we try to explain the evaluation
procedure being used by buyers with a specific example. Consider a prospective
buyer is in the process of purchasing a motorcycle. He has gathered information from
 Understanding Consumers various information sources about various brands available in the market. His choice
and Selecting Target has been narrowed down to four motorcycles: A, B, C, and D. Further assume that
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he is primarily interested in five attributes-fuel consumption, power, ease in handling,
style, and price. Table 4.2 shows his ratings of each brand attributes on a 10-point
scale. In his ratings he gives 10 to an attribute if that exists at the highest level in a
specific brand and 1 to the same attribute in another brand if that attribute does not
exists or exists at the lowest level. He rates in between 10 and 1 if the attribute varies
between the highest and the lowest.
Table 4.2: Buyer's Brand Beliefs about Motorcycles

Attribute
Motorcycle Fuel consumption Power Ease of handling Style Price
A 10 8 6 8 4 I
B 8 9 8 6 3
/
C 6 8 I0 5 5
D 4 3 7 3 8

The above table shows the ratings on different attributes for four brands of
inotorcycles. From this table it is very difficult to predict which brand will be
purchased by the consumer because 110 brand is rated best on all attributes. However,
the brands vary in appeal. Some buyers base their buying decision on only one
attribute, and their choices are easy to predict. If this buyer wants fuel consumption
above everything, he would buy brand A; if he wants the motorcycle that is easiest to
handle, he would buy brand C; if he wants best power, he should buy brand B; if he
wants lowest price motorcycle, then he should go for brand D.
In case of expensive and infrequently purchased products such as motorcycle or
television, most buyers normally consider several attributes but assign different
importance weights to each attribute. If one knows the importance weights the
motorcycle buyer attached to the five attributes, one could predict his motorcycle
choice in a more reliable way. Suppose this buyer assigns 30 percent importance
weight to fuel consumption, 25 percent to power, 20 percent to ease in handling, 15
percent to style, and 10 percent to price. To find his perceived value for each brand
of motorcycle, we multiply his importance weights by his beliefs about each brand.
This gives the following perceived values which has been shown in Table 4.3.
Table 4.3 : Perceived Values of Buyers
-- -
I
1
Attribute
Motorcycle Fuel Power Ease of Style Price Perceived
consumption handling value

A .3(10) + .25(8) + .2(6) + .15(8) + .10(4)= 7.8

B .3(8) + .25(9) + .2(8) + .15(6) + .10(3)= 7.45
C .3(6) + .25(8)+ .2(10) + .15(5)+ .J0(5)= 7.05
D .3(4) + .25(3) + .2(7) + 33) + .lo@)= 4.6

From the above calculations of attribute importance and their respective weight one
may predict that this consumer will, in order of preference, favour brand A, followed
by brand 3, and C. The least preferred brand f& this consumer is D. This evaluative
procedure is known as expectczrzcy value model.
Marketers should try to study how the buyers actually evaluate various brand
alternatives. Knowledge of this enables marketers to take steps, which can influence
28

--
----
the buying decision process. For example, if the motorcycle buyer is inclined to buy
Brand A because he rates it high on fuel consumption and power, then what
strategies another inotorcycle brands owners use to influence consumers who give
high rating to fuel consumption and power.
Stage 4: Actual Purchase Decision
- is the cul~ninationof the earlier stage i.e., evaluation of alternatives. Once
This stage
the consumer has evaluated various alternative brands through some evaluative
criterion lie or she forms some brand preferences within the choice set. This leads to
the formation of purchase intentions. The consumer is now likely to take the actual
purchase decision for the most preferred brand but some times two factors may
come between the purchase intentions and the actual purchase decision. These
factors are attit~~des qf'others, and urtanticipated situutional factors. If these two
factors go in favour of tlie consumer's brand intentions then the buyer may purchase
the most preferred brand. However, if they go against the most preferred brand, the
buyer is likely to change his or her intentions and may purchase another brand from
among his or her choice set. How much another person's attitudes will affect buyer's
choices depends both on the strength of the other person's attitudes toward buyer's
buying decision and the buyer's motivation to comply with the wishes of others.
Unanticipated situational factors if they are adverse then they may also go
against the purchase of the preferred brand. The effect of these factors is
shown in the Figure 4.10.

r*L--hAttitudes of others

Unanticipated
situational factors

Figure 4.10: Intervening Factors between Purchase Intentions and Purchase Decision

In addition to the factors described above, a buyer's purchase decision is also

influenced by the amount of perceived risk associated with the product choice. As a
rule, purchase decisions that involve extensive search also entail some kind of
perceived risk, or belief that the product has potentially negative consequences.
Perceived risk may be present if the product is expensive or is complex and difficult
to understand. Alternatively, perceived risk can be a factor when the product choice
is visible to others and tlie buyers run the risk of embarrassment if tlie wrong choice
is made. Because of this perceived risk some sort of pre-purchase anxiety is
produced. A buyer takes certain actions to reduce risk, such as avoiding purchase
decisions, gathering more information, and looking for highly reputed brands, and
brands with warranties. The amount of perceived risk may also vary with the type of
buyers. Buyers with greater "risk capital" are less likely to be affected by perceived
risks associated with tlie products. For example, a highly self-confident buyer would
be less worried about the social risk inherent in a product, whereas a more vulnerable,
insecure buyer might be reluctant to take a chance on a product that might not be
accepted by peers. Therefore, marketers should understand the factors that lead to
the feelings of risk in the buyers and should respond with information and support that
will reduce the perceived risk.
Understanding Consumers Stage 5: Postpurchase Behaviour
and Selecting Target
Markets As indicated in the model of buying
. - decision process the marketer's job does not end
here. After the purchase, the consumer may experience either satisfactio~ior
dissatisfactio~lwith .the product or service. This has a bearing 011 buyer's future
behaviour with regard to the purchase of the same product if the same need arises.
Therefore, a buyer will engage in post purchase behaviour which has implications to
the marlceters.
The catisfaction or dissatisfactioll of a buyer is a function of two things-buyer's
expectations and product's perceived perfor~nance.After purchasing and using the
product, if the buyer finds that the product's peihnnance is below the expectations,
the buyer is dissatisfied, if the performance equals the expectations, the buyer is
satisfied and if the pelformnnce exceeds the expectations the buycr is highly satisfied
and/or delighted.
These feelings of satisfaction influence the buyer's future purchase decisions. {

Satisfied buyers are more likely to purchase the product again, talk favourably to
(WOM)
others about the product, that is, they may engage in positive wo?-d-oJ-~~io~lt/~
communication, pay less attention to competing brands and their advertising, and buy
other products from the same company. On the other hand, a dis-sntisficd buyer
responds dirferently. Dissatisfied buyer may take a number of actions. For example, a I
dis-satisfied buyer may abandon or return the product; seek infolmation which may
support his decision; take public action by complaining to the company, file a law suit,
or complain to the govelnment and private agencies such as consuiner folums or
consumer courts, or take private actions by not buyil-~gthe product o r engage in
negative WOM communication. The consumer's post-purchase actions are shown ill
Figure4.1 I .

consumer groups ,

Engage in - ve WOM

Figitre 4.11: Buyer's Post-purchase Actions

 The post purchase actions as shown in the Figure 4.9 have great implications to the - Buyer Behaviour
marketers. As we know that a company's sales come from two basic groups-new
customers and repeat customers. It usually costs more to attract new customers than
to retain cument ones. And the key to keeping current customers is customer
satisfaction. Thus a customer-oriented company regularly measures customer
satisfaction w d dissatisfactiol~.
Understanding the buyer's needs and buying process will help tho marketers to
develop appropriate marketing strategies for getting desired inarket response.
Check Your Progress-D

1 I. Enumerate the stepB involved in the consumer buying process.

......................................................................................................................
2. What do you mean by utility function?
......................................................................................................................

3. Enumerate intervening factors between purchase intensions and purchase

decision.

1 4) Stae whether the following statements are T n ~ or

r Fulse:

I i)
ii)
In complex buying behaviour situation the buyers arenot highly involved.
A buyer goes through all the five stages of buying decision process in
variety seeking buying behaviour situation.

I ,iii) The most important information sources are personal sources.

iv) . Buyers are found to use a number of evaluative criteria in evaluating
various brand altel~latives.
1 v) Going to the coui-t i n case of dissatisfaction from a product use is private

4.7 LET US SUM UP

Buyer or consumer behaviour ir; the behi.iviour that buyers or consumers display in
searching for, purchasing, using, evaluating, and disposing of pl-oductsand services
that they expect will satisfy their needs. There are three phases of buyer behaviour.
These are: accluisitivn phase, consumption phase and disposition phase.
The four rnain 'ipplications of buyer behaviour nw in developing marketing strategy,
and in consumer education. To survive in a
public policy formulation, sociai n~a~.keting,
rapidly changing market, u firm has to constantly understand the latest consumer
trends anc! tastcs for coming out viable marketing strategies.
Understanfling Consumers In purchasing various products and services buyers are influenced by host of factors.
and Selecting Target These are: psychological factors, personal factors, social factors, and cultural factors.
Markets
Psychological factors include: motivation, perception, learning and beliefs. Personal
factors include: age and life cycle stage, occupation, economic circumstances,
lifestyle, and personality.Social factors include: reference groups, family, and roles
and statuses. Cultural factors include: culture, subcu!ture, and social class. All these
factors influence the buyer in different way. Therefore marketers are required to
analyse the relative influence of these factors in their product areas.
Finally, buyers while making purchases of different products pass through different
stages of buying decision process. These stages are: problem recognition, information
search, evaluation of alternatives, actual purchase decision and post purchase
behaviour. Depending upon the buying situations buyers may or may not go through
all these stages. Buyers face four types of buying behaviour situations. These are:
complex buying behaviour,dissonance reducing buying behaviour, variety seeking
buying behaviour and habitual buying behaviour.

4.8 KEY WORDS

Acquisition Phase: This refers to how buyers acquire the products and services for
their consumption.
Buyer o r Consumer Behaviour: Behaviour that buyers or consumers display in
searching for, purchasing, using, evaluating, and disposing of products and services
that they expect will satisfy their needs.
Complex Buying Behaviour: Consumer buying behaviour in situations
characterized by high consumer involvement in a purchase and significant perceived
differences among brands.
Consumption Phase: This refers to how buyers use or consume the products and
services.
Culture: The set of basic values, perceptions, wants, and behaviours learned by a
member of society from family and other important institutions.
Disposition Phase: It refers to what buyers do with a product once they have
completed use of it.
Dissonance-Reducing Buying Behaviour: Consumer buying behaviour in
situations characterized by high involveinent but few perceived differences among
brands.
Ego: In Freudian theoiy, the part of the personality that serves as the individual's
conscious control.
Evaluation of Alternatives: A stage in the consumer decision-making process in
which the consumer appraises the benefits to be derived from each of the product
a[ternatives being considered
Family: Two or more persons related by blood, marriage, or adoptioil who reside
together.
Habitual Buying Behaviour: Consumer buying behaviour in situations
characterized by low consumer involvement and few significant perceived brand
differences.
Id: In Freudian theory, the part of the personality that consists of primitive and
impulsivedrives that the individual strives to satisfy.
Information Search: The stage of the buyer decision process in which the consumer Buyer Behaviour
is aroused to search for more information; the consumer may simply have heightened
attention or may go into active information search.
Learning: The process by which individuals acquire the knowledge and experience
they apply to future purchase and consumption behaviour.
Lifestyle: A person's pattern of living as expressed in his or her activities, interests,
and opinions
Maslow's Need Hierarchy: A theory of motivation that postulates that individuals
strive to satisfy their needs according to a basic hierarchical structure, starting with
physiological needs, then moving to safety needs, social needs, egoistic needs, and
finally self-actualization needs.
Motivation: The driving force within individuals that impels them to take action.
Organizational Consumer: Buys goods or services for organizational use.
Perception: The process, by which an individual receives, selects, organizes, and
interprets information to create a meaningful picture of the world.
Personal Consumer: Buys goods or services for his or her own use
Personality: A person's distinguishing psychological characteristics that lead to
relatively consistent and lasting responses Lo his or her own environment.
Post Purchase Behaviour: The stage of the buyer decision process in which
consumers take further action after purchase based their satisfaction or
dissatisfaction.
Problem Recognition: The first stage in the consumer's decision-making process in
which the consumer perceives a need and becomes motivated to satisfy it.
Psychographics: It is the science of using psychology, sociology, anthropology, and
demographics to better understand buyers.
Reference Group: A person or group that serves as a point of comparison (or
reference) for an individual in the formation of either general or specific values,
attitudes, or behaviour.
Selective Perception: The perceptual process involving the filtering or screening of
exposure, attention, cornprehension and retention.
Social Class: Relatively homogeneous divisions of society into which people are
grouped based on similar lifestyles, values, norms, interests and behaviours.
Social Marketing: Applying marketing principles for promoting social causes.
Subculture: Smaller groups within a culture that possesses similar beliefs, values,
norms, and patterns of behaviour chat differentiate them from the larger cultural
~nainstream.
Superego: In Freudian theory, the part of the personality that reflects society's moral
and ethical codes of conduct.
Variety Seeking Buying Behaviour: Consumer buying behaviour in situations
characterized by low consumer involvement but significant perceived brand
differences.

4.9 ANSWERS TO CHECK YOUR PROGRESS

Check Your Progress-C
4. i) T11ie ii) False iii) True iv) False
Understanding Consumers Check Your Progress-D
and Selecting Target
Markets 4. i) False ii) False iii) True iv) True v) False

4.1 0 TERMINAL OUESTIONS *

1. What do you mean by buyer behaviour? Why is understanding of buyer

behaviour important for marketers?
2. Describe Maslow's hierarchy of need theory. Discuss its significance for
understanding the buyer behaviour.
3. Do yo11 agree that people do not want to divulge their real motives in the
purchase of certain products and services? If yes, explain the
psychoanalytical theory of personality and give examples from your own
experience in what types of products this theory is applicable and why?
4. Fro111the concept social class as given in the text do you think it is applied in
certain buying situations. If yes, identify the products in which this coilcept is
most relevant.
5. How do perception and learning influence the buyer behaviour? Elaborate with
the help of suitable examples.
6. "Consumers are being influenced by anumber of psychological factors in the
purchase of products and services". Discuss these factors briefly.
7. Analyse the personal factors which influence buyer behaviour. Give suitable
examples.
8. Why are social factors important for understanding buyer behaviour? Discuss
various social factors which influence the buyer behaviour.
9. Explain various cultural factors which influence buyer behaviour.
10. Discuss various stages involved in the buying decision process.
11. Give your answer with suitable examples.
i) Discuss the role of family members in the purchase of consumer durable
products.
ii) Describe various sources of information and their role in the buying
decision process.
iii) Taking help with the evaluation process discussed in this unit describe the
evaluation of alternatives for deciding the choices set for various brands
of cars.
iv) Based on your experience what actions have you taken both in case of
satisfaction and dissatisfactions from the use of various products. Give
reasons.
12. Writenoteson:
i) ?'ypes of buying behaviour situations
ii) Types of consumers
iii) Freud's psychoanalytical theory of personality
UNIT 5 TS AND MARKET

I
Structure
5.0 Objectives
5.1 Introduction
5.2 What is a Market?
5.3 Types of Markets and their Characteristics
5.3.1 Consumer Markets
5.3.2 Organizational Markets
5.4 'Meaning and Concept of Market Segmentation
5.5 Importance of Market Segmentation
5.6 Requirements of Effective Market Segmentation
5.7 Bases for Market Segmentation
5.7.1 Bases I'or Segmenting Consumer Markets
, 5.7.2 Bases 1.01- Seg~nenting
Organizational Markets
5.8 Micro Segmentation and Mass Customization
5.9 Let Us Sum Up
510 Key Words
5.11 Answers to Check Your Progress
5.12 Tenninal Questions

5.0 OBJECTIVES
After studying this unit, you should be able to:
e explain the meaning of market;
discuss different types of markets and explain their characteristics;
e describe the meaning and significance of market segmentation;
e describe requirements for effective market segmentation;
e explain various bases for segmenting consumer and organizational markets; and
describe the concept of micromarketing and mass customization.

5.1 INTRODUCTION
From the study of he previous four units you must have understood various aspects
of marketing management, You may be aware by now that basic purpose of a
company's marketing department is to pelform "three S" for its consumers. The first
S stands for sensitzg the consumer, the second S stands for serving the consumer,
and the third S stands for sati,yfyin,,q the consumer. In doing so the marketer is
basically looking towards its market, which is the set of actual and potential buyers of
a product with want satisfying products and services. To be successful in its
marketing efforts a company should understand the characteristics of the market in
order to sense, serve and satisfy its consumers-market with its products. In this unit,
you will learn the meaning of a market, types of markets and their characteristics.
Understanding Consumers Check Your Progress-D
and Selecting Target
Markets 4. i) False ii) FaIse iii) True iv) True v) False

4.10 TERMINAL QUESTIONS

1. What do you mean by buyer behaviour? Why is understanding of buyer
behaviour important for marketers?
2. Describe Maslow's hierarchy of need theory. Discuss its significance for
understanding the buyer behaviour.
3. Do you agree that people do not want to divulge their real motives in the
purchase of certain products and services? If yes, explain the
psychoanalytical theory of personality and give examples from your own
experience in what types of products this theory is applicable and why?
4. Pro111the concept social class as given in the text do you think it is applied in
certain buying situations. If yes, identify the products in which this concept is
most relevant.
5. How do perception and learning influence the buyer behaviour? Elaborate with
the help of suitable examples.
6. "Consumers are being influenced by a number of psychological factors in the
pur~haseof products and services". Discuss these factors briefly.
7. Analyse the personal factors which influence buyer behaviour, Give suitable
examples.
8. Why are social factors important for understanding buyer behaviour? Discuss
various social factors which influence the buyer behaviour.
9. Explain various cultural factors which influence buyer behaviour.
10. Discuss various stages involved in the buying decision process.
11. Give your answer with suitable examples.
i) Discuss the role of family members in the purchase of consumer durable
products.
ii) Describe various sources of information and their role in the buying
decision process.
iii) Taking help with the evaluatioii process discussed in this unit describe the
evaluation of alternatives for deciding the choices set for various brands
of cars.
iv) Based on your experience what actions have you taken both in case of
satisfaction and dissatisfactions from the use of various products. Give
reasons.
12. Write notes on :
i) Types of buying behaviour situations
ii) Q p e s of consumers
UNIT 5 TS AND MARKET

Structure
5.0 Objectives
5.1 Introduction
5.2 What is a Market?
5.3 Types of Markets and their Characteristics
5.3.1 Consumer Markets
5.3.2 Organizalional Markets
5.4 Meaning and Concept of Market Segmentation
5.5 Importance of Market Segmentation
5.6 Requirements of Effective Market Segmentation
5.7 Bases for Market Segmentation
5.7.1 Boscs I'or Segmenting Consumer Markcts
5.7.2 Bases {'orSegrilenting Organizatio~lalMarkets
5.8 Micro Segmentation and Mass Custornization
5.9 Let Us Sum Up
510 Key Words
5.1 1 Answers to Check Your Progress
5.12 Terminal Questions

5.0 OBJECTIVES
After studying this unit, you should be able to:
0 explain the meaning of market;
0 discuss diffesent types of markets and explain their characteristics;
a describe the meaning and significance of market segmentation;
a describe I-equire~nents
for effective market segmentation;
0 explain various bases for segmenting consumer and organizational markets; and
a describe the concept of micromarketing and mass customization.

5.1 INTRODUCTION
From the study of the previous four units you must have understood various aspects
of marketing ma~~agement. You may be aware by now that basic purpose of a
company's marketing department is to pel-form "three S" for its consumers. The first
S stands for sensirzg the consumer, the second S stands for sewing the consumer,
and the third S stands for sati.yfyirag the consumer. In doing so the marketer is
basically looking towal-ds its market, which is the set of actual and potential buyers of
~l product with want satisfying products and services. To be successful in its
m:u-lteting efforts a company should understand the characteristics of the market in
order to sense, serve and satisfy its consumers-market with its products. In this unit,
you will learn the meaning of a market, types of markets and their characteristics.
Understanding Consumers You will further learn the meaning and importance of market segmentation,
and Selecting Target requiremenis of effective segmentation, bases of segmentation, and the meaning of
Markets
micro marketing and mass customization.

5.2 WHAT IS A MARKET?

The term market has many meanings and connotations. Originally the term market
stood for the place where buyers and sellers gathered to exchange their goods, such
as a village bazaar. Another popular way of describing a market is in the context of a
particular place where several shops or buyers or users may be located. For example,
Connaught Place is considered a market in New Delhi. Economists use the term
market to refer to a collection of buyers and sellers who transact a particular product
categoly or a range of products such as computer market, two-wheelers market, car
market, etc. But marketers do not agree with economists as they consider the sellers \
as constituting the industry and the buyers as constituting the market. I
From the marketing point of view it can be defined as group of people or
organisations with needs to satisfy, money to spend, and the willingness to spend it. It
can be identified by Lome common characteristic, interest, or problem; use a certain
product to advantage; and be reached through some medium. However, within a total
market there is always some diversity among the buyers. The size of the market
depends on the number of people who exhibit the need, have resources to engage in
exchange and are willing to offer these resources in exchange for what they want.
Within the sane general market there w e groups of customers with different needs,
buying preferences, or product-use behaviour. In some markets these differences are
relatively minor, and the primary benefit sought by consumers can be satisfied with a
single marketing mix. In other markets customers are unwilling to make the
compromises necessitated by a single marketing mix. As a result different marketing
mixes are required to reach the entire market. Whether it is large or small, the group
of consumers (people or organizations) for whom the seller designs a particular
marketing mix is a turget market. Thus a target market refers to a group of people or
organizations at which a firm directs a marketing program with a specific marketing
mix. For example, Malvti Udyog, the market leader in passenger car market, focuses
on one target market for its Maruti 800, for Zen it has another target market, for
Esteem il considers yet another target market, and for Baleno it is targeting a
different target market. Therefore, a company may have different target markets for
its various brands in the same general market in a product category. For each target
market the company has to develop distinct marketing program if it wants to succeed
in that target market.

5.3 TYPES OF MARKETS AND THEIR

CHARACTERISTICS
We as consumers, buy various goods and services for our own consumption or use in
our daily life. 111 the same way business enterpiises buy innumerable goods and I
services for the purpose of using them in manufacturing process, helping in
manufacturing process, for running the business, and reselling them to the final
consumers. For proper understanding of the markets, therefore, it is essential to
classify the markets 011 the basis of the type of buyer group. As such, markets are
classified into two broad categories. They are: consumer markets and organizational
markets. Let us study these two types of markets in detail.

5.3.1 Consumer Markets

Here consumers mean all the individuals and households who buy goods and services
for their personal or household consumption. Thus the consumer market consists of
all the individuals and households who buy or acquire goods and services for their Markets and Market
own personal or household use. They buy strictly to satisfy their non-business Segmentation
personal needs and wants. For example, you purchase items such as toothpaste, soap,
biscuits, sweets etc., for your personal consumption or your family consumption. But
when an individual or organization buys goods for resale or for further production,
such an individual o r organization is not treated as belonging to the consumer market.
These ultimate consumers are large in numbers and spread throughout the country.
They also vary tremendously in age, income, educational level, tastes, preferences,
etc. In Unit 4 we have discussed in detail that buyers are influenced by a host of
factors in purchasing various products arid services. These factors are cultural, social,
personal, ecoiioinic and psychological characteristics of the buyer. You may also
recall while buying different products and services a buyer typically goes through five
slages of buying decision process. These five stages are: problem recognition or need
arousal, information search, evaluation of alternatives, actual purchases decision and
post-purchase beliaviour.

5.3.2 Organizational Markets

It is generally considered that business organizations engage in selling their products
and services to their consumers. This is tiue, but they also buy vast quantities of raw
materials, ~nanufacturedcomponents, plants and equipments, supplies, and business
services. Thousands of business, institutional, and government organizations represent
a huge, lucrative buying market for goods and services purchased from both domestic
and international suppliers. In fact, organizational markets involve many more lupees
and items than do consumer markets.
Today most of the large companies, in addition to selling their products to the
consumer market, sell to other organ~zations.Many industrial goods manufacturing
companies sell most of their products to other business organizations. Even large
consumer goods ~nanufacturersengage in organizational marketing. For examplr,
MRF, the leading manufacturer of various types of tyres, in addition to selling to the
ultimate consumers it also sells tyres to different automobile co~npanieswho
n1;lnufacture different types of vehicles. Organizational market purchases goods ancl
services lo achieve specific goals, such as making money, reducing operating costs,
and satisfyi~igsocial or legal obligations. The organizational market comprises all the
organizations that buy goods and services for use in the production of the other
products and services that are solcl or rented, 01. supplied to other customers or used
by the~nselvesfor mnning the organization.
Marketing various products and services to organizations is dil'~cr*erit
form marketing
to consumer marltet. The unique considerations of organizationd market, which are
not present in consumer markets, are:
a Organizations do not buy for personal consu~nptionbut to obtain goods and
services that will be used in fiirthcr production, reselling or servicing.
e More persons are normally got involved in organizational buying, especially for
rn+ior items, than in consumer buying.
0 The organization imposes policies constraints, and recluirements that must be
kept in mind by its sellers.
e The buying instmments, such as request for quotations, proposals, and purchase
contract, adcl another dimension not found in consumer buying.

'2lypcs of Orgailizational Markets

There are four types of organizational markets: the industrial market, the reseller
market, the government market, and the institutional market.
Understanding Consumers a) TIze Industrial Market: It is also called producer or business market. It
and Selecting Target consists of all the individuals and organisations that buy or acquire goods and
Markets
services that enter into the production of other products and services that are
sold, rented or supplied to others. The major industries making up the
organizational market are agriculture, forestry and fisheries; mining;
manufacturing; construction; transportation; communication; public utilities;
banking; finance, and insurance; distribution; and services. For example, Maruti
Udyog purchases large number of raw materials, component parts, machinery,
and supplies. After manufacturing different brands of passenger cars it sells to
final consumers and organizations. Within the industrial market, customers tend
to be larger and fewer than in consumer markets. But even here, great
variations are found. First, the number of industrial firms making up the market
varies from one (monopsony), to few (oligopsony), to many. Secondly, we can
also distinguish between indusrial markets made up of only large films, or a few
large and many small firms, or only small firms.
b) The Reseller Market: It consists of all the individuals and organisations that
acquire goods for the purpose of reselling or renting them to others at a profit.
The basic activity of resellers-unlike industrial or business market-is buying
products from manufacturing organizations and reselling these products
essentially in the same form to the resellers' customers. In economic terms
resellers create time, place and possession utilities rather than form utility.
Resellers also buy many goods and services for use in operating their
businesses-items such as office supplies and equipment, warehouses, materials-
handling equipment, legal services, and electrical services. In the case of the
resellers like small wholesale and retail organisations, buying is done by one or a
few ii~dividuals.In large reseller's organizations, buying is done by a buying
committee made up of experts on demand, supply, and prices. One of the major
problems a reseller faces is to determine its unique assortment-the combination
of products and services that it will offer to its customers. The wholesaler or
retailer can choose any four of the following assortment strategies:

-
ru,lt organlzatlons

Ryre 5.1 :Types of OrganizationalMarket

 Excluive Assortment: It represents the line of only one manufacturer. For Markets and Market
example, an exclusive show room of cars from a single manufacturer. Segmentation

Deep Assortment: It represents a given homogenous product family in depth,

drawing on many ~nanufacturersproducts. For example, a TV dealer who keeps
many brands of TVs from different manufacturers.
Broad Assortments: They represent a wide range of product lines that still fall
within the natural coverage of reseller's type of business. For example, an
electronic goods dealer that keeps different electronic goods from various
~nanufacturers.
Scrar~tbledAssortment: It represents many unrelated product families. For
example, a grocery store or a super market that keeps thousands of products
and brands in different product categories from hundreds of manufacturers,
This choice of assortment may be available to a single reseller also. For
example, a camera store may decide to sell only Kodak cameras (e;:clusive
assortment), many brands of cameras (deep assortment), cameras, tape
recorders, TVs, music systems (broad assortment), and many different products
altogether (scrambled assortment).
c) The Governrnent Market: In most countries, government organizations are a
major buyer of goods and services. The government market consists of central,
slate, and local governmental units that purchase or rent goods for carrying out
the main fu~ictionsof government. The government market constitutes a huge
market potential for many companies. For example, government market buys
hundreds of products and services from large number of companies. The
governmental agencies buy amazing range of products and services; they buy
every thing from toiletries, clothing, furniture, computers, vehicles, and fuel to
sculpture, fire engines, weapons, and practically everything.
Gove~~iment purchasing processes are different from those in the private sector
of the industrial or business market. A unique feature of the government buying
is the competitive bidding system. Much government procurement, by law, must
be done on a bid basis. That is, the government agency advertises for bids using
a standard format called a request for proposal (RFP), or quotation Lhat states
specifications for the intended purchase. Then it must accept the lowest bid that
meets these specifications. An alternative to this system, the government may
sometimes negotiate a purchase contract with an individual supplier. This system
is used when government wants to purchase a specialized product that has no
comparable products on which to base bidding specifications. In India, most of
the government purchases for standard products are based on the rates
approved by the Directorate General of Supplies and Disposal (DGS&D). From
time to time DGS&D decides the rates of various products and services which
are needed by governmental agencies. Despite the vast opportunities available
from the government market, many companies are reluctant to sell because they
are intimidated by the red tape.
d) The Instit~itiorzalMarket: This is also known as non-profit organization or
"nonbusiness" business market. This market consists of various non-profit
instilulions other than the government market. This includes: educational
institutions (schools, colleges, universities, and research laboratories), hospitals,
nursing homes, religious institutions, etc. Many non-profit institutions have low
budgets and captive clienteles. For example, many universities, colleges and
governmental hospitals work on funds provided by the government and in most
of the cases these are limited. Therefore, those companies who wish to sell to
this market should keep in mind the inherent budget constraints.
 Understanding Consumers Characteristics of Organizational Market
and Selecting Target
Markets After discussing various types of organizational market we now describe briefly the
- - characteristics of organizational
distinguishing - market which make it different from
consumer market. These characteristics are more or less applicable to all types of
organizational market, but these are more applicable to industrial or business market.
These are:
Fewer Buyers: Normally organizational buyers are less in number compared with
consumers. Therefore, an industrial marketer normally deals with fewer buyers than
does the consumer marketer. For instance, if a MRF a leading tyre manufacturing
company wants to sell its tyres in the industrial market, it may concentrate on one of
the big automobile manufacturing concerns. When the same company wishes to sell
tyres to consumers (vehicle owners) it has to contact lakhs of vehicle owners.
Larger Buyers: Organizational buyers norlnally require large quantities of goods
whereas personal consumers require smaller quantities. Thus industrial buyers are
large scale buyers. Even among industrial buyers a few large buyers normally
account for most of the purchasing. In such industries as automobiles, telephone,
soaps, cigarette, synthetic yarn etc., a few top manufacturers account for more than
a substantial part of total production. Such industries account for a major share of
1 raw material bought in the market,
Geographical Concentration: Organizational buyers are mainly concentrated in
few places like, Mumbai, Kolkata, Delhi, Chennai, Bangalore, Pune, Hyderabad, etc.,
whereas consumers are spread throughout the country. For example, most of the
companies in textile sector are located in the westetn belt of India. Because of this
geographical concentration of industrial markets, the marketers need not establish
distribution network throughout the country. This helps in reducing the cost of
distribution.
Derived Demand: The demand for industrial goods is ultimately derived from the
demand for consumer goods. For instance, Maruti Udyog Ltd. purchases steel and
produces cars for the consumer market. If the consumer demand for cars drops, so
will the demand for the steel and all the other products used to make cars. Therefore,
industrial marketers sometimes promote their products directly to final consumers to
increase business demand. For example, Intel Corporation, the largest supplier of
computer processors engages in mass media advertising quite often.
Inelastic Demand: Demand for many industrial goods and services is inelastic and
not much affected by price changes, especially in the short run, because producers
can not make quick changes in production schedules. For example, footwear
manufacturers will not buy much more leather if the prices of leather fall. Nor will
they buy less leather if the prices rise unless they can find satisfactory substitutes. In
case of price increase of industrial product such as key raw material, the
manufacturers will increase the price of the finished product. In this way they pass on
the price increase to the ultimate consumers.
Fluctuating Demand: The demand for industrial goods and services tends to be
more volatile than for consumer goods and services. This is especially tnle of the
demand for new plant and equipment. A given percentage increase in consumer
demand can lead to a much larger percentage increase in the demand for necessary
plant and equipment to produce the additional quantity in order to meet the increased
demand. Economists refer to this as the acceleration principle.
Professional Purchasing-: Most of the organisations have professionally trained
personnel in the purchasing division. Goods are purchased by these specialists. There
are professional journals which provide inforlnation for the benefit of these
40 professional buyers. Consumers, on the other hand are less trained in the art of
carefl~lbuying. In industrial purchasing, if the buying decision is complex; it is likely Markets and Market
that several persons will participate in the decision-making process. Purchase Segmentation
committee comprising experts and top management are common inlthe purchase of
major goods. In addition to this, Inany of the buying instruments-such as purchase
contracts-are not found in consumer buying.
Close Supplier-Customer Relationship: With the smaller customer base and the
importance and power of the larger customers, industrial sellers are frequently
required to customize their offerings, practices, and performance to meet the needs of
individual customers.
Multiple Buying Influences: More people typically influence business buying
decisions. Buying committees are common in the purchase of major goods; marketers
have to send well trained and experienced sales people and often sales teams to deal
with these well-trained buyers
Multiple Sales Calls: With the more people involved in the process, the sales
representatives or sales teams from the industrial supplier are req~~iredto call many
times before getting an order from an industrial buyer. A long period, ranging from a
few weeks to few months is required to get an order for major capital equipment
from an industrial buyer.
Direct Purchasing: Organizational buyers particularly business buyers often buy
directly from manufacturers rather than through intermediaries, especially products
that are technically coinplex or expensive.
Reciprocity: Organizational buyers often select suppliers who also in turn buy from
them. For example a paper manufacturer who buys chemicals from a chemical
company that is buying a considerable quantity of its paper. Even in this reciprocal
buying situation the buyer will make sure to get the supplies at a competitive price, of
proper quality and service.
Leasing: In case of ma-jor and expensive eq~lipmentmany induslrial buyers lease
rather than buy in order to conserve funds, get the latest products, receive better
service, and gain tax advantages. The lessor often makes more profit and sells to
customers who could not afford outright purchase of equipmelit, There are certain
income tax benefits according to Indian Income Tax Act given to both lessor and
leasee.

Check Your Progress-A

1. Distinguish between deep assortment and broad assortment.

2. Enumerate five characteristics of organisational market.

3. Distinguish between industrial markets and reseller markets.

......................................................................................................................
Understanding Consumers ......................................................................................................................
and Selecting Target ......................................................................................................................
Markets
4. Distinguish between derived demand and inelastic demand.

5.4 MEANING AND CONCEPT OF MARKET

SEGMENTATION
Today companies that sell their products and services to various consumer and
industrial markets are aware that they cannot serve to all buyers in the entire market
for a specific product or service category. The reason is that buyers in a specific
product market are too numerous, too widely spread, and have different needs and
buying motives. This is known as heterogeneity or diversity of buyers. For examples,
not all consumers wlio wear pants want to wear jeans. Even those wear jeans some
will go for designer's jeans and some go for cheaper jeans. In the same way
businesses who use compute s may not want the same amount of memory or speed
in computers. Thus rather than to compete in an entire market each company must
identify the parts of the market that it can serve in a more meaningful way.
What we are seeing here is that within the same general market there are groups of
consumers with different needs, buying preferences, or product-use behavio~~r. In
some product markets these differences are relatively minor, and the primary beliefit
sought by consumers can be satisfied with a single marketing mix. In other product
markets these differences are pronounced and consumers are not likely to
compromise on single product and other elements of marketing mix. As a result,
alternative or multiple marketing mixes are rcquired to reach the entire product
market. For example, today in India there are various brands of cars which are
serving the "small car market", some are serving "mid-size car market", and some
brands of cars are serving "luxury car market". Whether it is large or small, the group
o i consumers (personal consumers or business buyers) for whom the seller designs
and directs a particular marketing mix is a target market.
Historically speaking, companies did not practice target market approach. They have,
over the years passed through three stages in marketing their products and services.
These are:
Mass Marketing: In this marketing practice companies use to produce a single
product on a mass scale, distkibuted and promoted on a mass level. The main
advantage that has been advocated for mass marketing is that this will lead to
economies of scale to t h e manufacturers and lower price to the consumers. This
practice is also known as "shotgun approach" or market aggregation. In the present
market scenario this practice ris seldotn used by the marketers as consumers in most
of the markets exhibit differences in terins of bnying preferences, needs and product
use behaviour. This has made mass mnrketi~ignlsre difficult in the present tirnes.
Target Marketing: Here the tola1 market is viewcri as consisting of several s~nnller
segments with differences significant enough that one marketinp mix will not satisfy
everyone or even a majority in a given product or servicc, n~arlcet.Therefore, a firm
here identifies different submarkets or malket szgments, selects one or more of them,
and develops products and marketing mixes rLtilasedto each. This strategy etnploys a
"rifle" approach instead of "shotg~~n"approaclk.
42
Today most of the companies are moving away from mass marketing and adopting Markets and Market
target marlceting approach. Marketers who want to practice target marketing Segmentation
effectively are required to take three steps. The first step is rlzarket segnzentation,
the second step is inarket targeting, and the third step is market positiolzilzg.
Therefore, target marketing is also known as STP marketing i,e. segmenting,
targeting, and positioning. In this unit we will discuss market segmentation and the
remaining two steps i.e., lnarket targeting and marlcet positioning will be discussed in
thc next unit. Look at Figure 5.2 which shows various steps in target marketing.

Market Segmentation Market Targeting Market Positioning

Thc process of clivicling Evaluating and selecting Setting tlie competitive
market into distinct markel segment positioning for product
with specific marketing

Figure 5.2:Steps in Target Marlteting

As buyers of a product exhibit different needs and wants, and therefore, eacli group
with similar needs rnny be treated as a separate market. Customer-oriented
companies take these diffclcnces into consideration, but they usually cannot afford to
tailor-made n different product and marketing mix for every consumer. Consequently,
most niarlcetcrs operate between the extremes of one marketing mix for all (mass
marketing) and a different one for each consumer. Therefore, companies go for
marlcet segmentation. We define market segmentation as the process of dividing
tlie total nlarltet for a product or service into several smaller groups, such
that the members of each group arc similar with respect to the factors that
influence demilnd. Therefore, companies through market segmentation divide large,
betel-ogencous marlcets into smaller segments that can be reached Inore efficiently
and effectively with products and services that match their unique needs.
The stl.alegy of marltct scgmentation involves the development of two or more
different milrketing plogrilnls for a given product or service, with each milrkcting
11rogram aimed at a different market segment. A strategy of marketing scgmentation
recluires that the company first clearly defines the number and nature of the customer
I
groupings (marltet segments) to wliicli, it intentls to oL'fer its product or service. This
is necessary (though not sufficient) condition for optimiziilg efficiency of marlcetilig
cfi'ort against those scgments or the total market where it is likely to yield higher
returns on the effort and investment. Some people criticize that marketers create the
segments. This is not truc. They do not create the segments but they first identify the
segments and then decicie to focus on one or more segments with different marketing
~nixes.

5.5 IMPORTANCE OF MARKET SEGMENTATION

Marltet segmentation being customer-oriented is i l l consonance with the marketing
concept philosophy. In marltet segmentation, a company first identifies the needs of
consumers within a segllienl: and then decides if it is practical to develop a product
and marlceting mix to satisfy those needs. By practicing market segmentation n
company may obtain the following advantages and benefits.
0 By tailoring marketing programs to each lnarket segment, a company can do a
better marketing job and can make more efficient use of its'marketing resources.
e A small company with limited resources may be ill a better position to compete
more effectively in one or two small market segments, whereas the same
comp;uny would be overwhelmed by the competition from bigger companies if it
aimed for a major segment.
Understanding Cr~nsurners e A company with effective market segmentation strategy can create a more fine-
and Selecting Target tuned product or service offering and price it appropriately for the target segment.
Markets
e The company can more easily select the most appropriate distribution network
and communication strategy, and it will be able to understand its competitors in a
better way, which are serving the same segment.
e By developing strong position in a specialized market segments, a medium sized
company can grow rapidly.
e Even very large companies with the vast resources at their disposal are
abandoning mass marketing strategies and embracing market segmentation as
more effective strategy to reach various market segments in broad product
market. For example, Hindustan Lever Ltd (HLL), one of the most admired
companies, has developed a number of detergent brands to cater to the needs of
various segments in detergent market. This has been done by HLL after it faced
stiff competition in the 1970s from a sinall and lesser known Nirma Chemicals
Ltd, in the form of Nirma brand. As a result of Nirma's onslaught HLL came up
with an economical brand named Wheel to cater to the needs of middle class
and economy conscious detergent buyers.
Because of these factors and the benefits from the market segmentation most of the
companies both in consumer and industrial markets are practicing this strategy.
Because of obvious benefits, today not only market segmentation is practiced by the
companies manufacturing goods and services but it has also been adopted by
retailers. Many marketing experts are of the view that the days of mass marketing
have gone and even if some companies are following mass marketing its days are
numbered. Therefore, today companies use market segmentation to stay focused
rather than scattering their ma keting resources.

5.6 REQUIREMENTS OF EFFECTIVE MARKET

SEGMENTATION
The goal of segme~~tation is to divide a market so that each segment responds to a
different or unique marketing mix. The variables on the basis on which the market is
segmented should be capable of measurement and quantification. It should not be
merely a subjective phenomenon. For this measurement, adequate data should be
available or be capable of being collected. If the data is not available and not
quantifiable, the segmei~tationwill be difficult orunscientific. As we will see in the
next section that there are several ways to segment a market, but not all
segmentation approaches are equally effective. To carry out effective market
segmentation, the selected segments should be ( I ) identifiable and measurable, (2)
sufficient (in terms of size), (3) stability, (4) reachable (accessible) in terms of media
and costs, (5) differentiable, and (6) actionable. Let us discuss them in detail.
Identifiable and Measurable: To divide the market into separate segments on the
basis of a common need or characteristics that is relevant to the product or service,
marketers must be able to jdeiitify the relevant characteristics or variables. Some
segmentation variables, such as geography (location) or demographics (age, gender,
occupation), are relatively easy to ibntify or are even observable. Others, such as
education, 'income, or marital status, can be determined through survey research using
questionnaire. Still other characteristics, such as benefits sought or lifestyle, are more
difficult to identify. Even after the proper identification of variable(s) the marketers
will be in a position to measure the resultant segments in terms of their size,
purchasing power, and profile. Certain segmentation variables are difficult to measure
because they are difficult to identify. Therefore, if any segmentation variable can not
be measured properly segmentation of muket will not be effective.
r
Sufficient (in terms of size): For a market segment to be worthwhile target, it must Markets and Market ~
have a sufficient number of people to warrant tailoring a product or promotional Segmentation
campaign to its specific needs or interests. The segment not only should be large but
it should also be profitable enough to serve with a specific marketing mix. In
estimating the size of each segment under consideration, marketers often use
secondary demographic data or undertake a probability based survey whose findings
may be projected to the total market. For example, it would not pay for a motorcycle
manufacturer to develop not or cycles that are physically challenged.
Stability: Most marketers prefer to target consumer segments that are relatively
stable in terms of demographic and psychographic variables and needs that are likely
to grow larger over time. They normally prefer those market segments which can be
predicted with certain amount of certainty and stability. In the context of certain
products which are amenable to fashion and fads, trying to segment a market on the
basis of fads, which may change in a short period, will be a risky proposition. For
example, teens are a sizeable and easily identifiable market segment, eager to buy,
able to spend, and easily reached. Yet, by the time a marketer produces merchandise
for a popular teenage fad; interest in it may have waned or decreased.
Reachable (accessible) in Terms of Media and Costs: A fourth requirement for
effective market segmentation is accessibility. It refers to the degree to which the
segments can be effectively reached and served in an economical way. Despite the
wide availability of special-interest magazines and cable TV network, marketers are
constantly looking for new media to reach their target markets with a minimum of
waste circulation and competition. With the advent of Internet, now marketers are
able to reach to a narrow group of segments. Suppose, a perfume manufacturing
company finds that the regular users of its brands are unmarried men who are out
late at night and frequently visit bars, unless this group of men lives in a specific
locality or do shopping at certain places, for the company it will be difficult to identify
them and reach them. Therefore, when markets are segmented, each segment should
be accessible and approachable.
Differentiable: The resultant segments should be conceptually distinguishable and
respond differently to different marketing mix elements and programs. For example, if
married and unmarried respond similarly to a sale on perfume, they do not constitute
separate segments.
Actionability: It refers to the degree to which effective programs can be formulated
for attracting and serving the segments. A small travel agency, for example, identified
seven market segments, but its staff was too small to develop separate marketing
programs for each segment.

5.7 BASES FOR MARKET SEGMENTATION

The first step in market segmentation strategy is to select the most appropriate
base(s) on which to segment the market. Because of inherent differences between
consumer and organizational or business markets, marketers cannot use exactly the
same variables to segment both. Instead, they use one broad group of variables as the
basis for consumer market segmentation and another broad group for business
market segmentation. We will disclss various bases used in segmenting a consumer
market and then discuss the bases for segmenting business markets. Before we
discuss the bases for segmentation one caveat is in order. There are innumerable
ways of segmenting a market. However, not every base is equally applicable for
every product category. For some products one base may be more appropriate and
for other product category another base may be more appropriate. As you know,
market segmentation means dividing the market into several homogeneous
I Untlerstanding Consumers submarkets or segments. Now the question is: what is the basis of segmenting the
and Selecting Target market? In fact there is no single way to segment a market. A marketer has to try
Mwkcts
different segmentation variables to view the rnarltet structure. You have learnt that
the market can be broadly divided into two categories: consumer market and
organizational or business market. We need to identify some of the widely used base
for segmenting these two broad types of markets. We will first take various bases
used in segmenting consumer inarltets.

I 5.7.1 Bases for Segmenting Consumer Markets

As stated earlier there is no single way of segmenting a market. A marketer has to
try different segmentation variables, alone and in combination, to find the best way to
view the market structure. Eight major categories of consumer characteristics
provide the most popular bases for consumer market segmentation. They include:
geographic factors, demographic factors, psychological factors, sociocultural
variables, use-related characteristics, use-situation factors, benefit sought, and hybrid
segmentation forms such as de~nographiclpsychographicprofiles, geodemograpl~ic
factors, aild values and lifestyles. Hybrid segmentation forms a combination of
several segmentation bases to create rich and comprehensive profiles of particular
consumer segments. All eight segmentation bases are divided further into specific
variables. Look at Figure 5.3 which shows these bases.

Consumer Markets

Seg~nentation Segmentation

Use-siluation
Segmentation Segmentation Segmentation Scgnientalion

Figure 5.3 : Bases for Segmenting Consumer Marltets

Geographic Segmentation: This calls for dividing the market on the basis of
location. A company may divide the market into different geographical areas such as
nations, regions, states, cities, urbanliural areas, or neighbourhoods and then decides
to operate in one or few geographical areas, or to operate in all areas but pay
attention to geographical differences in consumer needs and wants. The basic reason
of using geographic base for segmentation is that people who live in the same area
share some similar needs and wants that these needs and wants differ from those
people living in other areas. For example, certain food and beverages sell better in
one region than in others. Take the example of coffee which is consumed in India, but
it is more consumed in South India tliai~any other region. A company who is
marketing coffee may keep the taste and flavour preferences in the different regions
and accordingly it may come out with different variants of coffee in terns of taste
and flavours which may be liked by people belonging to different regions. I11 the
context of India, another variation may be found in terms of purchasing pattern
among urban and niral consumers. Companies, if they observe divergent pattern of
purchasing in a specific product category among the people of these areas then Lhey
may develop products and marketing mixes to suit the consumers' tastes and
preferences belonging to urban or rural areas.
In short, geographic segmentation may prove to be a useful strategy for many
marketers. It is relatively easy to find geographical differences in many products.
In addition, geographic segments can be easily reached through the local media,
including newspapers, TV, and radio, and throzlgh regional edition of magazines. Markets and Market
Segmentation
Demographic Segmentation: Demographic segmentation consists of dividing the
marltet into groups on tlie basis of demographic characteristics of consumers such as
age, sex, family size, income, occupation, education, religion, nationality, etc.
Demography refers to the vital and the measurable statistics of population.
Demographic variables are the most populal- bases for distinguishing customer
groups. One of tlie reasons for preferring demographic bases is that consumer wants,
preferences and usage rates are, often highly associated with demographic
characteristics. Another reason is that demographic variables are easier to measure
than most other types of variables, even when the target market is described in non-
demographic terms (say, a personality type), it should be linked back to demographic
characleristics in order to Itnow the size of the target market and rcach it effectively.
Another reason of its popularity is that demographic variables reveal ongoing trends,
such as shil'ls in age, sex (gender), and income distribution that signal business
opportunities. Let us discuss how certain demographic variables can be applied to
marltet segmentation,
a) Age a ~ i dZtfe c y c b stage: Because product needs and interest often vary with
consumer age, marketers have found age to be particularly userul demographic
variable for distinguishing segments. Many marketers have carved themselves a
niche in the marketplace by concentrating on a specific age segment. For
instance, children of six months age differ from children of three months age in
theit I'ood requirements and consumption potential. A Loy manuracture nlay
realize this and may design different toys to be used by children belonging to
clifferent age groups. A bay food company may market different foods which
may suit the requirements of different aged babies. Recently, different cable
channels have come up which cater to the children, youth, and males/fe~nalesof
dirrerent age groul~s.Segmenting a market on the basis of age sotnetilne create
problems. Marketers must be carelill in defining market segments in strictly
chronologicill age terms as it can sometimes be stereotypical and misleading,
particularly because nlany adult consumers have a perceived age (i.e., cogtiitivc
q e ) about I O to 15 years younger than their chronological age. A useful
segiientation approach categorizes older consumers in t e n s of their cognitive
age rather than chronological age.
b) Sex (Gender): Segnlentation of marltets based on sex or gender has long been
usecl in the case of proclz~ctssuch as clolhing, cosmetics, and magazincs. Gender
has long been a distinguishing segmentation variable. Women have traditionally
been the main users of such products as hair colouring, shampoo, and cosmelics
alicl Inen have heen the main ilsers of tools and shaving goods. However, sex
roles, in the recent years, have blurred considerably, and gender is no longer an
accurate way of dist i nguishing consumers in somc product categories. For
example, women are buying all types of I~ouseholdproducts and men have
become significant users of skin care, sliampoo and cologne and hair care
products. It is becoming increasingly colnlnon to see magazine ads and TV
rommercials to depict man and women in roles traditionally occupied by the
o l ~ ~ o s isex.
t e Much of the sex role change has occurrecl because of emergence
of increased number of dual-income families. in every country including India
more and more women are going for e~nploy~nent and this has resulted in the
change in traditional roles of men and women. Till few years back, men were
the main users of two-wheelers in India. Now, two-wheeler industry has already
recognized sex as a basis of segmelltation. In the past, two wheelers were
desig~iedto appeal to the men only. With the increase in the number of working
women, many companies in this indust~yhave designed scooters which are
suitable for woluen.
Understanding Consumers C) Marital Status: another way of segmenting a market is on the basis of marital
and Selecting Target status. Traditionally the family has been the focus of most marketing efforts, and
Markets
many products and services; the household continues to be the relevant
consuming unit. Marketers are interested in the number and kinds of households
that own and/or buy certain products they are also interested in determining the
demographic and media profiles of household decision makers (the person
involved in the actual selection of the product) to develop appropriate marketing
strategies.
d) Irzcome, Education, and Occupation: In the recent years the popularity of
income as segmenting variable of a market has been decreased. Although
income has long been an important variable for distinguishing market segments,
a major problem with segmenting the market on the basis of income alone is that
income simply indicates the ability (or inability) to pay for a product. For this
reason, marketers often combine income with some other demographic
variable(s) to define their target market, more accurately. For example, very
often marketers combine income with age to identify the important affluent
elderly and affluent younger segments. Many marketers are of the view that
education, occupation, and income tend to be closely correlated in almost a
cause-and-effect relationship. High level occupations that produce high incomes
usually require advanced educational training. Individuals with little education
rarely qualify for higher level jobs. Because of the interrelationship among these
three variables, education, occupatioil, and income are combined into a
composite index of social class. Income is another basis of segmenting the
markets for automobiles, clothing, cosmetics and travel. Other industries
occasionaIly adopt this basis. However, at macro level the per capita income of
a person or family can be a basis for segmentation. Accordingly, segmentation
could be made in terms of low, middle and higher income groups. Price may be
the sole criterion to fit into a particular per capita income group. It is more so at
the lower levels of income. As the income goes up other non-economic
considerations or bases have a greater influence.
Psychograpl~icSegmentation: Demographic data are used to segment markets
because these data are related to behaviour and are relatively easy to gather.
However, demographics are not in themselves the causes of behaviour. Coilsumers
do not buy products purely on the demographic variables but these variables may
correlate with certain psychological characteristics of consumers. Therefore,
marketers have gone beyond demographic attributes in an effort to better understand
why consumers behave as they do. They now engage in psychological segmentation,
which involve examining attribute such as personality, and lifestyles. When
demographic and psychological attributes are combined, richer description of
segments is produced. Let us learn some of the psychographic bases of
segmentation.
a) Lqcstyle Seg~nentation:Lifestyle relates to activities, interests, and opinions. A
person's lifestyle reflects how he spends his time and what his beliefs are on
various social, economic, and political issues. People are found to exhibit many
types of lifestyles and their lifestyles undoubtedly affect what goods they
purchase and what brands they prefer. Marketers are aware of this and attempt
to segment their markets based on lifestyle characteristics. One theory relaling
to lifestyles is that lifestyles are shaped partly by whether consumers are time-
constrained or money-constrained. Consumers who experience time-constrain
i.e., paucity of time at their disposal, are prone to multitasking, that is, doing two
or more things at the same time. Companies aiming to serve them will try to
create convenient services for this group. As for the money-constrained
individuals companies aiming to serve them will create lower-cost products and
 services. The technique of measuring lifestyles is known as psychographics. It Markets ant1 Market
Segmentation
is the science of using psychology, sociology, anthropology, and denlographics to
better understand buyers. Psychographics can help marketer fine-tune its
offering to meet the needs of different segments. Psychographic research
attempts to place consumers on psychological-as opposed to purely
demographic-dimensions.
Companies making cosmetics, alcoholic beverages, and furniture are always
seeking opportunities in lifestyle segmentation, but lifestyle segmentation does
not always work. It is difficult to accurately measure the size of lifestyle
segment in a cluantitative manner. Another problem is that a given lifestyle
segment might not be accessible at a reasoilable cost through a company's usual
distribution system or promotional program.
17) Personality Segmentation: Marketers also use personality variables Lo
segment marltets. An individual's personality characteristics are described in
terms of traits that influence behaviour. In t ~ y i ~to
l gsegment a market on
personality traits marketers endow their products with what is known as brand
yersorzality that corresponds to target group personality. Then they project this
brand personality through their promotional campaigns. For example, Bajaj
Scooter has been pro-jected ~nosloften as "Trusted friend" and Red and White
Cigarettes as 'Daring" Lipton Tiger Tea as "valiant". However, using personality
traits as a basis for segmentation solnetilnes create problems that limit their
~~sefulness in practical market segmentation. First the presence and strength of
these traits are virtually impossible to measure. Another problem is associated
with the accessibility condition of segmentation. There is no advertising medium
which can reach to a particular personality type. For example, a TV medium
reaches to all types of personality types. Therefore, one of the major goals of
segmentation, to avoid wasted marketing effort, is not likely to be accomplished
using personality segmentation. Nevertheless, many companies tailor their
advertising messages to appeal to certain personality traits, even though the
iniportance of the personality dimension in a particular decision may be difficult
to measure.
Value Segmentation: Some marketers try to segment a particular market by
values. According to psychologists, values are a reflection of our needs adjusted
for the realities oi'the world in which we live. In other words values are the
belief syslems that underlie consumer attitudes and behaviours. Research at the
SLII-vey Research Center at thc University of Michigan has identified nine basic
values that relate to purchase behaviour. These are known as List of Values
(LOV). These values are:
r Self-respect e Sense of accomplishment
e Self-ful.fiIlrnent Fun and enjoy~ne~ltin life
e Security e Being well respected
r Sense of belonging Having warm relationship
o Excitement
While most people will view all of these values as desirable, their relative
importance differs among people and their importance changes over a person's
life. Marketers who attempt to segment their markels on the basis of values
believe that by appealing to peoples' inner selves, that is, values, it is possible to
influence their outer selves, that is, their purchase behaviour.
Sociocultural Segmentation: Sociological (i.e., group) and anthropological (i.e.,
cultural) variables-that is sociocultural variables-provide further bases for market
segmentation. We will briefly discuss three bases under this head. These are: fa~nily
life cycle, social class, and culture. Let us learn them.
Understanding Consumers a) Family Life Cycle Segmentation: This is based on the premise thal many
and Selecting Target families pass through similar phases in their formation, growth, and final
Markets
dissolution. At each phase, the family unit needs different products and services.
Family life cycle is a composite variable based explicitly on marital and family
status, but implicitly including relative age, income, and employment status. Each
of the stages in the traditional family life cycle (i.e., bachelorship, newly married
couple, couple with small children, couples with grown up children, and retired
people with no children) represents an important target segment to a variety of
marketers. For example, Life Insurance Corporation of India (LIC) has different
life insurance policies for young married couples, couples with grown up children
and for retired persons.
b) Social Class Segmentation: Social class is a potential market segmentation
variable. It is traditionally measured by a weighted index of several demographic
variables, such as education, occupation, income (we have already discussed
social class influence in Unit 4). The concept of social class implies that people
belonging to different social classes vary in tenns of values, product
preferences, and buying habits. Therefore, marketers have used their knowledge
of social class differences to appeal to specific segments.
Culture Segmentation: Some marketers have found it useful to segment their
markets on the basis of cult~~ral heritage, because members of the same culture tend
to share the same values, beliefs, and customs. Marketers who use cultural
segmentation stress specific, widely held cuItural values which they hope consumers
will identify. Cultural segmentation is particularly successful in international marketing,
but in such instances, it is important for the marketer to understand f~lllythe beliefs,
values, and customs of the countries in which the product marketed. Within the larger
culture, there exist subcultures. These subcultures sometime exhibit distinct purchase
preferences. If this is the case then marketers may segment a particular market on
the basis of subcultures. Also culturally distinct segments can be prospects for the
same product but often are Largeted more efficiently with different promotional
appeals.
Use-Related Segmentation: An extremely popular and effective form of
segmentation is based on the user-related variables. We will briefly discuss three
bases of segmentation under this category. These are: user rate, awareness status,
and loyalty status.
a) User Rate Segmentation: Here the rnnrketer differentiates among heavy
users, medium users, light users, and non users of a specific product, service, or
brand. Normally a company is most interested in the heavy users of its product
because heavy users are often a small percentage of the market but account for
a high percentage of total consumption. For example, research has consistently
indicated that between 25 and 35 percent of beer driiikers account for more than
70 percent of all beer consumed. In many frequently purchased product
categories less than 50 percent of all users account for 80 to 90 percent of total
purchases. For this reason, most marketers prefer to target their promotional
campaigns to the heavy users to retain them. They also try to encourage the
heavy users of competitors' brands to switch. Sometime a marketer will select
as a target market the nonuser or light usel; intending to woo these consumers
into higher usage. Or light users may constitute :in iiltractive niche for a
marketer simply because they are being ignored by the cornp;ulies that are
targeting heavy users. Marketers who use this type of seglne~ltationfirst try to
find out the demographic and psychograpl~iccharacteristics of light users and
then come out with a product and marketing mix to suit the recl~airementsof this
segment.
50
b) Awareness Status Segmentation: This is also known as buyer-readiness Markets and Market
stage segmentation. A ~narketconsists of people in different stages of readiness Segmentation
to buy a product. Marketers have to determine what percent of potential
consumers are aware of the product, interested in the product, or need to be
informed about the product. The relative numbers make big difference in
designing tlie marketing program.
c) Loyalty Status Segmentation: So~netimesbrand loyalty is used as the basis of
segmentation. Buyers can be divided into four groups accosding to brand loyalty
status: ( I ) hard-core loyals (who always buy one brand), (2) soft-core loyals or
split loyals (who are loyal to two or three brands), (3) shifting loyals ( w l ~ oshift
from one brand to another), and (4) switchers (who show no loyalty to any
brand). Each market consists of different numbers of these four types of buyers:
thus a briund-loyal rnarket lias a high percentage of hard-core loyals. Companies
that sell in such a market Iiave a hard time gaining more market share, and new
competitors have a hard time breaking in. In the recent years, many marketers
in order to retain their loyal customers offer special benefits to them in the form
of loyalty rewards. For example, Indian Airlines lias introduced "frequent flyer"
scheme to retain tlie reguliir passengers by offering heavy discounts or free
tickets to family members after a certain number of flying trips.
Usage-Related Segmentation: Marketers recognize that the occasion or situation
determines what consumers will purchase or consume. For this reason, they
sometimes focus on tlie usage situation as a segmentation variable. We will briefly
discuss one variable under this category i.e., occasion.
Occasion Segmentation: Buyers can be distinguished according to the
occasions on which they develop a need, purchase a product, or use a product.
For example air travel is undertalcen by occasion related to business, vacation or
family, so an airline can specialize in one of these occasions. Another example is
of hotel acco~i~~nocla.tion.
Many hotels in India develop different stay paclcages
for vacation, for honey~nooners,for regular visitors etc. apart from this, many
products are promoted for special usage occasions. For example the greeting
card industry stresses special cards for a variety of occasions such as on Diwali,
Eid, Christ~nas,Valentine Day, Mother's Day etc. Today many companies are
promoting their products for different occasions.
Benefit Segmentation: Marketing people constantly attempt to isolate the one
articular benefit char they should communicate to consumers. Segmenting tlie market
on tlie basis of benefit sought by various consumers has been a popular segmenting
base for many products ancl services. For example, motorcycle manufacturers tried to
segment chis market on the basis of benefits sought by various consumers. Hero
Honda e~lipliasisedfuel c o ~ ~ s u m l ~ t iIhwasaki
on, Bajaj and Yamalia emphasised on
power and style. Benefit segmentation can be used to position various brands within
the same product category. The classic case of successf~~l benefit segmentation is the
marlcet for tootlipaste: Colgate for total dental care, Close-up with a special appeal
that stresses bright teeth, Forhans appeals to the protection of gums.
Hybrid Segnicntation: Marketers commonly segment markets by combining
scveral seglnentation variables rather than relying on a single segmentation base. We
will discuss two hybrid segmentation approaches i.e., psychographic/demographic
profiles, and gcodernographics. These two approaches provide marketers with more
accuralely defined consumer segments than can be derived using a single
segmentation base.
a) Psychographic-demographic Profiles: Psychographic and demographic
profiles are highly co~nplerne~ltary
approaches that work best when used
together, By combining the knowledge gained from both demographic and
Understanding Consumers psychographic studies, marketers are provided with powerful information about
nnd Selecting Target their target markets. The demographic information provide the marketer about
Markets
the prospective customers' age, education, income, etc. and the psychographic
information provides the basis of the prospective consumers personality, and
lifestyle pattern. Used together, this type of segmentation help in creating
customer profiles (for product and service marketers) and creating audience
profiles (foe mass and special interest media to attract advertisers).
Demographic/psychographic profiling has been widely used in the development
of advertising campaigns by various companies.
b) Geodemographic Segmentation: This type of hybrid segmentation scheme is
based on the notion that people who live close to one another are likely to have
similar financial means, tastes, preferences, lifestyles, and consumption habits. ,
Many marketing research firms collect information on geodemographic clustel-s
and then provide this information to advertisers for developing effective
advertising campaigns. These clusters are based on consumer lifestyles, and a
specific cluster include similar neighbourhoods, that is, neighbourhoods
composed of people with similar lifestyles w~delyscattered throughout the
countiy. Geodemographlc segmentation is most useful wheii advertiser's best
prospects (in terms of personality, goals, and interests) can be isolated in lerins
of where they live. However, for products and services used by broad cross-
sectioil of people in a country, other segmentation schemes may be more
productive.

5.7.2 Bases for Segmenting Organizational Markets

Organizational markets can be segmented with many of the same variables used in
segmenting the consumer markets. For example, we can segment organizational
markets on a geographic basis. Some industries are geographically concentrated. For
example, in India most of the companies belonging to textile industry are located in
Maharashtra and Gujrat. Any company that sells to this industry could use geographic
segmentation.
Also, like consumers, businesses have demographics that can be used to segment
market. For example, the size of a company (measured by sales volume or number of
employees), the company's type of business (advertising agencies typically focus on
cither clients that market to consumers or companies that sell to other businesses), or
the company's method of buying (some rely on price and select the lowest bidder,
while others use criteria such as quality or delivery time). Companies can also
segment their orgailizational markets on the benefit desired by buyer and on product
usage rates. We will discuss brietly the specific segmentation approaches for
organizational markets below. In parlicular, there are tliree colnmonly used bases: 1)
type of customer 2) size of customel; and 3) type of buying situation. Let us learn
them.
a) Type of Customer Segmentation: A common way lo segment industrial
markets is by end users. Different users often seek different benefits and can be
approached with different marketing mixes. For example, a company that sells
small electric motors would have broad potential market among many different
industries such as automobiles, electrical appliances, governme~ltdepartments
etc, However, this company will do better by segmenting its potential market by
type of customer and then specializii~gto meet the needs of businesses in n
limited number of these segments.
b) Customer Size Segmentation: Customer size is another variable used for
segmenting organizational markets. Many cornpallies set up separate systems
for dealing with major and minor customers. For example, a company which
manufactures office furniture, may divide its customers into two groups as major
 accounts and minor accounts. Accounts of large and reputed companies come Markets and Market
under major accounts. Such accounts are handled by national account managers Segmentation
working with district field managers. Smaller accounts are categorized as dealer
accounts. These accounts are handled by the field personnel working with-
franchised dealers who sell company's products.
c) Q p e of Buying Situations Segmentation: While discussing organizational
markets we have identified three types of buying situations: new buy, modified
rebuy, and straight reb~ty.These buying situations, as you know, are different
from each other in a significant way. An industrial seller can segment his market
on this basis of buying situations and adopt marketing strategies accordingly.

5.8 MICRO SEGMENTATION AND MASS

CUSTOMIZATION
In the market segmentation we have discussed the process of dividing a product
market into various submarkets or segments. Market segments are normally large,
identifiable groups within a market. Many companies are focusing their marketing
efforts on the subgroups within these market segments. These small segments are
known as niches. Going beyond niche marketing, a marketer may further divide the
market into micro segments. Micro segmentation takes the form of micro marketing
and inass customizati,on.We will discuss these in the following:
Micromarketing: Segment and niche marketers tailor their offers and marketing
progrnins to meet tlie needs of various market segments. At the same time, however,
they do not custo~nizetheir offers to each,individual customer. Thus segment
marketing and niche marketing fall between extremes of mass marketing and
micromarketiiig. Micromarketing is the practice of tailoring products and marketing
propraliis to suit the tastes of specific individuals and locations. Micro marketing
includes local marketing and individual inarketing or mass customization. Let us learn
them.
a) Local Marketing: This involves tailoring brands and promotions to the needs
and wants of local customer groups-cities, neighbourhoods, and even specific
stores. Many big retailers routinely customize each store's merchandise and
pro~notionsto match its specific clientele. Local marketing has some drawbacks,
It can drive up manufacturing and marketing costs by reducing economies of
scale. It call also create logistics problems as companies try to meet the varied
requirements of different regional and local markets. Despite some of these
drawbacks, local marketing helps a company to market more effectively in the
face of pronounced regional and local differences in community demographics
and lifestyles. It also meets the needs of the company's first line customers-
retailers-who prefer more fine-tuned product assortments for their
neighbourlioods.
b) Individual Customer Marketing or Mass Customization: In its extreme
form, micro marketing becomes individual customer marketing or mass
customization-tailoring products and marketing programs to the needs and
preferences of individual customers. This has also been labeled one-to-one
marketing, customized marketing, and markets-of-one marketing. Mass
customizatio~lis tlie ability of a company to prepare on a mass basis individually
designed products, services, programs, and communication, to meet each
custo~ner'srequirements. In tlie context of consumer market, not every
company can use this approach. However, if a company achieves mass
customizatiori it inay gain competitive advantage over its competitors. Business-
to-business marketers are also finding new ways to customize their offerings. A
number of companies-both in consumer market and organizational market-are
Understanding Consumers: using existing technologies to customize their products to the individual
and Selecting Target customers. The examples include Dell Computers, Mattel-the manufacturer of
Markets
Barbie Dolls, Levi's-the jean maker, Acumins-Internet based vitamin company,
DeBeers-maker of diamond jewellery. All of these companies are practicing
mass customization successfully.

Check Your Progress-B

I. Distinguish between mass marketing and target marketing.

......................................................................................................................
2. What do you mean by geographical segmentation of market?
......................................................................................................................

......................................................................................................................
3. Enumerate four variables of demographic segmentation of market.
......................................................................................................................

......................................................................................................................
4. Enumerate five variables of psychographic segmentation of market.

......................................................................................................................
5. What do you mean by family life cycle segmentation?
......................................................................................................................

......................................................................................................................
6. State whether the following statements are Tiue or False.
i) Market segmentation refers to classification of markets on the basis of the
products.
ii) A segment of a market is normally homogeneous in all significant aspects.
iii) In undifferentiated marketing, the marketer coilcentrates all Iiis efforts in
one or a few lucrative segments only.
iv) Market segmentation enables the marketer to identify and reach the target
customer more effectively.
v) Same bases can be used for segmenting industrial markets and consumer
market.
 Markets and Market
5.9 LETUSSUMUP Segmentation

From the marketing point of view a market may be defined as group of people or
organisations with ( I ) needs to satisfy; (2) money to spend, and (3) the willingness to
spend it. Basically markets may be divided in to two broad categories, that is,
consumer market and organizational market. The consumer market consists of all the
individuals and households who buy or acquire goods and services for their own
personal or household use. Organizational market purchases goods and services to
achieve specific goals, such as making money, reducing operating costs, and
satisfying social or legal obligations. The organizational market comprises all the
organizations that buy goods and services for use in the production of other products
and services that are sold or rented, or supplied to other customers or used by
themselves for running the organization. There are four types of organizational
markets: the industrial market, the reseller market, the government market, and the
institutional market. In many respects organizational market differs with consumer
market. Therefore, marketers should keep in mind these differences while selling
their products to the organizational market.
Within the same general market there are groups of consumers with different needs,
buying preferences, or product-use behaviour. Today most of the companies are
moving away From mass marketing and adopting target marketing approach. Target
requires that a broad market has to be divided into homogenous smaller markets
through the process of market segmentation. Market segmentation is the process of
dividing the total market for a product or service into several smaller groups, such that
the members of each group are similar with respect to the factors that influence
demand. To carry out effective market segmentation, the selected segments should
be (1) iclentifiable and measurable, (2) sufficient (in terms of size), (3) stability, (4)
reachable (accessible) in terms of media and costs, (5) differentiable, and (6)
actionable.
A marketer has to use different segmentation variables, alone and in combination, to
find the best way to view the market structure. Eight major categories of consumer
characteristics provide the most popular bases for consumer market segmentation.
They include: geographic factors, demographic factors, psychological factors,
sociocultural variables, use-related characteristics, use-situation factors, benefit
sought, and hybrid segmentation. Organizational markets can be segmented with
many of the same variables used in segmenting the consumer markets. The specific
segmentatioll app~.oachesfor organizational markets are: I) type of customer 2) size
of customer, and 3) type of buying situation.
In the recent years many companies going beyond market segmentation and moving
toward micro segmentation and mass customization. Micro segmentation is also
known as micro marketing. Micromarketing is the practice of tailoring products and
marketing programs to suit the tastes of specific individuals and locations. Mass
customization is the process of tailoring products and marketing programs to the
needs and prei:el.ences of indiviclual customers. This has also been labeled one-to-one
marketing, custo~nizedmarketing, and markets-of-one marketing.

5.10 KEY WORDS

Benefit Segmentation: Segmentation based on the kinds of benefits consumers
seek in a product.
Consumer Market: All the individuals and households who buy or acquire goods
and services for personal consumption.
Understanding Consumers Demographic Segmentation: Dividing the market into groups based on
and Selecting Target demographic variables such as age, gender, family size, family life cycle, income,
Markets
occupation, education, religion, race, and nationality.
Derived Demand: Demand for a particular product or service results from the need
for other goods and / or consumption of soft drinks or beer,
Geographic Segmentation: Dividing a market into different geographical units such
as nations, states, regions, countries, cities, or neighborhoods.
Government Market: Governmental units-federal, state, and local-that purchase
or rent goods and services for carrying out the main functions of government.
Institutional market: Schools, hospitals, nursing homes, prisons, and other
institutions that provide goods and services to people in their care.
Market: The set of all actual and potential buyers of a product or service.
Market Megmentation: The process of breaking a heterogeneous group of
consumers into smaller more homogeneous groups.
Mass Customization: It is the ability of a company to prepare on a mass basis
individually designed products, services, programs, and communication, to meet each
customer's requirements.
Mass Marketing: Marketing practice where companies use to produce a single
product on a mass scale, distributed on a mass level and mass promoted one product
to a11 buyers,
Micromarketing: The practice of tailoring products and marketing programs to suit
the tastes of specific individuaisand locations-includes local marketing and
individual marketing.
Organizational Market: All the organizations that buy goods and services for use in
the production of the other products and services that are sold or rented, or supplied
to other customers or used by themselves for running the organization.
Psychographic Segmentation: Dividing a market into different groups based on
social class, lifestyle, or personality characteristics.
Reciprocity: Situation in which two companies buy products and/or services from
one another.
Target Market: It refers to a group of people or organizations at which a firm
directs a marketing program with a specific marketing mix.
Target Marketing: The process of identifying the specific needs of segments,
selecting one or more of these segments as a target and developing marketing
programs directed to each.
The Industrial Market: All the individuals and organisations that buy or acquire
goods and services that enter into the production of other products and services that
are sold, rented or supplied to others.
The Reseller Market: It consists of all the individuals and organisations that
acquire goods for the purpose of reselling or renting them to others at a profit.

5.11 ANSWERS TO CHECK YOUR PROGRESS

Check Your Progress-B
6) i) False ii) False iii) True iv) False v) True
 Markets and Market
INAL QUESTIONS Segmentation

1) Describe the distinguishing characteristics of organizational market.

2) Briefly discuss various types of organizational market.
3) What is market segmentation? Explain the importance of segmenting markets.
4) Critically evaluate four important bases for segmenting consumer markets.
5) Discuss various bases on which an organizational market may be segmented,
6) Describe the concept of micro marketing and find out whether this concept is
being adopted by some Indian companies.
 IT6 MLQ T TARGETmG AND
PBSITIBNPNG
Structure
6.1 Objectives
6.2. Introduction
6.3 Market Targeting
4.3.1 Evaluation of Potential Targets
6.3.2 Market Targeting Strategies
6.4 Positioning
6.4.1 Requirements for Positioning
6.4.2 Positioning Process
6.4.3 Selecting an Overall Positioning Strategy
6.4.4 Communicating and Delivering the Chosen Positioning Strategy
6.5 Repositioning
6.6 Let Us Sum Up
6.7 Key Words
6.8 Answers to Check Your Progress
6.9 Terminal Questions

6.1 OBJECTIVES
After studying this unit, you should be able to:
explain the concept of targeting;
examine the methods for evaluating potential target markets;
discuss the strategies for market targeting;
describe the positioning process;
explain the meaning and requirements for positioning;
discuss the process of positioning;
describe the process of selection of an overall positioning strategy; and
explain the communicating and delivering strategy for the chosen positioning.

6.2 INTRODUCTION
You have already learnt the buyer behnviour and bases of segmenting the market. It
is time now to u~~derstand how as a marketer you call target these markets and how
the product offer can be positioned in the market. While segmentation explains whom
to target for, targeting explains haw to target these markets. In this unit, you will
learn the meaning and importance of market targeting, the evaluation of potential
targets and strategies for market targeting. You will also learn the meaning and
requirements for positioning and the process of positioning. You will be further
exposed to the concept of repositioning.
 Market Taregting and
6.3 MARKET TARGETING Positioning
By applying the learning from the market segmentation chapter, you as a business
manager will be able to identify your firm's markets segment opportunities. These
opportunities have to be evaluated to select either one or a number of strategically
significant segments for launching your marketing program. It is a stage where tlie
firm has to evaluate different segments and decide how many and which ones to
target for . This method is called market targeting. A target market is defined as a
set of buyers sharing common needs or characteristics that the company
decides to serve. It is very important to select the target market to which the
company decides to serve because knowledge about how the consumers decide,
what are the criteria of buying products, the characteristics and life style of the
targeted customers can help the marlteters to develop a suitable marketing strategy.
Every marketing slsategy involves marketing expenditure and the return 011a marltet
program can only be identified if we are able to know the target market for which the
marketing program is targeted. It is observed from research that a majority of the
marketing expenditure is actually wastage of company resources as they are spent on
non buyers. So an understanding oT the nature and characteristics of the target
market will help Lhe marketer to derive higher returns on a marketing program.
Knowledge on the target market and ils growth and changes in attitude will help the
marketer to mod~fyand design new marketing programs for the success of the
enterprise as a whole. Hence, an understanding of the target market and
measuremen1 of their altractiveness is a key decision in marketing.

I 6.3.1 Evaluation of Potential Targets

After the firm has identified the target markets, the next task is to evaluate the target
segments. The n~arketingmanager should look at five factors for evaluating e,ach
segment. They are: segment size and worthwhileness, segment measurability,
segment ntlractiveness, accessibility of the segment, coinpany objectives and
resources. The colnpnny shoulcl first collect and analyze data on size of the current
segment, growth rates i n the past and the likely rate of growth from the market
indicators for the future on short term and long term basis, and expected profitability
horn each segment. One of the best ways to calculate the profitability is to fill$ o ~ ~ t
through tlie calculation of response elasticity. Response elasticity can be calculated by
talcing past rnarlteting expenditures iIs independent variable and the returns from the
past marketing expcnclirures in different pel-iods of time. A graph of response
elasticity where responses (sales) on the Y-axis and the corresponding marketing
expenditures on tlie X-axis is a sufficient indicator about the profit growth potential in
each of the segments. The myth of marketing says that the fastest growing and
largest size markets may not be so for a long period of time. Hence future profitability
may slow down as more competitors will enter in to tlie business looking at the profit
potential. So a marketer should be careful about this behaviour of the market. The
segments identified should be also measurable from its size and market share from
the potential ma~.ltet.The segments should also be evaluated from the point of view of
accessibility as there may be a very attractive segment available but the cost to reach
at that segment and serve the segment will be higher compared to segments where
potential lnay seem moderate. The Indian rural 'market suffers from this problem of
accessibility. The company should also evaluate the resources available for ~narket
coverage. If the compilny lacks the skill and resources then it should concentrate on
markets geographically closer or with a higher density if potential customers in limited
markets called a niche segment.
Understanding Consumers 6.3.2 Market Targeting Strategies
and Selecting Target
Markets You have learnt the meaning of targeting, let us now look at what are the various
strategic options available to the marketers for targeting their products and services in ,
the market. The targeting strategy will largely depend upon the kind of product
market coverage that the firm takes for the future. The resources, capabilities and
intent of the respective firms influence this product market coverage decisions. The
product market coverage strategies are broadly classified as concentrated marketing,
differentiated marketing and undifferentiated marketing. Let us learn them in detail.
Concentrated Marketing : When company resources are limited and the
competition is intense enough that the marketing manager has to stretch the market
budget for market coverage, the companies follow a concentrated marketing strategy.
The company decides to cover a large niche than fighting for a small share in a large
market. It is an excellent strategy for small manufacturers those can stay closer to
the segment and cater to the emerging needs of a close loop customers. This helps
them to gather market share in small markets against strong and large competitors.
Through concentrated marketing firms can achieve strong market positions in the
segments or niches they serve because of the greater knowledge of the target
customers and the special reputation they acquire. Medimix was a regional brand
with a very strong South Indian presence that helped them to go for a national launch
in a latter period. The firms can enjoy operating economies because of the
specialization in production, distribution and promotion, which can give a higher return
on the investments also. Concentrated marketing strategy has its own share of risk
also. Looking at the profit potential large competitors may decide to enter in to this
market, which may ultimately lead to a take over bid by the large player in business.
Differentiated Marketing: In differentiated marketing strategy, marketers target
several market segments and design separate offers for each segment. They target
severaI segments or niches with a varied marketing offer to suit to each segment
needs. For example, Maruti as an automobile company has the distinction of having
products for different segments. Where as its Maruti8OO is targeted for the upcoming
middleclass, the Baleno is targeted for the upper rich class people and Maruti Omli is
targeted for large families. The main objective of offering varied marketing offer is to
cater to different segments and get higher sales with a dominant position on each
segment. Developing a stronger position within each segment creates more total sales
than a mass marketing strategy across all segments. The risk involved in this kind of a
marketing strategy is in the form of extra cost in marketing research, product
development, different forecasting models, varied sales analysis, promotion planning
and channel management. Trying to reach different market segments with different
pro~notionplan involves higher promotion budget. Thus, the marketing manager has to
decide the pay off between the higher cost and the higher sales due to such a
strategy
Undifferentiated Marketing: hlarketers may go against the idea of a segmented
market and decide to sale the product in the whole market. Here the marketing
manager ignores the idea of segment characteristics differences and develop a
marketing program for the whole market. This approach keeps the over all marketing
costs low and makes it easier to manage and track the market forces uniformly. Here
the marketer tries to find out the commonality across the segments rather than
focusing on the diffei-ences. The company designs a marketing offer and a marketing
program that will appeal to the largest number of buyers with a mass distribution and
mass advertising program. The problem of this strategy lies in finding a common
product and marketing program catering to large number of custoiners with different
characteristics and interests. Here the marketer finds it difficult to fight with focused
players in business.
Choosing a Product - Market Strategy Market Taregting and
Positioning
As mentioned earlier, the market coverage strategy largely depends on company's
resources and ability to cater to the market. The best strategy also depends on the
product variability. Undifferentiated marketing suits best to uniform products and
commodities like petrol, steel and sugar. The product's life cycle is also another
important factor considered while selecting a market coverage strategy. At the
introductory stage of a product, the company will prefer a single product in an
undifferentiated market or concentrated market. In the maturity stage of the product
life cycle, many players follow differentiated marketing strategy. If all the customers
have uniform taste, buy the same amount and respond to a marketing program in the
same way then market variability is minimum. So an undifferentiated marketing
strategy is most suitable. Every marketing manager should also look at the
competitor's marketing strategy. If the competitor is following a differentiated
strategy with specific offer for distinct segments then an undifferentiated marketing
strategy will be fatal to follow in the market but the vice versa is a suitable strategy
for the marketer.

Check Your Progress-A

I. Distinguish between segmentatioi~and market targeting.

......................................................................................................................
2. Distinguish between concentrated marketing and differentiated marketing.

......................................................................................................................
3. Explain the concept of segment evaluation.

6.4 POSITIONING
After the company has decided its market targeting strategy, the next managerial
challenge is to decide what position it wants to occupy in the selected segment(s).
Kotler has defined product positioning as the way the product is defined by
consumers on important attributes - the place - the product occupies in consumer's
mind relative to competing products. Thus product's position reflects important
attributes which a consumer gives to the product. It is the position in the perceptual
space of the consun~er'smind that the product takes in relation to competitor's
products, which is often verbalized by customers on certain attributes. Product
positioning depends on market structure, competitive position of the firm and the
concepts of substitution and competition among products.
Product positioning reflects most of the features of the word position, For example,
position of a place - what place does the product occupy in its market, a rank, how
Understanding Consumers does the product fare against its competitors in various evaluative dimensions and a
and Selecting Target mental attitude - what are consumer attitudes i.e., the cognitive, effective and action
Markets
tendencies towards the given product. Therefore product positioning should be
assessed by measuring consumer's or organisational buyer's perceptions and
preference for the product in relation to its competitors.
Brand positioning involves implanting the brand's unique benefits and differences in
customer's mind. A Maggi noodle is positioned in Indian market as a convenience
food, which can solve the frequent food demand of the growing kids. Dove soap is
positioned as a premium brand in the market with high moisturizer content which can
be used as a face wash also. Vicks Vapo-rub is positioned as a rub exclusively for the
purpose of cold and cough relief.

6.4.1 Requirements for Positioning

There is a high decibel of marketing communication aimed at consumers of today.
They are exposed to various level and type of communication through multiple media
like newspaper, television, radio, internet and u~lconventionalmedia like fairs, festivals,
exhibitions, events and outdoor media. But the ability of the consumer to evaluate the
information and remember all of them are limited by two factors. The consumer at a
particular point of time pursues one consumption goal which makes other information
redundant for him. Secondly, the ability of the consumer to process all the information
is limited due to high level of distortion and poor retention rate in consumer's memory
box. So consumers are overloaded with information in market place but cons~uner's
intention and ability to process this infonnatioil is limited. So to simplify the buying
process and reduce the mental tension consumer's group information about
competing products, and evaluate them on perceptual attributes depending on
perceived quality to create distinct position in their mind.
A product's position is the complex set of perceptions, impressions and feelings that
consumers have for the product in comparison with the competing alternatives
available in the market. They position with or without the help of the marketers. A
successful marketer provides requisite information to the consumer while the
consumer is still in the process of developing a position through company's marketing
communication program. Therefore, a marketer can plan positions to his product and
can create a sustainabIe competitive advantage for the product in the selected
segments. Rest other marketing strategy can support the position that is capable of
providing sustainable colnpetitive advantage to the firm. Each firm must create a set
of differentiation or unique bundle of benefits that appeals to a substantial segment of
the market place.

6.4.2 Positioning Process

A firm call decide a quaIity and price positioning in a single player situation as the
customers do not have alternatives to compare with. However, it is observed that any
successful positioning decision motivates the competitors to position their offerings in
the same platform. Therefore, over a period product clusters are formed in the
market with similar offerings. Instead of creating uniqueness ill offel; this creates
more confusion in the customer's mind and then a new position emerges in the
market. Let us take Indian bathing soap category in to considerations, The market
has more than fifty brands avaiIable in two distinct clusters viz. the Do Good category
like Margo, Dettol and the Feel Good Category like Lux, Evita etc. Each one of these
brands tries to create differentiation within the clusters by offering different brand
values. But suddenIy Fair and Lovely Launched a new categoty of shop which is a
combination of Feel Good and Do Good variety and entered in to the market with its
unique offering. The success of Fair and Lovely in the highly competitive market is
62
attributed to identification of the competitive advantage and developing a marketing Market Taregting and
strategy based over that. A successful positioning strategy involves three steps: Positioning
identifying a set of possible competitive advantages, upon which to build a position,
choosing the right competitive advantage and selecting an over all positioning strategy.
The company must then effectively communicate effectively and deliver the chosen
position to the market.
Identifying Possible Competitive Advantages: The success of ally marketing
program largely depends on understandii~gthe needs and characteristics of the target
markets and delivering higher value to the customers in comparison to the competitor.
When the company can position itself as providing superior value to customers, then
we can say that the company has competitive advantage in the market place. If the
company decides to position the product in the market as a superior product on quality
dimension, then the brand should also deliver the same to the customers failing which
there is likely to be consumer dissonance and subsequent rejection of the product by
the customers. So positioning begins with differentiating the product on actual
attributes so that the consumers will receive higher value than the competitor. A
customer-oriented company can create a differentiation at all the stages of the value
chain and not necessarily at the stage of product only.
A firm call create competitive advantage by deciding on the positioning in the
industry, leveraging capabilities and neutralizing competition. The positioning in the
industry is decided by identifying the entry'barriers and attractive segments and
understanding the nature of the competitive game played by each player. The
technological capabilities which the firm adopts, the reputation of the firm a i d the
country of origin in the global marketing environment. The capabilities should be
unique in nature so that they will be difficult to replicate by the competitors and these
capabilities should be widely applicable across all the offerings in a multi product or
service environment.
The uniqueness of the capability will provide sustainable competitive advantage to the
firm. The third aspect of creating competitive advantage is by neutralizing
competition. Competition inherently has a tendency to grow on its own as the
profitability will attract new and major players to enter in to the business and
competition for existing players is susceptible to imitation. Neutralizing competition
demands a strategic perspective, which starts identifying who are your rivals in
business. There may be large number of players but the firm has to decide with
whom he has to fight in the market for that segment (identify the strategic group).
The manager should understand the capabilities of the competitors which can be
neut~.alizedthrough tactics (a sales promotion program for instance) or a sustained
effort is necessary to develop a strategy to neutralize the competition .The manager
should try to create barriers to the imitation of his strategy.
Let us analyze the decision of Reliance Industries to enter in to the telecom business.
To create con~petitiveadvantage and offer benefit the company invested heavily on
the spread of optical fiber network in almost large part of the country. When
everybody was using GSM technology, the firm decided to launch CDMA technology
to have a technology advantage. As they decided to have an access through WLL,
they targeted a larger market with a low cost pricing strategy e.g. making a call as
low as forty paisa per minute to the customers. This created a sustainable competitive
advantage for the firm as they do not have to take the lease from the carriers like
BSNL and could basgain with competing carriers due to their own network facilitation
benefit and due to technology advantage could stay at the top end of the market with
a low price structure. Reliance has used all the three methods that we have discussed
for creating competitive advantage in business of telecom in India, which needs huge
investments for other firms to copy and save the firm from the imitation of the
strategy.
Understanding Consumers A marketing offer can be differentiated based on the product, services, channels,
and Selecting Target people or image. Product differentiation is on a continuum. There are commodities
Markets
that allow little variation, yet marketers can create differentiation. Chiquita as a
company markets bananas all across the globe with a differentiation that its products
are ripen on the tree and no artificial means are used for this and enjoys a premium in
the market. On the extreme, we have highly differentiated products like automobiles,
furniture and consumer durables that are differentiated for every product line and
across all the manufacturers through the process of brand communication. The firms
can differentiate products based on consistency, durability, reliance and precision.
Beyond differentiating at the physical level, firms can differentiate the accompanying
services with the product. Companies like DHL talk about speedy delivery with
accuracy and lesser damage and with convenience through home pick up for creating
- a differentiation in the courier service industry. Banks are differentiating their
services based on twenty-four hour banking, ATMs, distributed customer interaction
points and internet banking facility. Firms can create competitive advantage through
channel differentiation by designing alternate channels through channel coverage,
expertise and performance. Dell computer world wide created a competitive
advantage through web based direct marketing and distribution model, which was
difficult for many strong competitors to imitate in business. Real Value, Eureka
Forbes and Amway are examples of business success with channel differentiation.
People differentiation is another method for building differentiation in marketing
offerings, Many companies handle their internal customers and groom them so that
they can deliver the same service with a differentiation. Customers rate Singapore
Airlines in flight services better. It needs a careful selection of the customer contact
staff that can impress upon the customers through a professional approach. Image
differentiation is also possible for firms operating at different stages of the choice
spectrum where a company or brand image should convey the product's distinctive
benefits and positioning. Development of a strong and distinctive differentiation
largely depends on creative strategy by the brand communication expert. An enduring
and distinctive image positioning is possible through consistent communication and
matching product performance. The Kodak (red and yellow), The Sargam Tea
(Distinct Green), Wipro (with Rainbow and catch line 'Applying Thought') are some
of the stories of successful image differentiation in business.
Choosing the Right Competitive Advantage: After the identification of possible
competitive advantages, the firm has to decide the best suitable one over which the
positioning strategy will be based upon. Therefore, it should decide about the number
of possible differences and which one in particular to promote.
Rosser Reeves has propounded about promoting a single difference on which the
company has a distant advantage than its competitors. This strategy has come to be
known as Unique Selling Proposition (USP). In the eighties Godrej refrigerator was
promoted on the basis of one selling proposition called PUF which was unique to the
brand at that point of time. While other refrigerstors were selling with glass wool
insulation Godrej introduced poly urethane foam (PUF) and had a distinctive
advantage than its competitors. As we have said, the advantage should be such that it
should be difficult for the competitor to copy, but a unique advantage always runs the
risk of imitation and hence the firm will lose its competitive advantage very soon. In
the case of Godrej, the competitors Voltas from the house of Tata and Allwyn entered
in to the market with P W and then the advantage was lost. Nevertheless, buyers
tend to remember the number one always and hence the TOMA (Top of the Mind
Awareness) test reveals about Godrej being identified with PUF s l o g a ~ ~ .
Other theory in marketing proposes that more than one difference should be
promoted so that the flanker differences can take over as and when the major
advantage is lost due to imitation. This strategy has come to be known as Extra Value
 proposition (EVP). When the mass market is fragmented with many players and Market Taregting and
each holding a substantial amount of market share to influence the marketing Positioning
decisions of other players, companies are trying to broaden their positioning strategies
to appeal to more segments. BPL washing machines positioning strategy is based on
the fundamentals of extra value proposition. While they talk about the fuzzy logic
technology as the main advantage, still they promote the other value proposition
supporting the product superiority like rotary compressor, digital power switching etc.
The second proposition is mostly seen in white goods industry. But as companies
develop large number of positioning differences they tend to lose unique positioning
and suffer from the dilution of this distinctiveness in the consumer's perception and
risk an element of disbelief.
A manager should always avoid three kind of positioning errors. They are under
positioning, over positioning and confused positioning. Many times, it is observed that
buyers carry very vague idea or no idea about the company and its brands where as
the company may be promoting the brand. This is due to under positioning of the
brand on the uniqueness platform. The company is not known for any distinctive
product or service attribute. Contrary to this, managers tend to give too narrow a
picture about the cornpany to the customers making the consumer think that the
company only makes that variety of the product. Suffola as a brand suffered in Indian
market because of too a narrow positioning strategy where as its competitor Sundrop
broadened the scope of the positioning which helped the later brand to capture a
larger market share. Finally, managers should avoid the situation of confused
positioning where the buyer is left with a high level of confusion about the brand. 111
multi-product situations, managers tend to make such mistakes and the positioning of
the flanker brands does not stand in coherence with the master brand. It is
apprehended that the current range of Ayush toiletries will create consumer confusion
for Hindustari Lever, as they are not known for herbal formulations. They have to
promote "Ayush" as a separate line of business.
All brand differences are not worthwhile for positioning and they do not necessarily
carry same meaning to the consumers. Each difference has the potential of an
additional cost of com~nunicationand an additional benefit of revenue due to distinct
differentiation. A difference should satisfy the following criteria:
Distilactive: Competitors cannot offer or the company can offer better than the
competitor can.
Snperior: The difference is superior to other ways that the customers might obtain
the same benefit.
Profitable: The manager can introduce the difference with a profit,
Preemptive: Competitors cannot imitate the difference easily.
Aflordable: Buye1.s can afford to pay for the difference.
Comntuiticable:The difference should be communicable and visible to the buyer.
Important: The difference delivers a highly values benefit to target buyers.

6.4.3 Selecting an Overall Positioning Strategy

The product position strategy is decided by analyzing the features of the product,
price, usage, etc. Let us first learn the bases for the product positioning which are
discussed below:

. Alternative Bases for Positioning

Marketers use a number of alternative bases for positioning their products. While
positi;ning a product, specific features may be highlighted. Price and specific
 Understanding Consumers performance features are used usually as a basis for positioning. Let us l e a n them
and Selecting Target in detail.
Markets
Positioning on Benefits, Problem Solution or Needs: In this positioning
strategy, the marketer highlights the benefits of the product to the consumer. For
example, herbal cosmetics focus on natural products, no side effects, skin friendly,
etc.
Positioning for Specific Usage Occasions: Here positioning is based on specific
usage occasioiis. For example, Maggi 2 minutes noodles suggests preparation of
snack as fast as possible.
Positioning for User Category: Product is positioned based on the category of
the user. For example, Raymond's 'The Complete Man'. Another example is
Electrolux's fully automatic washing machine whose users are those whose hands are
cleaned, lotioned and nail polished, and they are sophisticated and intelligent. They
would consider it insulting and way below their manicured dignity to turn more than
one knob.
-
Positioning against another Product: Both implicit and explicit positioning
strategies are used against rival products. For example, Thomson presents "what is
missing in other televisions". It focuses the features of Thomson without naming its
competitor. This is an example of implicit positioning. Another examples are:
attribute charts shown by cars and televisions which highlight their own features
without naming their competitor's name.
In the explicit positioning, the product is positioned by comparing its superior features
with other products. For example, before launch, Telco positioned Tata Indica by
claiming the features as - Maruti Zen's size, Ambassador's internal dimensions, the
price of a Maruti 800 and with running cost of diesel.
Production Class Dissociation : It is a less common positioning strategy. It is
effective when a new.product is introduced and it differs from the typical products in
an established category. For example, at the brand level most successful anti-
product class positioning is that of 7-up with un-colapositioning.
Hybrid bases : In this strategy, marketers use a hybrid approach incorporating
features from more than one bases for positioning.
Consuiners will buy products and services which gives them the highest possible
value among all the available alternatives. Therefore, managers should position the
brands in such a way that they offer the highest value to the consumers. The over all
effect of the brand and its full positioning is termed as value proposition i.e. the net
colnbination of all the brand benefits over which the brand is positioned. Probably the
\ ,
value proposition is well ans&red by the consumer when he answers the reason of
owliershiy of a particular brand. The consumer's possible answer may include: the
value proposition alternatives like buying nzol-e for niore money ( premium
positioning strategy), 11zorefor tile satlze ( comparable quality at a lower pricing
point), The sanze for less ( price performance positioning strategy), Less for nzuch
less( lower performance at a lower price point proposition), More for less ( high
value proposition).

6.4.4 Communicating and Delivering the Chosen Positioning Strategy

The managers should take the next step in comnmnictlting the selected position to the
target audience. The marketing mix should support the desired positioning
communication through integrated marketing comin~inication.If the brand
i
communication talks about a specific positioning proposition then the brand should
1
deliver the same at trial as well as the adoption stage of the product. The marketing
i
66 mix design involves the ractical execution of the strategic brand position decision. It is
easier to find a good positioning platform but difficult to deliver the desired brand Market Taregting and
proposition as it involves coordination of the over all marketing function. A minor Positioning
tactical failure may lead to loss of position built for the brand over a period. Rasna
suffered in Indian market due to high level ofbrominized vegetable oil (BVO) content
and lost its position as the largest soft drink concentrate brand of India. Therefore,
after a company has built up the desired position, it should continue to monitor its
position through continuous brand tracking and monitoring study. It is also necessary
for the brand to evolve over aperiod with changing attitude and behaviour of the
target consumer and changes in competitor's strategy. Any abrupt changes may also
confuse the consumer. Therefore, a brand's position should evolve by adopting itself
to the changing market dynamics.

6.5 REPOSITIONING
Repositioning is a critical decision in marketing. The manager can go for repositioning
due to two reasons viz. the failure of the current positioning strategy due to the three
positioning mistakes like under positioning, over positioning and confused positioning,
the opening up of another positioning opportunity due to evolution of the customers on
value life cycle or emergence of new tecl~nologyto redefine the structure of
competition. Brand managers normally undertake brand tracking and monitoring
studies to identify the gap between the desired positioning or stated position through
brand communication alld the perceived position by the custon~ers.Any substantial
gap in these two measures will warn the brand managers to go for a reposition
decision. Si~nilarly,the customers and their value expectation from a brand undergo
change over a period. Brands, symbols and ideas prevalent in one period may not
stand significanl al a different time due to this value migration of customers.
Therefore, a customer centric company will prefer to reposition the brand in this
changing context. As we have already discussed the technology life cycle of a
product also changes with every phase of innovation in product and its delivery to
consumers. These kinds of changes demand repositiollillg of the product offer in the
changing situation. S o repositioning is necessary. Repositioning will follow the same
process like that of posilioning as discussed with suitable ~noclificatio~~s
on the
selection of competitive advantage in the new context.

Check Your Progress-B

1. What do you mean by repositioning?

3. Explain the concept of competitive advantage.

......................................................................................................................
3. Enumerate the process of positioning of a product.
Understanding Consumers ......................................................................................................................
and Selecting Target
Markets ......................................................................................................................
4. State whether the following statements are true or false:
i) Positioning is a product driven strategy.
ii) Competitive advantage should be always sustainable,
iii) Brand tracking and monitoring helps in repositioning decisions.
iv) Leveraging capabilities decreases the competitive advantage.
V) Thedecision of positioning is a strategic decision.

6.6 LET US SUM UP

Managers tend to define their market in specific terms through the method of target
marketing. Target marketing involves three issues. These are market segmentation,
market targeting and market positioning. The market targeting is done to find out the
exact customers and learn their characteristics and response pattern to marketing
program. By market targeting, a company can realize a higher return on investment
as the effectiveness of the marketing program will increase. A market can be
targeted through three methods. They are full market coverage, concentrated
marketing and differentiated marketing. While full market coverage talks about
delivering one product for the whole market without recognizing any significant
difference in customer characteristics, differentiated marketing program regroups
customers in to distinct groups and offers specific program for each market. Once
the target markets are identified then the marketer should look in to the evaluation
and selection of each segment for marketing profitability. Then the manager should
decide about thepositioiiing strategy of the firm.
The positioning strategy is an attempt by the marketer to create a situation by which
the consumers will perceive the product differentiation and brand value delivery as
superior to the competitors.A positioning decision is normally taken for creating a
sustainable competitive advantage by the firm in the market place so that the
competitors call not easily imitate the strategy and hence the film will be able to
generate higher profits. While positioning the brand in customer's mind the manager
should be careful about the common mistakes of under positioning, over positioning
and confused positioning. Failing in a positioning strategy leads a tnanager to
reposition the brand again in the market through repositioning strategy. Brands and
products need a constant monitoring in the market place so that the customer always
receives zui additional value compared to competitors due to brand ownership of the
manager's brand.

- - -

6.7 ]KEY WORDS

Brand Positioning: It involves implanting the brand's unique benefits and
differences in customer's mind.
Competitive Advantage: An adv,antage over competitors gained by offering
consumer's greater value, either through lower prices or by providing more benefits
that justify higher price.
Concentrated Marketing: When company resources are limited and the
competition is intense enough that the marketing manager has to stretch the market
budget for market coverage, the companies follow a concentrated marketing strategy.
Differentiated Marketing: When the marketers chose to target several segments Market Taregting and
or niches with a varied marketing offer to suit to each segment needs, it is called a Positioning
Differentiated Marketing.
Positioning Strategy: It involves three steps: identifying a set of possible competitive
advantages, upon which to build aposition, choosing the right competitive advantage
and selecting an over all positioning strategy. The company must then effectively
communicate and deliver the chosen position to the market.
Product position- The way the product is defined by consumers on important
attributes. It is the position in the perceptual space of the consumer's mind that the
product takes in relation to competitor's products, which is often verbalized by
customers on certain attributes.
Segmentation Evaluation Criteria: They are segment size and worthwhileness,
segment measurability, segment attractiveness, accessibility of the segment, company
objectives and resources.
Target Market: A target market is defined as a set of buyers sharing common
needs or characteristics that the company decides to serve.
Undifferentiated Marketing: Marketers may go against the idea of a segmented
market and decide to sale the product in the whole market. Here the marketing
manager ignores the idea of segment characteristics differences and develop a
marketing program for the whole market
Value Proposition: The full positioning of a brand which includes the combination of
all the benefits on which the brand is positioned.

6.8 ANSWERS TO CHECK YOUR PROGRESS

Check Your Progress B
B) 4. i) False ii) True iii) True iv) False v)True

6.9 TERMINAL OUESTIONS

I. Define market targeting and explain the procedure on how to target different
markets.
2. What is competitive advantage? How can a competitive advantage be created
for positioning the product?
\
3. How will you evaluate the potential of a target market?
4. What is value proposition? How managers can increase value proposition in a
changing customer market?
5. Repositioning needs a continuous monitoring of the brand's performance in the
market. Explain with suitable examples.

These questions will help you to understand the unit better. Try to write answers
for them. But do not submit your answers to the University for Assessment.
These are for your practice only.
UNIT 7 PRODUCT CONCEPTS AND
CLASSIFICATION
Structure
7.0 Objectives
7.1 Introduction
7.2 Meaning of Product
7.3 Ctassificatio~lof Products
7.3.1 Consulner Goods
7.3.2 Industrial Goods
73.3 Durable Goods and Non-durable Goods
7.3.4 Serviccs
7.4 Product Mix
7.5 Product Mix and Product Line Strategies
7.6 Services - Meaning and Scope
7.6.1 What arc Services?
7.6.2 Difference between Services and Products
7.6.3 Interdependence of Products and Services
7.7 Service Classification
7.8 Challenges in Marketing of Services
7.9 l?heServices Marketing Mix
7.10 Let Us Sum Up
7.11 Key Words
7.12 Answers to Check Your Progress
7.13 Terminal Questions

7.0 OBJECTIVES
After studying this unit you should be able to
explain the meaning of product and its essential attributes
e distinguish between various types of products
e describe the terms "product mix' and 'product line' and explain product line
related strategies
explain the concept of services and characteristics that distinguish them from
prod~lcts
e describe the ways in which services can be classified
e explain the challenges in marketing of services
e identify the services marketing mix.

7.1 INTRODUCTION
In the previous two blocks you have learnt the basic concepts of marketing i.e.,
nature and scope of marketing, marketing environment, marketing information and
Prodnct Decisions research, buyer behaviour, segmentation, targeting and positioning. When a marketer
starts his operation, he has to contend with certain environmental forces that tend to
influence his activities. To match such forces, keeping organisational strengths and
limitiltiorls in mind, he develops an overall marketing programme called marketing
mix. The marketing mix is composed of four ele~nenlsviz., product, pricing, place and
promotion. It is also referred to as four 'Ps' of the marketing mix. In this unit you will
study the first element of tlie inarkeling mix - the product. You will study the meaning
and essential attributes of a product, types of products, product mix and prodiict Line
and related stralegies. The unit also explains the concept of service and how services
are different from goods, the service classification scheme, the chalIenges involved in
services marketing and the services marketing mix.

7.2 MEANING OF PRODUCT

We lake steel sheet, nuts and bolts, a motor, paint, and other accessories, process
them in a given manner and our effort may result in the form of a washing machine.
However, when the consumer buys the machine, it is not simply the machine that
emerged out of the efforts and things that went into it. The consumer buys it beca~ise
he has a specific want (i.e., solnething to aid in washing clothes) and the coilsuiner is
exploring a way to satisfy that want. H e looks for an accepted brand name, a
warranty, an assured after-sales service, some appealing physical features and ail
impressive colour. Thus, marketers should recognize that people are not simply
interested in buying the physical features of the product, but they buy to satisfy their
wants. For that matler some products which people buy do not have physical feature
at aIl. Take for instance an income-tax consultant. He sells his advice which does not
have any physical features. It means, apart from physical products. we must also
iilclude services within tlie scope of our discussion.
Thus, a product may be defined in a narrow as well as broad sense. In n narrow
sense, it is a set of tangible physical a i d chemical altributes in an identifiable and
reaclily recognizable form. In a broader sense we may loolc at it in the forin of an
ol~jecl,idea, sewice, person, place, activity, goods, or an organisation. It can even be a
combination of some of these factors.
Let us study how 'product' is being defined by various people. According to Philip
Kotler, n prurduct is liizytking that can he r@er~>cLto n nrarket ,/hi- utterztinn,
(lcq~tisilion,use or.cons~o77prio~z; it iltcl~~cles
plzysic~~l
ol?jects, se~vice,
per.soiznlities, place, organisntion ai7rl ideas.
Jay Diamond and Gerald Pintel stale that tlle totul product, irl ~rrlditiotzto tlio
plzysicul pmdcrct, includes guarclntees, instnllatiorl, irzsrr-ircrior~~s Jilr use,
pnckagirzg, bmrzdiizg rrizd the ~ l , ~ a i l c ~ Aof.'i lservice.
i ~ ~ ~ Tile tor01 pi.o$uct is what
the custonzer buys, oncl Jiaq~ientl?~ tile Ji-ii7ge c1zarcic.tcristic.s such ~1.s~ L I L I I Z I I I ~ ~ ~ . ~
aird s~i.l~iciizfi
CII.CJ (1s iilipol.tai1t LZS tlw pAysic~11 ~rocllictitself
Williani 3. Slanton defined the term 'product' as (1 .wt c?j't~li~giAle niid intangible
mi-ib11te.s inrluclirrg packaging, c o l o ~ i ~price,; ~ I ~ U I Z L ! ~ U C ~hL Iprl~stige,
~L'Y retnil~rlv
111-estiye(lnd ~ ~ ~ I ~ L $ L ~ ~clnd
. ~ Lrrtrrilel-'.r
I I - P I . services
'S 1v1zlc.h b~iyerrliuy acc.e])t
r?fer*ir~gsnri.sfczcrio~~of vvrnts or- nrcds.
As defined by Jerome McCarthy, (1 prorl~lc'tis i~ior-t~ ~liarzjust n p k s i r a f prod~ll'f
with its r.eLutecl fitncrio~zal urld c~e.stl1eticJ ' C L I I L I I P S . 11irzc.1~~do.s 17C( es.sorie.s,
insrall~rfion,irlstr~rctiorisor, use, the p~r~aklrge, pe1.hrrp.s C L / > I - I Z I L L ~ r~~rilie,
wliick
,firlfi'ls sonirJ p.s?;chological rreetl,s orrd rlze asslilnrlcc tlrcir ser.vice fc~cilities will bc
rrvizilablc to meet the cr~stoitlerkileecls c!fter the purcllrrse.
Accorcliiig to W. Alderson, a prorl~rc~ is a brirzdlr of ~itilitirsconsisting of wrious
proclrrct .featirws rzrld clcconzpnrz~iilgsel- vice.^.
Schwnrtz defined a product as solnething n fir-n~markets rhat will sntisfv a Product Concepts and
UlassiCication
~ ~ ,fill II h~sillesso r conz~?zercialneed; unrl includes all the
persn~lcll L I . ~ L I Ior
periplzeml jiiclor.~ thnt 17wy co~ztribz~te to co~~scrn~er'ss~ltl.sfcictiol~.
From the above definitions it can safely be concluded that the word product, in the
context of marketing, has a much wider connotation. It is applicable to any offeri~igto
a market for possible purchase or use. It encompasses physical objects (e.g., a
television), services (e.g., airlines), places (e.g.. lourisl resorts), organibations (e.g.,
Red CI-oss),persons (e.g., an athlete) and itleas (e.g., llootl relief aid). It also includes
supporting services e.g., design, brand, package, label, price, etc. To s i ~ mL L ~ n,
pmrluc.t is (1 c~on1hinntionof' physicul, ec-o~~onlic, social nrzd psvcl7ologic~ul
hen c<fit.s.

Essential Attributes of a Product

Based on the above definitions, we can list out the essential characteristics of a
product as follows:
1) Tangible or Intangible: It may be capable of being touched, seen and felt. For
example, products like a c o ~ n brefrigerator
, ant1 motor cycle are tangible. At tlie
sume time, a product need not necessarily be tangible. It can be intangible but
cnpilble of providing a service. For i~istance,repalring, hair-dressin,,0 msurance,
'

etc. are intangible but provide satisfaction to the customers.

2) Associated Attributes: A product consists or various product features and
nccompi~iyingservices. Thus, a product is comprised of attributes i~icluding
colour, package, brand name, accessories, installation, instn~clionsto use,
mmuf:lcturer's prestige, retailer's prestige, after sale service, etc. These
attributes differentiate the products From each other.
3) Exchange Value: A product must be capzible of being excl~angedbetween a
buyer and z1 seller at a mutually acceptance cost.
4) Satisfaction: It should be capitble of providing,satisf~~ction to the buyel; both
real and psychnlogical. As i'ar as Lhe sellcr is concer~ied,it should provitle the
much needed business benefit.
A procluct, theret'ore, cii11 be considered as comprising of tIi1-eedistinct levcls. Al the
First level is the core product i s . , the core henefit which the consumers scck lo buy.
The second level of the product can be described as tlie actual product. This i~icludes
the packaging, brand name, features of the product, 111e design, tlie shape, cluulity clc.
Tlie third level is the augmented product. In addition to the actual product, the
provider may give additional custome~.services such as afier sales scrvice, warlanly,
delivery, installation etc.

Checlc Your Progress A

1) What is a product?

......................................................................................................................
3) State whether the following statements are Tnie or Fz~lse.
i) A product is always tangible.
ii) A ~ r o d u c provides
t satisfuctio~ito the custonier.
Product Decisions iii) A product cannot be identified.
iv) Every product has exchange value.

7.3 CLASSIFICATION OF PRODUCTS

You have studied in Unit 5 that, in order to lnarket effectively, the markets are
segmented and marketing strategies are develbped for each segment. In the same
way, it is also useful to classify products into homogeneous groups, as different types
of products require different marketing approach. There are several ways of
classifying products:
I) On the basis of the user status, products may be classified as consumer goods
and industrial goods.
2) On the basis of the extent of durability, products may be classified as durable
goods and non-durable goods.
3) On the basis of tangibility, products may be classified as tangible goods and non
tangible goods. These non-tangible goods are referred to as services.

fl
Consumer
t>
Services

Goods

Fig, 7.1: Classification of Products

Look at Figure 7.1 carefully for a detailed classification of products. These
classifications are necessary for a marketer, as different types of products require
different marketing strategies.
Let us now take the following four major types, and analyse their characteristics and
marketing strategies:
1) Consumer goods
2) Industrial goods
3) Durable and Non-durable goods
4) Services.

7.3.1 Consumer Goods

wlzich are bought by the ho~iseholdsor
Consrinzer goods are those prod~~cts
 r/ltinzafe co~zsunlers,for personal non-br,rsiness use. Consumers use the product in Product Concepts and I

the form in which the product is being offered i.e., no further processing is done. For
Classification I
example, a tooth bmsh, a comb, a wrist watch or a moped are all meant for personal I

use of liouseholds mid are, thus, classified as consumer goods. Consumer goods may
be classified into three types as : i) convenience goods, ii) shopping goods, and
iii) speciality goods. Let us discuss these three categories in detail.

i) Convenience Goods
A class of co/zsumer goods thut people buy frequently with the least possible
ti~zearld e8hl.t are called 'conveni~ncegoods'. These are the products the
cons~iimerswant to purchase frequently, immediately, and with minimuni effort. Milk,
bread, butter, eggs, soap, newspaper, biscuits, tooth pastes, etc., are some examples
of convenience goods. This category of goocls has a low unit price, and not greatly
affected by fad and fashion. They have two significant characteristics : 1) the
consumer has colnplete knowledge of the products which he wants to buy and 2) tlie
product is purchased with a minimuni of effort. Convenience goods areusually sold
by brand name and are low-priced. Many of them such as bread, inilk and edible oil,
are staple items, and tlie supply must be constantly replenished. In most cases, the
buyer has already decided to buy a particular brand at a particular store and spends
little time deliberating about the purchase decision. So convenience goods must be
readily available when the consumer demand arises. To ensure this, the manufacturer
must secure wide distribution.
The consumers rarely visit competing stores to compare prices and quality while
purchasing convenience goods. The possible gains from such conipa~.isonsare
outweighed by tlie costs of acquiring the additional information. This does not mean,
however, that tlie consumer remains permanently loyal to one brand or cigarette, or
soap or biscuit. A consumer is willing to accept any of sevcral brands and thus, will
buy the brand that is most accessible. Since the price of most convenience goods is
low, trial purchases of competing brands or products are made with little financial risk,
and often new habits are developed.
Retailers usually carry several competing brands of convenience products, and are
not able to promote any particular brand. Tlierefore, the promotional burden to
develop colisulner acceplnnce for the products frills on tlie manufaclurer.

ii) Shopping Goocls .

Tilest cwcJ (1 class qf corisu~~zc~rgoocl.~that urlJ purchnsed olzly ajicr ihc hiryer
has sperzt son7e tir~learlcl @;7rt C O I ~ ~ Lprice,I Y ~ qirnlity,
~ Z , ~ style, colowr; rtc., of
~rlt~r/lativeprodlrcts in cnrllpeti~rgstares. The purchaser of shopping goods lacks
colnplete informalion prior to the shopping trip and gathers information during it. For
inslance, a woman intending to buy a new dress may visit many stores, try on a
number of dresses, and spend time making the final choice. She may go from store lo
store in surveying competing offerings and ultimately select the dress that appeals the
most to her. In addition to women's apparel shopping goods include such items as
jewelleiy, furniture, appliances, shoes, etc. It is important to place the shopping goods
in stores located near other stores cairying competing items, as it facilitates the
customers to compare the product. Shopping goods are typically more expensive than
convenience goods.
Some shopping goods, such as children's shoes, are considered homogeneous i.e., the
consumer views them as essentially the same. Others such as furniture and clothing
are considered heterogeneous i.e., essentially different. Price i s an important factor in
, the purchase of homogeneous shopping goods, while quality and style are relatively
more important in the purchase of heterogeneous goocls.
Product Decisions iii) Speciality Goods
A class of consullzer goods with perceived unique charucteristics, suclz that
colzsunzers are willing to sperzd special effort to buy tlzenz, are known as
Speciality Goods. The buyer of speciality goods is well aware of what he or she
wants and is willing to make a special effort to obtain it. The nearest camera dealer
may be twenty miles away, but the camera enthusiast will go there to inspect and buy
that camera. To purchase a colour TV a person in a village may require a special trip
to a nearby city which is several miles away. Still he will go there, spend his time in
inspecting several brands and finally buy a set of his own choice. Examples of some
of the speciality goods are photographic equipments, TV sets, video players, mobile
phones, automobiles, etc.
Speciality goods possess unique characteristics that cause the buyer to prefer that
particular brand. For these products the buyer possesses co~npleteinfoimation prior
to the shopping trip and is unwilling to accept substitutes. Speciality goods are
typically high-priced and are always branded. Since consumers are willing to exert ,

considerable effort to obtain them, fewer retail outlets are needed. Since brand is
important, the manufacturers of speciality goods adve tise extensively.
This three-way classificatio of consunzer goods allows the nlnrketing manager
to gain additto~zali~zfonnationfor ~Zevelopirzgan eflective ~narketiizgstrategy
for the product. For instance, once the new ,feud prorluct has been classified as
u cnrtveilielzce product, you gain insight about rnurketing strategies in
br.atzdi~zg,p~onzoting,pricing arzd disti-ibution methods.

7.3.2 Industrial Goods

I~zrlrrstrialgoods are those goods wlziclz are meant to he bought by tile buyer as
inputs in prodciction of other products or for rendering some service. The
product may, thus, undergo further commercial processing. Indcistrial prod~ictsare
nzeant.for. nun-perso~znland comnzercial use. Industrial goods include items like
machinery, raw matesials, components, etc. It may be worthwhile clarifying a point
that the same product may sometimes be classified as a consumer product and as an
industrial product depending upon the end-use. Take the case of cocoilut oil. When it
is used by a person as hair oil or cooking oil, it would be treated as a consulner
product. Howevel; when coconut oil is used in the manufacture of a toilet soap it is
treated as an industrial product. Similarly, take the case of car tyres. When it is used
by a cat. owner, it becomes a consumer product. The same tyre when used by a car
manufacturing company, it becomes an industrial product. Thus, inany products can
r However, the industrial
be treated as industrial goods as well as consumer goods.
buyer is cost-conscious and is concerned about the quality and standard of the
product being offered to him. An industiial buyer is not impulsive and is rational in
buying effort. Therefore, industrial goods are to be sold in a dtfferent way from
consumes goods.
Depending on how the goods enter the production process, industrial goods may be
classified into following five groups.

i) Raw Materials
Raw materials are those indus~rialgoods that become part of another physical
product. Raw materials include goods found in natural state such as minerals, marine
products, land, products afforests, elc., and agricultural goods like'cotton, fruits, milk,
eggs, etc. Marketing strategies for the two categories of raw materials are different.
First group of raw materials are normally bulky and have low unit value. They are
produced by a few large producers. Second category of raw materials (agriculture
products) is produced by a large number of sinall producers spread over a large area.
Most of the second category products are perishable.
ii) Fabricating Materials and Parts Concepts and
Prod~~ct
Classification
This category of industrial goods also becomes actual part of the finished product.
Unlike raw materials, fabricating materials and parts have already been processed, to
some extent, but may need further processing before actual use. For example, yam
being wove11 into cloth and pig iron being converted into steel.

iii) Installations
They are manufactured industrial proclucls, e.g., a generator and a large pump set for
city water supply scheme. They alter the scale of operations in a firm, Normally,
installations are directly sold to the industrial user and ~niddlemenare not involved.
Pre-sale and post-sale servicing is required for these products.

iv) Accessory Equipment

They are used to aid production operations of an ilidustrial buyer and do not have an
influence on scale of operations of tlie buyer. They do not form part of the finished
product.

v) Operating Supplies
They are low priced, short-lived items purchased with mininiuln effort and could well
be tenned as convenience goods of industrial fielcl. They aid in the firm's operations
without becoming part ofthe end product e.g., lubricating oil, stationery, etc.
It may be added that the demand for industrial products is derived, inelastic and
widely fluctuating. 'The buyer is knowledgeable and their number is limited. Because
of large size of demrlnd, an industrial buyer can influence the market to a large
extent.

7.3.3 Durable Goods and Non-Durable Goods

Tangible products with cl lorzg I@ uurttl lusting ~nrttlrzyyecrrs r!f active scrvicc~to
ohvrzer-a x trrrnerl as cl~~r~zhlr
goo0.s. Television, fan, refrigerator, pressure cooker,
etc., may be cited as examples of durable goods. A durable product would require a
lot of personal selling, and pre-sales ancl post-sales service. Such products provide a
higher margin to seller but require an assu~.eclafter sales guzuantee. Therefore in
case of refrigerators, the number of years of guarruitee (particularly for tlie
compressor) is an important consideration when a consumer malces his final selection.
If a custo~uerpurchases a photocopying machine or duplicating machine, it is
necessary for the salesman to 'follow through' and visit the customer to see how it is
installed and used. V e ~ yoften this product is operated by persons who may not know
how to use it. This results in poor duplication and copies look unattractive and the
customer gets the impression that the fault lies with tlie machine. So, while marketing
such a product, it is important to guide tlie actual use of the machines.
Products vvhic1.l are cot~surncdirz orle go or last a ,few uses rrrzrl get cfe]lletedon
cotzsurill)tiort are ternzed as norz-di.lrcrb1~goods. Soap, toot11 paste, cigarette, soft
drinks, etc., are some examples of lion-durable goods. For example, a bottle of soft
drink is consumed at once on one occasion within a matter of minutes. Soap obviously
takes a little longer. However, in both these cases, the goods are consu~nedvery fast.
The advantage of these goods is that they are purchased very often and, therefore,
there are Inally repeat purchases once the customer is satisfied with one product.
Therefore, one must ensure quality and appropriateness of price. These are the
products that have to be advertised heavily, with a view to inducing people to try them
out, and thus, build up brand preference and brand loyalty. In view of the fact that
such products are consumed very fast and require frequent purchases, they need to
be made available in a large number of sales points.
Product Decisions 7.3.4 Services
Services are specially mentioned here because it is generally thought that marketing is
related to products alone. It should be remembered that marketing ideas and practices
are equally applicable to services with slight adaptations in certain decisional areas.
Services in content are different from products. Sewices are those separately
identifiable, essentially intangible activities whiclz provide want satisfaction,
and wlzich are not tzecessarily tied to the sale of a product or another se'wice.
For example, courts offer a service. So are hospitals, the fire department, the police
and the post office. These are not prpducts in the normal sense and yet it is very ,

important for each of these institutions to have an appropriate image. The police are
often criticized; the fire department generally praised; the post office criticized for
delays; the hospitals perhaps criticized for negligence and exorbitant rates and so on.
It is obvious that controlling the quality of service is important for building up its
image.
Apart from government or public sector undertakings, there are 'non-profit'
organisations such as museums and charities. Although non-profit, they also have to
provide the best form of service for their popularity. The business and commercial
sectors which include airlines, banks, hotels, and insurance companies, and the
professionals such as chartered accountants, management consulting firms, medical
practitioners, etc. also need marketing. We will study services in details in sections
7.6 to 7.9 of this unit.

Check Your Progress B

I) Distinguish between consumer goods and industrial goods.

......................................................................................................................
2) Distinguish between durable aidnon-durable goods.

......................................................................................................................
3) What is a service?

......................................................................................................................
4) Which one of the following are durable goods and which are non-durable goods?
i) Television
ii) Tooth Paste
iii) Bath Soap
iv) Refrigerator
V) Desert Cooler
vi) Hair Oil
 Product Concepts and
7.4 PRODUCT MIX Clasqifiratinn

A product mix is the set of all products and items that a particular seller offers for
sale. It is also termed as product assortment. Product .mix consists of product lines.
For example, the product mix of ITC consists of product lines like hotels, cigarettes,
ready-made garments, grocery, and paper.
A company's product inix consisting of different product lines has a certain width,
length, depth and consistency. These concepts are illustrated in Figure 7.2 for
select%dHindustan Lever Limited (HLL) products:
i) Product Line: A product line is an expression generally used to describe a group
of closely related products. A group of products may be referred to as a product line
either because they cater to the needs of a particular group of buyers, or they
function in similar manner or they are sold through identical marketing facilities or fall
within the same price range. The crux of the situation is that such reasoning may be
consistently used for referring to a product group as a product line. A seller may
identify a number of product lines to be offered to buyers by keeping in view the
buyer's considerations, economy of production, distribution, etc. Figure 7.2 shows
different product lines of HLL viz. personal wash, oral care etc.
ii) Product Mix Width: This refers to how many different product lines the
company carries. Figure 7.2 shows aproduct mix width of six lines.
iii) Product Mix and Product Line Length: The length of the product mix refers
to the total number of items in the mix. 111 Figure 7.2, it is 18. We can also calculate
the average length of the product line by dividing the length of the product mix (here
18) by the number of lines (here 6). In this case average length of product line is ( l a /
6) i.e. 3. The length of the product line refers to the total number of product items
offered i n a product line. For example, in figure 7,2 the personal wash line has the
length of seven product items and the oral care line has two product items. A product
item can be defined as a specific version of a product that has a separate brand name
or designation in the seller's list.
iv) Depth: The depth of a procluct mix refers to how Inany variants are offered of
each product in the line. IS Pears comes i112sizes (75 gms. and 125 gms.) and four
formulations (Pears, Pears Oil Control, Pears Germ Shield and Peurs Junior), it has a
depth of (2x4) i.e. 8. The average depth oWLL product mix can be calculated by
averaging the number of variants within the brand groups.
v) Consistency: The consistency of the product mix refers to how closely related
the various product lines are in terms of end-use, production requirements, distribution
channels, etc.

Pruduct-MixWidth
4 +
Personal wash Oral care Laundry Deodorants Skin care Hair care

t
Pduct-
Lux
Lifebuoy
Lid
Pepsodent
Close-up
Surf Excel
Rin
Wheel
Axe
Rexona
Fair & Lovely
Ponds
Sunsilk
Clinic

Line Hammi
Length Dove
Pears
1 Rexona

Figure 7.2: Product Mix Width and Product Line Length for HLL Products.
Product Decisions
7.5 PRODUCT MIX AND PRODUCT LINE STMTEGIES
Product mix of a seller, while giving expression to its current position, is also an
indicator of the future. Thus, product mix is not a static position but a highly dynamic
concept. A company may withdraw a product from its existing mix, if the product is
not contributing to the profitability and growth of the company. Similarly, a new
product may also be added to cash on some attractive opportunity that comes its way.
Thus, the companies always attempt to maintain an optimal product mix with a view
to maintain a balance between current profitability and future growth and stability.
Towards this end, a company alters or modifies the existing product line in any of the
following ways:
1) Contraction of the Product Line: When a company finds that some of its
products are no more profitable, it may decide to suspend their production.
Similarly, changes in the marketing environment inay also necessitate withdraw1
of a product. A product may also be dropped froin the product line if it is found
that tlie same resources used for the production of the product can be put to
more profitable use by producing another product. Decisions relating to these
aspects are termed as "Co~itmctionof tlle Prodwcr Lil~e".Thus, tlzinning out
the prod~ict111ixeither by elinzirzating an entire line or sinzplifyirig the
product items within tlie lirze is called contraction o f product line. This is
also called Contraction of Production Mix or Product Line Simplification.
This strategy is adopted mainly to elilninate low-profit products and to get more
profit from fewer products.
2) Expansion of Product Mix: To cash on available opportunities, a company .
decides to expand its present product line. It may also increase the ~lurnberof
product lines and the depth within a line. Such new lines may be related or
unrelated to the existing product mix. For example, a company dealing in drugs
and chemicals may add products in a relatively new area like computers.
3) Changes in Quality Standards: When the market expectations undergo a
change, a film may have to react by altering quality standards of the existing
products. Such changes call be brought about through Trading Up and Trading
Down.
i) Trading Up : When we add a higher priced prestige product to the existing
low-priced product line, it is termed as trading up. This strategy is adopted
with the hope of increasing the sales volume of the existing low-priced
products. If conditions so demand in future, the company may increase
promotional efforts for the new product and thus add overall sales volume
through the new product, thereby improving profitability of the firm. In this
manner a conipany known for low-quality products tries to raise its image
of dealing in high-quality goods on the one hand and offering an alternative
to buyer to choose from. We often hear such terms as "Jaita Model" and
"Deluxe Model" and this illustrates the point.
ii) Trading Down: It is the reverse of trading up. When a firm adds low
quality products at relatively lower price to its line of high priced prestige
products, it is termed as trading down strategy. It helps in widening h e
marketing base and results in expanding overall sales volume. Introduction
of moped by a company manufacturing motor cycles is a case of trading
down.
4) Affecting Change in Modelfstyle of an Existing Product: The desire of the
consumer varies with varying times. To cope with such change in the consumer
mood, a company can react by offering new models of a product or changing
the style of an existing product.
5) Product Differentiation: Under this strategy, a firm tries to differentiate its Product Concepts and
products from the competitor's products or other products within the same Classification
product line offered by the company by highlighting quality or design. This
strategy is aimed at avoiding competition on price basis. The competition is then
met at non-price front and a pricewar is avoided. The firm, thus, promotes
awareness of the good attributes of the product offering. In view of the fact that
this strategy involves large pro~notionaleffort with huge financial outlays, it is
also known as pro~notionalstrategy.
6) Product Positioning: As an integral part of product segmentation, after the
market is segmented, it becomes necessary to pinpoint the needs of each
segment and offer products to satisfy the needs of specific segments. This
process is referred to as product positioning. It includes all activities from
identification of a market segment to directing marketing effort at it.
7) Ncw Product: In view of increasing competition, scientific advancements,
enhanced consumer expectations, it is necessary that new products are
introduced. Such introduction is essential for the survival and growth of an
organisation. The rate of increase in expenditure on Research and Developmen1
by many organisations is a clear proof of the need and realization to introduce
new products.

Check Your Progress C

1) What is the meaning of product mix?

......................................................................................................................
2) What is a product line'?

......................................................................................................................
3) Differentiate between trading up and trading down.

......................................................................................................................
4) What is contraction of product mix?

......................................................................................................................
5) Distinguish between product item and product line.
Product Decisions 6) Match the items in Column A with the items in Column B.

i) Trading up a) To avoid competition on price basis

ii) Product line b) Adding a low priced product to a high
priced product line
iii) Contraction of product line c) Group of closely related products
iv) Product Differentiation d) Adding a high priced product to a low
priced product line
V) Trading down e) Suspension of a product item from the
product line

7.6 SERVICES - MEANING AND SCOPE

Let us first understand the meaning of services, how they are different from products
and the interdependence between product and services.

7.6.1 What are services?

It is generally thought that marketing is related to products only. This perception is not
peculiar to India or developing world only. In fact, till recently services never found a
place i n multilateraldiscussions in GA?T(now WTO) or data and information relating
to services were never included in either international or national publication. It should
be remembered that marketing concepts and techniques are equally applicable to
services with relevant adaptations in certain decision areas. As mentioned earlier;
services are those separately identifiable, essentially intangible activities which
provide want satisfaction, and which are not necessarily tied to the sale of a product
or al~otherservice. For example, l~ospitals,universities, banks, insurance companies,
transport films, fire departments, police and post office.
To put it in simple terms, a product is an object, a device, a tangible thing; and n
service is a deed, a performance, an effort. This captures the essence of the
difference between products and services. Services are a series of deeds, processes
and performances; hence tend to be more intangible, personalized, and custom-made
than products. The services offered b,y,SBI,LIC, IGNOU and MTNL are not
tangible things that can be touched, seen and felt, but rather are intangible deeds and
performances. Silnilarly, the core offerings of hospitals, hotels, and utilities comprise
primarily deeds and actions perfoimed for customers.
Services are produced not only by service businesses such as those listed above, but
art: also integral to the offerings of many goods. For example, car manufacturers
offer warranties and servicing contracts, and industrial equipment producers offer
inaintenance services. White goods ~nanufachirersprovide after-sales services. Even
producers of items such as medicines and food items offer services to the consumers
i n the form of educating them through pamphlets as to how to use and maintain the
item. These are examples of deeds, processes and performances associated with
product offerings.
Co~npatiblewith broad definitions given above services may include all economic
activities whose output is 1lot.aphysical product, is generally co~lsurnedat the time it
is produced, and provides added value in forms (such as convenience, amusement,
timeliness, comfort or health) that are essentially intangible concerns of its first
purchaser. This definition has been used also to delineate the service sector of the
economy.
Details of industries classified within the service sector (as presented by Valarie Product Concepts and
Classification
Zeithalnl and Mary Jo Jitner, Services Marketing, McGraw Hill), is discussed below
for understanding of the broad spectrum of the services sector.

Transportation and Public Utilities

0 Transportation (Railroad transportation, Local and inter-urban passenger transit,
T~uckingand warehousing, Water transporeation, Air transportation, Pipelines
except rlamral gas, and other Transportation services)
r Communication (Telephone and telegraph, Radio and television broadcasting)
Electric gas and sanitary services

Wholcsale lkadc
Retail Trade
Finance, Insurance, and Real Estate
e Banlting
r Credit agencies other than banks
Security ancl com~nociitybrokers, and services
o Real estate

Holding and other Investment

Other Services
b Hotels and other lodging places
Personal services
Business services
Auto repair, services and garages
r Miscellaneous repair services
Motion pictures
Amusenlent and recreation services
Health services
Legal services
Eclucation services
Social services and membership organisations
Miscellilneous professional services
0 Private household services

Federal Government
Civilian
Military

Govcrilmcllt Enterprises
State and Local Government
Education
Other services
Though the above is not a very exhaustive listing, this should give a clear idea as to
how services encompass a wide range of activities.
w

Prnduct Decisinns 7.6.2 Difference between Services and Products

Based on the above discussion, we can identify four basic characteristics of services,
that differentiate them from products. They are : (1) intangibility, (2) heterogeneity,
(3) simultaneous production and consumption, and (4) perishability. Let us discuss
them in detail.

Intangibility
The most basic difference between goods and services is intangibility. Services are
performances or actions rather than objects. Therefore, they cannot be seen, felt,
tasted, or touched in the same manner that we can sense tangible goods. The
absence of tangible features means that it is difficult for the seller to demonstrate or
display services, and for buyers to sample, test or make a thorough evaluation before
buying them. For example, health care services are actions (e.g. surgery, diagnosis,
examination, treatment) performed by doctors and directed towards patients. One
cannot see or touch these services, although you may be able to see and touch certain
tangible components of them (e.g. equipment, hospital room). In fact, Inany services
such as health care are not easy for the consumer to grasp even mentally. Even after
a diagnosis or surgery has been completed, the patient may not fully comprehend the
services performed.

Heterogeneity
It is often impossible to assure homogeneity and consistency in the service provided
by a seller, because services are peifonnances rendered by human beings. Hence no
two services will be precisely alike. The service is performed and delivered by
employees (people), and people may differ in their performance from day to day or
even hour to liour. Heterogeneity also results because, no two customers are
precisely alike; each will have unique demands or experience and requires the service
in a unique way. For instance, take the case of a restaurant which is a hospitality
service. One customer may prefer a crisp Masala Dosa with sambar, while another
may prefer soft Masala Dosa with coconut chutney. The cook has to prepare and
serve according to their tastes. Thus, the heterogeneity connected with services is
largely the result of human interaction between employees and customers and all of
the vagaries that accompany it.

Simultaneous Production and Consumption

Most goods are produced first, then sold and consumed while most services are sold
firsL ancl then prociuced and consumed simul~aneously.For example, an auto~nobile
may be manufactured in Mu~nbai,shipped to Delhi, sold two months later, and used
over a period of years. But restaurant services cannot be provided until they have
been sold and the dining experience is essentially produced and consumed at the
same time. Similarly, in travel services, the ticket has to be bought first and then the
travel service has to be availed of. Very often, the customer is present while a service
is being produced ancl thus the views of the customer are taken into account in the
production process. For example, in the restaurant when one orders for a cup of
coffee, he may ask for strong coffee (more coffee, less milk) without sugar. Here the
customer has influenced the productioi~process of coffee. Frequently, customers may
interact with one another during the service production process and thus may effect
one another's experiences. For example, strangers seated next to each other in an
airplane may well affect the nature of the services experience for each other.
Another outcome of simultaneous production and consumption is that service
producers find themselves playing a roie as part of the product itself and as an
essential ingredient in the service experience for the consumer.
Persishability Prodr~ctConcepts and
Classification
Persihability refers to the fact that services cannot be saved or resold or returned. A
seat on an airplane or in a restaurant, an hour of a lawyer's time or telephone line
capacity not used canot be reclaimed and used or resold at a later time. This is in
contrast to goods that can be stored or resold another day, or even ret~lrnedif the
consumer is unhappy. It is not easy to reset a bad haircut nor is it possible to transfer
it to another consumer. Perishability makes this an unlikely possibility for inust
services.

7.6.3 Interdependence of Products and Services

Though, the products differ from services in many respects, there are so many
interlinkages between services and products in several instances. In fact, services
and products complement each other in many cases. Sales prospects of products that
are in need of substantial technological support and maintenance will be badly
affected if proper airangement for service is not made. For this reason, the initial
contract of sale of a product often includes a service clause. This practice is common
in the case of many durable goods. In the case of TV s, cars, refrigerators, washing
machines, etc., manufacturers provide free after sale service for a cerlain period.
Siinilarly, the sale of computer hardware is critically linked to availability of proper
servicing and software. Sellers of capital equipment often enter into maintenance
contracts with buyers. These are some instances of services complementing
products. Similarly ~ ~ r o d u calso
t s coinplement services. For example, an airline cannot
exist without airplanes. Without rooms, furniture and kitchen equipment, ahotel
cannot provide hospitality service. In the same way, hospitals (health care service)
cannot provide services without using tangible products such as operatloll insti-unienls,
testingequiprnent, medicines, hospital buildings, etc.
There is an increasing recognition of this coinplementary nature of.services and
products. Manufacturing based industries (such as autoinabiles and computers) are
recognizing the role of service ill improving the competitiveness oFa product. I11 many
industries providing quality service is no longer simply an oplion. The quick pace of
developing technologies makes it difficult to gain strategic co~npetitiveadvantage
through physical products alone. Customers not only expect high quality goods, but
also expect high levels of service along with them. Conipanies are realizing the need
to focus on service to keep pace with rising customer expectations and to coinl~ete
effectively. Similarly, various services sectors are depending on quality products to
inlprove their service quality. Good hospitals use the latest technical and testing
equipment, hotels provide well f~lr~iishecl rooms, TV channels use the digital
transmission equipment, banks use the A TM equipment, airlines use inost
comfortable airplanes, etc. Thus, continuous product improvement and service
improvement are siinultnneously going on in many sectors.
Michael Porter in his book, 'The Coinpetitive Advantage of Nations' identified thrce
distinct links between manul'acturing and services as explained below:
i) Buyer/supplier Relationship: Many service industries have come *into
existence through the de-integration of service activities by manufacturing firms.
An automobile manufacturer may outsource number of service activities 11ke
transportation, warehousing, marketing research, legal services, education and
training of its employees, information PI-ocessingetc. Service industries depend a
lot on manufacturing firins for a significant share of their sales.
ii) Services Tied to the Sale of Manufactured Goods: Sale of a wide variety
'
of manufactureil goods creates deinai~dfor associated services. The sale of
consumer durables require ongoing need for servicing, sale of coml>utersleads
to demand for training services and after sales services, exports of any .
Product Decisions inannfactured goods would require sale of insurance, financial services and
transport services.
iii) Manufactured Goods Tied to the Sale of Services: This link is reverse of
the previous one. The sale of certain services leads to demand for manufactured
goods, for example, sale of engineering or lnallagement co~lsultingfrom a nation
can lead to demand for equipment and other associated ~nanufacturedgoods
from that nation. Also provision of a service requires a lot of manufactured
goods.

7.7 SERVICE CLASSIFICATION

A large number of classification schemes for services have been developed to
provide strategic insights in managing them. Utilizing different bases, these schemes
allow us to understand the nature of the service act, the relationship between seivice
organization and its customers, the nature of service demand and Lhe attributes of a
service product. Let us discuss the schemes briefly.

1) The Nature of the Service Act

Using the two dimensions of tangibility of the service act and to whom services are
directed at, Lovelock classified services according to whether services are directed ul
people or possessions, at minds, physical possessions 01- assets. Table 7.1 will help
you understand this classification scheme.

Table 7.1

Nature of the Service Act Services Directed At

Tangible Action People Possession
Services directed Directed at goods,
at peoples bodies Physical possessions
Healthcare,Salons, Transportation
Restaurants, Transportation LaundryIDry cleaning
Lawn care
Intangible Action Services directed Services directed at
at peoples minds intangible assets
Education Banking
Broadcasting . Lcgal Services
Information Insurance
Museums Accounting

2) Relationship between Service Organisation and Customers

In the service sector both institutional and individual customers may enter into
continuing relationships with service providers w d opt for receiving services
continually. Services can therefore be classified on the basis of whether the nature of
the relationship is continuous or intennittent and whether a consumer needs to get into
a membership relationship with the service organisation to access and utilize tlie
service.
 Table 7.2 : Services and Customer Relationships Product Concepts and
- - -
Classification
- - -
Type of Relationship
I I

Nature of Delivery Membership Non-Membership

I I
Insurance Police protection
Education Public highway
Banking
1
I
Discrcte 1 Theatre seat subscription I Car rental, Pay telephone
Co~n~iiuter
tickets Restaurant

3) How the Service is Delivered

Lovelock has used two issues of number of delivery sites (whether single or ~nultiple)
and the method of delivery to classify services in a 2 x 3 matrix. The i~nplications
here are that the convenience of receiving the service is the lowest when the
customer has to come to the service and niust use a single or specific outlets. .As his
options multiply, the degree of convenience can go on rising, from being able to
choose desirable sites, to getting access at convenient locations. (Table 7.3)

Table 7.3: Service Delivery Mocles

Service Delivery Modes

Nature of Interaction between Customer Availabiiityof Outlets
and Organisation
Single site Multiple site
Custonicr gocs to service organisation Theatre Bus Scrvice
Fast Food Chain
Servicc orpanisntiun collies to tlic customer Lawn care Mail delivery
Pest control E~iicrgencyauto rcpair
Customer and orga~iisa[iontlmisact Credit cards Telephone conipany
business at anlis length Local TV station Broadcasting

4. Proportion of Tangibility and Intangibility

Using the characteristic of intangibility of services, Shostack proposed that all goods
and services can be placed on a tangibility intangibility continuum, with services
clustering towards low to high intangibility. Accordingly, services call be classified as
those with a low intangibility content (a fast food restaurant) and apure service,
having very high intangibility content (education, consultancy, medical advice).

5) Service Inputs
Services based on this criterion have been classified as primarily equipment based or
primarily people based service depending upon which input is primary applied to get
service outputs. The equipment based services can be further classified according to
whether they are f~illyautomated, or consist of equipment monitored by unskilled
persons (lift operators, delivery van personnel) or need the presence of skilled
personnel to Inan the equipment (quality control, diagnostic services).

6) Contact between the Consumer and the Service Provider

Services also differ in the extent of contact that needs to be maintained between the
Usel and Providel; the marketing implication in this case being the necessity of
physical presence of the provider as well as need to manage desired quality of
personnel in case of high contact services. On this basis all services can be classified
I'roduct Decisions as high contact or low contact services, depending upon the time a user needs to
spend with the service organisation/provider in order to utilizelacquire the service.
Examples of low contact services are telecommunications, drycleaning and
broadcasting while high contact services are education, hospitality, theatre
performance.

7) Profit and Public vs Private Services

Service can also be classified on the basis of whether they are primarily directed at
public at large or primarily at individuals. The public services include utilities and
infrastructural services like transport and communication. They also include services I
I
provided by the state for public welfare like hospitals, educational and vocational I

institution, parks and museulns etc. The private services on the other hand include the
whole gamut of services designed for and consumed by customers as individuals e.g.,
restaurants, beauty care and medical advice. The ilnplications underlined by this
classification manifest themselves In issues regarding planning and design of service
i
.4
1
for public vs. private consumption. Involved here are issues of process, volume and
distribution of services when they are designed as public services. Services have also
been classified by Kotler as services designed for profit and non profit services,
depending upon the marketing objectives to be pursued in the exchange of services.

7.8 CHALLENGES IN MARKETING OF SERVICES

The traditional marketing mix is composed of the 4 Ps viz., product price, promotion
and place (distribution). These elements appear as core decision variables in any
marketing plan. All these four variables are interrelated, and there is an optional mix
of the four factors for a given market segment at a given point of time. Though,
conceptually marketing of services is no different from marketing of products, the
strategies of the 4 P's, however, require some modifications when applied to services.
Because of the significant differences between goods and services, marketers of
services face some distinctive challenges. Such challenges revolve around
understanding customer needs and expectations, and the efforts to keep pro~nises
made to customers. The basic differences between products and services, and the
associated marketing implications, are shown in Table 7.4

Table 7.4 : Differences between Products and Services, and

the Associated Marketing Challenges

Goocls
I
Services 1 Resulting Marketing Implications
Tangi bIe Intangible Services cannot be inventoried
Services cannot be patented
Services cannot be readily displayed or.
communicated
Pricing is difficult
Service delivcry and customer satisfaction
depend on employee actions
Scrvice quality depends on many
uncontrollable factors
There is no sure knowledge that the service
delivered matcl~eswhat was planned and
promoted
Production . Sin~ultaneous Customers participate in and affect the
separate from production and transaction
consu~llption consulnplion Customers affect each other
 Product Coxicepts and
Employees afl'ect the service outcome Classification
Decentralisation rnay be essential
Mass production is difl'icult
Nonperisliable Perishable It is difficult to synclironize supply and
demand
Services cannol hc returned or resold
-
Source: Valarie A. Zeithaml and May Jo Bitner.ServicesMarketing, McCraw Hil1,New York.
Ilztungibility presents several marketing challenges. As services cannot be
inventoried, fluctuations in demand are often difficult to manage. For example, there
may bc very huge demand for hotel accornmodation i n Shirnla in summer as against
low demand in winter. Yet, hotel owners have the same number of rooms to sell year-
round. Services cannot be patented legally. Hence, new service concepts can be
easily copied by competitors. Since services cannot be readily displayed 01. easily
cotnmunicated to customers, it may be difficult for consumers to assess the quality of
a particular service before use. Decisions about what to include in advertising and
other promotional materials may prove challenging, as is pricing. The actual costs of a
unit of service are hard to determine and the pricelquality relationship is complex. As
services are not tangible, it is not possible to provide snrnples and significant physical
evidence. The physical evidence of services includes all of the tangible
representations of the service sucli as brochures, letterhead, business cards, report
formats, and equipment. These physical evidence cues ~x-ovideexcellent opport~~nities
for the film to send consistent and strong messages regarding the organisation's
purpose, the intended market segment, and the nature of the service.
The irztc~~igihility
of tlie service reduces the marketers' ability to provide samples,
This makes communicating the service offer iiiuch Inore difficult than communicating
a product offer. Brochures or catalogues explaining serviccs often must show a
"proxy" for the service in order to provide the prospective customer with tangible
clues. A cleaning servicc for instance, can show apicture of an individual removing
trash or cleaning a window or even a photograph of a clean room. However, the
picture will not fully succeed in communicating the quality of service.
As services are /ictc~r-ogc~neoi~s, ensuring consistent service quality is challenging.
Further, quality clepends on many factors that cannot be F~~lly controlled by the service
supplier, sucli as the ability of the collsu~nerto articulalc his or her needs, the
presence (or absence) of otlier customer, and the level of demand for the service etc.
Because of these complicating factors, n marketcr is often not sure whether the
service is being delivered as 01-iginally planned and promoted. A11 associated problem
is that, unlike in the case of products there is no objective yrurclstick to determine the
quality of a service. Laboratory tests can establish the quality of a product but the
quality of service is dependent on the perception of the customer.
Since services often are produced and consumed simultaneously, Inass production is
difficult, if not impossible. Moreover, it is not usually possible to gain significalit
econolnies of scale through ce~ltralisedproduction. Usually operations need to be
relatively decentralised so that the service can be delivered directly to the consumer
in convenient locations. Also because of simultaneous production and consumption,
the customer is illvolved in and observes the production process thereby affecting
(positively or negatively) tlie outcome of thc service transaction. Solrie customers call
cause probleins in the service setting, leading to loweriilg of customer satisfaction.
For example, in a cinema theatre, one person misbehaving with other audience can
create negative experience to the entire audience and may become a dissuacling
factor next time.
As services are perishable, they cannot be stored for future consumption. Hence,
demand forecasting and planning for capacity utilisation are challenging decision
Product Decisions areas for marketers. The fact that services cannot typically be returned or resold
implies the necessity for strong recovery strategies when things do go wrong. For
example, while a bad hair cut cannot be returned, the hairdresser should have
strategies for recovering the customer's goodwill when such a problem occurs. The
Iiair dresser may, by refunding the charges collected from the customer, perhaps,
recover part of the goodwill lost.
The role of persorzrtcl deserves special consideration in the marketing of services.
Because the customer interface is intense, proper provisions need to be macle for
training personnel. Major emphasis must be placed on appearance and behaviour.
Most of the time, the person delivering the service (rather than the service itself) will
communicate the spirit, values.and attitudes of service provider. All human actors
who playa part in service delivery influence the buyer's perceptions and provide cues
to the customer regarding the nature of the service itself. How these people are
dressed, their personal appearance, their attitudes and the way they interact with
customers, all influe~lcethe customer's perceptions ofthe service. Therefore, the role
of service provider or contact person is very important.
The areas of pricing and financing require.special attention. Because services cannot
be stored, much greater responsiveness to demand fluctuation must exist and
therefore, much greater pricing flexibility must be maintained. Hotels offering
discounts in room tariff during oft'seasons is part of the flexible pricing strategy. The
intangibility of services also makes financing more difficult. Financial institutions are
less willing to provide financial support to services than for products. This is because
of three reasons: (a) the value of services is more difficult to assess, (b) service
performance is more difficult to monitor, and (c) services are difficult to repossess.
Therefore, receiving payments may be much more troublesome for a financier in the
case of services than products. This poses a challenge to the marketer of services in
procuring finances.
Usually, shorl and direct channels are required for marketing of services. Closeness
to the customer is of overriding importance in order to correctly ~ulderstandwhat the
customers want, to reach them fast with minimum cost;to monitor the flow and
utilization of services, and to assist the construct i n obtaining a truly tailor made
service.

7.9 THE SERVICES MARKETING NIIX

The unique characteristics of services make the traditional 4 P marketing mix seem
inadequate. Careful management of these 4 Ps - Product, Price, Place and Pro~notion
rhough essential, are not sufficient for successful marketing of services. Further the
strategies for the four Ps require some ~nodificatioilwhile applying to services.
Since services are produced and consuined siinultaneously, the contact personnel or
the service delivery personnel become extremely important. It is during these
encounters of service providers and custoiners i.e. the process - on which a lot
depends with regards to the final outcome as well as the overall perception of the
service by the customer. The actual physical surroundiiigs during these encounters
have also a substantial bearing on the service delivery. All these facts lead to the
development of an expailded marketing mix with three new P's added'to the
traditional mix. These are:
r People All hurnan actors who playa part in service delivery mid
thus influence the buyer's perceptions; namely, the
firms's personnel, the customer, and other customers in
the service environment
e Physical evidence The environment in which the service is delivered and Product Concepts and
where the firm and customer interact, and any tangible Classification
components that facilitate performance or
communication of the service.
e Process The actual procedures, mechanis~nsand flow of activities
by which the service is delivered - the service delivery
and operating system
Because of the s~multaneousproduction, delivery and consu~nptionof services, the
nature of marketing departments and marketing functions become quite different as
compared to goods. The marketing function - all activities which influence the
preferences of the consumers towards the offerings - is mainly handled by marketing
departments in case of goods. Here as far as consumers are concerned, ~narketing
departments (the organisational entity which is responsible for some, but not
necessarily all marketing activities performed by the firm) can plan and implement
most of the marlteting activities i.e., the marketing department is able to control
almost the total marlteting function. In the service sector the situation is entirely
different. A traditional mnrkcting department in services can only control a minor part
of the ~nilrltetingfunction. Usually, it does not have the necessary authority to manage
the buyer/seller interaction. The marketing department therefore, cannot plan and
implement activities pertaining to interactive marketing function.
Therefore the marlteling ti~nction,which is a key fiinction in service sector require a
special lreatment. The total marketing in services include three different types of
marketing as shown in Figure 7.3 .

Company
(Management)

111/0rri(~/
M(~t.ke/i~~g E.rlcr.rrrt/Mcrr.kcti~lg
Eniihling ~ h Promise
c Setting thc Promise

Providers Cu'slornel.~
111trrncti~~e
M(ii.kc/il~g
'Delivering the Promise

Figure 7.3 : T h e Services Marketing Triangle

As can be seen from the triangle, the traditional marketing rnix and marketing
departments basically address to 'External Marketing' only. However, all three sides ,
are critical to succesbful services marketing and the triangle can't be supported in the
absence of anyone of the sides.

Check Your Progress D

I. Identify the cl~aracteristicsthat make services different from products.
Product Decisions 2. Explain the interdependence between products and services.
......................................................................................................................

......................................................................................................................
3. List out the elements of expanded marketing mix for services.

.....................................................................................................................
4. State whether the following statements are true or false.
i) Most services are first produced, then sold and consumed
ii) Healthcare service is an intangible action directed at physical possessions.
ii) As services are perishable, they cannot be stored for future consumption.
iv) The people element of services marketing mix refers to the film's
personnel only.
v) As per services marketing triangle, marketing of services includes three
different types of marketing.

7.10 LETUSSUMUP
A product is any offering to the inarket for possible purchase or use. It encompasses
physical objects, services, places, organisations, persons and ideas. Essential
attributes of a product include tangibility or intangibility, associated with some
attributes f& being identified and accepted, should have exchange value and should
provide satisfaction.
Products may be classified in many ways. Based on the user status, products can be
classified as Consumer goods and industrial goods. The goods which are bought by
the households or ultimate consumers for their non-business personal consumption are
called consumer goods. Consumer goods may be further classified as convenience
goods, shopping goods and speciality goods. Industrial goods are those products which
are meant to be used by the buyers as inputs in production of other products. They
can be classified into raw materials, fabricating materials and parts, installations,
accessory equipment, and operating supplies.
We can also categorise tangible products into durable and non-durable depending
upon the period during which a product is used by a cons,umer. Services are those
separately identifiable, intangible activities which provide want satisfaction, and which
are necessarily tied to the sale of a product or another service.
A product line is an expression generally used to describe a group of closely related
products. Product mix refers to all the products offered by a firm and has different
components, viz. width, length, depth and consistency. Product line strategies are: I )
contraction of product line, 2) expansion of product line, 3) changes in quality
standards, 4) changes in model and style of an existing product, 5) product
differentiation, 6) product positioning, and 7) new products.
The term service is rather general in concept and includes a wide variety of services.
Services are essentially performances. Marketing of services needs a different
26 treatment because of the unique characteristics of services that distinguish them from
l~roducts.These characteristics are intangibility, heterogeneity, inseparatability and Product Concepts and
perishability. Due to these characteristics services marketing includes three additional Classificatio~l
marketing mix elements viz. People, Physical Evidence and Process.

Consumer Goods: Products bought by individuals or households for their personal

lionbusiness use.
Contraction of Product Line: Dropping a product from the product line.
Convenience Goods: A class of consumer goods that people buy frequently with
the least possible time and effort.
Durable Goods: Tangible products with a long life and lasting many years of active
service to owners.
Fabricating Materials and,Parts: A category of induslrial goods that have received
some processing and will undergo further processing as they become a part of
another product.
Industrial Goods: Products bought by individuals or iilstitutions for use in the
production of other goods or for rendering some service.
Installation: Manufactured industrial products that directly affect the scale of
operation of an industrial user.
Non-durable Goods: Tangible products that are coi~sumedin one go or last a few
uses aiid get depleted on consumptio~~.
People: All human actors who playa part in service delivery and thus influence the
buyer's perceptions; namely, the firm's personnel, the customer, aiid other customers
in the service enviroi~ment,
Physical Evidence: The enviro~lmentin which the service is delivered and where
the firm and customer interact, and any tangible components that facilitate
performance or communicalion of the service.
Process: The actual procedures, mechanisms and flow of activities by which the
service is delivered - the service delivery and operating system.
Product: A set of tangible and intangible attributes including packaging, colour, price,
manufacturer's and retailer's services which buyer may accept as offering
satisfaction of wants or needs.
Product Item: An individual product offered by a seller.
Product Line: Refers to'a group of closely related products offered by a particular
seller.
Product Mix: Refers to all the products offered by a particular seller.
Raw Materials: A class of industrial goods that have not been processed in any way
and that will become part of another product.
Services: Esse~~tiallyii~tangibleand separately identifiable activities which provide
want satisfaction, and which are not necessarily tied to the sale of a product or
another service.
Shopping Goods: A class of consumer goods that are purchased only after the
buyer has spent some time and effort comparing price, quality, style, colour, etc. of
alternative products in competing stores.
Speciality Goods: A class of consumer goods with perceived unique characteristics
such that consumers are willing to spend special effort to buy them.
Product Decisions
7.12 ANSWERS TO CHECKYOUR PROGRESS
A. 2 i) False ii) True iii) False iv) True
B. 4 i) Durable ii) Non-durable iii) Non-durable iv) Durable
v) Durable vi) Non-durable

D. 4 i) False ii) False iii) True iv) False v) T ~ u e 1

INAL QUESTIONS !
I
1) What is a product? Explain the three distinct levels of a product. i
2) Distinguish between consumer goods and industrial goods giving suitable
examples.
3) Taking any organisation you are familiar with as an'example, explain the terms
product item, product line and product mix.
I
4) What do y.ou understand by the term service? How do services differ from
products?
5) Explain the different classification schemes for services giving suitable
examples.
6) Briefly discuss the expanded services marketing mix and the services marketing
triangle.
-
UNIT 8 PRODUCT DEVELOPMENT AND
PRODUCT LIFE CYCLE
Sturucture
8.0 0b.jectives
8.1 Introduction
8.2 Product Innovation - Meaning, Types and Importance
8.3 Product Development Process
8.3.1 Idea Generation
8.3.2 Idea Screening
8.3.3 Conccpt Development
8.3.4 Business Analysis
8.3.5 E~igineeringDevelopment and Marketing Strategy Development
8.3.6 Test Marketing
8.3.7 Comrncrcialisation
8.4 Characteristics of Product Developlnent
8.5 Why New Products Fail?
8.6 Product Life Cycle (PLC)
8.7 Implications of PLC on Marketing Strategies
8.8 Let Us Sum Up
8.9 Key Words
8.10 Answers to Check Your Progress
8.1 1 Terruinal Questions

8.0 OBJECTIVES
After studying this unit, you should be able to:
understand the meaning, types and i1nl)ortance of product innovation
visualize the step-by-step process involved in product development
draw lessons for the success of a firm jn product development exercise.
anitlyse and evaluate the possible factors contributing to failure of new products
undexstand the concept of product life cycle and its implications, at different
stages, on marketing strategies

8.1 INTRODUCTION
The rate at which "new" products are introduced in the market, has, in recent years,
accelerated and simultaneously "old" products are disappearing from the market very
fast. Why is it happening? Why should co~npaniesspend resources on introducing so
called "new" products with such high frequency? What are the risks involved in
product development? How do the co~npaniesdecide that the time has come for
introducing "new" products? Is any scientific process involved in developing a "new"
product? This unit seeks to address these issues.
Product Decisions
7.12 ANSWERS TO CHECK YOUR PROGRESS
A. 2 i) False ii) Ttue iii) False iv) True
B. 4 i) Durable ii) Non-durable iii) Non-durable iv) Durable
V) Durable vi) Non-durable
C. 6 i) d ii) c iii) e iv) a v) b
D. 4 i) False ii) False iii) True iv) False v) True

7.13 TERMINAL QUESTIONS

I)
2)
What is a product? Explain the three distinct levels of a product.
Distinguish between consumer goods and industrial goods giving suitable
I
yt
examples.
I

3) Taking any organisation you are familiar with as an x a m p l e , explain the terms I
product item, product line and product mix.
I
4) What do you understand by the term service? How do services differ from
pl-oducts?
5) Explain the different classification schemes for services giving suitable
examples.
6) Briefly discuss the expanded services marketing mix and the services marketing
triangle.
UNIT 8 PRODUCT DEVELOPRIHENT AND
PRODUCT LIFE CYCLE
Sturucture
8.0 Objeclives
8.1 Introduction
8.2 Product Innovation - Meaning, Types and Importance
8.3 Product Development Process
8.3.1 Idea Generation
8.3.2 Idea Screening
8.3.3 Conccpl Dcvelop~nent
8.3.4 Business Analysis
8.3.5 Engineering Development and Marketing Strategy Dcvelopmcnt
8.3.6 Test Marketing
8.3.7 Co~n~nercialisalic~n
8.4 Characteristics of Product Developinent
8.5 Why New Products Fail?
8.6 Product Life Cycle (PLC)
8.7 Implications of PLC on Marketing Strategies
8.8 Lct Us Sum Up
8.9 Key Words
8.10 Answers to Check Your Progress
8.1 1 Terminal Questio~ls

8.0 OBJECTIVES
After studyi~lgthis unit, you should be able to:
understand tlie meaning, types and ilnportance of product innovation
0 visualize the step-by-step process involved in product development
0 draw lessons for the success of a firm in product developmetit exercise.
0 analyse and evaluate the possible factors contributing to failure of new products
a tlie concept of product life cycle and its implications, at different
u~ider.sta~id
stages, on marketing strategies

8.1 INTRODUCTION
The rate at which "new" products are introduced in the market, has, in recent years,
accelerated and simultaneously "old" products are disappearing from the market very
fast. Why is it happening? Why should companies spend resources on introducing so
called "new" products with such high frequency? What are tlie risks involved in
product developinent? How do the companies decide that the time has come for
introducing "new" products? Is any scientific process i~lvolvedin developing a "new"
product? This unit seeks to address these issues.
 PRODUCT INNOVATION - MEANING, TYPES AND
P~.oductDecisions
8.2
IMPORTANCE
The term "innovation" means "bringing in novelties" or "making changes". As far as
"product innovation" is concerned, it covers a wide range from making minor or
major changes in the existing product to introduction of substitute products or totally
new products. It is true that it is not easy to claim any product as totally "new" since
the idea for a new product originates trom the existing products. That is why it is
advised that a company should define its business in broad terms i.e. it is in "dental
hygiene business" and not in "tooth paste or tooth powder business" or in
"transportation business" and not in "bicycle or automobile or rail road
businessW.Definedthis way, no product can be construed as a "new product". As far
as business is concerned, a "new product is one which the target consumer segment
considers new" in the sense the consumer feels that the need is met by the "new
product" cannot be met by any other substitute product at a particular point of time.
Why do companies go in for new products? A simple answer to this question is "to
meet the changes in environment". The changes can encompass one or more of
environment factors viz., competitive environment, technological environment, cultural
environment, political environment, legal environment. Thus, to meet competition,
which has come out with a better product or fearing that competitors may introduce,
in the market, a new product, companies go in for new products. Technology may
open up new avenues in the form of better raw materials or better production process
or better management, opening opportunities to make better products; the likes and
dislikes of consumers may change forcing changes in the type of products to be
produced; government and other policy formulating and enforcing authorities may
make it obligatory for a company to make changes in the existing product.
The above are all external environment factors forcing the firm to bring about
changes in the product. However, an enlightened conlpany should be always on the
look out, as a policy, for opportunities for product innovation, instead of waiting for it
to be forced into it by external factors because, this way, it will not only pre-empt
competition, but will also be able to build up an image of a firm always tlying lo meet
changing market requirements.
What are the alte~nativesavailable to a firm to make changes in its existing product?
The company can consider improving the functional quality of the product and project
the "new product" as one of better quality. This change call be brought about by use
of better quality inputs andlor better engineering as and when it is possible. This
option is advised if quality is the major consideration in the purchase of the product
and the market is a quality conscious market. High unit value consumer items and
engineering and chemical items normally fall into this category.
Another option for the company is to change the product features i.e. increasing the
number of real or fancied benefits of the product by redesigning so that the new
product offers more functions, convenience, safety, etc. Iteins like refrigerators,
television sets and washing machines fall into this category. The features frequently
added to products such as cell phones, automobiles and two-wheelers are common
knowledge.
Changes are also brought about in the style of the product to make it appear new. In
this case, what is attempted is to improve the aesthetic image of the product as
against the f~inctionalappeal. Highly personalized products like garments, footwear,
handbags and luggage, which are not high unit value items, undergo such changes
frequently. Shows such as summer wear and winter wear shows that are held
regulariy for garments, for instance, bear this out.
Product "innovation" or "change" does not end with the above. It encompasses a Product Development and
larger area. On account of availability of improved technology, it may be possible for Product Life Cycle
a company to "replace" the existing version of the product with another version,
which meets the same requirement of the consumer, but with more ease and
convenience. For instance, a brand of tooth powder may be replaced by the same
brand of tooth paste, ground coffee by instant coffee, tea leaves by tea bags and
shaving cream by shaving foam etc. These are instances of "adaptive replacement".
Introduction of substitute products for the existing product is also a case of product
innovation. Replacement by ball pens of fountain pens and pencils is a good e;ample
of this strategy. This has been made possible by technology. Substitution of steel by
plastics in Inany products also falls in this category. The point to be noted is that the
new products meet the same requirement of the consumer much better and, perhaps,
at cheaper cost, though they involve use of different raw materials and different
production processes.
In all the above types of innovation, the new product need not ~lecessarilybe "new"
to the company or to the industry. The competi~igfirms, or, even the concerned firm
itself, may be selling such versions of the product in other markets. What is important
is that the target market must consider the product "new". It is common knowledge
that most products are first introduced in a limited number of countries/limited parts of
a country and then they are taken to other countrieslother parts of a country,

8.3 PRODUCT DEVELOPMENT PROCESS -

It is very important for a company to be constantly on the look out for opportunities
for product development for long time survival and prosperity in today's fast changing
competitive environrnet~t.It should not be lulled into co~nplacencyeven if it is the
monopoly producer and seller of a producl, for the present. For, competition may not
emerge ftoln another producer of the same product but ftom other sources. For
example, jute is facing competition trom synthetic fibres aid technological
developments like bulk handling techniques; steel is facing co~npetitionfrom plastics;
minerals such as copper used in telecom~nunicationare facing colnpetition trom
plastics and fibre glass and, most importantly, from cell phones which use air waves;
a monopoly producer of tea lnay not have another tea manufacturer to compete with
him but a coffee or aerated drinks manufacturer; cane sugar faces competitio~~ trom
beet sugar and sugar substitutes. Thus, it is always in the interest of a company to be
at least one step ahead of other companies and introduce a "new product" before the
competitors do it. It will also project the company as the "leader" .
What then is a systematic way of going about for product development? Figure 8.1
presents the step-by-step process involved in product development.

8.3.1 Idea Generation

Product development exercise commences with sourcing for ideas. Ideas can come
from any source and, in fact, some even the most unlikely source. The most important
source is, of course, the user of the product. The problems faced by the consumers in
the use of the existing version of the product will throw up ideas for product
development. For instance, the problem posed by the heaviness and large size of the
tape recorder gave birth to Walkman. Similarly, distributors, retailers, employees of
the company, friends and relatives, independent researchers and consultants or, for
that matter, anyone can be a source for ideas. Incidentally, in a number of cases,
competitors have proved to be a good source for ideas because, a close watch on
their products and the problems faced by users of those products has thrown up a
number of ideas. What is important is that the management must encourage ideas and
Product Decisions Idea Gencra~ion I

G='
Idea Screening

+Concept Developilleilt

5+Business Analysis

Engineering Developinent
and Marketing Stralegy
Developn~ent

%--
Test Marketing

f
Commercialisation

Figure 8.1: Product DevelopmentProcess

keep its eyes, ears and mind open for ideas. There should be a deliberate policy to
generate and encourage ideas and reward the successful idea providers. Some formal
system such as institution of an "idea bank" may be considered in this regard.
Some of the commonly used methods of generating new producl ideas are
Brainstorming, Focus Group Interviews and Attribute Analysis which are briefly
discussed below.
Brai~zstorlnirzg:It is a poplular creative technique with a Long track record. It was
first developed in 1938 by A.F. Osborn and gained acceptance by the business world
in the 1950s. Brainstorming aids in idea generation by encouraging the creativity
latent in many of us. It irlvolves meeting, usually of a group of six to ten people,
where participants are free to express any and all ideas they concoct.
Focus Groups: The conducting of focus group interviews is very much like that of
brainstorming. But the members of the group are consuiners (rather than employees
of the firm) and, usually, are decided on by a market research agency. That is to say,
focus group interviews can be thought of as brainstorming with consumers/potential
consumers.
Attribute Analysis: By decomposing existing products into combinations of specific
parts, qualities, or attributes, Attribute Listing (or Analysis) seeks to modify one or
more of these to improve the whole product. Although Attribute Analysis may not
produce major breakthroughs, it can undoubtedly aid in "remarketing" - "new" and
"improved" products -and possibly in product differentiation.
Besides the above methods, scanning trade publications, visiting trade shows, setting
up an idea vault in the organization and allowing employees to review the ideas,
surveying customers etc. are some of the other means of generating new product
ideas.

8.3.2 Idea Screening

Once a reasonable number of ideas have been generated, the next job is to screen
32 them by a group representing as many interests as possible, such as management,
 labour, marlceting, finance, consumer, research.and development, engineering, etc. Product Development and
Such a screening enables the idcas being loolced at from various angles and the Product Life Cycle
implications of conversion of an idea into a product analysed, such as the nature and
extent of resources to be committed, the irnpact of product development on labour,
the problems likely to be faced ill production and sales, etc. At this stage, some ideas
may get rejected totally, some accepted "in toto" and some accepted with
modification. Some ideas may be referred back to the idea givers for modification,
seeking clarification, etc. w

Screening of new product ideas is essential for costs and risk of developling new
products run very high. Once a product reaches the market place, what is done
cannot be easily undone. Screening criteria usually concern themselves with three
factors - mnrlcets, products, and finances. More frequently used 'market criteria' are
market size, share; market growth; market positioning; distribution features etc. The
'product-criteria' are newness, feasibility; servicing requirements; legal considerations
etc. The 'financial criteria' are ~~rofitability;
retum on investment; cash flow etc.

8.3.3 Concept Development

The approved idea must now get transformed into a specific product concept with a
complete picture regarding the new offer of the company. This means spelling out, in
clear terms, details such as tlie profile of the target consumer segnlent, the speciFic
want [hat is sought to be met, the differences between the product presently being
used by the consumers and tlie new product, particularly its positive attributes, the
likely inipact of the new product on tlie company's image and on the other products
of the company, etc.

8.3.4 Business Analysis

Thc foregoing analysis is carried forward in the next stage, with detailed appraisal of
the proposal including sales forecasting, estimation of costs, prices and profits at
differen1 sales levcls, tlie possible retaliatory strategies of the competitors and the
company's likely response to the same etc. Since all the above cannot be estimated
with tots11 precision and, in any case, a number of assumptions are involved in the
exercise, it is generally the practice to work out different sets of figures under
different ilssumptions and so long as the final performance falls within an acceptable
range, the utility ol'this exercise is established.

8.3.5 Engineering Development and Marketing Strategy Development

During this stage, tlie technical personnel i.e. the engineering department responsible
for production, work on conversiot~of tlie approved idea into a product, with all the
suggested attributes. At this stage, anyone of the three possibilities exist; the
engineering department lnay meet with total success in manufacturing the product, or
it may. meet wit11 total failure, or it may be able to come out with a product that may
not fully, but only partially, reflect tlie original idea.
Sim~~ltaneously with engineering development, the comnpany also develops the
marketing strategy in terms of branding, servicing, packaging, pricing, distribution and
promotion. Individuals and groups within the firm are identified for specific
assignments and the sequence of events is worked out.

8.3.6 Test Marketing

Once the prototypes of the product are ready, the company does not go in for
carnmercial production immediately. Though all care might have been taken till now to
come out with a product that meets the present needs of the consumer, it is advisable

--
Product Decisions to "test market" before commencing commercial production. Test ma;keting is selling
the product underconditions, in a market, which, to the extent possible, reflect the
conditions likely to prevail in the market, at the time of commercial sales. Test
marketing will enable the company to get feedback on its offer so that the drawbacks
can be rectified before commercial production. Test marketing will also provide
information on the likely level of sales that the product can generate during
commercial sales. However, the company should guard against two problems during
test marketing; one,..it should ensure that competing firms do not benefit by advance
information on the company's strategy which may enable them take effective pre-
emptive measures and two, test marketing should not raise the expectations of the
consumers too much because, if the company is not able to rise to the expectations
subsequently, its sales will be badly affected.

8.3.7 Commercialisation
Test marketing is the last stage before a company takes a decision regarding whether
to go ahead with commercial production or what modifications are still required in the
product or to drop the exercise totally. Once it is decided to proceed to the next stage,
it should initiate steps for commercial production of the product. It is advisable to
keep the time lag between test marketing stage and commercial production stage to
the barest minimum since, if the time lag is large, there are possibilities of changes in
environmental factors such as government policies, the country's laws, technological
factors, consumer choices etc., which may make the entire exercise futile. It should
also be emphasized that the company should have the guts to abandon the product
development exercise at any stage if circumstances so warrant, notwithstanding the
fact that the investment made so far would go waste, since proceeding further will
only add to the losses.

8.4 CHARACTERISTICS OF PRODUCT DEVELOPMENT

Two aspects of product development merit mention. One, product development must
be treated as a continuous process, which does not have a beginning or an end. This
means that a company should not wait till the product sales stagnate or decline to
commence product development exercise. Even if the sales are increasing and, in
fact, as soon as a particular version of the product is introduced in the market, the
company should initiate action for coming out with the next version of the product as
early as possible. The motto should be "nothing is perfect; there is always scope for
improvement". The second aspect, which is equally important is, success in product
development is possible if only there is concurrency and healthy inter-relationship in
all the functions of a firm. Product development should not be construed as the
responsibility of any one department or one group or limited number of departments
or limited number of groups of persons in a company. 011 the contrary, it
encompasses all departments and the entire staff of a company, from the lowest level
to the top management, should get involved in the exercise and the activities of each
department should be geared to the requirements of the other departments and vice-
versa. The idea givers and evaluators should take into account the strengths and
limitations of the company and should not give utopian ideas; those who are in charge
of converting the idea into a product should strive to meet the requirements of the
market as conveyed to them. Profit is a function of total efficiency and not sectional
efficiency and no weak link in the chain should be allowed to snap the chain.
Risks in Product Development: Though, for long term survival in the market and
prosperity, a fir111should definitely go in for product development, it is, by no means,
an easy job. It is important that a company, before it embarks on product development
exercise, is aware of the risks it is likely to face during this phase.
First, the exercise involves substantial commitment of resources, depending on the Product Development and
nature and extent of the development that has to be brought about in the product. The Product Life Cycle I
i
firm should be cleal; right at the beginning, whether it can marshal1 the needed
resources for the exercise. Apart from the resources to be spent on bringing out the
new product, more resources have to be employed to successfully market the
product.
The second risk relates to the nature of research and development. There is high
wastage rate in research and development and it is quite likely that, even after
spending the resources, a company lnay not succeed in coming out with a "new
product" meeting its own perception. This means that the firm has to abandon its
efforts and the resources spent till then are dead investmelit.
The third risk arises due to tlie fact that markets all over the world are not generally
favourably inclined to accept new products easily. The failure rate of "new products"
is very high. Failure does not inean that not a single unit of the product was sold; it
means that the sales turnover was not sufficiently high to justity continuation of
production.

8.5 WHY NEW PRODUCTS FAIL?

Why is the rate of failure of "new products" very high? The obvious answer is that
the "offer" has not met with the customer requirement in terms of any one or more
than one val-iable. This arises because either the company has not read the custoiner
mind correctly or the customer wants have changed in the meantime or the company
has not fully siicceeded in translating the custoiner requirements into its offer.
Specifically, the Fdilure may be traced to one or more of the following factors:
Product: Prociuct factors such as functional quality, size, shape, colour, design,
materials used in its production etc. of the product not upto customers' requirement
Package: Functional quality, the material used in the package, size, shape, coloul;
design, and instructions on the package including the languages used, disposability or
reusability of tlie package, compatibility with the product, aesthetic appeal, ease of
opening and closi~igthe package etc., determine acceptability or otherwise of the
package and, along will1 it, the product.
Label: The size, colour, lsnguage(s) used, shape and material influence customer
preference.
Brnnd: Brand name and brand logo are, along with tpdemark, major considerations
in purchase clecisions.
Service: Pre-sale, point-of-sale and after sales service play a major role in the
purchase, particularly of high unit value durable consumer goods and capital
equipment. Before buying a product, the consumers want to be educated about it and
how to maintain and use it; they also desire that the seller should install the product
ancl train them to maintain it and finally they want quality after sales service at
reasonable cost at a time and place convenient to them for a reasonable length of
time. If a company fails in ally of these, the product fails.
Distribution: Selection of inappropriate channels and outlets, lack of motivation
among distributors, inconvenient location of distributors and poor service quality of
distributors are some of the problems associated with the failure of the product,
Pricing: Product q~~alitylprice relationship not being optimal, nonavailability of credit
for high unit value items, lack of incentives such as price discounts, and frequent price
revisions cause product failure.
Product Decisir)lls Pronzotion: Selection of inappropriate promotional tool, non-availability of effective
promotional tool, co~nmunicationmistakes, poor literacy level of the market, non-
availability of capable protnotional firms, problems in personal selling and sales
promotion lead to poor communication with the customer affecting product sales.
Elzvirollment: Changes in environment - technological, legal, competitive, cultural,
political -which could not be anticipated in advance and provided for, lead to product
failures.

Check Your Progress A

1) Give three reasons for a company to go in for a new product.

......................................................................................................................
2) List the various steps in product development

3) Are the following statements correct or incorrect?

i) Product innovation is not necessary for a company which already has a
successful product in the market
ii) The first step in product development is test marketing
iii) In afirm, product development is the sole responsibility of the marketing
department d

iv) The success rate of new products has always been low
V) Price is the main factor contributing to product Failure;

8.6 PRODUCT LIFE CYCLE (PLC)

It is generally said that products are like human beings; they are born, grow (in sales),
fall sick (declinelstationary sales) and ultimately, in most cases, die (disappear from
the market). New generation of products replace their earlier ones. Pencil has been
replaced by steel pen; fountain pen by ball point pen; mechanical typewriters by
electric typewriters, electronic typewriters and computers; blister packs have
replaced glass bottles in pharmaceutical industry; dial telephones have been replaced
by push button phones, chordless phones and cell phones; letters, as a means of long
distance comm~~njcation, have been replaced by telegrams, telephones, telefax and
electronic mail. The entertainment sector has seen many products, such as radio, tape
recorder, walkman, television, VCP, VCR, DVD, CD-Rom, cable TV etc.; washing
bar soaps have been replaced by cakes, synthetic detergents, powders and liquid
soaps, Such examples are too many to warrant exhaustive listing.
The above fact has been conceptualized in the product life cycle (PLC) concept.
Figure 8.2 is a useful reference for the PLC concept, indicating the different stages a
branded product normally passes through in its life.
 Product Development and
Product 1,ife Cycle

In~rod~~ction Growth Maturitylsaturation Decline

Time ---+
Figure 8.2: Product Life Cycle'(PLC)

The above figure has been drawn in terms of four stages but a five stage PLC or a
seven stage PLC can be thought of. The reference in the above figure is to a brand
(of the product) and not to the generic product. Just as a brand (a particular.
company's product) passes through a life cycle, a generic product (of the industly as
a whole) also has a life cycle. 111d~lstrylife cycles are long as compared to the life
cycle of a branded product. For a firm, what matters most is the life cycle of its own
branded product although if the generic pl-oductas a whole dies, its own brand will
also die.
Figure 8.2 refers to a typical product life cycle. It does not mean that all the products/
brands have to necessarily pass through the typical life cycle. The shape of the life
cycle curve will vary from product to product and from brand to brand. It may have a
steep rise and sudden fall; or slow rise, long maturity period and slow decline; or it
may move up and down; it may be long or short; generally for low technology low
unit value items and fashion goods, the life cycle tends to be short, in a seller's market
and for a high technology, high unit value item and for "necessities"for which no
effective substitutes exist, lhe life cycle tends to be long.
Thus, the concept of YLC can be made applicable to all types of products and all
brands. Competitors are always on the look out for opportunities to cut into the
market share of a successful product; they try to wean away the customers with
"better" offers in terms of product, package, brand, service, price, promotion and
distribution. Even so called "necessities" are "necessities" only at a particular point of
time: petrol may be a necessity today; but alternate sources of energy may pose
challenges to petrol at a future date; a particular foodgrain, such as rice or wheat,
may be a necessity today to a consumer group, but changes in food habits may lead
to decline in demand for rice and/or wheat after some time; same will be the case for
other 'food' items such as beverages, sugar, vegetable oils, pulses, etc.; agricultural
raw materials such as 'cotton and jute, which were considered as "necessities" not
long back, are facing cotnpetition from synthetic products today; minerals such as iron
ore and copper are being challenged by plastics, fibre glass and technological
developments; technological developments have also enabled production of low
weight and slnall sized products, resulting in reduced demand for raw materials. Thus,
just as some human beings and animals enjoy long life as compared to others, in the
product category also, "necessities" may have a longer life as compared to others.
What a company should, however, be concerned with, is the life cycle of its own
brand (or product), even if'it belongs to an industry that is producing a "necessity" for,
it is quite likely that its own brand may be in the decline stage notwithstanding the fact
that the industry (product) is in the growth stage,
Product Decisions What are the characteristics of a four stage PLC as depicted in figure 8.2 ?
Introduction Stage: During the stage of introduction of a new brandlmodified
product, sales tend to be low. This is because majority of consumers, being what they
generally are, do not have any high degree of awareness and are known, by and
large, to be reluctant to quickly switch over to a "new product" if they are not highly
dissatisfied with the brand they are presently using; only such of those consumers,
who are not many in number, who, generally, are quick to "experiment" with new
products and whose awareness level is relatively high, try out the new offer by the
company. On account of the low sales level, profits are likely to be low or even
negative. This is also the time when the competitors, like consumers, come to ltnow
of the new offer of the company and watch the response of the market to the new
offer before initiating retaliatory strategy.
Growth Stage: Assuming the company's new offer does not die in infancy and has
found customer awareness and acceptance, the sales graph rises slowly. It may
register a steep rise in the case of fashionlfad items or during periods of temporary
shortage or emergency. Demand for "face masks" rose rapidly throughout the world
during April-May 2003 when the fear of Severe Acute Respiratory Syndrome
(SARS) hit most countries. Similarly, during earthquakes, floods and other calamities,
demand for medicines, clothing and building materials rises shai-ply. Barring the above
exceptions, a "typical" growth in sales will be a slow growth. This is the stage in
which sales will grow maximum, profits will touch peak levels and the market size will
be the largest. In view of the foregoing three characteristics, competition will also be
growing during this stage.
Maturity Stage: By now, all those who have found the company's offer acceptable,
have started using the new product. Many rival companies have also started putting
their strategies in place, trying to wean away the custoiners by their "better offers".
Sales of the company are characterized by stagnation or, at best, a very slow growth.
Though the market size is still the largest, profits will show a tendency to decline
since the company may have to resort to price cutting on the one hand, and spend
Inore on promotion, distribution, etc. on the othel; to maintain the sales level.
Declinemeath Stage: If no action is initiated by the company to ensure
maintenancelgrowth of level of sales, or if the action taken does not succeed, then the
product sales start declining after some time since the inajority of consumers, as they
switched their loyalty from other companies' brands to this brand during the earlier
stages, start switching their loyalty once again, this time in favour of the "better
offers" made by other films. There may still be some laggards favouring the
company's product; those who were late in the beginning to accept the product
generally are also late in dropping the product. Sales being low, other things being
equal, profits also start declining during this stage and, at some point, may even turn
negative forcing the company to discontinue production.

8.7 IMPLICATIONS OF PLC ON MARKETING

STRATEGIES
What do all the above mean to a company? During the iiitroduction stage, the
company must deploy various techniques so that the product does not meet with early
death. It should try to build up awareness among the target group about the
"newness" of the product, its attributes etc. and provide attractive incentives to both
consumers and distributors through "introductory offerswinvolving price discount and
sales promotion. The company should spend rather heavily on promotion and target its
strategy to "innovative" customers. Taking into account only price and promotion,
four strategies are possible during the introduction stage. These are Rapid Skimming
(high price and high l~ro~notion
level), Slow Skimming (high price and low promotion Product Development and
level), Rapid Penetration (low price and high promotion level) and Slow Penetration Product Life Cycle
(low price and low level of promotion).
During the growth stage, the compruiy should attempt to take maximum advantage of
the rising demand. All activities in the colnpany should be geared to take advantage
of the demand growth. Under no circumstances production should be found wanting
and orders shoulrl be met immediately. Logistics should be streamlined so that the
product reaches the ultimate consumer with minimum time loss and at a place where
lie wants it. Promotion must ensure that brand insistence is built U P and, though a
loyal customer base may make a marginal price rise easy, complacency should not be
allowed to set in, just because the sales volume is high. It should shift from product-
awareness advertising to product-preference advertising. The prices tend to be
lowered in the growth stage to attract the next level of price-sensitive buyers. In
terms of product, product quality is improved, new product features are added and
new models are introduced. It must also be remembered that success invites
competition and the co~npaliyshould be ready with preemptive action to meet
compelitors' challenges.
It is during the maturity stage that the company should intensify its efforts to counter
the problems posed by stagnating sales. Stepping up promotional efforts, particularly
in terms of sales promotion directed both at the consumer and distributol; increased
allocation to adverlisemenl, rise in margins and other incentives to distributors, price
cutting, discounts, etc. are some of the strategies no~inallyadopted by majority of
companies. Most importantly, this is the time when "life cycle stretching strategies"
should be put into practice by the finn. "Repositioning" of the product in tune with the
changed environment is one of the strategies adopted by some companies. For
instance, most companies in cooking oil business have repositioned their products in
recent years highlighting, to the health conscious consumer segment, the cl~olest~ol
free attribute of their product; condoms have
been repositioned, the emphasis shifting from the original one of "family planning" to
"safe sex". Marketers should, therefore, consider some of the following points to
avoid or postpone the decline stage:
i) improve product quality
ii) add new product fealures resulting in extra benefits
iii) find new uses or new user segments
iv) reposition the product
V) give incentives to distribution channels
vi) expand distribution intensity
vii) improve advertising and sales effort.
When it is reasonably certain that no successful life cycle stretching strategy can be
put into practice or, the strategies attempted have not brought in the desired results,
the company should think in terms of withdrawing from the market either partially or
fully, so far as the present version of the product is concerned, at least momentarily.
Since overall profits become low or even negative during this stage, the firm should
undertake a detailed review of revenue and costs, segmentwise, and take a decision
regarding total or partial withdrawal. This is not an easy decision to take but it must
be remembered that "product elimination" is as much a part of product development
as product introduction or modification is for, unsuccessful products only add to the
company's losses.
What is'the basic philosophy behind PLC? The philosophy is "anything that is born in.
this world must die one day"; "nothing is pe~fectand there is always scope for
improvement". An enlightened company must shoot down its own product before the
Produet Decisions co~nl)etitorhhoots ~ t down;
s "a company must mess with success or, otherwise,
success will mess with the company".

Checlc Your Progress B

1) Define "Product Life Cycle".
......................................................................................................................

......................................................................................................................
2) List four stages of Product Life Cycle.

Are the followirig statements correct or incorrect?

(i) Sales will rise faster, at the introduction stage, as compared to other
stages, in the case of lnost products.
(ii) Profit levels will reach a peak, in the case or most products, at the growth
stage.
(iii) Products which are considered necessities do not go through a life cycle
(iv) Brand life cycle and industry life cycle will definitely follow the same
pattern.
(v) Product elimination is opposite of product development.

8.8 LET US SUM UP

Product decisions are more basic than decisions in respect of other inarlceting
variables, When a company claims that it has introduced, in the market, a "new
product" it does not necessarily mean that the product is a totally innovative one. A
"new product" may mean an existing product with minor or major changes or it may
be a totally new one in the sense that the market has not been exposed to it eai-lier.
Whnt is important is, the colisumer segrnent should feel that no close substitute exists
for the product at a particular point of time.
Companies go in for new products because of the changes in e~lviron~nent -political,
social, cuhural, economic, competitive, tecl~nological,etc. Changes in quality, features,
style, adoptive replacenlent and introduction of substitute products are all part of the
exercise to impart "newness" to the product.
Product Development (PD) exercise is answer to the company's search to impart
newness to the product. The exercise begins with generation of ideas and follows a
course comprising idea screening, concept develop~ne~it, busjness analysis,
engineering and marketing strategy development, test marketing and
co~~iiliercialization.
In the entire exercise, it must be ensured that all activities towards
product development i-un concurrently and there is healthy interrelationship among
various departments of the firm. PD should be considered a co~ltinuousexercise with
no beginning or end. The risks in PD must also be kept in view.
Though, basically, failure of a new product can be traced to the company's offer not
meeting consumer requirements, a combination of factors relating to all marketing
variables and environmentiil changes, which have not been provided for, contribute to Product Development and
p1.0ducrf a1' I ures. Product Life Cycle

Most ofthe products pass through a life cycle comprising, introduction, growth,
maturity and decline stages whether they are necessities, high unit value items, low
unit value items or fad items. A company should accept this fact and not only
fornlulate strategies appropriate to each stage of the product life cycle but attempt to
find out ways and m a n s of slretching the life cycle of the product as much as
possible. If it does not succeed in stretching the life cycle beyond apoint and finds
sales decline setting 111, it should not hesitate to eliminate the product.

8.9 KEY WORDS

New PI-oduct:A product that is considered new by the target user segment.
Product Developxnent: The changes that are brought about in a product in order to
make it more customer friendly.
Product Life Cycle: The stages through which a product goes through from the
time it is introduced i11 a market till its elimination from the market.
Repositioning: Creating n different iinage for the product among customers in order
to ;u.rest the decline in/i~nprovethe marltet share.
Test Marlteting: Testing the company's offer in a sample population ~ ~ n d e r
contlitions similar lo those likely to prevail (luring cornlnercial sales.
Target Scgment: The group of' people which a company colisiders as constituting
the mnrlcel I'or its offer.

8.10 ANSWERS TO CHECIC YOUR PROGRESS

A. I ) i) To fricc competition which may offer better products to tlie consumers;
ii) To take advantage of thc latest technology; and
iii) To meet the changing preferences of the consumers.
2) a ) ltlen generation: b) Idea screening; c) Concept development; d) Business
analysis; e) Engineering and marketing strategy development; f) Test
marketing; g ) Cornmei.cialisntion
3) i) Incor~.ect i i ) lncon'ect iii) Incorrect: iv) Correct v) Incorrect
B. 1 ) Protluct life cycle refers to the stages through which a product passes from
the ti~nei t is introduced in n market till its eventual elimiilationfrom the
~nnrket.
2) a) Introduction; b) Growth; c) Maturity; d) Decline
3) i ) Incorrect i i ) Correct iii) Incorrect iv) Incorrect v) Incorrect

8.11 TERMINAL OUESTIONS

I) What do you unclerstand by the term Product Innovation? Explain the need for
com~;u~iesto go in for new products.
2) Explain the various stages of P~.oductDevelopn~eiltProcess giving suitable
examples.
3) Disc~~ss
tlie I'eatures responsible for failure of new products.
Product Decisions What are the risks associated with test marketing? How can a company guard
4)
against the risks?
5) Give at least two examples of products that, you consider, are passing through
a) Introductory Stage
b) Growth Stage
C) Decline Stage.
Give reasons for your answer.
6) Discuss the life cycle stretching strategies adopted in the case of any one
product when its sales started declining.
7) Describe the various strategies adopted by companies at different stages of the
product life cycle.
- --

UMT 9 BRANDING, PAC GING AND

SEWICING
Structure
9.0 Objectives
9.1 Introduction
9.2 Branding
9.2.1 Mciuning and Importance
9.2.2 Advantages iund Disadvantages of Branding
9.2.3 Branding Decisions
9.2.4 Selccling a Good Brand Name
9.2.5 Ele~nentsol'Brand ManagemcnL
9.3 Packaging and Labeling
9.3.1 Mc~uningand Functions oi' Packaging
9.3.2 Packaging Industry
9.3.3 Packaging Slrategies
0.3.4 Labcling
9.4 Product Support Services
9.5 Let Us Sum Up
9.6 Key Words
9.7 Answers to Check Your Progress
9.8 Terminal Questions

After studying this unit, you should be able to:

explain the terms branding, packaging, labeling and product support services
explain the concepts of brand identity, brand image and brand position
explain various brancling decisions and elements of brand management
describe the various functions of packaging
describe the composition of pacliaging indust~y
explain packaging strategies and labeling

9.1 INTRODUCTION
You have understood that a product that is offered to the market has various levels.
The first level comprises of the core benefit of the product for which the consumer
pays. A market opportunity analysis leads to identification of the core benefit and
expectation of llle consulner. Then the physical product is developed at the next level
called tangible level. This level involves styling, featuring, branding, packaging and
labeling of the product. The augmented level of the product, the third level, involves
the after sales service and issues related to product support services like warranty
and guarantee. You have completed your study oil definition of product, classification
of products, product line strategies, new product development process and product
Pruduct Decisions What are the risks associated with test marketing? How can a company guard
4)
against the risks?
5) Give at least two examples of products that, you consider, are passing through
a) I~~troductory
Stage
b) Growth Stage
c) Decline Stage.
Give reasons for your answer.
6) Discuss the life cycle stretching strategies adopted in the case of any one
product when its sales started declining.
7) Describe the various strategies adopted by: companies at different stages of the
product life cycle.
UNIT 9 BRANDING, PACKAGING AND
SERVICING
Structure
9.0 Objectives
9.1 Introduction
9.2 Branding
9.2. I Mcaning and Importance
9.2.2 Advantages iund Disaclvantages of Branding
9.2.3 l31-andingDecisic~ns
9.2.4 Selccting n Good Brand Name
9.2.5 Elements ol'Brand Managerncnt
9.3 Packaging and L:lbeling
9.3.1 Meaning ;uid Functions of Packaging
9.3.2 Pncltaging Industry
9 . 3 . Packaging Slraccgies
9.3.4 Lahcling
9.4 Product Supporr Services
9.5 Let Us Sum Up
9.6 Key Words
9.7 Answers to Check Yoilr Progress
9.8 Terminal Questions

9.0 OBJECTIVES'
After studying this unit, you shoulcl be able to:
explain the terms branding, pacltaging, labeling and product support services
explain the concepts of brand identity, brand image and brand position
e x ~ l a i nv:trious branding clecisions and elements of brand management
e describe the various f ~ ~ n c t i oof
n spackaging
describe the composition of packaging industry
explain packaging strategies and labeling

9.1 INTRODUCTION
You have undel-stood that a product that is offered to the market has various levels.
The first level comprises of the core benefit of the product for which the consuiner
pays. A l-narket oppol.tunity analysis leads to identification of the core benefit and
expectation of the consumer. Then the physical product is developed at the next level
called tangible level. This level involves styling, featuring, branding, packaging and
labeling of the product. The rl~~ginented level of the product, the third level, involves
the after sales service and issues related to product support services like warranty
and guarantee. You have completed your study on definition of product, classification
of PI-oducts,product line strategies, new product development process and product
I
Protlurt Decisions life cycle in units 7 and 8. In thisunit we will discuss in detail about tlie second level
and third level of the product offer namely branding, packaging, labeling and product
support service issues. We will learn about how the branding decisions are taken and
how the product packaging and labeling serves various key functions for consumers
and marketers.

9.2 BRANDING
9.2.1 Meaning and Importance
Brands are valuable to orgganizatio~isand consumers. Their wealth generating
capabilities result from the way organizations seek to add value to customer lives.
Products need names, as we do, as it will help the consumer to have an instant recall
at the point of purchase. This serves as a key differentiator in business that provides
immediate attention and subsequent perception of value alllong customers. Brands
are clusters of f~~nctionaland emotional value. The tradilional branding strategy
speaks about initiating the process of branding by starting a brand name decision and
then building the benefits around tlie brand name for customer to remember the brand
name whenever he is confronted with buying situations.
There are various niethods by which we can give a bland name to a producl.
Deciding a brand name for a new product being introduced is n strategic decision.
Traditionally brand management has focused externally, seeking to understand
customer behavior from which a unique rnix of values is derived to enhance custolner
life styles. The l-udimentary method of branding evolved the idea of using the family
name or the product range as tlle method of branding like Tatas, Birlas, G0dre.j soaps,
Yamaha RX 100, RX200 etc. It seems the function that brand was supposed to
perform was either to indicate tlie source or tlie origin of the product or indicate the
product range. However, branding has emerged as one of tlie most important
elements of the marketing strategy in the recent times and will become more and
more cnicial as the competition intensifies in India. With the growth of services
sector- and the importance of service in product based brands, customers' increased
level of interaction with staff provide them with a powerful clue about brand values.
Let us understand what tlie conceptual meaning of tlie term brand and brand liaine is.
Brand: A traditional 1960 American Marketing Association (AMA) definition
describes a brand as a name, word, mark, symbol, device or a c01nbinati01i thereof,
used to identify goods or services of one seller and to differentiate them from those of
competitors. The definition clearly focuses 011the function of a brand, that is, to
identify, irrespective of the specific means emp toyed for the identification. David
Aaker defines a bmnd in zl similar meaning adding that it signals to the consuiner the
source of the product atid protects the consumer and tlie producer from the
competitors who would attempt to provide products that appear to be identical. A
modern definition talks about the clelivery of certain value to tlie consumer and hence
a brand is a mental patent that gives certain set of functional and emotional value to
the consumer in a uniclue way which are not found with another brancl.
Lesle de Chernatony has developed a brand spectivin to racililate the apprecialion of
the variety of interpretatio~isof what a brand is. He groups these interpretations of
brand into three categories. Tllese three categories are bclsed on wlietlier the
perspective is input based i.e. stressing branding as a particular way managers direct
resources to influence consumers, or output based i.e. consumer's interpretatio~isand
consideration of the way brands enable consumers to achieve more; and time based
recognizing their evolutionary nature. He concluded that brand consultants did not
have a single definition of a brand, but rather regarded the concept of a brand as a
link between the firm's ~narkeltingactivities, consumer perceptions of knctional and Branding, Packaging
emotional elements. Brands are complex offerings that are conceived in brand plans arld Servicing
but ulti~i~ately
they I-eside in consumer's mind. Brands exist by virtue of a continuous
process whereby tlie coosdinated activities across the organization, concerned with
delivering a cluster of values, are intelyreted and internalized by customers.
Brand Name and Logo: B ~ u i dname is the face of n brand consisting of a word,
letter, group of words or letters that can be vocalized. Comparing this definition with
tliat of a brand, it is found tliat the function remaining the same, brand name is only
one of the means that the bsand can use for identification. Brand name is a word or
a combination of worcls/lctters that is pronounceable, e.g. Pramise toothpilste, Rexona
soap etc. Brand as a logo is unique to that product as a product design and signage.
Examples of brands easily identifiable include theunique shape of Coca Cola bottle,
the distinctive rainbow mark of Wipro, the golden arch of McDonalds, part eaten
apple of Apple Macintosh. A Brand mark can be a design, a distinctive logo type or a
colouring scheme, u picture etc. In other words, it is not just a name but a means of
identification.

Brand as a Legal 1nstl.ument: Branding issignificant from a legal perspective. It is

used for ensuring a legally enforceable statement of ownership. Brand building
represents an investment and organizutions seek legal ownership of title as protection
against iiiiitator.~.Though briuid name ancl trade name are used synonymously, there
is diffesence between these two tenns. A trademark is tlie legal version of a brand.
Brand falls under tlie category of industrial property rights and therefore, subject to
certain rules and regulations.
It can be registered and protected from being used by ot1ie1.s. The American
Marketing Association defines a trademark as a bl-and tliat is given legal protection
because, uncler the law, it lias been appropriated by one seller. Therefore, we can
define a traclemark i!s a brnntl or a part that is given legal protection because it is
capable of exclusive appropriation. Trademark is essentially a legal term. All
trade~narksare brands, but a brand can be called as a trademark only when it is
legally protected and lias been appropriated by one seller. As all trademarks are
brands, a trademark may include words, letters 01.numbers that can be pronounced
and also may include pictorial design (brand mark). When a hand is registered, it
becomes trademark and such trademark is shown by clisplnying the letter R enclosed
in a circle, shown as 03.

Check Your Progress A

Select five non-clurable goods and five durable goods around you. Identify tlie brand
name, brand mark and tlademark notice O

' Brand Name Brand Mark Trade RlIark Notice O

Non-Durable Goods
I) .................................................................................................................
2) .......................................................................................................................
3) ...................................................................................................................
4) ......................................................................................................................
5 ) ...................... . .........................................................................................
,
Product Decisions Durable Goods

9.2.2 Advantages and Disadvantages of Branding

We have already explained that branding is a mental patent as it promlses certain
amount of value to the customers. Brand serves as an assurance to the customer
about product performance. Brand helps customers to identify the product in the shelf
and also in their decision making. Brands which are symbols of status and social
significance give psychological satisfaction to the consumers. Brand also serves as a
medium of social stratification as it reflects a person's choice and social class due to
specific usage.
Brands are used as a tool for product differentiation by the seller. It helps to create a
niche for the brand through this differentiation. Over a period of time the brand enjoys
a monopolistic advantage due to the brand name with a loyal set of customers.
Brands also help for the overall improvement of product quality in a society through
healthy competition to offer better product benefits to customers. They help in better
dissemination of product knowledge which helps the consumers to make decisions on
rational basis and improves the efficiency of use of scarce resources in the society.
Branding is not free from the critique of creating disadvantages for the customers.
Brand building is an expensive procedure for which the average cost of the product
goes high and in many instances this is passed to consumers and leads lo a higher
cost of the final offering. It is also felt that consumers become loyal to established
brands and may not be willing to shift to new brands. This,may ultimately prevent the
new producers form entering the market and the manufacturer may develop a
tendency to compromise on the quality over a period of time due to the strong brand
Image. There is also a scope for one-dimensional price enhancement by the
lnanufacturer due to high loyalty rate with consumers. Brand building involves a huge
expenditure by the firm and if this fails then the brand can not sustain the pressure of
these expenses and in many situations a higher budget may not lead to building a
stronger brand. As the expenses to retain the brand in customers mind increases, it
becomes unsustainable to sell the brand at a lower price.

9.2.3 Branding Decisions

Branding has moved from the domain of tactical marketing to strategic marketing as
it has the ability to sustain a business and provide long term value to customers.
Following are some of the decisions that a brand manager has to take with regard to
brand selection and it's positioning in business
To Brand or Not to Brand?
Whether to brand a product or not is a decision which can be tczken only after
considering the nature of the product, the type of outlets envisaged for the product,
the perceived advantages of branding and the estimated costs of developing the
brand. Historically, it is found that brand development is closely correlated with the
increase in disposable income, the sophistication of the distribution system and the
increasing size of the national market. The same trend is visible in India now. Even
few years back, nobody could have thought of selling branded rice or refined flour.
But now several firms in the recent past have become successful even in such
product categories. The basic reason is that the consumers are willing to pay more Branding, Packaging
for uniform and better cluality product represented by the brand. When customers and Servicitig
buy a branded product, they get the same quality in whichever retail shop they go.
Many other commodities, such as spices are also now being branded. There is no
doubt that this trend will become stronger in the coming years.

B r a n d Sponsorship Decision
The question of sponsorship of a brand refers basically to the decision as to whether
it should be a manufacturer's brand (also known as a national band) or a private
brand (also known as private label) or-partly manufacturer's brand and partly private
brand. In most developed countries where large chainldepartniental stores dominate
the retail distribution system, retailers buy the products form manufacturers and sell
them under their own brand. This is a growing phenomenon in Indian context as we
see emergence of organized retailing with large chain storcs corning up in different
product categories. Mother Diary, Ainul, Pantaloons, Big Bazaar, Shoppers' Stop,
Life Style, Kids Kemp, Cross Roads are some of the upcoming super marltets and
chain stores marketing exclusive and extensive product categories.

Brand Quality Decision

Since the brand delivers a higher value than a commodity, perceived quality is a
critical decision. The matrix of such attributes will decide Ihe product positioning. A
marketer has the option to position his product at any segment of the market viz. top,
bottom or the intermediate.

Individual Branding Vs. Umbrella Branding

You have to decide whether to adopt an umbrella brand or individual brand. Under
umbrellil bl-anding all the products gel the same brand name. This is also called family
branding. Godrej, Vidoecon and L&T follow this kind of policy. One basic advantage
of using the Family brand is that it reduces the costs of product launching and
promotional expenditure substantially. The firm has to promote only one brand,
which, if successful, would be able to sell the entire product line. Lining up the
distribution cliuinel ~nenlbersalso becomes comparatively easier. A family brand
name has been found to be very cost effective marketing. If one product does
exceptionally well, other products marketed under the same brand enjoy the success
of this brand.
It is however, necessary to be cautious in following family branding. It will be a very
ill-advised strategy if the products being offered are of highly uneven quality. It may
not also be a good strategy if tlie markets are quite dissimilar in terms of consumer
profile. A greater weakness of this strategy is that it does not recognize that each
product can be given a specific identity by a suitable brand, which can go a long way
to make it successful. Si~nilarlythe research says that the equity enjoyed with the
master brand not always get translated in lhe same way to the other brands. A
company s o ~ n e t i ~ ngets
e s identified with one brand and when this brand name is given
to other product categories, there can be c o n f ~ ~ s ion
o ~customer's
i part to believe that
tlie same brand is available in other product categories also.
Under the individual branding each product is given a different name. For example,
Hindustan Lever sells its products under different brand names like Rin, Surf, Lux,
etc. The weakness of family branding becomes the principal strength of individual
branding strategy. Recenl consumer researches have established that a name can
have varied associations and conjure diverse images. These psychological factors
can im~nenselyinfluence the buying decisions. The second advantage of this strategy
is tliat if there is a product failure in one product category, its damaging effect will be
limited to tliat particular product only and will not extend to tlie entire product line of
Product Decisions the company. Tlie basic disadvantage of individual branding lies in the economics of
developing an individual brand. It is obviously a costlier strategy than the other.
TO take care of these problems, some firms follow a slightly modified strategy. This
involves using individual brands but also giving prominence to the company name or
logo in all promotional campaigns as well as in product packaging. For example,
God[-ejfollows individual brand strategy but displays prominently the works 'Godrej
Evita or Godrej Locks'.
In many cases a brand extension strategy is adopted. This really is an effort on the
part of the manufacturer to secure additional mileage from a particular successful
product for launching either similar or even dissimilar product under the same brand.
A recent successful example is the decision to introduce Wills clothing range from the
Wills Cigarette class. Similarly, Surf has extended its name to Surf Excel, Surf
Excelmatic also.

Brand Portfolio Decision

A firm may decide to have several brands of the same product which to some extent
are competing with each other. The basic reason is that, at least in the consumer
products, various benefits and appeals and even marginal difference between brands
can win a large following. Similarly the brand manager can decide about the
combination of brands that the company should offer to the customers. Though
Hindustan Lever Limited has a bigger portfolio, they are concentl-ating on few brands
in their portfolio as power brands, which will give rich dividend to the company in
future.

Brand Repositioning Decision

Brands also undergo through an ageing process and the custo~ncrscorrespondingly
move in the value life cycle. So unless the brnnds are rejuvenated they will not elljoy
the market position what they were having in the past. Over the life cycle of a
product, several market parameters may also undergo change such as introduction of
a competing product andlor brand in the same category, shifts in consumer
preferences, emergence of new needs, etc. All and each of s ~ ~ cchangesli call for an
evaluation as to whether the original positioning of the brand is still optimnl or not.
Stagnating o~.decliningsales also point to a need for reassessment of the original
brand positioni~~g. For example, Lifebuoy has been repositioned several times in the
recent past, from the health segment to the sports segment and now in beauty
segment through Lifebuoy plus extension.

9.2.4 Selecting a Good Brand Name

One of the difficult tasks in marketing is finding a suitable brand name for the
product. This is so from two perspectives. The primary being the one that says that
the name should be one, which satisfies several marketing criteria. Secondly, the
name should not be one, which is already being used by another firm. This
necessitates extensive investigations.
A brand can be defined as a composite set of beliefs in the minds of consumers.
Conventionally a brand name is supposed to indicate the product's benefits, be
memorable and help in reinforcing the belief in the consumer's psyche. The name has
to be unique to rise above the clutter. However when unique names become m n of
the mill, then suddenly a simple name becomes a hit and people remember this name.
A simple brand name will be effective only if the overall brand personality supports
the "I am different brand promise". Brand names have to be relevant to the category
and audience also.
There is no simple solution lo the problem of selecting a brand name. However, Branding, Packaging
through exlensive resew-ch and past experiences, market researchers have developed and Servicing
certain principles which should be followed while selecting the brand name. Following
are thc general traits of a brand
I. Acceptable lo the social settings
2. Easy to recognize
3. A brand name should reflect directly or indirectly some aspect of the product
viz. benefit, i'unction, etc.
4. A blxnd sliould be distinctive, especially if there is a higher clutter in the
category
5. A brand name should be easy to pronounce.
6. It should be easy lo memorize and recall
7. It should be such tli~ltit can be legally protected, if necessary.
Brand huilding is an expensive exercise and it takes a long time to create a successful
brancl. It is observed that many competitors lake advantage of the situation and try to
imitate Llie brand which rnakes brand lnanagers to provide legal protection to the
brand through trademal-k ~~egislration.

Check Your Progl-ess B

1) Dif'ferenliate between umbrella branding and individual branding.

......................................................................................................................
(i) Write five umbrella brand names and analyze the products sold under each
o f these brands.

...............................................................................................................
ii) Prepare a list of five companies, which follow individual branding strategy
and iclentify their products.

iii) Based 0112 (i) and 2 (ii) above, analyse what kind of producls have umbrella
and individuals brands.
 Product Decisions 3) State whether the following statements are True or False.
I

i) Products can not be sold without a brand name.

ii) Brand mark and trademark are one and the same
iii) A brand is a mental patent against standard performance
iv) Branding helps in product memorization
v) From the society point of view, branding is always a waste.
vi) Trademark is a legal protection against copyi~igby other manulacturers
vii) A good brand is one which delivers the promised benefits

9.2.5 Elements of Brand Management

There are four elements of brand management namely brand identity, brand image,
brand position and brand equity. You should understand the differences between these
four terms and apply them to your business decision situations. We will discuss these
four terms from brand com~nunicationperspective.

Brand Identity
According to David Aaker brand identity is a unique set of brand associations that the
brand strategist aspires to create or maintain. These associations represent what the
brand stands for and imply a promise to customers from the organization members. It
helps in establishing a relationship between the brand and the customer by generating
avalue proposition involving functional, emotional and self expressive benefits. It
consists or twelve dimensions around four perspectives. The brand as a product
(product scope, product attribute, quality/value, uses, users, country of origin), brand
as an organization (01-ganizationalattributes, local vs. global), brand as person (brand
personality and brand customer relationship) and brand as a symbol (visual imagery1
metaphors and brand heritage). Brand identity structure includes a core and extended
identity. Core - the central, timeless essence of the brand-is most likely to remain
constant as the brand travels to new markets and products. The extended identity
includes brand identity elements organized in to a cohesive and meaningful grouping
that provide texture and completeness.

I "aid
Identity
1 +I signals
Transmitted
i bi 1
r;~
Colilpetition aud Noise

Piy r e 9.1: Brand Identity and Iniage

Brand Image
In simple words, what tlie customer perceive about the bl.nnd is called tlie brand
image. A brand may aspire to commuriicate lot wdny things through its brand
conimunication strategy but what the customers receive and perceive as the brand is
termed as the brand image. It is a combination of brand associations and brand
personality. It includes a set of brand associations usually structured in a logical
fashion.
 l
In understanding brand image, it is important to see and understand if consume;s see Branding, Packaging
themselves as 'fit' for the brand and vice versa. As there is a high level of brand and Servicing I
I
clutter, many brands enjoy similar kind of image and brands in the consideration set i

having a higher fitness get preference over others. Brand personality helps define the
personality of the brand as a combination of different traits that people tend to
associate with the brand. For example Horlicks is perceived as a great nourisher
whereas Boost is perceived as an energy drink of the sportsman due to its typical
positioning and celebrity endorsernent. The brand image o f ' Amritanjan' Balm is that
of an all puspose balrn where as that of Vicks Vaporub as a cold balm applicable
mostly to the children. These kinds of fit are well planned by the brand manager that
leads to the creation of brand image in the minds of customers. In summary brand
personality determines whether the brand and the audience are made for each other
or not. Psychologically audience try to build up some comparison and conclusion
between own personality and that of the brand.

Brand Position
After the decision of the brand identity and the value proposition leading to the
development of brand image, implementation of a branding strategy begins. The next
task is to establish communication objectives and plan the execution strategy. The
beginning of an execution strategy is the brand position statement. Brand position is
the par1 of the brand identily and value proposition Lhat is to be actively
communicated to the target audience and that demonstrates an advantage over
competing brands. When a brand position exists, the brand identity and value
proposition can be developed fully, with texture and depth.
There arc three places to look at within the brantl identity systeitl to identify elements
for including in the bl-and positioning statement. One is the core identity statement
which explains the central, timeless essence of the brand. The most unique and
valuable aspects ol' Lhe brand are often represented in the core identity. So brand
position sllould include the core identity so that the brand communications do not stray
way fro111the brand's essence. Secondly, a brand position can be based on a point of
leverage that is not necessarily in the core identity. Sub brands, features or service
can become a point of leverage. Thirdly, a customer related benefit is part of the
value proposition and forms a basis for brand customer relationship. For example, the
positioning statement of Titan as a 'Tata product" explains the core identity as a part
of brand positioil stateinent whereas the brand positioning statement of DHL courier
explains about the servlce component with 'No body delivers like us' . The BPL
washing machine with fuzzy logic technology explains higher value propositions
compared lo all other washing machines and serves as a positioning statement.

Brand Equity
Brand equity is a set of brand assets and liabilities linked to a brand, its name and
symbol that add to or subtrrtct from the value provided by a product or service to a
f i n and/or to that firm's customers. If the brand's name or symbol should change,
some or all of the assets or liabilities could be affected and even lose significance in
business. These equity componenls can be grouped into five categories namely brand
loyalty, name awareness, perceived quality, brand association in addition to the
perceived quality and other proprietary brand assets like patents, trademarks, channel
relationships.
To simplify the definition we can conclude that it is the incremental that the cuslomer
is ready to pay for a brand in place of a commodity. It is the additional premium
charged by the marketer that the customer is ready to pay when confronted with a
buyingsituation betweenra commodity and a brand. It is simply the price premium
that a cornpany can charge to customers or the irnpact of the name on customer
preference or stock price movement or future earnings or a combination thereof.
 Product Decisions
i 9.3 PACKAGING AND LABELING
A package is basically an extension of the product offered for sale. Sometimes the
package is more important than the product it contains as it contains the product and
protects it till the consumer is ready for the consu~uptionor use. Some marketers
even call packaging a 'fifth P', along with product, price, promotion and place. As
stated earlier, however, all the marketers consider packaging as an element of product
mix.

9.3.1 Meaning and Functions of Packaging

Packaging is necessary to deliver the product to the consumer in sound condition. For
example, one needs a bottle for delivering shampoo or a box with moulded shock
absorbing padding to protect delicate electronic precision equipment. The requirement
here is purely technical; the container has to be designed to be most efficient at
containing and protecting the product. In recent years, particularly as self service has
become a predominant feature in most distribution chains, the packaging of a product
has become a major element of the promotion of that product to the potential
consumer. Packaging requirements therefore include:
e Product Description: The pack must convey to the potential consumer not just
what the product is, but what it does; in terms of the benefits it offers- the
promotional message. This ]nay be conveyed by words, but for the most impact
graphics and over all design are usually chosen to deliver the main, initial
message. The potential buyer is expected to read these messages in a few
seconds and probably at a distance of three feet or more.
e Product Image: The packaging must also match the required image, so that the
boxes for expensive jewels look expensive themselves-so much so that one
almost hates the waste of throwing the packaging away.
e Product Value: The pack is often designed to make it contents look Inore than
they really are. Those apparently 'artistic' designs should show the value of the
content also
e Shelf Display: The pack should be designed to make the most of the shelf
space available which may mean making the pack loolc more compact as
possible, so that more can be placed in the shelf. Stakability so that the shelf can
take several layers of the product is another feature of a good pacl<aging.
Packaging as a function consisls of two distinct elements, (i) the positive aspects, viz.,
the science and technology related to package design, selection of packaging
materials, etc, and (ii) the behavioral aspects, viz., the art of product design which is
associated with consumer motivation research, buying research, etc.
The second aspect is highlighted in another definition of packaging 'Properly
designed, the package sbould enhance the value of its contained product, and impart
that impression, either directly or subtly, to the customer'. The role of packaging in
value enhancement is increasingly becoming important in consumer marketing today.
In marketing, packaging is defined as the activities of designing and producing the
container or wrapper for a product. The container or wrapper is called the
'package'. According to Philip Kotler and Gary Annstrong, the packaging may
include up to three levels of material. The primary package is the product's
immediate container. If you consider a toothpaste, the tube holding the toothpaste is
the primary package. The secondary package is the card board material that protects
the primary package and that is thrown away when the product is about be used.
The shipping packaging is the packaging necessary to store, identify, and ship the
product (a carton in this case, which contains hundred toothpaste units). Finally
labeling is part of packaging and consists of printed information appearing on or with Branding, Packaging
the package. and Servicing

To summarize the key functions of packaging we can say that packaging should
perform the following basic functions: it should (1) protect, (2) appeal, (3) perform,
(4) offer convenience to the end-users, and (5) be cost-effective. We will now
discuss these five key functions of packaging.
I) Protection: The primary function of packaging is to protect the products from
the environmental and physical hazards to which the product may be exposed in
transit from the manufacturer's plant to the retailer's shelves and while on
display on the shelves, The specific types of hazards against which protection
has to be sought would obviously vary from product to product. However, the
principal hazards, which are almost universal, are:
i) BreakageIdainage due to rough mechanical or manual handling during
transportation.
ii) Extremes of climatic conditions which may lead to melting, freezing, etc.
iii) Contamination, either bacterial or non-bacterial, such as by dirt or chemical
elements.
iv) Absorption of moisture or odors of foreign elements.
v) Loss of liquid or vapors.
vi) Pilferage during transit or storage.
2) Appeal: The package is increasingly being used as a marketing tool. The
importa~lceis also increasing clue to the changed structure of retail business,
especi;illy the emergence of self-service stores. In the case of consuiner
~roducts,package serves as a silent salesman. This is tiue, irrespective of
whether the products are a luxury, semi-luxury or an ordinary everyday use
product, The followil~gcharacteristics have been identified to help a package
pel-fonn the self-selling tasks:
i) The package must attract attention
ii) The package must tell the product story
iii) The package IIIUSL build confidence
iv) The pockage inust look clean and hygienic
v) The package must be co,lvenient to handle, to carry out, to store and to
use
vi) The package must reflect good value
Packaging, however, is of greater importance in the case of certain specific
types of articles. Industry-wise studies in several countries show that packaging
cost in the cosmetics industry is much higher than other industries. This
exce~sivel'~ high incidence is not due to the packaging, which is required for the
protective function, but for making the product attractive, a status symbol and
ego-satisfying. Other products such as chocolates in gift packs also are
instances where packaging perforins a basic marketing function by making the
products more appealing.
Consumer research on packaging concentrates on two aspects, which have an
influence on consuiner purchase decisions. The first one is color and the second
is the package or container design. Almost all researchers have come to the
conclusion that each color has its own distinct characteristics and, therefore, has
to be usecl in a package so that there is no mismatch between what is expected
of the package and the color used in the packaging.
Product Decisions One additional problem in this area is that people in different countries display
divergent color preferences, due to their diverse socjo-cultural-religious
backgrounds. Similarly, research is carried out on the desirable properties of a
container. Slender and cute containers are often used for beauty-care products
for the feminine sex, as these are expected to create an appropriate image of
the product. Graphics and Logo types are also impostant in designing and
conveying the total product image.
3) Performance: This is the third function of a pacliage. It must be able lo
perform the task for which it is designed. This aspect becomes C ~ L I '1C1~in' cerlain
types of pack ging. For example, an aerosol splny is not only a paclcage but
also an engineering device. If the package does not function, the product ilself
becomes totally useless.
4) Convenience: The package milst be designed in a way, which is convenient to
use. It should be convenient not only to the end user but also to the distribution
channel members, such as wholesalers and retailers. From the intermediaries
standpoint the convenience relates to handling and stocking of packages. The
specific attributes the intermediaries would seek in n package are:
i) The package must be convenient to stock
ii) The package must be convenient to display
iii) The package does not waste shelf-space.
iv) The package must retain its looks during the shelf-life
V) The matter
a of the package/cartons should be easy to dispose of
Because of the increasing concern with solid-waste disposal, the last factor has
assumed importance in the developed countries and is also a growing concern in
a populated country like India with less civic intervenlion for waste
management. From the standpoint of the domestic or institutional end users, the
convenience would refer to the ease of using the package, such as opening ancl
closure of the package, the repetitive use value, disposilbility etc.
5) Cost-effectiveness: The package finally must be cost-effective. Packaging
cost as a percentage of procluct cost varies dramatically from one industry to
another, from less than one percent in engineering industry to more than ten
percent in the cosmetics industry. It is important to appreciate tl~ntwhiic
analyzing packaging costs, it is not enough to consider only the cost of paclcage.
Cost in this supply chain includes:
i) Package costs incurred in inward delivery to the factory when the prodi1~1
is purchased from outside
ii) Storage and handling costs of the empty packages
iii) Filling cots, including quality control and l~ai~dling
of filled packages
iv) Storage costs of the filled packages
V) Tra~lsportcost for distributing filled packages
vi) Insurance cost for the transit period
vii) Losses due to breakage/spoilage of tlie product

9.3.2 Packaging Industry

An understanding of the packaging industry is necessary to f~lllyappreciate the
packaging revolution that has occurred in the consumer and inclustrinl goods sectors.
The packaging industry consist primarily of two distinct segments: I ) firttls whlcll
manufacture the packaging materials, viz,, tin, paper, plaslics, elc, and 2) I'irnls
engaged in the formation of packaging i.e. converting the packaging materials inlo
unit/master packages. 111addition there are other firms engaged in the printing of Branding, Packaging
labels to be used in the unit/master packages, and the marketing research agencies and Servicing
wliich conduct specialised packaging research, generally for package development
and adaptation.
Newer materials are consta~itlyemerging in the packaging field and in many cases
have eliminated or threatened the older materials such as wood and steel, because of
tlie relative cost advanlage or better performance characteristics. The important
packaging materials today are:
I. Metals - Alu~iiinum,tinplate and steel
2. Plastics - PVC, HDPE, etc
3. Wood -Wood and cellulose film
4. Paper - Paper, board, corrugated board, etc
5. Glass - Clear, tinted etc
6. Laminates - Aluminum foils, plastic film etc
7. Polyester - PET

Check Your Progress C

1) Distinguish between branding and packaging.

......................................................................................................................
2) What are the basic functions of packaging?

......................................................................................................................
3) State wliether the followilig statements are Tue or False.
i) Packaging also helps in l~ro~notion
function
ii) Packagc should nlso be capable of attracting the attention of buyers
iii) Colour of the package does not have any importance
iv) Packaging always increases the product cost
v) Package must be designed in a way it is convenient to'users and
intermediaries.
vi) Packaging helps in new product launch
vii) Packaging for cdibles is a waste
viii) Packaging is never misleading

9.3.3 Packaging Strategies

We have already mentioned that packaging plays a greater role in tlie promotion of
the product. It serves the core function of protection and also provides information to
the consumers. With the increase in the large number of self service retail outlets
where the consumers make a choice by tl~emselves,packaging provides ample
opportunity to communicate various sales promotion schemes for enticing customers
Product Decisions to go for a buy. For example, Colgate Dental Cream is always perceived in a red
color package. When the company decided to go for a sales promotion program of
giving 20% extra for every purchase of a 100 grams toothpaste, it brought a yellow
strip marked with 20% extra on red as a promotional tool which could catch the
attention of the customer on the shelf immediately compared to a full fledged
advertising campaign where every toothpaste manufacturer gives something as an
extra value proposition. So product package often plays an important role in
implementing sales promotion campaigns. Sonie of the widely used promotional
packaging techniques include
1) Discount Pack: A 'flash' in distinctive colour is superimposed on the package,
announcing the special price discount being offered. This is the most widely used
form.
2) Coupon-Pack: A coupon of certain values, either as a part of the package or
placed separately in the package, can be redeemed after the purchase of the
product.
3) Premium Package: A premium package can take three fonns. If the premium
accornpan:;~the product within the package then it is called in pack premium. If
it accompanies the pack as a separate unit then it is called with pack premium,
A coupon on the pack allowing a discount is called on pack premium package.
4) Prime Packaging: A specially made package having either a re-use or prestige
value is referred to as prime package. Instant coffee packed in glass tumblers
having colours is an example of the first type. The set of watches presented by
Titan for the married couple in a gold plated package called "Bandhan" is an
example of a prinle pack.
5) Self-Liquidators: The buyer has to send to the company a number of
packages or part thereof as evidence of buying the prod~~ct. In return, he lnay
purchase additional quantity of the same product at reduced prices or be
rewarded with a different product. Several companies in India, in the processed
food like Maggi and Top Ramen and Sargam Tea occasionally use this
technique.
6) Redesigning of the Package: Introduction of a new package can also be used
as apromotional technique. For example, till the very recent past, edible oils
were packed in tin cans in India, which looked messy and dirty. Most of the
larger firms have now started using transparent one-liter PET (polyethylene .
terephthalate) bottles, which look gleaming and fresh. The companies are using
this change of packaging quite effectively as an additional element in their
advertising campaigns. The change in packaging of liquid soaps is also used as
a promotional tool. Similarly Sargam tea started bringing pet jars for family
consumption and people inoved from card board tea packs to the brand to have
the jar for other consumption storage purpose.
7) Odd Size Packaging: Packaging can also be used ingenuously to avoid direct
price comparison with the competing products. This is done by a deliberate
choice of odd size, while the competing brands follow a standard size. A recent
example in India is the launch of soft drinks by Pepsi in 200 ml bottles at Rs 5
when the industry standard was 300 ml at a price point of Rs 7 and rest other
players immediately followed the brand leader with a 200 ml, pack size. The size
of Dove soap also is also odd enough for the slim bathing soap category in
Indian market.
8) Packaging the Product Line: Packaging can be used to develop a family
resemblance in the packaging of its several products. Identical packages or the
packages with some common features are used for all the products of a product
line. This kind of packaging strategy had the benefits of umbrella branding.

a
 Under this strategy, when new products are added to a line, promotional value Branding, Packaging
associated with old products extends to the new ones. and Servicing

9) Bundle Packaging: Placing inore than one unit in one container is referred to
as bundle or multiple packaging. This packaging strategy increases the sales to
a large extent. This is seen in bathing and washing soap category in India.
10) Packaging in Perishables: In specific product areas where shelf life is an
integral issue, packaging brings a combination of functional as well as
promotional value. For example in ice cream business, the refrigerator serves as
a status symbol for the retailer and also with the sale of the brand.

9.3.4 Labeling
The paper or the plastic wrapper attached to a bottle of medicine or a jam bottle
carrying product information is technically called a label. But as packaging technology
improves and cans and bottles become less prominent, labels become incorporated in
to the protective aspects of the package rather than simply being affixed to the
package. So labels may range from simple tags attached to products to complex
graphics that are part of the package.
The label helps in identification of the brand. It also describes several things about the
product. In a inediciiie bottle the label explains about the composition and maximum
retail price to the customer with directions of use and statutoly warnings. Normally a
label provides details about the mai~ufacturer,the place of manufacturing, the date of
manufacturing, its contents, the directions for use and the safety measures involved in
the product use and expiry date. In many cases the label also does the promotion
function due to its highly visible graphics. A label must also carry the suitable
inst~-uctioiifor the proper disposal of the product and its package or at least a plea to
consumers to avoid littering. As per the legal provisions a label must carry any
specific nutrition information, warnings and legal instructions as required by law. Most
consumer packaged goods are labeled with an appropriate Universal Product Code
(UPC), an array of black bars readable by optical scanner, The advantage of the
UPC which allows computerized checkout and compiling of computer generated
sales volume information have become clear to distributors, retailers and consumers
in recent years.
Labeling is affected by unit pricing (stating the price per unit of standard measure);
open dating (stating the expected shelf life of the product) and nutritional labeling
(stating the nutritional villues in the product). Package designers are relatively free to
design the packages under the conditions of the legal requirement about maintaining a
standard label. Business houses operating in a global scale have to decide whether to
use a single package with one language or a single package with multiple languages,
depending on the legal requirements of the host country. Decisions about colors and
symbols, protection in transit over long distances and other aspects of the package
design should be made only after local culture and usage patterns have been studied.
Many countries have laws against deceptive packaging. Packages intentionally
designed to mislead consumers, labels that bear false or misleading information or
packages that do not provide sequired warning soon draw the attention of the legal
authorities. I-Ience marketing inanager has to be careful about these issues.
A good label is one which helps a potential buyer to make his decision by providing
relevant and correct infoimation. Apart from the information, which must be
statutorily given, the label should therefore provide:
i) Picture of the product, accurate as to size, colour and appearance
ii) Description of raw products used along with methods of processing
. iii) Directions for use, including cautions against misuse
Product Decisions iv) Possible adverse effects, if any
V) Brandname

Check Your Progress D

1) What is bundle packaging? Give two examples

2) What is the objective of odd size packaging? Give two examples where this is
adopted.

3) Given below is a list of products along with their old and new types of
packaging. For each of the product category which is the best packaging form
in your opinion. State the reasons
i) Edible oil in (a) tin (b) HDPE poly jar and (c) transparent PET jar

......................................................................................................................
ii) Soft Drink in (a) boltle, (b) tin, (c) plastic pouch and (d) tetra pack

......................................................................................................................
iii) Fruit juice in (a) bottle (b) tin and (c) telra pack (e.g.Frooti)

8.4 PRODUCT SUPPORT SERVICES

Chstorner service is n key clement of ~Iieproduct stl-atcgy. Product S L I ~ ~ Oserviccs
I - ~
constilute the augmented par1 of the prodncl. In toclay's world when Lhe cost of
acquiring tlie customer is ao high, n good pl-ocluctsupport scrvicc strategy will
augment the customer retention slwtegy with a higher basc of loyill customers. More
and more firms are using pcoduct support services as a kcy clcmcnt oS cuslumo.
relationship mouagernerlt ancl for creating colnpetitivr aclvanlage,
As a m:uiager you should utilize the benefits of product support services in creating Branding, Packaging
and Servicing
better interaction with custotners. You should start surveying the customers regularly
to understand the need of the support service by the consumers by evaluating the
value of tlie current services and to find out gays if any in the service delivery. A
survey of tlie customer complaints will also help in identifying the new support service
mix bytlie firms. Once the company has assessed the value of the current services,
the expectation of tlie new services by the consumers, next it should go for finding
out tli2 cost of providi~igthe service. Then it can develop a service offer to delight its
consumers ~uidincrease the loyalty I-ate anlong existing consumers which can be
easily tri~nslateclinto additional profits. Product Support Services include product
warriuity, after sales service, delivery, installation, helpline, etc. Companies are using
~nultiplecustomer intelxction points in the for111of personnel, telephone, internet or
web and ~iiailas means to provide the information about these support ser.vices.
One of ~licltey procluct support service is the product warranty. A product warranty
cornmunicute.s u written guarantee of a product's integrity and outlines tlie
mnnufi~cture~-'s responsibility for repairing or replacing defective parts. It lnay
sub,\tantinlly reduce the risks tlie buyer perceives to be associated with the purchase.
Many a times consumer research suggests that warranties are difficult to understand
by the common Inan as they are written in legal jargons. Some of the marketers have
started writing these warranty statements in words like fillly guaranteed,
unconclitioni~llyguaranteed and life time guarantee which do not carry any meaning to
tlie buyers.
A warranty is part of the total product; tlie seller sliould not view it as a nuisance.
Efl'ective marlteters use [lie warranty as an oyportuni ty to create satisfied customers
;tiid to offer i111 intangible ptoduct attribute that many buyers desire. These services
are auxiliary cli mension of the procluct and create goodwi I I in the market.

LET US SUM UP
Brand is a name, terrii, sign, symbol used by the marlceter to create a differentiation in
tlic customer's inind and value PI-omise to the customer. A brand name gives the
~~roiluctn unique personality iuid n .successful brand s o ~ n e t i ~ ntakes
e s over the generic
PI-oductcittegory. Brands like Icerosene, Mobil, Xerox are examples of such long
standing brancls. Branding gives a mental assurance to the customer about a desired
iilnctioni~liund emotional performance.
The selection ol'brand name is an important decision. You can choose any brand
name you lilte LIS long as i t is ~ ~ ~ i i qeasy
u e , to read, write, pronounce and remember,
and does not liave any unl'avourable or negative meanings associated with it. There
are various brand n a m i n ~strategies available to a marketer. A brand manager can go
for inclividual branding or umbrella branding. Each choice has its advnntages and
dis;ldviwtages and there are enough cases of success and failure to justify your
ilioicc. Sollieti lnes even the most difficult sounding brand names succeed while
catchy ~uidsimple br,uncl names filil.
Packaginp is another crucial aspect of marketing because the buyer confronts the
product within the package in tlie inarket. Pacltaging does various functions inclucliiig
protection to the product, infor~iiationdissemination ancl n plnrform Ilor prod~ict
proniotion. Attractive pxcknges have an advantage in attracting the attention of the
buycrs in a cluttel-ecl market. There are, instiulces galore when the products wit11 high
quality liave fili led because the packaging was poor. Indian small-scale sector suffers
l'rom this problcn~of in;icirquate packagi~ig.New packaging materials have started
replacing tlie traditional packaging material. These are evident i n tetra paclts of
Prooti, Dli:lla edible Oil, Dove soap, potato chips, soacks and other fragile food items.
Product Decisions Some key decisions in packaging also cover the disposal of the package and waste
management, cost of packaging, health hazards, use of scarce resources and the
scope for consumer misleading. Labeling is gaining relevance today as more and
more self service retail outlets are coming up in urban markets it1 India. The Iabel
provides the product informatiou, usage information, ownership and shelf life issues.
Product support services are gaining relevance due to its inclusion in the overall
product strategy. As the cost to acquire new customers is increasing, firms are
concentrating on holding a large loyal customer base through product support services
in order to reduce the customer's dissonance in post purchase behavior.

9.6
- -
KEY WORDS .

Brand: A name, word mark, symbol, device or acombination thereof, used to identify
some product or service of one seller and to differentiate them from those of
competitors.
Brand Equity: Brand equity is a set of brand assets and liabilities linked to a brand,
its name and symbol that add to or subtract from the value provided by a product or
service to a firm and/or to that firm's customers.
Brand Identity: It is a unique set of brand associations the brand strategist aspires
to create or maintain. These associations represent what the brand stands for and
imply a promise to customers from the organization members. It helps in establishing
a relationship between the brand and the custoiner by generating a value proposition
involving functional, emotional and self-expressive benefits.
Brand Image: In simple words, what the customer perceive about the brand is
called the brand image. A brand may aspire to communicate lot many things through
its brand communication strategy but what the customers receive and perceive as the
brand is termed as the brand image. It is a combination of brand associatio~lsand
brand personality.
Brand Mark: That part of a brand consisting a mark, design, distinctive logotype,
colouring scheme or picture used for the puipose of identification.
Brand Name: That part of a brand consisting of a word, letter and groups of words
or letters that can be vocalized.
Brand Position: It is the part of the brand identity and value proposition that is to be
actively communicated to the target audience and that demonstrates an advantage
over competing brands.
Label: Part of package and consists of printed information appearing on or wilh the
package.
Packaging: The activities in product planning that involve designing and producing
the container or wrapper for a product.
Product Warranty: It commu~~icates a written guarantee of a product's integrity and
outlines the manufacturer's responsibility for repairing or replacing defective parts.
Trademark: A brand or a part that is given legal protection because it is capable of
exclusive appropriation.
Umbrella Branding: A branding strategy in which a group of products is given a
single brand. It is also called blanket or family branding.
 Branding, Packaging
9.7 ANSWERS TO CHECK YOUR PROGRESS and Servicing

B. 3 i) False ii) False iii) True iv) Ti-ue

C
V) False
3 i ) Ti-ue
vi) True
ii) Tnle
vii) True
iii) False iv) False
1
v) True vi) True vii) False viii) False

9.8 TERMINAL QUESTIONS

1) Why should a company brand a product? What advantages the cornpany will get
by branding its products? Discuss this issue by taking the toothpaste category in
Tnclian market.
2) What are the decisions that a brand manager has to take? Discuss giving
suitable examples.
3) What are the distinctions between brand identity, brand image and brand
position? Discuss them in the context of developing a branding strategy for the
rural rnarlcet of India.
4) Is there a difference in the branding strategy for industrial product, consumer
prod~lctand agricultural product'? Discuss thein in the context of developing a
brand coinmunication strategy
5) Packaging plays a crucial role it1 the self service retail outlets. Explain the
changing patterns of packaging in the context of emerging retailing scenario in
India.
6) Explain some of the widely used promotional packaging techniques giving
snitable examples.
7) Discuss the importaulce of laheling for marketers.
8) Product Support Services helps in customer retention. Discuss the statement
with the help of'examples.
vnlue perception of the customer, etc., and, at the same time, adhere to the laws of
the Government. The company is also to be projected about it among consumers and
the law makers and is also to be integrated with the policies pertaining to the other
marketing variables. This Unit attempts to explain various inter-related issues
pertaining to the pricingobjectives of a company, factors influencing price
determination and the basic techniques used in pricing a product.

10.2 ROLE AND IMPORTANCE OF PmCE

No other marketing variable is, perhaps, as crucial in influencing the buyer's choice,
as the price of a product. A company's success in a competitive environment is, to a
great extent, dependent on its pricing policy. A sound pricing policy will ensure
desired market penetration and sales volume and proper flow of funds. An
unsuccessful pricing policy, on the other hand, may result in losses and deprive the
company of funds required to continue/develop the business.
As you know, pricing is one of the 4 Ps of marketing mix. Price is the only element in
the marketing mix that generates revenue while the other elements (product,
promotion and distribution), represent costs. Second, price is the most flexible of all
the elements as price adjustments can be quickly made to meet competition, to take
advantage of temporary shortages, etc. Pricing and price competition have been rated
as the number one problem facing marketing executives. Yet, it appears that
sufficient attention is not paid to pricing decisions by most companies. Pricing
decisions taken by many firms are known to be based in intuition, guesswork and
unsubstantiated assumptions.
There is a price for everything though it may be known by different names in
different contexts. Thus, it is known as rent for apartment, tuition for education, fee
for the doctor, fare for air or train or taxi journey, interest on the money borrowed,
toll while passing through a highway, bribe to get certain things done, retainer for
certain services rendered, salary to an employee, commission to an agent, wages to
a labourer and taxes to the authorities.
As discussed above, a number of products and services are exchanged between
producers and consumers daily. Price may be defined as the amount of money
changed for a product or service. Broadly, price representsfhe sum of the values
consumers exchange for the benefit of possessing the product or service.
Since price represents the sum of values the consumers exchange for the benefit of
possessing the prdduct or service, the key to pricing is understanding the set of values
that the consumer perceives the product/service. These values are related not only to
the tangible features of a product, but also to intangible ones. Thus, some consumers
may be happy with "low" price, some with "high" price, some would like to bargain,
and some others will buy only during "sales" or in supermarkets or departmental
stores or at duty-free shops or during weekly fairs.
While price represents the value of the product for the consumer, as perceived by
him, it determines profits for the manufacturer. Arriving at a price that satisfies the
consumer, and at the same time generates the desired level of profits to the company
is the key to success in business.
I

10.3 (IBJECTIVES OF PRICING

Though pricing objectives cantlot be different from company's overall objectives,
yet the management must be clear about those overall objectives of the firm whose
attainment it wants to be furthered by pricing policy. A cpmpany may seek to achieve
one or more objectives by pricing policy. A number of factors, some of which may be
 ---

be internal to the company, and some others external, must be considered while' QBloctlveo an4
formulating the pricing objective(s). Thus, the image it wants to project about it, long Methodo nP A'Icln@
runlshort run profit maximization, maintaininglincreasing market share, sales
maximization, return on investment, social responsibility, adhering to the legal
requirements etc. are some of the factors that a company may have to take into
account while for~nulatingthe pricing objectives. Very often, companies may have to
pursue more than one objective. Therefore, as a marketer you may have no choice
but to strike a balance among a number of objectives, some of which may conflict
with some others.

10.3.1 Protit Oriented Objectives

Current Profit Maximization: A number of companies have the objective to earn
maxirnum profit possible in the immediate future. For this objective, the firm decides
highest possible price for the product. They estimate demand and costs at different
prices and select the unit price that maximizes profits. Charging a high price to earn
maximum profit is possible if the product is a unique product catering to the
requirements of a select group of consumers who are not price conscious, but more
status conscrous. It is also possible to have the pricing objective of current profit
maximization during periods of shortage or if the company is a monopoly supplier of
the product. However, this objective suffers from the drawback that high prices
themselves invite competition in the long run. High price project may also be a
negative image among the consumers and may invite government intervention.
Achieving Desired Return on Investment (ROI): Another revenue oriented
objective could be achieving a pre-determined return on investment. In this case, the
companies first decide on what percentage of return they would like to earn on
investment, and accordingly price the product in such a way that the profit margins
ensure that they achieve the objective. This objective is suitable when the company
would like to recover its investments within a particular period due to various reasons
such as generating resources for investing in new ventures, anticipating the entry of
conipetitors in the near future, proving for cushion against economic and political
uncertainties ill future, etc. However, this strategy may not be suitable under
conditions of intense competition and if the company is a marginal player in the
I

I
10.3.2 Sales Related Objectives
Obtaining Desired Sales Volume: Some companies may fix a target regarding the
volurne of sales they want to achieve and arrive at a price which will give them that
desired s'lles volume. The target may be maximization of sales volume during a
I
particular year in relation to {heprodu~tionlevel of the firm, or market leadership in
sales as far as the particular/industry is concerned or different sales levels for
different years. Though this strategy may not result in profit maximization, a company
may opt for this strategy so long as it does not result in loss. This objective may prove
to be a better strategy in thcllong run to survive in the market and proper in the
I
business, than maximizatio? of profits in the short run. This strategy may, however,
result in loss to the company for the firm may have to resort to heavy promotion,
price discounts and high incentives to salesmen and distributors in order to achieve
the desired sales level. However, since the company has established itself in the
market, it may be able to raise the price.
Achieving Desired Market Share: In case of some companies the pricing
objective may be dominant market share or a desired market share, as they feel that
niarket share is a better indicator of customer support and corporate strength than
sales volume or profits or return on investment. Market share objective may be in
different forms such as obtaining maximum market share or obtaining desired share 7
 Pricing Decisions of the market or increasing the market share from the present level to a higher level
or retalning the present market share in a growing market, etc. The company will fix
the price and design the marketing programme to achieve the market share objective
it has set. However, a high market share may not only invite competition, but may
also invite government action under the laws designed to curb monopolies.

10.3.3 Competition Oriented Objectives

Survival: A company may decide survival as the pricing objective under conditions
of over capacity, stiff competition, frequent changes in consumer tastes, low demand,
unfavourable business environments, etc. In case of survived objective, prices are
kept very low since staying in business for the time being is the only consideration and
it may not be practical to consider factors like profits or return on investment as the
objectives. However, low price itself may spur demand and generate sufficient
returns. The reductions in air fares consequent to the fall in air traffic following the
attack on the twin towers of the World Trade Centre building in New York on
September 11,2001 and following the SARS scare during the first half of 2003 are
instances of pricing for survival.
To Prevent Competition: At times, a company may like to preempt the possibility
of competitors entering the market, rather than earning high or immediate profits.
Hence fix the price of its product at the lowest possible level. This is particularly done
by companies for mass consumed items to get a foothold. Once they establish
themselves in the market and have successfully driven away the competition, the
market becomes almost a "captive" market for the company and subsequent
increases in price becomes easy. The Japanese companies are known to adopt this
strategy in overseas markets.

10.3.4 Other Objectives

Price Stabilisation: Companies which are not rich in resources, particularly financial
resource, normally enter the market lately. Such enterprises are engaged in the
production of standardized products, and are not able to bring about product
differentiation. Therefore, they may choose to avoid price war, and "follow the
leader" in the pricing decisions. It is common among most manufacturers of candies,
biscuits, bread, soft drinks, etc., and among restaurants to price their products at a
particular level accepted by the customers and make adjustments in the other
marketing variables.
Price Leadership: A company may like to be known as producer of high quality
products/innovative products. Since production and promotion of high quality and
innovative products involves substantial expenditure, the price should also be .
correspondingly high. Such companies set very high prices and do not follow other
companies. They succeed in creating a prestige image for their products. ~ h o u ~ h '
they may cater to small sized market segments in terms of number of customers, the
high unit price offers them sufficient margin of profits. Companies like IBM are
known to be price leaders and not market followers.
' , Other pricing objectives may be: (a) to create an image of a socially responsible
!
company engaging in ethical practices (low prices and hence low margins), (b) to
cater to a number of consumer segments with a number of models of the product
with different attributes and different prices (refrigerators and air conditioners of
I different capacities, toothpastes with different attributes, etc.), (c) to promote a high
priced product using the lower price of another version of the same product, etc.
 Check Your Progress A Objectives and
Methods of Pricing
I) Give two reasons as to why "pricing" is considered important over other
marketing mix elements.

2) What are the revenue-oriented objectives of pricing?

......................................................................................................................

3) Are the following statements true or false?

i) Price represents only the values related to the tangible features of the
product.
ii) Pricing is governed by not only the internal factors of a company but also
external environmental factars.
iii) Sales maximisation will automatically lead to profit maximisation.
iv) Companies which want to create a "prestige image" for their products
normally price them high.
v) Price stabilization policy seeks to prevent price wars.

DETERMINATION I
Price is a point at which exchange takes place i.e. a point where demand and supply
rneet. Thus, factors on both demand and supply sides influence price setting. The
rnajor factors influencing price determination are:
I) The "value" of the product, as perceived by the buyer
2) Product costs
3) Competition
4) Company's policies
5) Government regulations
6) Other elements of marketing
Let us now study each of them in detail.

I 10.4.1 'Value' of the Product

As you know, any transaction is an exchange of money for a bundle of utility. For the
consumer, price represents the value of the product as perceived by him. The key to
pricing is, thus, the correct understanding of the value that the consumers perceive in
I
would like to "bargain", some other would buy only during "sales", while some would
buy only during "fairs" or in super markets, departmental stores, or duty-free shops or
Pricing Decisions in shops in specific areas in the city or town. Hence, price determination must be
based on a sound analysis of the consumer behaviour.
The level of demand for a product sets the "ceiling" for the price of that product. It is
not easy to estimate precisely the demand for a product. Hence, demand is taken as
an uncontrollable variable in marketing. According to demand theory, as you know,
price and demand are inversely related (though there are exceptions to this) i.e. a
price decline is associated with rise in demand and a price increase results in fall in
demand. Hence, a marketer must be aware not only of the absolute level of demand
but, more particularly of the sensitivity of demand to price changes. A measure of this
sensitivity is provided by the price elasticity of demand. Price elasticity of demand
is the relative change in the quantity demanded for a given change in price. It
is measured by dividing the percentage change in the quantity demanded by the
percentage change in price. The formula is:

(Qi - Q2) ( Q l + Q2)

+
Price elastic~tyof demand (E) =
(PI - P,l+ (Pl + P2)
Where Q , = Quantity demanded at the original price '

Q2 = Quantity demanded at the revised price

P, = Original price
P, = Revised price
Suppose demand increases by 10% when the price is lowered by 5% or demand falls
by 10% when the price is raised by 5%. the price elasticity of demand is -2 (the
negative sign indicates the inverse relationship between price and demand). In such
cases, the demand is said to be elastic since a certain change (decrease or increase)
in price has been accompanied by a more than proportionate change (increase or
decrease) in demand. On the other hand, demand is said to be inelastic if a certain
change (decrease or increase) in price is accompanied by less than proportionate
change (increase or decrease) in demand. Thus, if the total revenue (quantity sold x
price) remains the same or increases after a reduction in pnce, the demand for that
product is price elastic and if it decreases, the demand is price inelastic. Conversely,
during periods of price increase, if the total revenue remains the same or declines,
demand is price elastic and if it increases the demand is inelastic. Hence, the less
elastic the demand, the more it pays for the seller to raise the price and the more
elastic the demand, the seller gains more by reducing the price. However, while
reducing the price, the manufacturer must take care that the price of the product
covers costs. In general, demand for products such as necessities and those for
which no close substitutes exist is known to be price inelastic, since people have to
buy them irrespective of price. There can also be rare cases where a rise in price is
followed not by a decrease in demand but, on the contrary, by an increase and vice-
verse. This may happen in the case of fad items or prestige or exclusive items where
the customer segment is elitist and high price is associated with high quality and low
price with low quality. This also happens when consumers start stocking items during
periods of shortage (fearing further price increase) and wait in the wings during price
fall (anticipating further fall in price). Therefore, to determine the price of the product,
a marketer must be aware of absolute level of demand, elasticity of demand, and the
value perception of the product by the consumer.

10.4.2 Product Costs

While the level of demand sets the 'ceiling' of price, costs set the 'floor' price since a !
product's price should enable the company to cover the costs and leave some margin
as a fair return for the effort put in and the risk taken by the company. The 'costs'
I0
must.iuclude not only the cost of manufacture but also the costs incurred in
distribution, promotion and administration.
Cosls are broadly divided into two: ) 1 ) fixed costs and (2) variable costs. Fixed
costs are, as the term indicates, those costs which do not increase or decrease with
changes in production or sales level in the short run. Fixed costs are also referred to a
overhead costs. A company will have to incur certain expenses such as rent for the
building, expenditure on machinery, interest on the borrowed capital, salaries for some
staff, etc.. whether it produces to its full capacity or partial capacity or completely
stopsproductio~i.Variable costs vary directly with the level of production. These
include costs of raw materials, power, packaging, etc., whose consunlption is directly
related to the volume produced. They remain the same for each unit produced. Total
costs are the sum of the fixed and variable costs together for a certain production
level. Average total cost refers to the total costs divided by the number of units
produced. Generally a company would like to fix the price of a product to cover the
average cost plus a reasonable profit margin. Thus, if the average cost of the product
produced by n company is more than that of its competitors, it has to charge higher
price or make less profit than its competitors. Since fixed costs remain fixed
irrespective of production level, it is obvious that the average cost of production will
go on decreasing with increase in the production level till the production capacity is

The marketer must know in detail the fixed costs, variable costs, and average costs of
the products before determining their prices.

10.4.3 Competition
While costs set the 'tloor' and demand sets the 'ceiling', competition provides the
'I-eferel~ce point' for pricing a company's product. Under market conditions of
perfect competition (many buyers and sellers trading in a uniform commodity,
products tend to be priced low because buyers will not pay a higher price since there
are a number of substitute products at a given price and the sellers need not reduce
the price since there are many buyers at the going price. Under monopolistic
cornpctition, the market consists of many buyers and sellers. Therefore, exchange
takes place over a range of prices rather than a single price because the sellers are
able to differentiate their offers through product differences and/or varied services.
Buyers do not think that the products are perfect substitutes and hence are prepared
to pay different prices and sellers also try to develop differentiated offers for different
customer segments. Under oligopolystic competition, there are a few sellers who
are sensitive to one another's pricing and marketing strategies. Therefore, marketer
has to be very careful about changing the price of his product since any change will
invite retaliatory action by the competitors. A pure monopoly consists of only une
seller. Theoretically, a monopoly producer can price his product as he wishes, but in
practice, it may he difficult to charge a very high price as it may invite competition,
government action and consumer resistance. Thus, a company must be aware of the
co~npetitiveconditions in the market for the product before it decides on a price.

10.4.4 Company's Policies

Product pricing is generally tailored to the company's objectives and policies. If a
company desires to project an image of producer of high quality goods for a quality
conscious high-income group of consumers, then it will charge high prices for its
products. On the other hand, if it wants to project an image of a producer of a
product for the masses, then it will price its products low. Again, if it wants lo be one
of the many players in the market and does not want to influence the market, it will
confine the price of its product to the level acceptable to the mdjority of customers
Pricing Decisions and try to make adjustments in product quality, size, etc. Some companies follow a
policy of taking advantage of the psychology of the consumers to sell their products.
In that case such companies fix prices at a level to make the products appear
cheaper than what they really are (pricing a pair of shoes at Rs.199.99). Some
companies engaged in producing more than one version of the same product, try to
use lower prices of low quality products to promote sales of higher priced high quality
products while some others want to sew up the market by offering different versions
of the same product to different segments and pricing them differently.

10.4.5 Government Regulations

Since price is a sensitive issue, governments all over the world often try to ensure that
marketers do not take undue advantage of factors such as periods of shortage or the
company's monopoly position or financial muscle to drive away competition by
charging high or low prices as the situation warrants. Law enforcing agencies of the
Government are generally very active when it comes to the question of pricing
products used regularly by the poor and vulnerable sections of the society. There are
also consumer movements in many countries which keep a close watch on the
activities of companies.
Nowadays there is a general tendency among industries in almost all countries to lay
down standards of self-regulatory code of conduct for the member companies, and
industry associations ensure that the "member companies" do not violate the self-
imposed rules. Thus, there are government laws prescribing price floors and price
ceilings; almost all products are supposed to carry the selling price or the maximum
retail price (MRP) on the packages; laws against monopoly and restrictive practices
are in place to ensure that the companies do not misuse their monopoly position and
adopt practices which restrict competition. Since this is an external environment
factor, over which a company has no control, the company must adjust its marketing
strategy including pricing strategy to suit the regulations.

10.4.6 Other Elements of Marketing

Your have already studied that price is one of the 4 Ps (marketing mix) of marketing.
Like other three marketing mix elements, price is also influenced by and influences
the remaining elements of marketing mix. Hence, decisions in respect of pricing
cannot be taken in isolation of the decisions regarding the remaining marketing mix
elements. For instance, the customer segment which the company targeted is a
quality conscious well to do segment which also expects good after sales service. In
that case, obviously, the costs incurred in meeting customer requirements can be
recovered only by pricing the product appropriately high. Similarly, a personalized
product such as perfume or soap or garment, which warrants heavy promotion has to
be necessarily priced high. An intensive distribution channels and wide distribution
means costs and the product price should cover the costs. On the other hand, a mass
consumed product of low technology may be able to support only minimum costs.
Hence, price of the product is very much dependent on quality, brand, package,
service, distribution and promotion.

Check Your Progress B

I) What do you understand by "demand for a product is price elastic"?
......................................................................................................................
......................................................................................................................
......................................................................................................................
................................1....................................................................................
 2) Give two reasons as to why a monopoly producer may find it not very easy to Objectives and
Methods of Pricing
raise the price of his product indefinitely.

......................................................................................................................
......................................................................................................................
......................................................................................................................
3")hat is the difference between "fixed costs" and "variable costs"?
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
4) Are the following statements true or false?
i) The consumer perception of value of a product is related only to the
tangible attributes of the product.
ii) Demand for products considered necessities is, generally known to be

iii) Costs incurred by a company on packaging the product is fixed cost.

iv) Under conditions of perfect competition, it is difficult for a company to
raise the price of its product.

' 10.5 BASIC METHODS OF PRICE DETERMINATION

You have already studied how government regulations and various other factors are
important in price determination. Marketer also has to integrate its pricing policy with
policies pertaining to other marketing mix elements, otherwise, he will not be able to
remain in business. Similarly, the business enterprise cannot follow apricing policy
which is in conflict with or different from its overall policy and the corporate image it
wants to project. Hence, in practice, companies set prices based on one or more of
the remaining three sets of factors i.e. costs, the value of the product as perceived by
the buyer (demand) and competition. The approaches to pricing based on the above
three factors, are refereed to as (a) cost based pricing, (b) buyer based pricing, and
(c) competition based pricing. Let us now study about them in detail.

10.5.1 Cost Based Pricing

As the name indicates, this method pricing refers to the practice of setting the price
of a product on the basis of cost of the product and a certain profit margin. There are
two methods which are based on the product cost. They are: (i) Cost-plus pricing, and
(ii) Break-even-analysis and target profit pricing.
Cost-plus Pricing: This is perhaps the simplest method of pricing aggregating all the
costs of the product (all the costs incurred in producing, distributing, promotion,
branding, packaging, servicing the product, etc.) and adding the standard mark-up for
profit. The following is an illustration of the cost plus pricing method in respect of
Product X whose expected sales volume is 20,000 units.
Pricing Decisions Total manufacturing costs Rs. 90.000
Packaging, branding, servicing, distribution and Rs. 20,000
promotion costs
Administration costs Rs. 20,000
Total costs Rs. 1,30,000
Cost per unit Rs. 1,30,000 + 20,000 = Rs. 6.50
Suppose the company desires Rs. 1.5 profit per unit sold, then the company will
charge Rs. 8.00 per unit to the dealer. If the dealers want to earn 25 per cent profit
then they will mark up the price to Rs. 10 per unit. This method which provides for
taking into account the total costs, can be expressed as:
Selling price per unit = Variable costs per unit + fixed costs per unit + profit margin
per unit.
Cost plus pricing method appears logical and fair to both selIers and buyers. At the
same time, it is easy to comprehend and implement. However, it suffers from the
limitation as it ignores both demand and competition. In the above example, for
instance, the company based its unit price of the product at Rs. 8 on the expectation
that there will be demand for 20,000 units, On the contrary, if there is demand for
10,000 units only, then it has to charge a higher price because the fixed costs will
have to be spread over 10,000 and not 20,000 units. Similarly, if the demand exceeds
20,000 units, the unit costs will decline and if the profit margin remains the same, the
price will have to be lowered. Moreover, if the total capacity of production of the
company is 20,000 units, any excess demand will have to be met by expansion of
capacity, in which case the cost per unit will increase or the market will have to be
left dissatisfied which may lead to the consumers shifting their loyalty to the substitute
brands. Thus, it must be remembered that costs and price are inter-related and price
determines costs as much as costs determine price. Since costs vary with the level of
output, price also have to change with every change in output level caused by
changes in market demand, which is rather impractical. SimilarIy, in the above
example, though costs may justify a unit price of Rs. 8, whether the company will be
abIe to realize this amount will depend, to a great extent, on the nature and extent of
competition in the market, which is totally ignored in cost plus approach.
Bread-even Analysis and Target-Profit Pricing: Break-even analysis or a target
profit pricing, is another cost oriented approach to pricing. Companies, which want to
ensure a certain return on their investment, first decide on the profit they want to earn
and then determine the pricing that ensures them the budgeted profit. To arrive at the
price, break-even analysis concept is used. The break-even point is that level of
production where the total revenue equals total cost. This is the point wl~ere
the firm neither earns profit nor suffers loss. Production above the break-even point
leads to profits and production below the break-even point means the company has to
suffer losses. The formula for arriving at the break-even point is:

Break-even Point (BEP) Total Fixed Costs

in Volume -
Per unit contribution to fixed cos ts

- Total Fixed Costs (F)

-
Selling price per unit (P) - Variable costs per unit (V)

F
BEP = -
P-v
Figure 10.1 is a graphical presentation of the above formula. BEP is calculated in this
paragraph using the earlier example relating to Product 'X' (in section 10.5. in this
 .. .

Objectives and
Methods of Pricing

Sales Volume (Units)

Fig. 10.1: Break-even chart

The total fixed costs (administration costs) are Rs. 20,000; the balance Rs. 1,10,000
are variable costs and tlie company desires to price the product at Rs. 8 per unit.
'Iiien variable costs per unit becomes Rs. 1,10,000 ;20,000 = Rs. 5.50, because the
cl,mpanv is producing 20,000 units. Then
Total Fixed Cost
Selling Price - Variablecost Per Unit

'I'hkil;, if [lie selling price is set at Rs. 8 per unit, the company must sell at least 8,000
nits to break-even. At this point, the sales revenue will enable the company recover
tl!: fixcd costs totally, besides tlie variable costs incurred upto that point. Sales
beyond t1:Is level at the unit price of Rs. 8 will contribute to profit at Rs. 2.5 per unit

'i .. 2,1111 n targetprofit of Rs. 25,000, then the firm should be able to sell 18,000 units
(I!,h::X:t.:i:!iS plus 101000units). If the total capacity of production of the company is
2!i,Oi)O units and if it is able to sell the entire production, it will make a total profit of

Break-even analysis is userul for financial analysis and product pricing since one can
u w this technique to ascertain the profit or loss at different prices if a reasonable
estimate can be made of demand for the product at each price.
Though the break-even analysis is an useful tool for price fixation, it suffers from
certaiii limitations. First, the theory it may be possible to divide costs into fixed and
variable costs, but in practice, it will be difficult to divide costs exclusively as fixed
and variable. There may be certain costs which may not clearly fall into one or the
other categories. For instance, part of costs incurred on labour, power, servicing and
distribution may be fixed and part variable. Fixed costs are assumed to remain
constant till fill1 capacity utilization. But in practice, they may not be. Anyway, all
costs are variable in the long term. Assumption regarding constant unit variable costs
may not also hold true since it is likely that, with bulk purchase of inputs like raw
materials (as tlie demand for the final product increases), the unit price of the inputs
may decline leading to decline in variable costs. Similarly, selling price per unit may
also vary within tlie total quantum sold at a particular level of demand due to bulk
selling. l:ourtli, break-even analysis may enable the company to arrive at the number
ol'!~nitsrequired to be sold to break-even at different price levels, it cannot guarantee
Pricing Decisions that the company can actually sell as many units at those price levels. Finally, the
demand at different price levels is extremely difficult to arrive at with 100%
correctness. It is, at best, an estimate and due to sudden contingencies, the estimate
clan turn out to be even totally incorrect. However, the break-even analysis shows
the likely effect of different prices, costs and demand on the break-even point and,
hence, on profits. Table 10.1 is such an exercise in relation to Product 'X'.

Table 10.1: Break-even Volume and Profit at Different Prices

Price Contri- Sales Demand Total Total:c* Profit

of bution required at the revenue cost (Rs.)
Product per to break given
(Rs.) unit* even price
(Rs.) (units) (units)

12 6.50 3,077 10,000 45,000

"Product Price-Variable Cost per Unit

** Assumes fixed cost of Rs. 20,000 and constant variable cost of Rs. 5.50 per unit.
able 10.1 shows that, with every increase in the price of the product, the break-even
level declines and it is logical to assume that the demand for the product will also
decline with rise in price. It will be noticed that (i) the maximum revenue is not
earned either at the lowest price (highest demand) or at the highest price (lowest
demand) levels but at Rs. 8 per unit, (ii) the total cost declines with every decline in
sales, and (iii) the maximum profits are earned not at the highest or lowest prices, but
at a price of Rs. 10 per unit.
Assume that the manufacturer has invested Rs. 5,00,000 in the business and has
targeted a minimum profit of Rs. 50,000. None of the prices would enable him to
achieve that target. He will have to find out the price demand relationship to arrive at
the break-even point which will give him the targeted profit of Rs. 50,000.
You may learn more about Break-even analysis in MCO-5: Accounting for
Managerial Decisions, under Unit 16.

10.5.2 Buyer Based Pricing

This method of pricing is based on the belief that it is more logical to price a product
not on the basis of seller's cost or the competitors actions, but on the basis of
demand. Two methods of pricing based on demand are: (i) Perceived Value Pricing,
and (ii) Differential Pricing.
Perceived Value Pricing: Since price represents the value perception of the
product by the consumer, it is better to build a perceived value in the buyers' minds
about the product and then match the perceived value by price. For instance, different
restaurants charge different prices for the same product because buyers assign
different values for the same product at different places. For this technique to be
successful, the company must be able to correctly assess the value perception of the
buyers for different offers. Over-pricing or under-pricing will produce less revenue
than planned. Perceived value pricing will succeed more in the case of non-branded
personalized items.
Differential Pricing: This .method acknowledges the fact that the intensity of
demand for the same product differs from person to person, place to place, time to Methods of Pricing
time and product version to product version. Hence, different prices are charged on
the basis of person, place, time and prbduct version. For instance, different prices are
charged in a cinema hall or drama hall or music concert hall for tickets for different
classes of seats (person and place) though the performance is the same. Similarly, the
same product (fruits, candies, soft drinks, etc.) is priced differently depending on the
place of sale, whether it is a shop in the market or railway station or airport or
neighbourhood shop. Telephone rates are different on different days and at different
rimes on the same day. Hotels, lodges, airlines etc. charge different prices for the
same service during peak and off-seasons. Refrigerators and air-conditioners are
cheaper during winter season as compared to summer season and different versions
of the same product (with different packaging, for instance) are priced differently.

10.5.3 Competition Based Pricing

Since competition provides a reference point, pricing a product with reference to the
price of a similar or substitute product charged by the competitor is another pricing

Going-Rate Pricing: Under this method the company bases the price of its product
largely on competitor's prices for the same product or similar products without
bothering much about the product costs or the value perception of the product in the
consumer's mind or the differences in the intensity of demand for the product among
different consumer groups. Though the basis for pricing in this case, is the "going-
rate" in the market for the same product or similar products, it does not necessarily
mean that the price charged by a company would exactly be the same as the one

'I'he main logic behind this method of pricing is that, the "going rate" represents the
c,ollrctive wisdom of the industry regarding the demand conditions and the price so
decided will yield the optimum return under such demand conditions, Moreover, it is
not easy to exactly measure the consumers' value perception or demand elasticity or
consumer reaction to price differences. This approach also avoids unnecessary price
wars and heart burning among member firms of the industry. Going-rate pricing is
widely prevalent among sellers of homogeneous products involving low technology in
~ r o d u c t i oand
~ ~are bought frequently.
Sealed-bid Pricing: As you know, organisational buyers procure goods and services
by tender method. In this method, buyer gives the technical description of the product
1-eq11ired(to be bought) and invites bids by sellers. Each seller submits a sealed cover
containing the technical description of the product he would like to sell, its price and
terms of sale. The buyer opens all the bids (sealed covers) on a specified date in the
presence of the bidders. Then the buyer decides to buy from the seller who had
quoted the lowest price, if the technical specifications of that product matches his

When the company bids for contracts, it quotes a price which is generally based on its
~~ssessment of what the competitors prices would be for the same bid, rather than on
its own cost or demand. This is referred to as sealed-bid pricing. Since the main
objective in bidding is winning the contract, pricing is deployed as the main weapon to
achieve the objective.
!'r.!l.:~:o IIccisions When a co~npanybids for a contract, it has to balance two opposite pulls; on the one
hand it should quote the price as low as possible to win the contract, on the other
hand the price so quoted should be high enough to cover the costs and yield desired
profit margin. Price quotation under a a sealed bid is quite a difficult job. Firms which
bid only occasionally or for whom winning a bid is a question of survival, generally
quote the lowest price. On the other hand, firms which participate in bids regularly
and are not deficient in resources try for lone term profits rather than win every bid
by'quoting the lowest price or make money in every bid.

10.6 LETUSSUMUP
Pricing objectives inust be decided in accordance with the company's overall
marketing objectives. Pricing objectives may be broadly classified under thrce heads:
( I ) profitability objectives (including profit maximisation and target return on
investment), (2) sales volume objectives (including sales maximisation and market-
share maximisation), and (3) other objectives (including price stabilisation, survival,
market penetration for prevention of competitor's entry into the market, and building
image as a supplier of quality goods). 1

I
Whlle determining the basic price of the product, marketer must keep in mind several
factors such as the perceived value of the product to the buyer, costs of production of
the product, competitors' products and their prices, Government regulations,
company's own policies and the other three elements of marketing mix.
j
While deciding selling prices of goods and services, business enterprises may adopt i1
any one of the following three approaches: ( I ) cost-oriented approach, (2) demand- i
oriented approach, and (3) competition-oriented approach. 1
i
In cost-or~entedapproach, cost is the ma-jor basis of fixing price. In this approach
there are two methods: (1) 'cost-plus' pricing, and (2) target-profit pricing. Cost plus
p ~ i c eis arrlved at by aggregating the relevant costs and adding to it a margin of profit.
Target profit pricing is based on the break-even analysis.
I
i
1
Major consideration in price setting under demand-oriented approach is the buyer's
demand intensity and perception of the product's value and utility, rather than the
product costs. There are two distinctive methods under this approach: ( I ) differential
i
or discriminatory pricing, and (2) perceived-value pricing.
I

The decisions and actions of competitors, rather than the company's product costs or
demand levels, form the basis for setting the price under competition-oriented I
approach. Thc firm neither maintains it\ own cost records nor seeks to measure the
demand intensity nor buyer's perceplions towards the product. Going rate price
I
comes i~ndcrthis approach. I

10.7 KEY WORDS

Break-even Point: The point of sales at which a companj's total revenue equals
total cost\.
Contribution: The difference between per unit price of the product and the variable
cost per unit.
Fixed Costs: Costs that do not vary with the level of production or sales.
Monopolistic Competition: A market condition where there are many buyers and
sellers trading over a range of prices.
Oligopolistic Competition: A market condition where there are a few sellers who
are sensitive to one another's pricing and marketing strategies.
Price: Amount of money charged for a product or service.
Price Elasticity: A measure of the sensitivity of demand to price changes.
Pure Competition: A market condition where mariy buyers and sellers trade in a
unifoim commodity.
Pure Monopoly: A market in which only one seller operates.
Variable Costs: Costs that vary with the level of production.

10.8 ANSWERS TO CHECK YOUR PROGRESS

A . I ) (a) Price is the only marketing mix element that generates revenue.
(b) Price is the most flexible of all marketing mix elements.
2) (a) Current profit maximisation.
(b) Achieving desired return on investment.
3) i) False ii) True iii) False iv) True v) True
B. 1) A certain change in price has resulted in a more than proportionate change in
demand in the opposite direction.
2) (a) High price itself may invite competition.
(b) High price may invite government intervention andlor consumer
resistance.
3) Fixed costs remain fixed irrespective of the level of production or sales while
variable costs vary with production level.

1) Discuss, in detail, the objectives of pricing.

2) What are the different methods in price determination? Explain them in detail
listing out the advantages and limitations of each method.
3) Write brief notes on the following:
i) Perceived-value pricing
ii) Differential pricing
iii) Sealed-bid pricing
iv) Price-demand relationship
4) Explain the various product-price adjustment strategies.
5 ) A company manufacturing a product 'X' has the following costs:
Variable cost = Rs. 10 Fixed cost = Rs. 3,00,000
The company expects to sell 50,000 units and wants to earn 25% profit on
average cost of production.
i) What will be the break-even point in terms of volume of production?
ii) In case the demand at break-even point is 42,000 units, calculate the total
revenue, total costs and the profit.

Note: These Questions will help you to understand the unit better. But do not
hubmit your answers to the University. These are for your practice only.
 identify different types of discounts and allowances offered to customers and Price Adjustment
distributors;
explain various pricing methods relating to price adjustment according to
geographic-locations of the buyers;
discuss various terms'of delivery used in international marketing contracts and
their implications on price quotations;
describe alteinative pricing strategies for new products;
identify the advantages and disadvantages of fixed pricing vis-a-vis flexible
pricing; and
state the concept of unit pricing and its utility.

11.1 INTRODUCTION
i The job relating to pricing does not end once the basic price of a product has been
i1 ~irrivedat (as discussed in Unit 10 earlier). In fact the job has only begun. The
conipally has to decide as to how it is going to recover the costs incurred in ,

i transporting the product from the production point to each one of the customers.
Charging the entire transportation cost in the product price may push the price to
u~lcompetitivelevels, while not charging the transportation cost at all will definitely eat
I
into pn~fitsor even it may incur losses. Another decision pertairis to the incentives to
be offered to consumers and distributors for loyalty, service, bulk purchase, cash
purchase, off season purchase, etc.

i While the'above pose a particular set of challenges, pricing a new product poses a
1 different type of challenge. Should the product be priced high or low? What will be
1I the reaction of the customers and competitors to a high price and low price? How a
high price or a low price impact the image of the company?
j Companies in multi product business have to sort out another problem, i.e., the
I problem related to pricing of the product-mix. Finally, should the company provide
i some margin in the product price for bargaining by customers or should it stick to a
t
Fixed price?

There may be situations like change in the prices of raw-materials, government taxes,
distribution costs, etc., where it may be necessary to increase or decrease price of
the product. Similarly, the competitors may change the prices of their products, where
you are forced to change the price of your product too. How to respond in such
situations?
This unit discusses all the above aspects of pricing in marketing management.

11.2 WHY PRICE ADJUSTMENT?

You have studied in the previous unit various methods of fixing basic price of your
products. After arriving at a basic price for the product, you have to make
adjust~nentsin that basic price. Price adjustments may be brought about aspart of a
deliberate marketing strategy or due to factors beyond the control of the company.
For instance, increasing competition in airline and telecommunication industries has
forced price reduction in the sectors. Similarly, fal.lingdemand has brought about price
reduction in the tourism and hotel sectors. Marketers may be compelled to make
adjustment in product prices due to increase or decrease in costs. Sometimes price

margin.
Pricing Decisions To make your product available to the ultimate consumers, you engage several
middlemen such as distribution agents, wholesalers, retailers, commission agents, etc.
You have to decide how much margin you give to each of them. Therefore, you have
to decide how you adjust the basic price to provide margin to each of the middlemen
in the distribution channel. Marketers may have to make adjustment in prices to
reward customers and distributors for their loyalty, prompt payment, bulk purchase,
off season purchase, promotion of the product, product support services provided, etc.
For example, you know that less price is charged in the case of cash purchases, price
of a product is less in the off season, price is less when purchased in large quantities.
These are all price adjustment strategies adopted by marketers. To promote the latest
models of their products, a number of companies offer "trade in" facility to the
customers i.e. reduction in the price of a new model in exchange for an old model.
Price adjustment also becomes necessary when a company moves up from a single
product producer to a multi-product producer because the objective is to maximize
profits of the product-mix and not a particular product.
Thus, as a marker you have to adjust the basic price to change in the costs, provide
margins to middlemen, discounts and allowances to customers and middlemen for
various services they provide, geographical variations in transport and other incidental
costs, etc. You will study various methods of such price adjustments in the succeeding
sections in this unit.

11.3 DISCOUNTS AND ALLOWANCES

The price of a product is generally indicated on the packagellabel. Companies also
prepare a list of prices which indicate the prices to be paid by the customer for the
listed products. However, in practice, most companies adjust the listed prices to
reward customers for certain responses such as on the spot payment, bulk purchase,
off season purchase, etc.

11.3.1 Cash Discount

Cash discount refers to the reduction in price when bills are settled promptly, i.e.,
payments are made timely. It is normal practice among many retailers to charge
different prices for the same product depending on whether it is purchase on credit or
on down cash payment basis. Normally, price is lesser for cash payment than the
credit sale. When sales are made on credit and if the buyer settles the bill sufficiently
earlier than the due date,it is a general practice to allow a discount in the price. For
instance, if it is indicated in the bill as "2110 net 30" it means that although the buyer is
given 30 days to settle the bill, he can deduct 2 per cent of the bill if the payment is
made within 10 days. For example, Municipal Corporation of Delhi (MCD) gives in
House Tax if it is paid in advance within a specified time period. Cash discount does
not discriminate among buyers, and all those who meet the t e n s get the same benefit
of the facility.
From the marketer (seller) point of view, there are certain benefits of cash discount.
It improves the liquidity position of the seller and reduces the risks involved in credit
sales, such as bad debts, late payments, etc. It also reduces the costs associated with
keeping accounts, employing collection staff and borrowing to finance the credit.
From the buyer's point of view, a cash discount means money saved and the saving
will be substantial for large purchases. The rate of cash discount is normally
moderate and comparable to bank interest rates, it is neither too high nor very low. A
company may not be able to afford a high cash discount without cutting into its own
profits. Moreover, by nature, a cash discount should not be too high since it will then
lose its relevance. A very low discount, on the other hand, may not be enough to
motivate the buyers to settle the bill in advance promptly. Cash discount has become
customary in many industries.
11.3.2 Quantity Discount Price Adjustment

Discount given on price on the basis of the number of units of the product (quantity)
purchased is called quantity discount. For instance, "Rs. 10 per unit upto 100 units and
Rs. 9 per unit for every unit purchased over 100" is an instance of quantity discount.
In this case, a discount of Re. 1 per unit is given for the quantity purchased over and
above 100 units. The logic behind offering quantity discount is that sales in huge
quantities means less unit cost of sale. It is common practice among places of tourist
interest such as museums, parks and zoological parks to charge less per ticket for
visitors in groups. Similarly, airlines also offer, though not discount in price per ticket,
some free tickets is there is bulk booking of tickets. It is a common experience where
retailers offer 'Buy One Get One Free', '3 for 2', 'Buy One & Get 50% Discount on
the Second', etc.
Quantity discounts are of two types: (1) non-cumulative, and (2) cumulative. Non-
cumulative discount refers to the discount given on each purchase of a specified
quantity of the product at a time from the same seller. The example in Table 11.1 is
an Instance of non-cumulative discount.

Table 11.1: Non-CumulativeDiscount on Shampoo

No. of Shunlpoo Bottles (100 ml) Discount from List Price

Bought at a lime
upto 5 Nil
6- 10 2%
11-15 3%
16-20 4%
21 andabove 5%

Above is an illustration where the discount is expressed in terms of percent from list
price. Alternatively, the same may be expressed in terms of reduced price per unit of
purchase as the number of units bought goes up as shown in Table 11.2.

Table 11.2: Non-CumulativeDiscounton Shampoo in terms of Price per Unit

N o . of Shampoo Bottles (100 ml) Selling Price Per Shampoo

Bought at a Eme Bottle (100 ml)
Rs.
Upto 5 50.00
& 10 49.00
11-15 48.50
15-20 48.00
21andabove 47.50

When discount IS given in the form of a reduction in the price of a product or a group
of products based on the quantum of purchases made by a buyer from the same
seller during a spec~fiedperiod, it is called "cumulative discount" or "deferred or
patronage discount" signifying that discount is given as a reward for patronizing a
particular seller for a reasonably long period. The more a buyer buys during a
specified period, the more he will get as discount. An illustration of cumulative
quantity discount is provided in Table 11.3.
Pricing Decisions Table 11.3: Cumulative Quantity Discount

Annual Purchase Discount from List Price

(No. of units of the product)
Unto 10,000 Nil
10,001-20,000 2%
20,001-30,000 3%
30,00140,000 4%
40,001-50,000
Above 50,000

Cumulative quantity discounts are given to attract and retain buyers who make
repeated purchases of a product over a long period. Generally, cumulative quantity
discount is aimed at buyers of industrial goods who use the goods as inputs in the
production of consumer goods and distributors of consumer goods since the demand
for any consumer goods from a single consumer is not expected to be of high order.
This type of discount is usually given at the end of a specified period.

11.3.3 Functional Discount or Trade Discount

Discount offered by the seller to trade channel members (intermediaries) such as
wholesalers and retailers for performing certain functions like storing, sorting,
information collection, record keeping, customer servicing, etc., is called functional
discount or trade discount. The rate of discount given depends on the type of
channel member and the nature, extent and the quality of services provided. Different
types of middlemen may be allowed different rates of discount depending upon the
functions and services they provide in the distribution of the product. Thus, the
discounts offered to wholesalers, retailers, distributors, stockists are different.
However, the discount will be the same for all channel members of the same level for
a particular service provided. For example, all the wholesalers may be offered the
same discount and all the retailers receive the same discount.

11.3.4 Seasonal Discount

It is normal practice among most companies to offer discount from the list price
during certain seasons. For instance, manufacturers of air-conditioners, air-coolers,
refrigerators and fans offer price discount during the winter season which is the off
season for these products. Similarly, woolen garment makers offer discounts during
the summer season. During major festival seasons such as Diwali, Dashera, Pongal
and New Year, a number of sellers offer price discounts on almost all durable
consumer goods. The strategy behind seasonal discounts is that during periods when
there is less demand for products (seasonal demand) or when consumers are in a
mood for shopping, they may be motivated to buy your product more by offering
discounts even though the product may not be put to use immediately. Such discounts
help the company to reduce mismatch between production and sales from one period
to another, reduce inventory costs and avoid keeping labour idle during off seasons.
Hotels and airlines offer seasonal discounts to attract tourists during off-season.
Seasonal discounts are also offered to wholesalers and retailers to encourage them to
place orders and keep stocks during off season. At times, middlemen pass on whole
or part of such discounts to customers.

11.3.5 Allowances
There are discounts given for other functions/reasons to dealers and customers,
known as allowances. Promotional Allowance is a price reduction to reward
 dealers for undertaking promotion of the product such as adverttsing, product display Price Adjustment
and demonstration, participation in trade fairs and exhibitions, word of mouth publicity, Strategies
etc. A Trade-in-Allowance is price reduction given to the customer for trading in,
that is, turning in an old item when buying a new one. Nowadays it is common for
companies to trade-in durable consumer goods such as refrigerators, television sets,
washing machines, mixers etc. Such an allowance is an incentive for customers to go
in for the latest model of these products although they may have, with them, the
earlier models. Trading-in offers to the customer the double advantage of price
reduction in the latest model of the product and, at the same time, finding a way to
dispose of the old model.

Check Your Progress A

I) Differentiate between functional discount and promotional allowance.
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
2) Differentiate between cash discount and quantity discount.
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
3) State whether the following statements are correct or incorrect?
i) When a buyer settles the bill promptly, the reduction in price that is offered
to him is called cash discount.
ii) Deferred or patronage discount is given when the buyer buys the same

in substantial quantity.
iii) Cumulative quantity discount is generally aimed at the consumer rather than
the distributor.
iv) Seasonal discount enables the manufacturer to meet seasonal demand.
V) Trade-in offers practical solution to the customer's problem of disposal of
the old model of the product.

1 . 4 GEOGRAPHICAL PRICING
b
i
You have studied the methods of deciding the basic price of the product. Then you
have studied how to adjust.the price through discounts and allowances for seasonality,
intermediaries,quantum purchased, rewarding intermediaries for their additional
services, etc. Another major pricing decision to be taken by the marketers relates to
the policy in pricing its product to customers located in different parts of the country1
world. When the product is transported from one place to the other place, you have to ,

incur costs like labour charges for loading and unloading, transportation, insurance,
storage and warehousing, customs and excise, etc. Some of these costs increase with
the increase in distance. Since the cost of carrying of the product from the factory to
a distant customer will be definitely more than that of carrying it to the customer in
the nearby location, the company has to devise a carefully thought out method to
ensure that it does not lose business from distant customers by loading the entire
transportation cost on to the price charged to them or alternatively annoy the nearby
1 Pricing Decisions customers by making them share a high proportion of the cost of transporting to
distant customers. Therefore, you have to decide the policy whether you charge all
customers uniformly irrespective of their location or charge differently as per the
distance or location. Following are some of the methods available to marketers to sort
out this problem.

11.4.1 FOB-OriginPricing
Under the FOB (Free on Board) Origin Pricing method, the customer has to bear the
entire transportation cost and other incidental costs like unloading, insurance, etc.
from the first point the product is loaded on to the truck, shiplboat, airline or train. The
seller bears only the cost upto loading the merchandise (goods) on the carrier, while
the buyer bears all the remaining expenses. This obviously means that the return to
the seller will be constant while the product price will differ from one group of
customers to others depending on their location in relation to the point of production.
In the case of movement of the product by rail, this method is referred to as FOR
(Free on Rail) Origin pricing.
Since each customer is expected to bear the expenses involved in moving the product
to the place where he wants it, it appears that FOB-Origin Pricing is a fair and
equitable way to allocate freight charges as per the distance of buyers. It is also easy
for the seller to comprehend and implement. The advantage of this method is that the
product will be highly priced to a distant customer and quite cheap to a nearby
customer. Therefore, customers may like to buy from the nearby suppliers in order to
avoid high costs. In case you adopt this method of geographical pricing, the distant
customers may gradually shift to competitors nearer to their locations. It means that
all companies may have to contend with selling their products only to nearby
customers and no company can perhaps hope to capture a distance market. This, in
fact, will create geographic monopolies, each company enjoying a monopoly in the
closeby markets and the consumer being denied the benefit of choice.

11.4.2 Uniform Delivered Pricing

Unifonn Delivered Pricing refers to the practice of charging the same price to all the
customers, irrespective of their location. This is done by averaging out the freight cost
and distributing it equally on each unit of the product. This method of pricing is, at
times, referred to as "postage stamp pricing" since postage rates are the same within
a country for all destinations. The advantage of uniform delivered pricing is that it
does not discriminate among customers based on distances and easy to administer. A
company may advertise its price nationally and project a national image of the
company. Many products of common use such as soaps and toothpastes are priced
the same all over the country. However, the risk you face in following this strategy is
that a competiting company which adopts the FOB-Origin Pricing technique may
price out your company's product in locations close to that company, because under
FOB-Origin pricing method the costs would be lesser for short distances.

11.4.3 Zone Pricing

. Zone pricing is a compromise or a middle path between FOB-Origin Pricing and
Udiform Delivered Pricing. Under this method, the entire market is divided into a
number of geographical zones and each zone has a separate price fixed on the basis
of the average freight cost to the zone. The product is sold at one price within the
zone, irrespective of the location of the customer in that zone. For instance, India may
be divided into four zones, say, North, South, East and West, and all the customers in
the north zone will pay the same price for a product which will be different from the
prices charged to the customers in each one of the other three zones and vice-versa.
The advanrage of this method of geographical pricing is that it is a fairly equitable
method of allocation of freight charges since it avoids the extremes of the earlier two Price Adjustment
methods and it is also easy to administer. However, customers living in one side of the
border of two zones will find that they have to pay a higher price than those on the
other side just because their place did not fall on the other side when the line dividing
the nlarket into zones was drawn. Second, it also suffers from the same disadvantage
as uniform delivered pricing in that customers located in distant zones may find a
competing company's price offer more ~ L L ~ ~ : : ! Y Psince
, the company is located
nearby and is following the FOB-Origin Pricing strategy.

11.4.4 Basing-Point Pricing

In this method of pricing, the company selects a particular city or town as the "basing
point" and the price of the product includes the transportation costs from the selected
"basing point" to the location of the customer irrespective of the place from which the
product is transported. For example, a company might set New Delhi as the "basing
point" and charge all customers the cost of moving the product from New Delhi to
their location. In this example, if the product is manufactured at Kanpur, a Kanpur
customer is charged the transportation cost from New Delhi (basing point). Though
close to the actual product point, Kanpur customer has to pay a price higher than the
one paid by a New Delhi customer. Thus, using a place, other than the place from
which the goods are actually transported as "basing point" raises the product price to
customers near the production point and lowers the to those close to the "basing
point" even if the latter are located far away from the place of production as
compared to the former. One way of getting over this anomaly is to set up multiple
"basing points" and charge the customer for transportation from the nearest "basing
point". This is almost like zone pricing. Actually, to overcome the disadvantages of
zone pricing, basing point pricing is deployed.
-
11.4.5 Freight Absorption Pricing
There may be instances like "free home delivery" where a company charges only
sale price and does not charge anything additional from any customer as freight
charges. The price of the product includes the freight charges and all customers are
charged the same price irrespective of their locations. Since the freight expenses are
mostly borne by the seller, this method is referred to as "Freight Absorption Pricing".
This method of geographical pricing is suitable in the following situations:
a) when the competition in the market is very severe and the company has no
choice but to keep the price of its product as low as possible, or
b) when the company wants to penetrate into a new market, or
C) when it expects large business to be generated due to its product price being
low, which in turn will have the effect of lowering average costs.

11.4.6 Price Quotations in International Markets

Price quotations for exports depend on the terms of delivery. There are several well-
accepted standardized terms in regular use in international marketing. These terms
known as "INCO Terms" have been evolved by the International Chamber of
Commerce, Paris. Each price quotation (term) carries with it the rights and
obligations of the sellers and buyers. As a marketer involved in exports and imports,
you must familiarize yourself with all such price quotations and the associated rights
and obligations. Some of the popularly used international price quotations are as
follows:
EXWEX Works (....Named Place): Under this quotation, the seller delivers the
goods at his premises (works, factory, warehouse, etc.) and the price he quotes
includes all expenses upto that designated premises. It is the buyer's responsibility to
Pricing Decisions meet the costs and risks associated in moving the goods from that seller's designated
premises.
FCA-Free Carrier (....
Named Place): This quotation means that the seller has to
hand over the goods into the charge of the carrier named by the buyer at the named
place. The price quoted by seller will cover the expenses upto the point when the
goods are handed over to the carrier.
FAS-Free Alongside Ship (....Named Port of Shipment): Here, the seller has to 1
ensure that the goods are placed alongside the vessel on the quay or in lighters at the
port of shipment and the price includes the expenses upto that point.
I

FOB-Free on Board (.... Named Port of Shipment): Price quotaticn under an

FOB contract should include dl the costs till the goods have passed over the canier
at the port of shipment named by the importer. 1

C&F-Cost and Freight (.... Named Port of Destination): Under a C&F

contract, the seller has to incur all costs and freight charges necessary to bring the
goods to the named port of destination. This means that the price includes the freight
element but any additional costs due to events occurring after the goods have been
delivered on board the vessel have to be borne by the buyer.
CIF-Cost, Insurance and Freight (.... Named Port of Destination): CIF
contract means that the seller, in addition to meeting his obligations under a C&F
contract, has also to procure marine insurance against the buyer's risk of loss or
damage to gbods during carriage. This implies that the seller's price should include
the cost incurred by him on marine insurance premium besides the costs incurred
under C&F contract.
The above are some of the widely used quotations in international business. Besides,
there are other quotations such as CPT (carriage paid to), CIP (carriage and
insurance paid to), DAF (delivered at frontiers), DES (delivered ex-ship), DEQ
(delivered ex-quay, duty paid), DDU (delivered duty unpaid), and DDP (delivered
duty paid). Each one of the above quotations has implications on product pricing and
on the rights and obligations of the seller and buyer.

11.5 PRICE CHANGES

Once a company decides on the price for its product, it does not mean that it can
hope to maintain the price at the same level indefinitely. In fact, there may be
occasions where the companies are forced to increase or decrease prices due to
changes in marketing environment. It is generally known that marketing is an
integrated function and decision in respect of any one of the market~ngmix elements
influences the decisions in respect of others and, in turn, is influenced by decisions in
respect of the others. However, product and price share a special relationship and
often adjustments are made in the product to meet some problems cropping up in the
pricing area. Following are some such product-price adjustment strategies. As far as
price changes are concerned, companies often face two types of situations:
a) Initiate price change
b) Respond to price changes by competitors.
Now let us discuss these issues in detail.

11.5.1 Initiating Price Change

Due to changed market conditions you may decide to reduce the price or even
increase the price. However, while you initiate price cut or price increase, you must
keep in mind how the buyers, middlemen and competitors react to it. Now, let us
briefly discuss these issues.
Price Cuts: For instance, a firm may reduce the price of its product when there is Price Adjustment
declirw in raw material prices, since it makes sense to pass on the benefit of lower
costs to the consumers. However, if the reduction in costs is likely not to last long,
then it would not be advisable to reduce the product price, as you have to increase the
price again consequent to increased raw material prices. This may lead to consumer
resentment and resistance. Sometimes you may decide to reduce price as part of a
deliberate strategy to increase sales and, thereby, market share. For instance, the
reduction in airfares which have become quite frequent now in India is an example of
price reduction for raising market share. Same is the case with the steep fall in cell
phone tariffs. Sometimes you may reduce prices in response to price cuts by
competitors to piotect your market shares. This is what is happening in the airlines
business and the cell phone business today and what happened in the daily newspaper
business some years back.
Better utilization of the manufacturing capacity may be yet another reason for price
reduction. If the company is not operating its manufacturing capacity to full extent, it
may decide to reduce the price with an anticipation of increase in sale. A reduction in
price may result in demand increase leading to higher capacity utilisation, lower unit
cost of production, increased sales, greater market share and higher profits.
Some companies may, as a strategy, not like to adopt "follow the'leader" policy in
pricing. Hence, opt for price reduction rather than charge the same price as the
leader though the other companies may not like to price their product lower than that
charged by the leader.
In times of cost increase, if it is felt that corresponding price increase should be
avoided or not possible, the product may be adjusted in terms of quality andlor
quantity and the price may be left undisturbed at the earlier level. Conversely, if costs
decline, rather than reducing the price, the company may offer a better quality or
higher quantity of the product at the old price and may gain a better image and higher

Whatever may be the reason for price reduction by a company, this strategy hides the
danger of snowballing into price-wars which may not ultimately benefit any company.
Price Increase: Price increase may be caused by rising costs. Rising costs squeeze
profit margins and companies may be forced to raise product prices in order to
maintain the profit margin. Companies generally would not like to raise the prices
frequently every time the costs go up but, they may increase the price more than the
increase in cost thus providing a cushion for further cost increases in the near future.
There have also been instances of price increase to curb excess demand when the
company finds it difficult to meet the requirements of all its customers. A company
may increase the price of its product just to make more profits when it finds that
there is not much of competition in the market or if the company happens to be the
"leader" in the market.
Price increases are generally resented by customers and even by dealers. To some
extent. the adverse reactions of the customers may be softened by communicating
the reasons for price increase to the customers. Instead of raising prices directly, a
company may adopt indirect methods such as reducing discounts, adding higher
priced units lo the line, curtailing production of low margin product items, etc., are
some examples. It is important that you communicate the customers reasons for
increase in prices. If you increase the prices frequently, customers may perceive that
you charge excessive prices. You must be careful about this factor.
Similarly, to accommodate rising costs, rather than increasing the price, the product
form andlor packaging may be changed to reduce costs. For instance, introducing
refill packages and offering beverages in powdered mix form rather than as liquids
Pricing Decisions (thus avoiding the cost of water and container) as earlier or in small unit packs for
one serving (pan masalas) which have the effect of reducing costs/increasing price
are some examples of this technique.
To accommodate rising costs, certain facilities that wzi-c hitherto part of the price
charged, such as free home delivery or free after sales service may be given up or
may be provided on payment only. Thus the bundle of utility, earlier provided to the
customer, is unbundled. Conversely, during periods of decline in costs, rather than
reducing the product price, new features can be added to the bundle without charging
anything extra for the added utilities.
When rise in costs make it unavoidable to raise prices, certain additional facilities
such as providing credit, arranging finance for purchase of a high unit value item and
supplying products on instalment basis are offered by firms to persuade the customers
and dealers to purchase the higher priced product.
Customer Reactions to Price Changes: Price revisions, both downwards and
upwards, provoke different types of reactions from buyers, competitors, distributors
and even government. An excessive price reduction might be interpreted by
consumers as an attempt by the company to dispose off defective rroducts or
products of poor quality. Sometim~scustomers may also get the impression that the
company is in financial trouble and may close down the operations soon. They may
think that the companyWill shortly introduce newer models of the product and hence
is disposing of the old models at reduced prices. Some consumers, in anticipation of
further price reduction, may postpone purchases. There may also be consumers who
may consider price reduction as reflective of the ethical standards of a company.
A price increase may have positive meanings for some buyers and negative meanings
for some others. When a company raises the price of its product, some buyers may
take the price increase as an indication of better quality of the product or it is the
latest model and a "hot" item. Such customers may rush to buy it fearing further price
increases in future or the "hot item" may run out of stock soon. On the other hand,
some other customers may feel that the company is greedy and is trying to exploit the
consumer.
Competitors Reactions to Price Change: Just as consumer reaction to price
changes, your competitors may also react to a price change by your company. Each
competitor will generally react according to his self interest. However, majority of the
competitors may react in a set way. Under market conditions of pure competition, if
the company initiating the price change is not a marginal player, the competitors are
likely to match the price change. On the other hand, if the company initiating the price
change is a marginal player and/or there is evidence available to prove that the
company is performing poorly, the competitors are unlikely to match the price change.
Some companies, instead of matching the price change, may compensate the
consumer in other ways through sales promotion, discounts, product service,
packaging. incentives, etc.

11.5.2 Responding to Price Changes by Competitors

We have discussed that a company must be ready with strategies to take proper care
of the customers' and competitors' reactions to the price change that it may initiate.
In the same way, the company also be ready to respond to price change initiated by a
competitor. First of all, it should try to find out the reasons behind the competitor's
price change strategy; whether it was caused by changing cost conditions or it was
prompted by excess capacity or a desire to gain more market share or lead an
industry wide price war? It should also try to find out the possible responses of the
other competing firms to the change in price and whether the price change was going
to be a long term revision or a temporary reaction to some unforeseen developments.
 Internally, the company must consider its own costs, the product's stage in life-cycle, Price Adjustment
'
its strengths and weaknesses vis-a-vis competitors, how important is the particular
product in its product mix, etc. Since a company may not always find time to
undertake such a detailed analysis of the factors mentioned above, it may have to
react ~mmediately.The only way to cut down on the response time is to be ready with
alternative responses to possible price changes by competitors.

11.6 PRICING A NEW PRODUCT

One of the greatest challenges a company may face relate to the pricing strategy it
should adopt when it introduces a "new product" into the market. The "new product"
need not necessarily be a real product innovation but the market should consider it
"new'' In the sense that the majority of customers must feel that no close substitute is
available i n the market at that point of time. Two approaches are available as regards
pricing a new product:
a) Market-Skimming Pricing Strategy
b) Market-Penetration Pricing Strategy
Now let us discuss these two strategies in detail.

11.6.1 Market-SkimmingPricing
Setting high prices for the product initially is referred to as market-skimming
pricing strategy. As the name indicates, the objective is to "skim" the market, for
high revenues, as much as possible. Companies like Polaroid Corporation are known
to follow skimming pricing policy. The strategy is to set a high price for the product,
skim the creamy segments of the market, generate as much revenue as possible and
[hen, as competition develops, bring out lower priced versions of the product to draw
in new segments.
The advantage of this pricing strategy is that high price helps recover initial
investment fast. This I S particularly necessary for products which involve high
research and development (R&D) expenditure and high marketing costs. The funds
so realized by skimming the market can be utilized to finance entry into other
segments of the market, if and when necessary. Also, it has become necessary for
companies to recover as much finances as early as possible in the present days of
shorter product life cycles. Skimming pricing strategy generally creates a high quality
image for the product and helps build up strong brand loyalty among status conscious
segment of customers. In iiny case, it may be easier and advisable to start at high
price, ~undif need be, reduce the prlce subsequently rather than start at low price and
find it difficult to raise the price subsequently, even if it is just~fied.
The r ~ s kassociated with skimming-pricing strategy is that high price normally tends to
attract competltlon and limits market size in due course. Besides, it projects a poor
image of the company as a soc~allyand ethically irresponsible one.
Market skimming makes sense under certain conditions. Firstly, the product must be
constdered "new" by the target segment and it should take time and substantial
rebources for competitors to develop substitutes. Secondly, the demand for the
product should be inelastic. Though the size of the segment may be small in terms of
the number of customers and the sales volume (in terms of units) the value of the
sales should be high and profits also high. The small segment should comprise elitist
buyers such as trend setters but the demand (measured in terms of value of
purchase) should be sufficiently high to justify production for such a small sized
segment and the costs of producing a small volume should not be high enough to
cancel the advantage of producing for a limited number of buyers.
Pricing Decisions 11.6.2 Market-Penetration Pricing
Rather than setting a high initial price and skim a small segment, market-penetration
pricing strategy advocates setting as low an initial price as possible in order to
penetrate the market as fast and as much as possible. Companies like Texas
Instruments are known to be users of this strategy. Low price is expected to attract
high volume of business which, in turn, will have the effect of lowering the costs
further. The advantage of penetration-pricing strategy is that low price generally
discourages competition and hence gives substantial market share to the company
practicing this strategy.
It suffers from the disadvantage that charging low price may leave considerable
consumer surplus in the sense that, if the market is prepared to pay a higher price,
then the company charging a lower price stands to lost revenue. Moreover, low price
may generate very high demand and, if the company if not able to match supply with
demand, its'reputation may be affected. Low price also tends to be associated with
low quality of the product and poor service.
The conditions favouring deployment of penetration-pricing strategy are the opposite
of those favouring deployment of skimming-pricing strategy i.e. the product does not
involve much of investment for R&D and marketing. It should be relatively easy for
competitors to come out with substitutes. The demand is elastic and the market is a
mass market in terms of number of buyers, sales volume and value and the unit profit

Check Your Progress B

1) List the different geographical pricing strategies.
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
2) Why does a company initiate price changes?
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
* Differentiate between market skimming pricing strategy and penetration pricing
3)
strategy.
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
4) Stite whether the following statements are correct or incorrect.
i) Freight absorption pricing means that the buyer has to absorb the
transportation cost.
ii) Under an FOB contract, the buyer has to incur the freight costs.
i Penetration pricing strategy is advocated for selling low unit value low
technology items.
iv) Zone pricing is of great advantage to customers living in distant zones.
 V) Market skimming pricing strategy means that the company is not bothered Price Adjustment

11.7 PRODUCT-MIX PRICING STRATEGIES

It is not often that a company manufactures only one product and hence has to
formulate pricing strategies taking into account only one set of relevant factors. Even
if a company, at the time of its establishment, may begin only with one product, over
the years it may grow into a multi-product firm. The strategy for setting price to one
product may not work for another product or most of the other products. In fact, at
times, what works for one product, may turn out to be counter-productive for a
number of other products. Hence, there may be a need for pricing strategy, when a
product is part of a mix, which is different from the strategy when the company is a
single product company. In a product-mix pricing strategy, the firm has to look for a
\et of prices that maximizes the profits on the total product mix.

11.7.1 Product-LinePricing
Co~npaniesmanufacturing a product-line (different versions of the same product such
as different capacities of refrigerators, various models of cars, all varieties of toilet
soaps, etc.) may decide on the price steps to be set between the various versions of
the product by taking into account the cost differences, differences in consumer
perception and competitors' prices. For instance, your company is manufacturing
colour TVh of various models of 14" TV, 21 " TV, 25" TV and 29" TV. Normally the
pnce of 14" TV would be the lowest and 29" TV price would be the highest. Here
you have to decide the price of each of these four models in comparison with each
other taking into account cost factors, technical features, consumer segments,
consumer perceptions about the models, prices of comparable models of competitors'

11.7.2 Optional-Product Pricing

In this strategy, the buyer is given the option to buy accessory products alongwith the
main product. For example, along with the television set you may sell other
accessories like TV stand, TV cover, remote, voltage stabilizer, etc. Similarly, central
locking system, car stereo, gear lock, seat covers, perfume, etc. are optional products
you may or may not buy alongwith the car. There will be a base price for the main
product and each of the options offered will have separate price. The company has to
decide which items to build into the base price and which to offer as options. The
pricing strategy should be carefully worked out in such a way that most of the options
should not remain unsold. At the same time, the buyer should not feel that he is
forced to pay unnecessarily for the options separately while the accessories should
have come free with the main product.

fl.7.3 Captive-ProductPricing
There are certain products, which cannot be used without certain other products.
Examples of such products are safety razor with razor blades and shaving cream,
toothpaste with tooth brush, cameras with films, computers with software, fountain
pen with ink, etc. Manufacturers of such complementary products may use captive
product pricing strategy where the main product is priced low while the supplies can
be priced relatively high. Companies which are in the business of only the main
product will then find themselves priced out from the market. This is also the strategy
being followed by companies in the business of durable consumer goods (such as
cars, television sets, refrigerators; etc.) where the spares, components and servicing
Pricing Decisions are charged relatively high while the relatively low prices of the main products make
them competitive.
In the case of services, the strategy is called two-part pricing. The price of the
service comprises two parts, a fixed fee and a variable usage fee. For example,
telephone companies charge a fixed monthly rent plus charges for calls made during
the period over and above the minimum number of free calls. The service company
must make the basic service fee low enough to attract customers and profits should
mainly come from the variable usage fee.

11.7.4 By-Product Pricing

In a number of industries, production of main products throws up by-products which
also find usage. For instance, a number of by-products emerge in petroleum refining.
The same is the case in many chemical industries. In the cashew industry, extraction
of cashew kernel throws up cashew-nut-shell liquid, cashew apple. The famous drink
"Feni" (popular in Goa) is extracted from cashew apple. Using by-product pricing, a
company can keep the price of the main product competitive. At the same time,
company also finds a way of disposing of the by-products.

11.7.5 Product-BundlePricing
Under this strategy, sellers can combine a number of their products and offer the
bundle at attractive price. For example, it is a common experience during festive
seasons, retailers offer durable goods like refrigerator, washing machine, TV as a
bundle at a single price which is much lower than the total price you pay for each of
them separately. Tour operators often offer package tours which include air travel,
hotel and food, sight-seeing, insurance, visa fee, airport taxes, local travel etc. The
price of the total package has often been found much lower than the sum total of the
prices of each item separately. If the product bundle is priced attractively, it will
stimulate the sales of all items in the bundle.

11.8 FIXED PRICE AND FLEXIBLE PRICE

It is common practice in countries like India to find some products being sold at the
same price to all customers and some others being sold at different prices to different
customers. In the latter case, prices may vary according to the quantity of sale (bulk
purchases being offered price concession) or the loyalty of the customer to the shop
(frequent buyer of the same product getting price concession) or familiarity of the
customer with the seller or hard bargaining may bring in price concession. A
company should take into account the nature of the product, the profile of the
customer segment, the margin of profit, etc., in deciding about the pricing policy. It is
common practice in India to sell products at prices less than the Maximum Retail
Price (MRP) indicated on the package and high unit value durable consumer goods
such as refrigerators, air-conditions and television sets being offered at different
prices to different customers. In fact, one of the industries where flexible pricing
policy is being followed aggressively is the travel and tourism sector, tourist operators
offer same package tours to different customers at different prices depending on
familiarity with the customer, customer loyalty and relative bargaining power. While
flexible pricing policy offers the seller flexibility in dealing with different customers
and, at the same time, leaves consumer surplus among the customers, it has the
danger of some customers doubting any price quoted by the seller. Fixed pricing
policy, on the other hand, builds customer confidence and the seller and the company
and saves the time of both the buyer and seller, which would have been spent if they
were to bargain.
 It I \ nornmal to ilnd products l ~ k tooth
e p l \ , v prftrme\, vegetable oils, b ~ s c u ~ tetc., s,

one k~logram,f ~ v k~lograms,

e
-
being offered In p,lckage\ of d~fferrnt,\I . \uc17 3.. SEji 1 :iii, 1 OO 17~1.50 gms. 150 gms,
etc P r ~ d u c t ,01., cs,:. .. 11.1 tlrbtergent cakes al\o
come 111 cllfferent we~ghtssucli i ~ 75 s trrll' ' 1 0 L ~ I I I . :C
I ., -. ja ;ck,i~esciury
d~fferentp r ~ c e sand often tt bvcctrneb clltt cult tu , , . ,\f d~fferentbrands
became the quantltles offered 1;1.1yd ~ t t t 11, ~(>In r ~ i , ~ n u i ~ c tc, t ~ ,~,ii:~~lhi:tircr
,rt~~ and

11.10 LETUSSUMUP
Companies often have to adjust the price of' ~ i r e i lpn i l l i.c..!x:lnse to changes in
l*l~ri:;

costs and demand and competitive and environmei7\al ccl~c!il:clis.Similarly, companies

also resort to ad-justment in listed prices, reward custurners a r ~ ~iistributors
l in the
fornl ctf discounts and allowances. While discounts to clrc.i:,nil,rsare related to the
qu:untuln of one time purchase, quick settlernent of payrrrg:ill and :>I'f-seasonpurchase.
distributors are rewarded for the services provided by them. In t h ~ context, s the firm
has to decide the adjustment in base price for cash discount, quantity discount,
functional discount, seasonal discounts and viirious allowances.
One of the areas relating to which a company should have a clea -cut pricing strategy
pertains to recovering the cost of transporting the product from the product point to
the consuming point. A nu'mber of alternative strategiqs are available in this regard,
varying from one extreme of loading the entire freight cost on to the proriizict to the
other extreme of the company completely absorbing the freight c o ~ tin ; hetween.
there are other alternatives of distributing thc t r a n s p o r t a t : ~cost
~~ ~~l~iformonl ythe
entire sales volume, or zone-wise or basing-poitlt wise. While cproting for exports cr
while importing, a company must not only use the internationally acccl~tedquotations
but also be familiar with the implications of the cluotaticm?:on pricing as well as the
I-ightsand obligations of the seller anti buyer under each of tlic quotations.
Oicasions may arise when a rompany finds that the prcduct price warrants revision.
What is important is not that much revising the p;ice but, more importantly,
. anticipating the reactions of customers: distributors and competitors to price change

111 pric~ngw ~ l lbe when a new product has to he p c e d : a company rnay charge a h ~ g h I
conyetit ive conclitions.
While pr~cinga s ~ n g l eproduct h I.11 own ch,ilit:J~sek.p-lc~rigsctrateyy i'or a rnlx ot
11roduct\ paws another set of chnii,.i1~e~:itlatt.p~i:s such as prod:~~i-line pricing,

\el ler may follow a polir.\~ l ; h , ~ I pl-lc<or tht ,tlit 1 . 1 + 11 :dx ,his p i c e ~
61i ' ~ g
' ~ - 1 ~ l i '

on the nature of product and rna,ket d1kJ cost L c 1s1< + ;S~-~TIUT;.,.

Allowance: Reward or prIc,e ~t'Juctrl~n g ~ i t113

' ~(.l1~!'.1Dutor4
~ cv~torne-5,or
;i~~(!/i~r
prornot~nga product or huy~ngthtl i . l ~ h : . ' ivr-io:, oECic qrt~du,-t-r!place nf the old
vel \ I on.
where the main product is priced low and the secondary product is priced high.
Cash Discount: Reduction in list price given to a buyer when a bill is settled within a
specified time period.
CIF Contract: Contract between an exporter and importer, where the exporter has
to incur all the costs, including the freight and marine insurance premium costs, upto
the port of destination.
Geographical Pricing: Pricing strategy adopted to accommodate the freight
expenses incurred in moving the product from the point of product to the consuming
point.
Market Skimming Pricing: Setting a high price for a new product and thus
skimming the cream of the market.
Market Penetration Pricing: Setting a low price for a new product and thus
gaining a large niarket share.
Quantity Discount: Reductio~!in list price given on the basis of the quail~ityof
purchase.
Seasonal Discount: Reduction in list price given for purchases made during certain
seasons.
Two-part Pricing: A pricing strategy for services in which price is broken into a
fixed price plus a variable usage rate.

11.12 ANSWERS 'TO CHECK YOUR PROGRESS

A. 1) Financial discount is the discount offered to the trade channel members by a

reduction for undertaking promotion of the product such as advertisement,

display, demonstration, etc.
2) Rs. 20,000
3) i) Correct ii) Correct iii) Incorrect iv) Incorrect v) Correct
B. I ) FOB-Origin Pricing, Uniform-delivered pricing, Zone pricing, Basing-point
pricing, Freight absorption pricing.
2) Due to change in costs, to increase saleslmarket sharelprofits, to meet
competition, for better utilisation of manufacturing capacity, to follow a
strategy different from that of the "market leader", to curb excess demand.

customer segment should be elitist, the value of sales and profits should be
high, cost of a small volume of production should not be high.
4) i) Incorrect ii) Correct iii) Correct iv) Incorrect v) Incorrect

11.13 TERMINAL QUESTIONS

I) List and explain the various geographical pricing strategies.
i
2) Distinguish between: 1
i) FOB-Origin pricing and FOB contract pricing i
 ii) Zone-Pricing and Basing-point pricing
iii) Cumulative discount and non-cumulative discount
iv) Fixed pricing and flexible pricing.
3) Examine the conditions under which "Market-Skimming Pricing" and "Market-
Penetration Pricing" can be deployed and also analyse the advantages and
disadvantages of each of the above pncing sii~tegies.
4) Write short notes on the following:
i) FAS (Named Port of Shipment)
ii) C a h discount
iii) B y-$roduct pricing
iv) "Trade-in" allowance. L
Note: These questions will help you to understand the unit better. Try to write
answers for them. But do not submit your answers to the University for
assessment. These are for your practice only.
Structure
0bjec"Lji-s
Introduct ail
Regul:~tionof Prices u n d ~ the r MKW Act
12.2.1 T;'r,.+le Price hlaintenancf
i? 2.2 PI-il.ci !~jci:inination
i2.2.3 C'ollective Pric: : ' t > . :;r,;- Kno ~ : - i Agreement
)~t
y:.,
:7
iL
!I
i ".iL1t<>ry
.. ,
t Ft-i,:ia.g
~

, .,..;.. ;:,! :::: ,.,.~ii'i8.;:;;,..:k'jl~l~;~

i2..i.i: :. l,.,; $:;;st ,.a i.~.~:->,jndblyHigh Prices

Kegl!lat~i;rr ;I ~ ' :rpg
i 11ilil ,-i.he Consumer Protection Act

12.3.1 E,;~(XS,: ~:-fi:, :.$

12 3.3 f{,lr&,31,i 2tt.d 1 ',*: :.

K e0~ *~ ti:.^
l : (:f l'ricing ljn,.;i. ...
/
. , .. % .
'

12.4.1 Thc I:~.~cnliiil

Conlrrrii.!I:!;. >L (, l!j:>.i
12.4.2 The D i ~ ~ (Control)
gs Acl. 1950
12.4.3 The Industrie:; (Development ni?d Kcgi11. , .*.I; Act, 195 1
12.4.4 Bure;lu of Industrial Costs and Pricing
12.4.5 l'hc Standards of Weights and hfcasures (PacC:rycd Co~nnioditics)Ralzs, 1977
Let Us Sum Up
Key Words
Answers to Check Your Progress
Terminal Questions

After studying this unit, you should be able to:

o identify various legislations which regulate pricing policies in India
o explain how various legislations regulate prices in India.

You havc aliendy studied variol~s,pricing policies and strategies. But while deciding
pricing s!rai!:~ies il is also important for you to keep in mind the legislative provisions
regarding price.. Regulation of prices is consid~redas orie of the important means of
a(:h~cvinpthe socio-ec.onomic goals in many countries. The irrlportant factors that call
for !vice control and regulation in countries like India are short supply of goods and
services, i~nrcasonablelevel of prices, unfair trade practices and black-marketing. low
levcls of in:ome of a large nunher of people, etc. h~ India. a number of legislations
seek Ln regalate pricing policieu a n d practices. They 11icl11dc the Monopolies ;md
Kcctrjct~veI'rade Practices Act, 1969 (Soon likely to br replaccd !JY Competition Act,
20021, the Consumer Protection Act. 1986, thi: Essential Comnloditics Acr, 1955, the
Prevention of Black-Marketing and Maintenance of Supldies of Essential
Coml-nodities Act, 1980, the DI-LIES (Corltrol) Act. 1950. the industries (Develo~ment
and Regulation) Act, 1951, and the Star~d~~rrls ~f IXsights & h9easures (Packaged Regulation of PIices
Commodities) Rules. 1977. In this unit we ~;.l,:illdis.:iis.; t ! i~:ni:?r
~ provisions of these
legislations reg:trding the regulation of pticss ciCgti.!ods an::l \.:I iires i l l India. The

--,-

12.2.-- REGULATION OF PRICES UNDER THE hIR'L'Y ACT

- U
p
-
s

The prevention of certain trade practices that are detrimental to the ct nsu,i;i::s'
interest is one of the major objectives of price regulation. In India, the Monopolies
a ~ i dRestrictive Trade Practices Act, 1969 seeks to prevent the mc~nopolies,
restrictive and unfair trade practices since these are prejudicial to the public. interest.
The provisions relating to the regulation of trade practices also covcr-pricing practicc~
indulged in by the sellers including manufacturers, wholesalers and the retailers. .Llic
practices regulated under this Act are: resale price maintenance, price discri~ninati:.:).
collective price fixing, predatory pricing, bargain and deceptive pricing, and ch3igir;;:
of unseasonably high price. Let us discuss these aspects in detail.

12.2.1 Resale Price Maintenance

With a view to exercise control over the price to be chargeti cn tht. te-srtli. of the
products, a manufacturer stipulates the price to be charged hy the dealers, thcieby
not permitting them to sell below the suggested price, I.r~si>~ence by the n~nnut.actntr:-
that his product should not be sold below the price indic;ded by hirn may eli~iai:late
competition among the distributors of the product. This may tend tc.) keep the p~ic:c
paid by thc consurner at a level higher than what it would have becu c~11.1.rr\;,ire.
Thus, the practice of re-sale price maintenance nlay benefit the manolacmr-er arid tile
dealers. It may, however, deprive the consumers of the benef'its that m : t j accrue tu
them because of price conlpetition anlong the sellei-s. I'lires ;:IC lived at a i,jg! :i,
level under re-sale price maintenance because of wllic.11cui1ramet.s have t o 1 : ~ j '

What exactly amounts to re-sale price maintenance?

Lel it not he understood that re-sale price maintenance involves only insistence on the
part 01' the manufhcturer or wholesaler that the goods shall not be sold below the
stated price. As per E.rplmnafion I of Section 40 of the MRTP Act, 1969, thr:
practice of re- ale price maintenance in relation to sale of goc?c!l;irei:lu&e:;:
(i) suk~gestinga minimum price;
,;)I' -
(ii) recom~nerldinga particular price without specifically pe:!~i-(?ij: ..&r te ~ 1 1
at it lower price:
(iii) though suggesting the price to be maximum retail price. hut inciutir~pthnr the
goods shall not he sold for a price less than the suggestetl m:.!?-irfillir,rts\aiI ~ r i r . ! .
T h u . apparently the price suggested is lo be maximcrn rrtzi!.>:;-1.! J! \. irtv.~lly
becolnes the minimum price to be charged.
Furthel; under sub-section (2) c?f'Sectiorz 39 of MRTP Arr. I(i69, the p~.ai-.iiceo'
re-sale price maintenance shall include a notification to dealers ar otfnr~wice
publicnt~onon, 01 ii; relation to, any goods, a price stated or inzended s o kc utr&:.;..:.r~md
as the minimum price which may be charged on the resale of goids i;-i Lr::'i.:.
Thus, under the practice' of re-sale price maintenance, the wii,,~z.~lerLr rd:.i!k.: < . ;77)r
given the freedoll1 to sell the goods below the r.eco~n~nendecii-c sale prici,. Poi.
Pricing Decisions example, in a reported case relating to RRTA vs. Bata India Ltd. (1976!, Bata India
Ltd, had sales organization throughout India and uniform sale prices were fixed by it
all over India. The price lists circulated to wholesalers, dealers, etc., contained
wholesale price per pair and retail price per pair for each type of footwear and the
retail prices were embossed on the footwear. Such a clause fixing uniform sale price
of respondent's footwear throughout India amounted to re-sale price maintenance.
Held, that the trade practice of re-sale price maintenance as complained of in the
application would cease if the respondent conspicuously stated on the price lists
issued by it that the wholesalers and retailers were free to charge a price lower than
those specified therein and if it embossed on the footwear the words and figures
'price not to
exceed Rs ...'
The above discussion shows that, in certain cases, re-sale price maintenance is highly
detrimental to the interests of the consumers. To regulate the practice of re-sale price
maintenance in India, the MRTP Act prohibits the fixation of minimum re-sale price.
The Act provides that any agreement of sale between a person and a wholesaler or
retailer shall be void if its objective is to provide for the establishment of minimum
price to be charged on the re-sale of goods in India.
The Act further lays down that no supplier can withhold supply of any goods to any
wholesaler or retailer if that wholesaler or retailer refuses to or fails to abide by the
suggested resale price. Likewise, such wholesaler or retailer cannot be treated less
favourably than the other dealers in terms of discount', credit terms, etc.
The situations where a supplier is allowed to intervene and insist that goods be not
sold below a certain price are:
(a) Where a re-seller is selling those goods at a loss, i.e., below his cost and,
thereby, using the goods as a loss leader. A re-seller is said to use goods as loss
leader when he resells them otherwise than as a genuine seasonal or clearance
sale not for the purpose of making profit, but for the purpose of attracting
customers for his other goods or advertising his own business.
In Tri-ad Trading Services Limited vs. State of Tamil Nadu (2000) 36 CLA 62
(Mad.), it was held that to substantiate the claim that the dealer is using his
product as a 'loss leader', it has to be established that the dealer is incurring
losses.
(b) If the MRTP Commission makes an order of exemption, MRTP Commission
may grant exemption, that is, allow the practice of re-sale price maintenance, if
it is satisfied that in the absence of a minimum re-sale price system:
(i) the quality of the goods or their variety would be substantially reduced to
the detriment of the public as consumers or users; or
(ii) the retail prices, in general and in the long run, would be increasing to the
detriment of the public as such consumers or users; or
(iii) the necessary services actually provided with the sale of the goods by
retail would cease or be reduced substantially to the detriment of the public
as consumers or users, for example, newspapers.
Contravention of provisions relating to the prohibition of maintenance of minimum
re-sale prices shall invite punishment with a fine upto Rs.5,000/- or imprisonment for
a period upto three months, or with both.

12.2.2 Price Discrimination

When a manufacturer or supplier of goods charges, for the same or similar product, a
higher price from one dealer and a lower price from another, the practice is referred
to as price discrimination. The discrimination in price can be made either through
 fixing and charging different prices from different buyers or by granting discount, Regulation of Prices
commission, allowance or rebate at different rates to different buyers. The practice
has an adverse effect on the competition since the dealer who has paid a higher price
for the product cannot compete effectively with the one who has paid a lower price
for the same product. Moreover, by allowing quantity discount or favourable terms of
sale or delivery in excess of what is justified by cost-saving in bulk supply, the seller
is, in effect, charging a lower price to a bigger dealer. This enables that bigger dealer
to re-sell the product at a price lower than that charged by the smaller dealer. 1I
Furthermore. discrimination through the grant of a turnover bonus (often termed as
'aggregate rebate') has the effect of binding the buyer to the seller for a certain
!
period. This will strengthen the seller's control in the market.
Price discrimination has an adverse effect on competition in as much as buyers of the
product will suspect the smaller dealer for overcharging and may thus shift to the
t bigger buyer. After competition is eliminated, bigger buyer may not pass the additional
discounts to the ultimate consumer.
Price discrimination is a restrictive trade practice under the MRTP Act. Such a
practice is regulated through the mechanism of an inquiry conducted by the MRTP
Commission which is empowered to pass a cease and desist order against the party
indulging in this practice. The Commission's "cease-and-desist" order has the
statutory backing like that of a civil court. Apart from passing the 'cease and desist'
ordel; the MRTP Co~nmissionis also empowered to award compensation against the
loss or injury suffered by any person or class of Ijersons as a result of such trade
practice.

12.2.3 Collective Price Fixing or Knock-out Agreement

I
Sometimes manufacturers and suppliers of goods and services enter into an
agreement or understanding to eliminate competition among themselves, by fixing
common prices and other terms of sale for their products or services. Such an
agreement (or arrangement) leads to a formal or informal cartel, which can envisage
unifonnity in the price fixation of competing firms. Collective price fixing can also
take the form of collusive tendering and collusive biding or bid rigging.
Collusive Tendering: You may be knowing in the construction work, installation of
plant and machinery, procurement of materials by industrial/commerciaI users,
procurement by Government Departmentsflnstitutions, etc., adopt tendering method.
, There are two types of tendering: (a) open tendering where it is advertised in the
media and sealed bids can be submitted by any supplier (b) limited tendering where
bids are invited from few bidders. The first approach is followed normally when the
* amount involved is more and time is sufficient. The second method is followed when
the amount is small and need is urgent. The buyer provides specifications of the work
or materials in the tender document while the suppliers provide specifications and
price of the materials he would supply by filling the tender:All the tenders are opened
on a pre-decided day in the presence of all bidders. Then the bidder whose
specifications match with buyer's requirements and offers the lowest price will get
the contract. This is brietly tendering.
Thus, it is a practice whereby sellers (or buyers) of goods or services secretly agree
on the prices, or other terms or conditions of sale or purchase, to be quoted in
response to a tender. They would quote such rates and terms as would make the
offer of only the pre-decided tenderer acceptable. This practice results in unduly high
prices of products or services offered for supply. The opposite will be the situation
when the tenders invited are for the 'disposal of any product'. In that case the rates
quoted will be too low.
Pricing Uecisioas Collr, .i,r Uipci~!;nlcl,; or Bid R;;;,,giurg: Collusive bidding is the counterpart of collusive

The system ;.
tendel i i i C ' : ,rn - * " i IS where I :goods are s,,:.~htto be disposed of through auction.
-+?( - i : ~ namong
t certain cr m.,lislions which dispose of surplus goods
throuz" ,:-::?tcr,, \31rha view to get 1 1 h::~ ~i-.,c possible price In the auction system,
poducr I R L ~ Lilvailabl;:
~Z for physical L ..t~~iinationand all thc buyers publicly offer
r k p LC.The buyer whoever offers the highest price will get the product. However,
tltc 'u,!,2, i ;!:ld it a convel~:citt I f ccci .qa.tiilg the seller's effort to raise the

price of the pro,luct. 1hey agrec 'ir,t,siig diu:il,el\es on the price or other terms (or
conditions) of sale, or purchase of goods cr services, to be offered at the auction. The
collusive agrement, arrangement or ~ll~desstanding, a.rlong the bidders, leads to the
manipulation of' prices of tl;c products or services offered for sale t!>rough auction.
Thus, collective price fixing. collusive tendering and collusive bidding have the effect
of restricting and eli:;.inatii~gCL npetition whiilt amounts to a restrictive trade
practice, The provisions for the ~egulationof these prxtices are t h s,,r ~ a those
for other restrictive trade pra~ticesdescribed in PI ;i.: dr ,criminatio~~.

12.2.4 Predatory Pricing

Anothe: way to elimii.,,:e or educe competition in the ri~,z.btr-tis to charge a slashed-
d o ~ r,..,e
n \\:~ic!~can be ev::l below the cost i::cult cd the Ut-anufactureror
.+I.

supp:i,: ufti:, !:.uriig,:. I i ~ i is

s often done with the i~lter~titora,Iving out a smaller
cornpetilor a d c\ e1,tl.,lt making profit by the ~nonopolj: > ~ t ~ a so l i ~created.
n Such a
trade practice i , I., :i,:d
~ ; t l i n RS prcdltory pl;ii!:g,

In Motlern Food I~~r,,..r;.tt~.s "EL,);, :. k.,., ;.eld t , ~ ;r: require; 1:) be established that
the pricing below cost c,i; .:.h in:c.:l r ~3 d.iGeCL;: ~ 2 : :i .r cut C T business.or to
a

eliminate compc-tition. Mere (.ffer ^ e ~ ' c : ; .-:e7 lu,tcr I ; , : , : c a d t.! production cannot
automatit nlljs l e ~ i dto ' l r l i ~ r c i ;if),,
~ : (.,' :I ..,.
lcl:.; .... zg.
Again, in Britrnlzr~icrblcl'rutries Lzi, tri. I / . * , ! r , t ~ - (1986), the q ~ ~ t s t i owas
r ! whether
MIS. Johnson and Johnso:? !,tL was pr<:<u.ti18predatory pricir:g with aview to
throwii~gsmall n i a r l u f a e ~ ~ ~2: eti~ of
a t i i ~ i lJc;:nson
~. and Johnson L-td., the respondent,
were ~nanufacturingnearly 300 ~ a r i e t i e s l s i ; .oP ~ ~sutures using modern technology
and expertlse and qual~tycontrol under the te.;:,,ii:al gi~idanceof world famous
'Ethicons' On the other hand, the petitioner MIS. SMB b e r e a small-scale unit
manufacturing ol~lynon-absorbable sutures with 100% indigenous technology having
a nomlnal share in the market. The petitioner's complaint was that the respondent
indulged in predatory pricing In their qwtations of their product to the Director
General, Armcd Forces Medical Se, vices Depot, Delhi Cantt., Mgith a view to
eliminating competition from .i'L,~anufacturerslike the complainant. The question
before the Commission was fir.i;rp:er t!.e quoting of lower prices than the prices
charged from dealers amounted lo predatory pricing. The Commission had already
ruled in Trl Szire Indin Ltrl, Bornbuy tnat the essence of predatory pricing was
pricing below one's cost with a vicw to eliminating a trade rival. An attempt was,
therefore, made to arrive at the cost of production of the respondent on the basis of
the material cost, excise duty and expenses allocated on the basis of the proportion of
sale of each item to total sale. The cmerglng ~;-1t:,reshowed that in no case quotation
had been given at a price below the cost price. 111:,I, ; I . \ V.E-:aiices, it was held that
to sell a small portion in public interest to Governttlrnt call i3rl,t be treated as restrictive
trade practice of predatory pricing, particularly, when the rates are above cost of

Predatory pricing, as noted above, if intended essentially to eliminate competition, it

amounts to a restrictive trade ptactice and invites the same regulatory measures
under the MRTP Act discussed under price discrimination.
12.2.5 Bargain Sale and Deceptive Pricing Regulation of Prices
Sellers often attract buyers on false promises. A particular product is offered on a
slashed-down price, but the intention of the advertiser is only to lure the buyer so that
he may buy some other products. For example, a dealer advertises a particular brand
of 21 inches television set at Rs.8000/-. Once the intending buyer is lured to the
show-room for buying the television set, the dealer would avoid the sale of that
television set, disparage its features, den~otl;Lz*ss, defective one, or impose an
unreasonable delivery date. Instead, the seller may persuade the same buyer to buy
another brand of television or any other product.
Since the bargain pricing and deceptive pricing tend to mislead the consumers, such
pricing practices amount to an unfair trade practice under the MRTP Act. Unfair
trslde prilctices are sought to be regulated by the MRTP Commission which is
empo*ered to conduct an inquiry into the said practice. If the Commission is satisfied
that the practice amounts to an unfair trade practice, it passes prohibitory order
("cease and desist order)" against the party concerned. Besides, compensation may
also be awarded to the aggrieved buyer.
12.2.6 Charging of Unreasonably High Prices
In order to maximize the profit and market power, businessmen often charge
unreasonably high price. This happens when a company is in a monopoly position to
control production, supply or distribution of goods or services, hecause of their
dominant position in the market. Charging of unreasonably high price amounts to a
monopolistic trade practice under the MRTP Act. Such practice is sought to be
regulated through the instrumentality of the MRTP Commission and the Central
Government. While the inquiry is conducted by the MRTPCommission which is a
statutory body enjoying many powers of the civil courts, the final order is passed by
the Central Government (Department of Company Affairs). Apart from passing a'
prohibitory ('cease and desist') order, the Central Government enjoys wide powers of

Check Your Progress A

1) List the pricing practices by the seller which attract the provisions of the MRTP

......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
2) , Distinguish between predatory pricing anp price discrimination.
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
3) Distinguish between collusive tendering and collusive bidding.
......................................................................................................................
.......................................................................................................................
......................................................................................................................
......................................................................................................................
Pricing Decisions 4) Match the pricing practices given in Column A with the names given in
Column B.

Column A Column B
i) Pricing is slashed-down below the a) Re-sale price
cost with a view to eliminate competition maintenance
ii) Sellers havea secret agreement on the b) Collusive tendering
price to be quoted in response to a
tender notice
iu) A price charged on the re-sale of a C) Price discrimination
product by a retailer
iv) A manufacturer of goods charged d) Predatory pricing
different prices from different dealers
for the same products
/

12.3' REGULATION OF PRICING UNDER THE

CONSUMER PROTECTION ACT
The Consumer Protection Act, 1986, as amended by the Consumer Protection
(Amendment) Act, 2002, provides some measures for regulating two types of pricing
practices: 1) excessive pricing, and 2) bargain and deceptive pricing. Let us study the
relevant provisions in detail.

12.3.1 Excessive Pricing

Charging of high prices from the consumers shall invite action under the Consumer
Protection Act where the price charged by a trader or service - provider is in excess
of the price -
a) fixed under any law;
b) displayed on the goods;
c) displayed on any package or container;
d) displayed on the price list exhibited by him by or under any law for the time
being in force;
e) agreed between the parties.
Such pricing is sought to be regulated through the instrumentality of the law
enforcement agencies set up under the Act. This machinery consists of District
Consumer Disputes Redressal Forum set up in each district, State Consumer
Disputes Redressal Commission set up in each State and Union Territory and the
National Consumer Disputes Redressal Commission at New Delhi.
Consumer Protection (Amendment) Act, 2002 further provides for constitution of the
State Councils for every State to be established by the respective State Governments.
The object of every State Council shall be to promote within the State the rights of
the consumers including the right to competitive prices. It may be noted that the
requirement of establishment of StateCouncils is in addition to the Central Council
already established by the Central Government under Section 4 of the Act which is
also responsible for promoting and protecting the rights of consumers.
Action is initiated on the complaint received from any consumer, any recognized and
registered consumers' association, the Central Government or State Government.
'
The redressal forums at the District, State or National level serve as quasi judicial Regulation of Prices
bodies (special courts) set up fbr the redressaf of grievances of consumers against
the seller in relation to supply of defective goods, deficient services, charging of
excessive prices, and indulging in any restrictive or unfair trade practice. They enjoy
wide powers of ordering replacement of goods, return of the excess amount charged
and awarding of compensation for any loss or injury suffered by any consumer or
groups of consumers. ''. _.

12.3.2 Bargain and Deceptive Pricing

The meaning attached to bargain and deceptive pricing under the Consumer
Protection Act is the same as under the MRTP Act.
If the suggestion or indication of the price of a product or the charges for any service
materially misleads the public, it will attract punitive action under the.Consumer

excessive pricing.

Check Your Progress B

1) List the circumstances under which a pricing practice may attract legal
provisions of the Consumer Protection Act.
...................................................................................................................
'1.

...........
..................................................................................,........................
.......................................................................................................................
......................................................................................................................

......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
3) State whether the following statements are True or False.
i) Deceptive pricing is sought to be regulated under the provisions of both the
MRTP Act and the Consumer Protection Act.
ii) Any consumer can make a complaint regarding charging of price indicated on
the label of the product through the Consumer Protection Forum.

12.4 REGULATION OF PRICING UNDER OTHER ACTS

There are some other legislations which seek regulation of pricing policies and
practices in India. These include:
1) The Essential Commodities Act, 1955
2) The Drugs (Control) Act, 1950
3) The Industries (Development and. .Regulation) Act, 1951
4) The Standard of Weights and Measures (Packaged Commodities) Rules, 1977
Now let us study the provisions of these Acts in detail.
Pricing Decisions 12.4.1 The Essential CommoditiesAct, 1955
As you know, hoarding and black-marketing have become very serious problems
during periods of shortage. An effective system of control should prevent the creation
of artificial scarcity by the unscrupulous businessmen for profiteering. Other major
problems in India are the spiraling prices and continuous shortage of certain essential
commodities such as edible oil, vanaspati, petrol, kerosene, sugar, tea, cement, paper,
etc. The legislative measures for overcoming these problems are incorporated in the
Essential Commodities Act, 1955. Under this Act there are two important provisions:
1) fixing the prices of essential commodities, and 2) regulation of prices of food-
stuffs. Let us study these two provisions in detail.
Fixing the Prices of Essential Commodities: The broad principle governing the
payment of the prices for the commodities acquired by the Central Government or
any State Government are spelt out under Section 3(3) of the Act. The Government
concerned has the discretionary powers in matters relating to the fixation of prices of
an essential commodity acquired by it. In such cases, the seller shall be paid the price
of the commodity determined in the following manner:
1) Agreed Price: Where the prices can be agreed upon, by the Government and
the seller, the agreed price is to be pard.
2) Controlled Price: Where no agreement as to the price is reached, the price
calculated with reference to the controlled price, if any, is to be paid.
3) Market Price: Where there is neither an agreed price nor a controlled price,
the plice calculated at the prevailing market rate is to be paid.
Regulation of Selling Prices of Foodstuffs
The Central Government has been empowered by the Act to regulate the selling
prices of foodstuffs in any locality. The term 'foodstuff' is used Clnder the Essential
Commodities Act, 1955 not only for the material which is immediately fit for human
consumption but also applies to materials which can be used as food after subjecting
it to process like grinding, cleaning, etc. The following have been held to be foodstuff
and accordingly an essential commodity under the Act:
(i) Sugarcane
(ii) Paddy
(iii) Linseed Oilseeds

(v) Turmeric
(vi) Milk
Wherever the Central Government finds it necessary to control the rise in prices or
prevent the hoarding of any foodstuff, it may regulate their selling price. The prices
shall be determined in accordance with the relevant provisions of Section 3(3A) of
the Act. The Act also provides for the method of fixation of price for foodstuffs of
edible oils acquired by the Government. Similarly, the criteria for the fixation of fair
price of sugar payable to the producer have been provided in the Act.
The provisions of the Essential Commodities Act have been further strengthened and
reinforced by the Prevention of Black Marketing and Maintenance of Supplies of
Essential Commodities Act, 1980.
Stringent measures have been provided under this Act to prevent black marketing and
ensuring equitable supply of essential commodities.
12.4.2 The Drugs (Control)Act, 1950
Though the Essential Commodities Act, 1955 covers drugs under its scope, the Drugs
(Control) Act was passed way back in 1950 which prclvided for the control of the
sale, supply and distribution of drugs. The Act incorporates certain provisions for the
regulation of the prices of drugs in India. Under Section 4(1), the Government is
empowered to fix the maximum price or rate which may be charged by a dealer or
producer in respect of any drug. Further, Section 5 imposes restrictions on the sale,
price, etc., where maximum price is fixed under Section 4. That means no dealer or
producer is permitted to sell, agree to sell, offer for sale or otherwise dispose of, to
any person any drug for a price exceeding the maximum fixed under Section 4.

12.4.3 The Industries (Development & Regulation) Act, 1951

The Industries (Development & Regulation) Act (IDRA), 1951 also aims at securing
an equitable distribution and availability at a fair price of any article or class of articles
relating to any scheduled industry. By scheduled industry, we mean industries lisled in
the First Schedule to the IDRA. It includes consumer goods industries like cotton and
woollen textiles, sugar and salt, pharmaceuticals and drugs; capital goods and
producer goods like iron and steel.
The Central Government may, by a notified order, provide for regulating the supply
and distribution thereof and trade and commerce therein, notwithstanding anything
contained in any other provision of this Act. The Central Government may make
notified order for price and distribution controls. A notified order made in respect of
price may provide for:
1) Controlling the price at which any such article, or class of articles thereof, may
be bought or sold;
2) Regulating any person manufacturing, producing or holding in stock such article
or class of articles thereof to sell the whole or a part of the article so held in
stock by such person or class of persons and in such circumstances as may be
specified in the order;
i) where the price can, consistently with the controlled price, if any, be fixed
by agreement, the price so agreed upon;
ii) where no such agreement can be reached, the price calculated by
reference to the control price, if any, fixed under this section;
iii) where neither clause (i) nor clause (ii) applies, the price calculated at the
market rate prevailing in the locality at that date.

12.4.4 Bureau of Industrial Costs and Pricing

The Bureau of Industrial Costs and Pricing (BICP) functions under the administrative
control of the Department of Industrial Development of the Union Ministry of
Industry. The BICP was established by the Government of India, on the
recommendation of the Administrative Reforms Commission, through a Resolution in
1970, to advise on a continuing basis on industrial costs and pricing of manufactured
products.
The BICP performs a number of functions like energy audit and industrial efficiency,
water and material audit, industrial monitoring and has also been entrusted with the
task of ilifrastructure pricing. Under infrastructure pricing, the BICP monitors the
price policy for strategic sectors of the economy by suggesting measures for reducing
costs and increasing productivity. The Government determines the prices of a number
of commodities on the basis of the recommendations of the BICP.
12.4.5 The Standardsof Weights and Measures (Packaged Commodities)
Rules, 1977
One of the persistent demands of the consumer activity has been that the prices of all
packaged commodities, inclusive of all taxes, should be displayed on each package.
In order to have a proper control of pricing and certain other aspects of packaged
commodities, provisions have been made under the Standards of Weights and
Measures (Packaged Commodities) Rules, 1977. These Rules require the
manufacturers and packers of all commodities sold in packaged form to provide the
following particulars, conspicuously marked on every package:
I) name and address of the manufacturer/packer;
2) common or generic name of the commodity contained in the package;
3) the net quantity in terms of the standard unit of weight or measure;
4) the month and the year of manufacturerlpacking;
5) the selling price (inclusive of all taxes as per the amendment effective from
November 1999)
6) the dimensions of the commodity, if relevant.
Thus, it is now obligatory on the part of each manufacturer, packer to display the
maximum retail price of all the packaged commodities offered.for sale to
consumers.

Check Your Progress C

1) Name any six commodities which have been declared as essential commodities
under the Essential Commodities Act.
......................................................................................................................

.......................................................................................................................

......................................................................................................................

. ' Essential Commodities Act?

......................................................................................................................

......................................................................................................................
......................................................................................................................

......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
4) State whether the following statements are True or False:
i) Central Government enjoys absolute powers in controlling the price of
commodities under IDRA.
 Regulation of Prices

iii) Drugs also come under the scope of Essential Commodities Act.
iv) Government can fix the prices of food items and enforce the same.
V) Retailer can sell the drugs at a price exceeding the maximum fixed price.

12.5 LETUSSUMUP
While fixing pnces of goods and services or making any modifications, the
manufacturers and sellers have to be conscious of the relevant provisions contained in
various statutory regulations. While the practice of minimum retail price is absolutely
prohibited, practices like price discrimination, predatory pricing, bargain and deceptive
pricing and excessive pricing attract action under the Monopolies and Restrictive
Trade Practices Act, 1969. The Consumer Protection Act, 1986 provides measures
for regulating excessive prices, and bargain and deceptive prices. The Essential
Commodities Act, 1955 empowers the government to regulate the distribution and
prices of essential~commodities.The marketing managers of drugs and essential
commodities have to be extra vigilan) since their pricing practices are subject to
add~tionalregulatory measures unde? the Drugs (Control) Act, 1950. Moreover,
pricing of products manufactured by scheduled industries under the Industries
(Development and Regulation) Act, 195 1. Products sold in packaged form also attract
additional measures of statutory price regulations under the Standards of Weights and
Measures (Packaged Commodities) Rules, 1977.

12.6 KEY WORDS

Collective Pricing : A pricing policy where manufacturers or sellers of a product
enter into an agreement or understanding and fix a common price and/or terms of
sale for the product.
Collusive Tendering : A practice whereby sellers or buyers of goods or services
secretly agree on the prices, on other terms or conditions of sale or purchase, to be
quoted in response to a tender.

Price Distribution : A pricing policy where a seller charges different prices to

different buyers for the same product.
Re-sale Price Maintenance A priving p o k y whereby the t;nanlifacprer sets b
re-sale-price for his p d u c t below which the dealer is not allowed to sell.

A 4) i) d ii) b iii) a iv) c

i ) True ii) True
C i) True ii) False iii) True iv) True v) False
Pricing Decisions
12.8 TERMINAL QUESTIONS
1) Explain the provisions relating to following pricing policies:
i) Price discrimination
ii) Predatory pricing
iii) Deceptive and bargain pricing
2. Explain the meaning of re-sale price maintenance. Discuss briefly the legal
provisions for its regulation in India.
3. Describe the provisions of the ~ssentialCommodities Act in so far as they relate
to regulation of price.
4. Briefly explain the regulatory measures of the Drugs (Control) Act.
5. Explain the rules relating to display of retail prices.
6. Discuss the role of the Industries (Development and Regulation) Act and the
- BICP in the regulation of price.

Note: These questions will help you to understand the unit better. Try to write
answers for them. But do not submit your answers to the University for
assessment. These are for your practice only.

SOME USEFUL BOOKS

Indira Gandhi National Open University, School of Management Studies, 1989, MS-6:
Marketing for Managers (Unit 14).
Gulshan S.S. and Kapoor G.K. 2003, Economic, Labour and Industrial Laws,
Sultan Chand & Sons, New Delhi (Chapters 1, 3 & 8).
Gupta, C.B., Nair Rajan N. 2002. Marketing Management, Sultan Chand & Sons,
New Delhi
Kotler, Philip, Gary Annstrong, 1987. Marketing - An Introduction, Prentice Hall:
Englewood Cliffs, (Chapters 11 & 12).
Neelamegham, S. 1988. Marketing in India - Cases and Readings, Vikas
Publishing House: New Delhi. (Chapters 42-45)
Sherlekar, S.A. 1984, Marketing Management, Himalaya Publishing : New Delhi.
(Chapter 14)
Stanton, William J., and Charles Futrell, 1987. Fundamentals of Marketing,
McGraw Hill : New York (Chapters 12 & 13)
Varshney, R.L.and Gupta, S.L., 2000. Marketing Management :An Indian
Perspectives, Sultan Chand & Sons, New Delhi
Verma, D.P.S., 1985. Monopolies Trade Regulation and Consumer Protection
(Text and Cases), Tata McGraw Hill: New Delhi.
(And also read the Bare Acts discussed in Unit 12).
Distribution Decisions
13.2 CONCEPT OF DISTRIBUTION CHANNEL
A distribution channel consists of a set of people and firms involved in the transfer of
title to a product as the product moves from producer to consumer. Thus, a
distribution channel is primarily concerned with the movement of goods from the point
of production to the point of consumption, which involves a variety of functions. The
main participants in the distribution system are: (1) the manufacturers, (2) the
intermediaries, (3) the facilitating agencies, and (4) the consumers. Manufacturers
produce the goods. This is the starting point in the distribution system. The second
category of participants i.e., intermediaries, are involved in direct negotiation
between buyers and sellers whether or not they take title to goods. These
intermediaries locate the manufacturers who produce various products, identify the
needs of the consumers and distribute the goods. In the process, they perform
various functionslike buying, selling, assembling, standardization and grading, packing
and packaging, risk bearing, etc. Facilitating agencies are the independent business
organisations other than intermediaries. These agencies facilitate the smooth
distribution of goods from producers, through intermediaries, to consumers. The
major facilitating agencies are banking institutions, insurance companies,
transportation agencies and warehousing companies. The fourth category of
participants in the distribution system i.e., consumers, are the final destination for
goods in the distribution system.
A Channel of distribution is mainly concerned with second participant i.e., the
intermediaries. The term 'Channel of Distribution' refers to the route taken by
goods as they flow from the producer to the consumer. This flow of goods may
mean its physical distribution and/or the transfer of title (ownership). Channels of
distribution are mainly concerned with the transfer of title to a product which may be
effected directly or through a chain of intermediaries. You know most producers do
not sell goods directly to the consumers. They make use of a variety of intermediaries
known as middlemen. These middlemen who take title to goods or assist in
transferring the title to goods as they move from the producer to the consumer is
called the channel of distribution. Thus, the channel of distribution is a network
of institutions that perform a variety of interrelated and coordinated functions
in the movement of goods from producers to consumers.
A distribution channel creates place, time, form and possession utilities to the products
by prompt and efficient performance of the function of physical distribution. In
modem societies the production of goods takes place on a large scale in factories
concentrated in few localities while the consumers are scattered throughout the
country. For instance, textile mills are concentrated at few places like Bombay,
Ahmedabad, Coimbatore, etc., while the cloth is used by all the people in the country.
Similarly, Maruti cars are manufactured at Delhi while the users are spread in all
parts of the country. Same thing is true of agricultural commodities. Apples are
produced mainly in Kashrnir Valley and Himachal Pradesh whereas they are
consumed by people throughout the country. Another such example is tea which is
mainly produced in Assam while it is consumed everywhere in the country. Thus, in
most of the cases goods are produced at one place while they are consumed at
various other places and contact the producers directly. Similarly it is not possible for
all the producers to contact the consumers directly and sell the goods. Hence, it is
esseptial to move the goods from the place of production to the markets where
consumers can buy them. Otherwise, production has no value and it becomes waste.
A distribution channel helps in the movement of goods from producer to
consumer and, thus, creates place utility to the product.
There is another barrier which arises due to time lag between production and
consumption. The goods produced are not consumed at the same point of time. Some
garments are used only during winter season. In some other cases, goods are
produced during a specific season while they are consumed continuously throughout
the year. For example, food grains are produced by farmers during a particular
season but are consumed throughout the year. Thus, in manL cases, there is a time

thus, creates time utility to the products.

Similarly, a distribution channel makes it possible for the consumers to get the
products in a convenient shape, unit size, style and package. Thus, it creates
convenience value. Distribution channel also makes it possible for the consumer to
obtain goods at a price he is willing to pay and under conditions which bring him
satisfaction and pride of ownership. Thus, it creates possession utility. Thus, it is
the distribution system which moves the goods from the place of production and
makes them available to the consumers at the right place, time and form.

Broadly, distribution channels perform the transactional functions, logistical functions

and facilitating functions. Transactional functions involve buying, selling and risk

the transaction as well as physical exchange of goods like post-purchase service and
maintenance, financing, market information etc. In specific terms, distribution
channel perform the following functions:
Facilitate selling by being physically close to customers
Provide distributional efficiency by bridging the manufacturer with the user
efficiently and economically
Break the bulk and cater to the small requirements of buyers
Assemble products into assortments to meet buyer's needs;
Look after a part of physical distribution1marketing logistics
Share the financial burden of the principal; provide deposits; finance the stocks
till they are sold to the ultimate consumers; extend credit to the retailers1
consumers.
Provide salesmanship and after-sale service
Assist in sales promotion
Assist in merchandising
Assist in introducing new products
Assist in implementing the price mechanism: assist in price negotiations
Assist in developing sales forecasts I sales plans for the territory
Provide market intelligence and feedback
Maintain records
The searching out of buyers and sellers (contacting).
Matching goods to the requirements of market. (merchandising).
Offering products in the form of assortments or packages of items useable or
acceptable by the consumers.
Distribution Decisions Persuading and influencing the prospective buyers to favour a certain product
and its maker ( personal selling/sales promotion)
Implementing pricing strategies in such a manner that will be acceptable to the
buyers and ensure effective distribution.
Looking after all physical distribution function.
Participating actively in the creation and establishment of the market for a new
product.
Offering pre and after sales services to the customer
Transferring new technology to the users along with the supply of products and
playing the role of change agents
Providing feedback information, marketing intelligence and sales forecasting
services for their regions to their suppliers
Offering credit to retailers and consumers
Risk bearing with reference to stock holding / transport.

Check Your Progress A

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2. Enumerate five functions performed by channels of distribution.
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13.4 DISTRIBUTION CHANNELS USED

Marketing channel performs the work of moving goods from producers to consumers.
It overcomes the time, space and possession gap that separates goods and services
who need or want them. Members of the marketing channels perform a number of
key functions which arediscussed above.
Some functions (physical, title, promotion) constitute a forwardflow of activity from
the company to the customer; other functions (ordering and payment) constitute a
backwardflow from customer to the company. Still others (information, negotiations,
finance and risk taking) occur in both directions. Look at Figure 13.1 which illustrates
1. Physical Flow Distribution Channels
$
porters

2. Title Flow

Dealem

3. Payment Flow

F/c(G]d Manufacturer Banks Dealem I-1Banks

4. Information Flow

porters,
Banks Banks

Figure 13.1: Five Marketing Flow8 in the MPrkcting Chnwls for b k s

Channel Levels: The producer and the final customer are the part of every
channel. The number of intermediary levels is used to designate the length of the
channels.
A zero level channel (also called direct marketing channel) consists of
manufacturer selling directly to the final customer. The major examples are door-to
door sales, home parties, mail order, tele marketing, T.V.selling; internet selling and
manufacture own stores. Avon sales ~pmsentativessells cosmetics door- to - door.
Tupperware representatives sells kitchenware goods through home parties.
A one level channel contains one selling intermediary, such as a retailer. A two
level channel contains two intermediaries. In consumer mdrkets, these are typically
a wholesaler and a retailer. A three level channel contain three intermediaries. In
the meat packing industry wholesaler sell to jobber who sell to small retailer. Longer
marketing channels consisting of mom than three levels can also be found. In Japan,
food distribution may involve as many as six levels. From the producer's point of
view, obtaining information about end users and exercising control become more
difficult as the number of channel level increases.
Distribution Decisions
a) Consumer products b) Industrial products
0-level 1-level 2-level 3-level 0-level 1-level 2-level 3-level

Manu- M~nu-
facturers tacturer's
Represen- sales

Figure 13.2: Marketing Channels for Consumers and Industrial Products

Channels for Consumer Products

These channels are used for consumer durable goods which are directly consumed by
the household. For example, TV, car, food items etc. Following levels of channel are
used for this purpose.
Producer ---*consumer. The shortest, simplest distribution channel for
consumer goods involves no middlemen. The producer may sell door to door or
by mail. For instance, Southwestern Company uses college students to market
its books on a door to door basis.
Producer-+retailer +consumer. Many large retailers buy directly from
manufacturers and agricultural producers. To the chagrin of various wholesaling
middlemen, Wal-Mart has increased its direct dealings with producers.
Producer wholesaler-+ retailer --,consumer. If there is a traditional
channel for consumer goods, this is it. Small retailers and manufacturers find
these channels the only economically feasible choice.
Producer--+agent ---bretailer ---+consumer. Instead of using wholesalers,
many producers prefer to use agent middlemen to reach the retail market,
especially large scale retailers. For example, Clorox uses agent middlemen
(such as Eisenhart &Associates, a food broker) to reach retailers (such as
Dillon's and Schnucks, both large grocery chains), which in turn sell Clorox's
cleansing products to consumers.
Producer --+agent --+wholesaler --+ retailer+ consumer. To reach small
retailers producers often use agent middlemen, who in turn call on wholesalers
that sell to large retail chains and/or small retail stores. Working as an agent on
behalf of various groceries -products manufacturer, Eisenhart & Associates
sells to some wholesalers (such as Super Value) that distributes a wide range of
product to retailers (such as Dierberg's, a supermarket chain at St. Louis area).
In turn Die bergs offer its assortment of product to final consumers.

Channels for Industrial Products

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 terms industrial distributor and merchant Distribution Channels
wholesaler are synonymous. The four common channels for business goods are:
Producer-+user. The direct channel accounts for a greater dollur volume of
business products than any other distribution structure. Manufacturers of large
installations, such as airplanes generator, and heating plants usually sell directly
to users.
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.
Producer-agent -+user. Firms without their own sales department 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.
Producer- agents -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 the direct selling. Or decentralized inventory may be requ~redto supply
users rapidly, in which case the storage services of an industrial distributor may

Distribution Channels for Services

The intangible nature of services creates special distribution requirements. There are
only two common channels for services.
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 healthcare and legal and personal services,
such as hair cutting and weight-loss counselling. However, other services
including travel, insurance and enteitainment, may also rely on direct distribution.
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 service producer with
transfer of ownership (the sales task) or related tasks. Many services notably
travel, lodging, advertising media, entertainment and insurance, are sold through

13.5 FACTORS INFLUENCING THE CHOICE OF

CHANNEL
We have learnt that there are a number of channels used for distributing the goods.
There are direct channels and indirect channels, short channels as well as long
channels. We also learnt that the different channels are used for different types of
products. When there are alternative channels available, the selection of an
appropriate channel becomes a very important decision for the producers. The choice
of a channel for distribution of any product should be such that it should effectively
meet the needs of customers in different markets at reasonable cost. The factors
which generally influence the choice of the channel of distribution may be categorised
under four groups as follows:
I) Market considerations
2) Product considerations
Distribution Decisions 3) Middlemen considerations
4) Company considerations
Let us discuss them in detail.

Product Considerations
1) Perishability: The nature of the product influences the choice of channel.
Perishable products like eggs, milk, etc., are supplied either directly or through
the short channels. If long channels are opted for perishable goods, they may get
spoiled by the time they reach the consumer. So products which are perishable
must be speeded through the short channels.
2) Bulkiness: In the case of heavy and bulky products (e.g., cement, steel, heavy
machinery, etc.) where distribution and handling costs are more, short channels
are preferred. On the other hand, long channels are found in the case of light-
weight and small-size items like dress material, readymade garments, pocket
calculators, stationery, toothpaste, toothbrush, etc.
3) Technical nature of the product: Sophisticated electrical and electronics
equipment which require careful handling are also generally distributed directly
or through short channels. In the case of sophisticated equipment like computers
and Xerox machines, considerable amount of presale and postsale service is
required, Wholesalers and retailers may not be able to provide such services. So
manufacturers often distribute them directly. However, simple mechanical
products like electronic toys, time-clocks, etc., are supplied through long
channels for intensive distribution.
4) Product value: Unit value of the product is also an important consideration
while deciding the channel of distribution. Normally larger channels are
preferred for products whose unit value is low. However, short channels may be
equally economical when such products are sold in bulk or are combined with
other products. .

Market Considerations
1) Size of the customers: It is possible in the case of fewer customers
purchasing large quantities at regular intervals and if they are concentrated in a
small area.
2) Potential volume of sales: The choice of channel depends upon the target
volume of business. Thebability to reach target customers and the volume of
sales varies between different channels. If one outlet is not adequate for
achieving the target, more channels need to be used. Of course, the competitive
situation must be taken into account while examining the potential volume of sale
through different channels.
3) Concentration of buyers: If the buyers are concentrated in a few areas, it is
possible for the manufacturer to establish sales divisions in such areas and sell
directly to the buyers. Thus, shod channels may be feasible when buyers are
concentrated in fewer locations. On the other hand, if buyers are spread over a
large geographic area, short channels may become uneconomical and the
manufacturer may have to go for long and multiple channels.
4) Size of the purchase order: Manufacturer can distribute directly or through a
short channel in the case of large scale buyers. Nonnally long channels are
effective and economical in the case of buyers whose purchase orders are
usually too small to justify direct sale.
Middlemen Considerations Distribution Channels

I) Qpes of middlemen: Availability of suitable middlemen in the channel of

distribution is another factor in the selection of the channel. This is because
different functions like standardisation, grading, packing, branding, storage, after-
sale servicing, etc., are expected to be performed by middlemen. Efficiency of
distribution depends upon the size, location and financial position of middlemen.
If the middlemen in a specific channel are dependable and efficient, that channel
may be preferred by producers.
2) Channel competition: There are different situations in which manufacturers
compete with each other for availing the services of particular wholesalers.
Similarly, wholesalers often compete with each other to deal with particular
retailers or carrying particular brands of products. Sometimes producers use the
same channel which is used by their competing producers. If any producer
arranges exclusive distribution through a particular wholesaler, the other
producers also do the same. Thus selection of a channel may depend on the
competition prevailing in the distribution system.
3) Availability of middlemen: The producer may wish to make use of the
services of specific category of middlemen, but such middlemen may not be
available in the market. They may be carrying the competitors' products and
may not wish to add another product line. In such situations, the manufacturer
has to make use of the services of the middlemen whoever available in the

Company Considerations
1) Cost of distribution: The various functions carried out in the channel of
distribution add to the cost of distribution. While choosing a channel, the
distribution costs of each channel should be calculated and its impact on the
consumer price should be analysed. A channel which is less expensive is
normally preferred. Sometimes, a channel which is convenient to the customers
is preferred even if it is more expensive. In such cases the choice is based on
the convenience of the customers rather than the cost of distribution.
2) Long-run effect on profit: Direct distribution, short channels, and long
channels have different implications with regard to the profits in the short-run
and long-run. If demand for a product is high, reaching the maximum number of
customers through more than one' channel may be profitable. But the demand
may decline in course of time as competing products appear in the market. It
may not be economical than to use long channels. So while choosing a channel
one should keep in mind the future market implications as well.
3) Experience and ability: A manufacturer who has reasonable experience and
expertise in marketing the products may prefer to distribute his products on his
own. But the manufacturers who do not have marketing know-how prefer to
make use of the services of middlemen.
4) Financial strength: Lots of financial resources are required to establish
distribution system. So only a financially strong manufacturer can establish his
own distribution system and a financially weak firm may have to depend on
middlemen.
5) Extent of channel control: Producers who want good control over the
distribution of their products prefer short channels. Controlling of the channels is
necessary to undertake aggressive promotion, to maintain fresh stocks and retail

Thus, in making a choice, the manufacturer has to consider his objectives, resources
and the channels available to him, nature of the product and characteristics of the 13
Distribution Decisions buyers. He would like to use the channel of distribution which will produce the
combination of sales volume and cost that yields him the maximum amount of profit.
There are no set guidelines for channel selection and the manufacturer will have to
make his own decision in the light of his own judgment and experience. However,
most companies do use multiple channels of distribution to ensure that their products
reach the maximum number of people.
The task of manufacturer does not end after the channels have been selected. He
has to review the services performed by the agencies involved at fairly frequent
intervals, keep in close touch with the developments related to the distribution of his
product and seek to improve his marketing methods constantly. He may also realise
that the best channel when the product was introduced, may not be the most effective
one when the product is established. The following criteria may be used for the
evaluation of channel members: 1) their sales performance, (ii) their marketing
capabilities, (iii) their motivation to increase the volume of sales, (iv) competition
faced by them, and (v) their growth prospects.

13.6 CHANNEL DESIGN DECISIONS

A new firm typically starts as a local operation selling in a limited market, using
existing intermediaries. The number of intermediaries in any local market is apt to be
limited: a few manufacturers' sales agents, a few wholesalers, several established
retailers, a few trucking companies and a few warehouses. Deciding on the best
channels might not be a problem. The problem might be to convince the available
intermediaries to handle the firm's line. If the firm is successful, it might branch into
new markets. It might have to use different channels in different markets. In smaller
markets, the firm might sell directly to retailers; in larger markets, it might sell through
distributors. In rural areas, it might work with general goods merchants; in urban
areas, with limited line merchants in one part of the country, it might run exclusive
franchisees; in another, it might sell through all outlets willing to handle the
merchandise. In one country it might use international sales agents; in another, it
might partner with a local firm. In short, the channel system evolves in response to
local opportunities and conditions.
In managing its intermediaries, the firm must decide how much effort to devote to
push versus pull marketing. A push strategy involves the manufacturer using its
sales force and trade promotion money to induce intermediaries to carry, promote,
and sell the product to end users. Push strategy is appropriate where there is low
brand loyalty in a category, brand choice is made in the store, the product is an
impulse item and product benefits are well understood. A pull strategy involves a
manufacturer using advertising and promotion to induce consumers to ask
intermediaries for the product, thus inducing the intermediaries to order it. Pull
strategy is appropriate when there is high brand loyalty and high involvement in
category, when people perceive differences between brands, and when people
choose the brand before they go to the store.
Designing a channel system involves five steps. Let us learn them in detail.
1. Analyze Customers' Desired Service Output Levels
In designing the marketing channel, the marketer must understand the service output
levels desired by target customers. Channels produce five service outputs. They are
as follow:
a Lot Size: The number of units the channel permits a typical customer to
purchase on one occasion. In buying cars for its fleet, Hertz prefers a channel
from which it can buy a large lot size; a household wants a channel that permits
14 buying a lot size of one.
 Waiting Time: The average time customers of that channel wait for the receipt Distribution Channels
of the goods customers normally prefer fast delivery channels.
Spatial Convenience: The degree to which the marketing channel makes it
easy for customers to purchase the product. Chevrolet offers greater spatial
convenience than Cadillac because there are more Chevrolet dealers.
Chevrolet's greater market decentralization helps customers save on
transportation and such cost in buying and repairing an automobile.
Product Variety: The assortment breadth provided by the marketing channel.
Normally customers prefer a greater assortment because more choices increase
the chance of finding what they need.
Service Backup: The add-on services (credit, delivery, installation, repairs)
provided by the channel. The greater the service backup, the greater the work
provided by the channel.
The marketing-channel designer knows that providing greater service outputs means
increased channel costs and higher prices for customers. The success of discount
stores indicates that many consumers are willing to accept smaller service outputs if
they can save money.
2. Establish Objectives and Constraints
Effective planning requires determining which market segments to serve and the best
channels to use in each case. Channel objectives vary with product characteristics.
Perishable products require more direct marketing. Bulky products such as building
materials require channel that minimize the shipping distance and amount of handling.
Non standardized products, such as custom built machinery and specialized business
forms are sold directly by company sales representatives. Products requiring
installation or maintenance such as heating and cooling system are usually sold and
maintained by the company or by franchise dealers. High unit value products such as
generators and turbines are often sold through a company sales force rather than
intermediaries. Channel design must take into account the strengths and the
weaknesses of different types of intermediaries for e.g. manufacturers' reps. are
able to contact customers at a low cost per customer because the total cost is shared
by several clients, but the selling effort per customer is less intense than if company
sales representatives did the selling. Channel design is also influenced by competitor's
channels. Channel designs must adapt to the larger environment when economic
conditions are depressed, producer want to move their goods to market using shorter
channels and without services that add to the final price of the goods. Legal
regulations and restrictions also affect channel design.
3. Identify Major Channel Alternatives
Companies can choose from a wide variety of channels for reaching customers -
from sales force to agents, distributors, dealers, direct mail, telemarketing and the
internet. Each channel has unique strengths and weaknesses. Sales forces can handle
complex products and transactions, but they are expensive. The Internet is much less
expensive. But it cannot handle complex products. Distributor can create sales but
.the company loses direct contact with customers. The problem is further complicated
by the fact that most companies now use a mix of channels. Each channel hopefully
reaches a different segment of buyers and delivers\s the right products to reach at the
least cost when this does not happen; there is usually channel conflict and excessive
cost. A channel alternative is described by three elements:
The types of available business intermediaries
The number of intermediaries needed
Terms and responsibilities of each channel members
Distribution Decisions A firm needs to identify the types of intermediaries available to carry on its channel
work. A company should search for innovative marketing channels. The Conn Organ
company merchandises organs through department stores and discount stores, thus
drawing more attention than it ever enjoyed in small music stores. The Book-of -the -
Month club merchandises mail through the mail. Other sellers have followed with the
Record-of-the-Month clubs, Candy-of-the-month clubs and dozen of others.
Sometimes a company chooses an unconventional channel because of the difficulty or
cost of working with the dominant channel. The advantage is that the company will
encounter less competition during the initial move into this channel. After trying to sell
its inexpensive Timex watches through regular jewellery stores the U.S. Time
Company placed its watches in fast growing mass mechanized outlets. Avon chose
door-to-door selling because it was not able to break into regular department stores
and has thus proved to be a great success.
Companies have to decide on the number of intermediaries at each channel levels.
Three strategies may be adopted for this purpose. They are discussed below.
Exclusive Distribution: It means severely limiting the number of intermediaries. It is
used when the producer wants to maintain control over the service level and outputs
offered by the resellers. By granting exclusive distribution the producer hopes to
obtain more dedicated and knowledgeable selling. It is mainly seen in case of
distribution of new automobiles, some major appliances and some women's apparel
brands. Relationship with intermediaries and the corporation can be strained when a
company decides to alter an exclusive distribution relationship.
Selective Distribution: It involves the use of more than a few but less than all of the
intermediaries who are willing to carry a particular product. It is used by established
companies and new companies seeking distributors. The company does not have to
worry about too many outlets; it can gain adequate market coverage with more
control and less cost than intensive distribution. Disney sells its videos through five
different channels: Movie rental stores like Blockbuster; the company's proprietary
retail stores, called Disney Stores; retail stores like Best Buy; online retailers like
Amazon.com and Disney's own online Disney Stores; the Disney catalog and other .
catalog sellers. These varied channels afford Disney maximum market coverage, and
enable the company to offer its videos at a number of price points.
Intensive Distribution: It consists of manufacturer placing the goods or services in
as many outlets as possible. This strategy is generally used for item such as tobacco
products, soap, snack foods, and gum, products for which the consumer requires a
great deal of location convenience.
Manufacturers are constantly tempted to move from exclusive or selective
distribution to intensive distribution to increase coverage and sales.

4. Determine Terms and Responsibilities of Channel Members

The producer must determine the rights and responsibilities of participating channel
members. Each channel member must be treated respectfully and given the
responsibility to be profitable. The elements in the 'trade-relation mix' are:
price policies,
conditions of sale,
territorial rights, and
Specific services to be performed by each part.
Let us discuss them in detail.
Price policy calls for the producer to establish a price list and schedule of discounts
and allowances that intermediaries see as equitable and sufficient.
Conditions of sale refer to payment terms and producer guarantees. Most producers Distribution Channels
grant cash discounts to distributors for early payment. Producers must also guarantee
distributors against defective merchandise or price declines. A guarantee against price
declines give distributors an incentive to buy larger quantities.
Distributors' territorial rights define the distributors temtories and the terms under
which the producer will enfranchise other distributors normally expect to receive full
credit for all sales in their temtory whether or not they did the selling.
Mutual services and responsibilities .must be carefully spelled out especially in
franchise and exclusive agency channels. Mc Donald's provides franchisee with a
building, promotional support, record keeping system, training, and general
administrative and technical assistance. In turn franchisees are expected to satisfy
company standards regarding physical facilities cooperate with new promotional
programmes, furnish requested informations, and buy supplies from specified vendors.
5. Evaluate the Major Alternatives
Each channel alternative needs to be evaluated against economic control and adaptive

Economic Criteria: Each channel alternative will produce a different level of sales

High

Value-add
of
Sale Direct sales
Channels

'Indirect Channels'

Direct marketing
Channels

Low
Low
High

Figure 13.3: The Value-Adds Versus Cost of Diiemnt Channels

Look at Figure 13.3 which shows how six different sales channels stack up in terms
of the value added presale and the cost per transaction. For e.g., in selling industrial
products costing between$2000 NAD$5000 the cost per transaction is $500(field
sales), $200(distributors), $50(telesales), and $10 (Internet). Banks claim that in selling
retail banking services, the cost per transaction is $2(teller), $.SO(ATM), and $ .10
(internet). Clearly, sellers would try to replace high cost channel with low cost channel
when the value added per sale was sufficient. When sellers discover convenient a
lower cost channel, they try to get the customers to use it. The company may reward
customers for switching SAS; the Scandinavian Airlines gave bonus points to
Distribution Decisions customer who ordered electronic tickets via the internet. Other companies may raise
the fees on customers using the high cost channel to get them to switch. Companies
that are successful in switching their customers to lower cost channels, assuming no
loss of sales or deterioration in service quality, will gain a channel advantage.
The lower-cost channel tends to be low-touch channel. This is~notimportant in
ordering commodity items, but buyers who are shopping for more complex products
prefer high- touch channel such as sales people.
Control and Adaptive Criteria: Using a sales agency poses a control problem a
sales agency is an independent firm seeking to maximize its profits. Agents may
concentrate on the customers who buy the most not necessarily those who buy the
manufacturer's goods. Further more agents might not master the technical detail of
the company's product or handle its promotional materials effectively.
To develop a channel, members must make some degree of commitment to each
other for a specific period of time. Yet these commitments invariably lead to a
decrease in the producer's ability to respond to a changing market place. In rapidly
changing volatile or uncertain products' market producers need channel structures
and policies that provide high adaptability.

,Check Your Progress B

1. Enumerate five factors which influence the choice of a consumer durable

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2. Make a diagramme of consumer marketing channel and give examples of two
products which follow such channel.
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3. Make a diagramme of industrial marketing channel and give examples of two
products which follow such channel.
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4. Distinguish between selective and intensive distribution.
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I

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 Distribution Channels
13.7 CHANNEL MANAGEMENT
After a company has chosen a channel alternative, individual intermediaries must be
selected, trained, motivated, and evaluated. Channel arrangements must be modified
over time. Following activities are undertaken in the management of channel.
1. Selecting Channel Members: Companies need to select their channel
members carefully. To customers the channels are the company. Consider the
negative impression the customer would get of Mc. Donald's Shell Oil, or Ford if
one or more of their outlets or dealers consistently appeared dirty inefficient or

Producers vary in their ability to attract qualified intermediaries. Toyota was able
to attract many new dealers for its new Lexus. However, when Polaroid started
up as a company it could not get camera stores to carry its new camera and
was forced to use mass- merchandising outlets.
Whether producers find it easy or difficult to recruit intermediaries they should
at least determine what characteristics distinguish the better intermediaries.
They should evaluate the number of years in business, other lines carry, growth
and profit record, financial strength, cooperativeness, and service reputation. If
the intermediaries are sales agents, producers should evaluate the number and
character of other lines carried and the size and quality of the sales force. If the
intermediaries are department stores that want exclusive distribution, the
producers should evaluate locations, further growth potential and type of

2. Training Channel Members: Companies need to plan and implement careful

training programmes for the intermediaries because they will be viewed as the
company by end users. Microsoft requires third party engineers to complete a
set of courses and take certification exams. Those who pass are formally
recognized as Microsoft Certified Professionals and they can use this
designation to promote business.
3. Motivating Channel Members: A company needs to view intermediaries in
the same way it views its end users. It needs to determine needs and construct a
channel positioning such that its channel offering is tailored to provide superior
value to these intermeaiaries the company should provide training programmes
to improve intermediaries' performance. The company must constantly
communicate its view that the intermediaries are partners in a joint effort to
satisfy end users of the product.
Stimulating channel members to top performance starts with understanding their
needs and wants. Philip Mc. Vey listed the following propositions to help
understand intermediaries (the intermediaries often acts) as a purchasing agents
for his customers and only secondarily as a selling agent for his supplier.. ..he is
interested in selling any product which these customers desire to buy from him.
The (intermediary) attempts to weld all of his offerings into a family of items
which he can sell in combination, as a packet assortment to individual customers.
His selling efforts are directed primarily at obtaining orders for the assortment
rather than for individual items.
Unless given initiative to do so (intermediaries) will not maintain separate sales
record by brand sold. The information that could be used in product
development, pricing, packaging or promotion planning is buried in non standard
records of intermediaries, and some'times purposely secreted from suppliers.
Producers are very keen in managing distributors. They can draw on the following
types of power to elicit cooperation:
Distribution Decisions Coercive powec A manufacturer threatens to withdraw a resource or
terminate a relationship if intermediaries fail to cooperate. This power can be
effective, but its exercise produces resentment and can lead the intermediaries
to organize countervailing power.
Reward power: The manufacturer offers intermediaries an extra benefit for
performing specific acts or functions. Reward power typically produces better
results than coercive power but can be overrated. The intermediaries may come
to expect a reward every time the manufacturer wants a certain behaviour to
occur.
Legitimate powec The manufacturer requests a behaviour that is warranted
under the contract. As long as the intermediaries view the manufacturer as a
legitimate leader, legitimate power works.
Expertpowec The manufacturer has special knowledge that the intermediaries
value. Once the expertise is passed to the intermediaries, however, this power
weakens. The manufacturer must continue to develop new expertise so that the
intermediaries will want to continue cooperating.
Referent powec The manufacturer is so highly respected that the
intermediaries are proud to be associated with it. Companies such as IBM,
Caterpillar, Hewlett Packard have high referent power.
Intermediaries can aim for a relationship based on cooperation, partnership, or
distribution programming. Most producers see the main challenge as gaining
intermediaries cooperation. They often use positive motivators, such as high margins,
special deals, premiums, cooperative advertising allowances, display allowances, and
sales contests. At times they will apply negative sanctions such as threatening to
reduce margins, slow down delivery, or terminate the relationship. The weakness of
this approach is that the producer is using crude, stimulus-response thinking.
More sophisticated companies try to forge a long term partnership with distributors.
The manufacturers clearly communicates what it wants from its distributors in the
way of market coverage, inventory levels, marketing development, account
solicitation, technical advice and services and marketing information. The
manufacturer seeks distributor's agreement on these policies and may introduce a
compensation plan for adhering to these policies.
4. Evaluating Channel Members: Producers must evaluate intermediaries'
performance periodically against such standards as sales quota attainment,
average inventory levels, customary delivery time, treatment of damaged and
lost goods, and cooperation in promotional and training programmes. A producer
will occasionally discover that it is paying too much to intermediaries for what
they are actually doing. Producers should set up functional discounts in which
they pay specified amounts for the trade channel's performance of each agreed
upon service. Underperformers need to be counselled, retrained, remotivate or
terminated.
5. Modifying Channel Arrangements: Producer must review and modify its
channel arrangements periodically. Modification becomes necessary when the
distribution channel is not working as planned, consumer buying pattern change,
the market expands, new competition arises, innovative distribution channels
emerge, and the product moves into later stages in the product life cycle. No
marketing channel will remain effective over the whole product life cycle. Early
buyers may be willing to pay for high value added channels, but later buyers will
switch to lower - cost channels. Small office copiers were first sold by
manufacturer's direct sales forces, later through office equipment dealers, still
later through mass merchandisers, and now by mail order firms and Internet
20 marketers.
j

1
 M Value Added by the Channel
a
r
k
1. Introductory 4. Declining
e
t Low i) PCs hobbyist stores i) PCs mail order
G ii) Designer apparel: - ii) Designer apparel:
r
Boutiques off-price stores
0
W
t
7
t 3. Mature -
2 Growing
h
i) PCs specialty i) PCsmass
R High Retailer's b merchandisers
a ii) Designer apparel:
ii) Designer apparel:
t mass merchandisers
Better deptt. Stores
e

Figure 13.4: Channel Value Added and Market Growth Rate

Look at Figure 13.4 which shows the grid developed by Midland Lele. The grid

Introductory stage: Radically new products or fashions tend to enter the

market through specialist channels (such as boutiques) that spot trends and
attract early adopters.
Rapid growth stage: As interest grows, higher-volume channels appear
(dedicated chains, department stores) that offers services but not as many as the
previous channels.
Maturity stage: As growth slows, some competitors move their product into
lower-cost channels (mass merchandisers).

In competitive markets with lower entry barriers, the optimal channel structute will
inevitably change over time. The change would involve adding or dropping individual
channel members, adding or dropping particular market channels, or developing a
I
totally new way to sell goods.

L
Adding or dropping individual channel members require an incremental analysis. What
would the firm's profits look like with and without this intermediary? An automobile
manufacture's decision to drop a dealer requires subtracting a dealer's sales and
estimating the possible sales loss or gain to the manufacturers' other dealers.
The most difficult decision involves revising the overall channel strategy. Distribution
channel clearly becomes outmoded, and a gap arises between the existing distribution
system and the ideal system that would satisfy target customers' needs and desires.

No matter how well channels are designed and managed, there will be some conflkt,
if for no other reasons than the interest of independent business entities do not always
coincide. Here we examine three questions:
Distribution Decisions What type of conflict arises in channels?
What causes channel conflict?
What can be done to resolve conflict situation?

13.8.1 Qpes of Channel Conflicts

Suppose a manufacturer sets up a vertical channel consisting of wholesalers and
retailers. The manufacturer hopes for channel cooperation that will produce great
profits for each channel members. Yet vertical, horizontal and multi-channel can
occur.
Vertical Channel.Conflict means conflict between different levels within the same
channels. General Motors came into conflict with its dealer in trying to enforce
policies on service, pricing, and advertising. Coca-Cola came into conflict with
bottlers who also agreed to bottler Dr. Pepper.
Horizontal Channel Conflict involves conflict between members at the same level
within the channel. Some Ford car dealers in Chicago complain about other Chicago
Ford dealers advertising and pricing too aggressively. Some Pizza Inn franchisees
- -

complained about other pizza Inn franchisees cheating on ingredients, providing poor
service, and hurting the overall Pizza Inn image.
Multichannel ConJZictsexist when the manufacturer has established two or more
channels that sell the same market. When Levi Strauss agreed to distribute its jeans
through Sears and JC Penny in addition to its normal specialty store channel, the
specialty stores complained. When clothing manufacturers like Ralph Lauren and
Anne Clein opened their own stores the department stores that carried their brands
were upset. When Goodyear began selling its popular tyre brands through Sears,
Wall-Mart ,and Discount Tire, it angered its independent dealers.( it eventually
placated them by offering exclusive tyre models that would not be sold in other retail
outlets.) Multichannel conflict is likely to be especially intense when members of one
channel get a lower price (based on large volume purchasers ) or worked with a
lower margin. One of the major current examples of multichannel conflict is brick-
and- mortar companies sweating over whether to add and online e-commerce
channel. Vans & Nobel, Memll Lynch, Compaq, and All State Insurance all resisted
but eventually succumbed after seeing how much online business was rushing to its
competitors, Amazon, e-trade, Dell and Direct Line, respectively. Yet adding an e-
commerce channel creates a threat of a backlash from the retailers, brokers, agents,
and other intermediaries. For example retailers were angered when Mattel decided to
sell Barbie via the Internet. The question is how to sell both through intermediaries
and online. There are at least three strategies for trying to gain acceptance from
intermediaries. One offer different brands or products on the Internet. Two, offer the
offline partners higher commissions to cushion the negative impact on sales. Three,
take orders on the website but have retailers deliver and collect payments.
Here are some companies that have reconciled their offline and online marketing
channels.
Talbot, a special women's clothing chain runs out of an item the sales clerk will
order it at Talbot's' catalog call centre. Customers pay a flat $4shippin charge ,
which is less than the normal charge or regular catalog orders. The store earns
credit of the catalog sale.
Libprty Mutual, asked its online customer if they might prefer to work through
a financial adviser; if yes, their information will be routed to and advisor.
.Avon showed its reps. that its online sales will not overlap with the sales from
existing customers and offered to help reps. Set up their own Website.
 Japans offers online coupons that can be printed and redeemed in its stores, and Distribution Channels
May even sell some items online that are not profitable to sell through its stores.
Gibson Guitars started by selling accessories such as guitar strings and parts
online and is eager to overcome dealers 'objection to selling guitars over the
Internet. It may have to give some credit to the guitar store nearest the
customer who bought online.
Ultimately the companies may need to decide whether to drop some or all of the
reta~lersand go direct.
Given the superiority of Internet based ordering, what is to stop an auto company
customers the ability to design a car on the Website and have it assembled and
del~veredto the customers premises within a week? The cost of operating virtual
dealership would be considerably less than the present dealership systems, where
cars sit in inventory for seventy days and companies have to spend about 10% of the
cars' price on ads and promotions to get customers to buy. Our predictions are that
more companies in the economy will shift from build-for -stock to build- to- order.

13.8.2 Causes of Channel Conflict

It s important to identify the causes of channel conflict. Some are easy to resolve,
others are not. One major cause is goal incompatibility. For example, the
manufacturer may want to achieve rapid market penetration through a low- price
policy. Dealer, in contrast, may prefer to work with high margins and persuade short-
run profitability Sometimes conflict arises from unclear roles and rights . IBM sells
personal computers to large accounts through its own sales force, and its licence
dealer is also trying to sell to large accounts. Territory boundaries and credit for sales
often produce conflict.
By adding new channels, a company faces the possibility of a channel conflict. The
following three channel conflict arose at IBM:
Conflict between the national accounts managers and the f ~ l d $sales
force: Nat~onalaccount managers only rely on field sales people to make calls
at certain national account customers located in the sales person territory,
sometimes on a moments notice. Request from several national account
managers to make such calls can seriously disrupt the sales person's normal
schedule and hurt commissions. Sales people may not cooperate with national
account managers when doing so conflict with their own interest.
Conflict between the field sales force and the telemarketers: Sales people
often resent the company's setting up a telemarketing operation to sell to smaller
customers. The .company tells the salespeople that telemarketers free up their
trme to sell to larger accounts on which they can earn more commissions, but the
sales people still object.
Conflict between the field sales force and the dealers: Dealers include value-
added resellers, who buy computers from IBM and add specialized software
needed the target buyer, and computer retail stores , which are an excellent
channel for selling small equipment to walk -in traffic and small business. These
dealers frequently offer specialized software installation and training, better
service and even lower prices than IBM's direct sales force. The direct sales
force becomes angry when these dealers go after large accounts: they want
IBM to refuse to sell through dealers who try to sell to large accounts, but IBM
would lose a lot of busineks if it dropped these successful resellers. As an
alternative IBM decided to give partial credit to salespeople for business sold to
their accounts by aggressive resellers.
Conflicts can also stem from differences in perception. The manufacturer may be
1
1.
Distribution Decisions optimistic about the short-term economic outlook and want to carry higher inventory.
Dealers may be pessimistic. C.onflict may also arise because of'the intermediaries'
dependence on the manufacturer. The fortunes of exclusive dealers, such as auto
dealers, are profoundly affected by the manufacturers' product and pricing decisions.
The situation creates a high potential for conflict.

13.8.3 Managing Channel Conflict

Some channel conflict can be constructive and lead to more dynamic adoption to a
changing environment, but too much is dysfunctional. The challenge is not to eliminate
conflict but to manage it better. There are several mechanisms for effective conflict
management.
One is the adoption of super ordinate goals. Channel members come to an agreement
on the fundamental goal they are jointly seeking, whether it is survival, market share,
high quality or customer satisfaction. They usually do this when the channel faces an
outside threat, such as a more efficient competing channel, an adverse piece of
legislation, or a shift in consumer desires.
A useful step is to exchange persons between two or more channel levels. General
Motors executive might agree to work for a short time in some dealerships, and some
dealership owners might work in GMs dealer policy department. Hopefully the
participants will grow to appreciate the others point of view.
Co-optation is an effort by one organization to win the support of the leaders of
another organization by including them in advisory councils, boards of directors, and
the like. As long as the initiating organization treats the leaders seriously and listens to
their opinions, co-optation can reduce conflict, but the initiating organization may have
to compromise its policies and plans to win support.
Much can be accomplished by encouraging joint membership in and between trade
associations .For example there is good cooperation between the Grocery
Manufacturers in America and the Food Marketing Institute, which represents most
of the food chains ; this cooperation led to the development of Universal Product
Code (UPC). Presumably the associations can consider issues between food
manufacturers and retailers and resolve them in an orderly way.
When conflict is chronic or acute, the parties may have to resort to diplomacy,
mediation, or arbitration. Diplomacy takes place when each side sends a person or
group to meet with its counterpart to resolve the conflict. Mediation means resorting
to a neutral third party who is skilled in conciliating the two parties' interests.
Arbitration occurs when the two parties agree to present their arguments to one or
more arbitrators and accept the arbitration decision. Sometimes, when none of these
methods prove effective, a company or a channel partner may chose to file a lawsuit.

Check Your Progress C

1. Distinguish between coercive power and reward power.
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2. What is channel conflict?
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24
Distribution Decisions
14.2 MEANING AND ROLE OF MIDDLEMEN
The term middlemen or intermediaries refer to the business organisations which are
the link between producers and consumers of goods, and render services in
connection with the purchase andlor sale of products as they move from producer to
the consumers.
Some people often question the wide use of middlemen and feel that it may not only
delay the availability of goods but also add to the cost of distribution and hence, the
\ price charged from customers may be higher. But it is not the case in practice. In
\
fact, the middlemen playa very useful role in the distribution of goods by providing a
variety of functions at reasonable cost. They undertake all the channel functions such
as assembling, grading, packaging, storing, financing, risk-bearing, etc. We may
however put them more specifically as follows:
1) Creation of Utilities: By performing various functions in the process of
distribution, middlemen create place utility, time utility, convenience utility and
ownership utility in the goods and services. Thus, the channels greatly help in
serving the target market by adding value to the products. In fact, in the case of
several consumer products, the value added in distribution is higher than that
added during manufacture/production.
2) Economy in Effort: Middlemen greatly increase the efficiency of the exchange
process by reducing the amount of effort on the part of the manufacturers in
contacting the consumers. This, in turn, reduces the total cost of distribution of
the products. For example, assume that there are five manufacturers and ten
customers. Now look at Figure 14.1 carefully and study the number of contacts
required when all the five manufacturers contact the ten customers directly.
Study Figure 14.2 carefully where the manufacturers used the services of a
middleman. It is evident from the above that there is considerable economy of
effort in the second case (Figure 14.2) where a middleman is in the distribution
process. There is a net saving of 35 contacts in this situation as compared to the
first situation in which there is no intermediary. Assuming that is costs Rs. 20 to
make one contact, the cost of distribution in the first situation would be Rs. 1,000
as compared to Rs. 300 in the second situation.

Figure 14.1: Number of Contacts when the Manufacturers Contact the Customers Directly

Manufacturers Manufacturers Manufacturers Manufacturers

Middleman

Customers Customers Customers Customers Customers Customers Customers Customers Customers Customers

Figure 14.2: Number of Contacts when the Servicesof a Middleman is used.

3) Market Coverage: With the increasing liberalisation in trade, the products
manufactured at one place have to be distributed throughout the length and Intermediaries
breadth' of not only one country but many nations of the world. This vast
coverage is possible only through effective management of the distribution

4) Provide Local Convenience to Consumers: Merchant middlemen like

retailers are located at conven~entshopping centres. They provide ready delivery
of goods to the consumers at the convenient points.
5) Provide Field Stocks: The agents and wholesalers are spread all over the
country. They buy in bulk and keep the goods in stock. The retailers can
approach them any time "and buy their requirement. The producers, therefore,
need not stock thelr goods in different cities which would be quite a
cumbersome activ~tyinvolving huge investment and management problems.
6) Financing: The agents finance the distribution activity in many ways. They
often pay cash for their bulk purchases from the producers and even advance
money to them against their orders. The funding of field stocks is thus fully
handled by the middlemen.
7) Servicing: They arrange for the after sales services and handle all kinds of
complaints by the consumers locally. The manufacturer does not have to open
hls own service
centres at all places.
8) Acting as Channels of Communication: The middlemen are in constant
touch with different producers and the market. They can provide feed back
about the market to the producers on the one hand, and pass on information
about the products to the consumers on the other.
9) Help in Promotion: They also help the sales promotional activity through
displays and salesmanship. It is literally impossible for the producers to organise
such activity through any other means. Even otherwise, the middlemen being
local people are more effective.
Apart from the var~etyof services provided by the middlemen, what makes their role
more important is the fact that they handle them more efficiently and usually at a
reasonable cost. They are better equipped to perform these functions because they
possess special knowledge and skills, experience and contacts. The manufacturers
would find it very difficult to organise the distribution network and provide the
necessary funds. You should remember that the distribution of goods and provision of
essential services is a gigantlc task which involves huge funds and management
problems. By making use of middlemen the manufacturers are freed from the
botheration of distribution. They can concentrate on production activity which may be
more profitable. Not only that, in case of mass consumption items it is almost
impossible to the producers to organise direct sale in every nook and comer of the

14.3 TYPES OF MIDDLEMEN

Different types of middlemen participate in the process of movement of goods and its
title from producers to ultimate users. These may broadly be grouped into two
categories as: 1) primary participants and 2) ancillary participants.
The primary participants are the individuals or organisations which undertake to
perform the negotiatory functions of sellingmd transferring title of the goods to
others. These participants are called the channel members. The ancillary or
facilitating participants, on the other hand, are the group of institutions and parties that
Distribution Decisions assist channel members (primary participants) in performing the distribution tasks.
They do not take part in the channel decisions but only provide services to channel
, members once the basic channel decisions have been made. The most common
facilitating participants are financing institutions, public warehouses, transportation
companies and advertising agencies. Of course some of these services can be
undertaken by} the channel members themselves. For example, a merchant
wholesaler can operate private warehouse and trucks. But the essential feature of the
facilitating participants is that they assume limited risk or no risk in the functioning of

We will study in detail about the facilitating participants in Unit 13. We shall
concentrate the discussion on primary participants in this unit. Broadly speaking,
primary participants may be further classified as: 1) functional middlemen or
mercantile agents, and 2) merchant middlemen. Now let us study these two
categories in detail.

14.3.1 Functional Middlemen

Those who undertake various marketing functions in the process of distribution of
goods without having ownership rights are called functional middlemen. These
functional middlemen operate on behalf of owners. They perform a specific function
or undertake general functions relating to purchase and sale. These middlemen are
also called 'mercantile agents'. Depending on the functions performed, the functional

1) Factors: A middleman who keeps the goods of others and sells them with the
approval of the owner is known as a 'factor'. The goods are normally in his
possession or under his control. With the approval of the owner the factor can
sell the goods as agent, or sell in his own name, or pledge goods in his
possession, or can do all such acts as can be done by the owner of the goods.
After the sale of goods, he receives the payment from the buyer. He receives
commission at a fixed percentage on sales from his principal.
2) Brokers: They take neither possession nor acquire ownership of the goods, but
only serve to bring the buyers and sellers together. They negotiate purchase and
sale of goods on behalf of other parties. Their task is over as soon as the buyer
and the seller come to terms in respect of the purchase of sale of the goods.
When a broker acts on behalf of the buyer, he is known as buying agent. If the
owner of goods employs a broker for sale of the goods, the broker is known as a
selling agent. The broker works for a certain percentage of c~mmissionon the
business transacted by him on behalf of his principal.
3) Commission Agents: They also sell goods on behalf of the sellers. But they
differ from brokers in that they not only negotiate the sale of goods but also take
possession of the goods and make arrangements for the transfer of title to the
goods. Thk commission agent has to perform the functions of warehousing,
grading, packing or sampling in addition to assembling and dispersion. For their
services, the commission agents get a certain percentage of commission on
sales. If the commission agent is authorised to sell on credit and agrees to bear
the risk of bad debts for some additional commission, he is known as a del
credere agent.
4) Del Credere Agents: denerally if any mercantile agent sells goods on credit
with the approval of the owner, he is not responsible for any loss which may
arise due to non-payment by the buyer. The owner or principal has to bear the
risk of loss on account of such bad debts. When a mercantile agent sells the
goods on credit and assumes the risk of bad debts, he is known as a del credere
agent. For bearing such risk of bad debts, additional co~nmissionas a fixed
 percentage of the amount of credit sales is given to him. This additional
commission is called del credere commission. In other words, the del credere Intermediaries
agent bears the loss which may arise on account of bad debt and the owner is
protected against the loss.
5) Auctioneers: Middlemen appointed as agents to sell goods by auction are
known as auctioneers. They assemble goods from different parties and act on
their behalf to sell them to intending buyers. The date and time of auction are
announced in advance. Goods are displayed for inspection by interested buyers.
Bids are then invited by the auctioneer from those present at the time of auction.
Sometimes a minimum price is fixed for specific items known as reserve price
and bids are not accepted below that reserve price. The goods are sold to the
highest bidder. The auctioneer gets commission from the principal (seller) as a
percentage on the sale price.
6. C&F Agents: In many cases the manufacturers employ carrying and
forwarding agents often referred to as C&F Agents or CFAs. The CFAs can be
described as special categories Wholesellers. They supply stocks on behalf of
the manufacturer to the wholesale section or-their retail sector. Their function is
distribution. Their distinguishing characteristics are that they do not resale
products, but act as the agentslrepresentatives of the manufacturers. They act
on behalf of the manufacturers and as their extended arm. In a sense, they are
manufacturers' branches.
v
14.3.2 Merchant Middlemen
Middlemen who act on their own right buying and selling goods at a profit are called
merchant middlemen or merchants. They acquire title to the goods and bear the risks
of trade besides performing various functions like storing, grading, packing and
packaging, etc. Merchant middlemen may be divided into two categories.
1) Wholesale traders
2) Retail traders
Merchants who buy goods from producers or manufacturers or their agents and sell
.he same to industrial consumers or retail traders are known as wholesale traders.
The ~vddlemenwho buy goods from producers or wholesalers and sell the same to
ult~mateconsumers are known as retail traders. Thus, retailers act as the final link
[ri the channel of distribution. You will study in more detail about wholesalers and
retailers late1 in this unit.
Look dt Figure 14.3 carefully for the summary of the discussion on classification of

Figure 14.3: Classificationof Middlemen

Distribution Decisions Check Your Progress A
1) Differentiate between functional middlemen and merchant middlemen.
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2) Differentiate between broker and commission agent.
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3) Who is a middleman?

......................................................................................................................
4) State whether the following statements are True or False.
i) Middlemen who undertake marketing functions without having title to
goods are called merchant middlemen.
ii) Middlemen do not bear risk in the distribution of goods.
iii) With the approval of the owner, a factor can do all such acts as can be
done by the owner of the goods.
iv) A del credere agent is not responsible for any loss which may arise due to
non payment by the buyer.
V) Brokers operate only on behalf of buyers.
vi) In the process of distribution, functional middlemen do not take title to
goods

14.4 WHOLESALERS
Simply stated, wholesalers are those who happen to be engaged in wholesaling or
wholesale trade. In a broad sense, any individual or business firm selling goods in
relatively large quantities to buyers other than the ultimate consumers may be called a
wholesaler. Thus manufacturers who sell their products directly to retailers may be
regarded as wholesalers. However, in a more specific sense the term wholesaler may
be defined as a merchant middleman engaged in buying and reselling of goods to
retailers and other merchants, or to industrial or commercial users. Wholesalers do
not sell the products to ultimate consumers. The wholesalers belong to the category
of merchant middlemen who acquire title to the goods they handle. Agents or brokers
may also act as wholesale middlemen but they do not acquire the title to goods.
Wholesalers act as middlemen between producers or importers of goods on the one
hand, and retailers or industrial users on the other. The goods traded by wholesalers
may include agricultural commodities, forest products, minerals as well as
manufactured goods.
Manufacturing companies often do not have adequate capital to employ salesmen to
contact the large number of retailers. Many small retailers run their business in
remote areas and to contact them may be too expensive. Moreover, small retailers
generally prefer to buy products in small quantities due to their limited capital, lack of
market information and sources of supply. The wholesalers solve the problems of
32
manufacturers as well as small retailers. A wholesaler can place sufficiently large
order with the manufacturer keeping in view the requirements of a number of small Inte
retailers in his area. In that process, the wholesaler is in a position to meet the small
orders of retailers.
From the society's point of view, distribution of goods may be efficient because of the
specialised knowledge and skill of wholesalers. On the other hand, manufacturers can
concentrate on efficient production of goods. Naturally, thty do not undertake the
distribution of their products because their efficiency in manufacturing would suffer
on account of divided attention.
Sole Selling Agency: When a manufacturer prefers to stay out of the markekting
and distribution task, he appoints a suitable agency as his sole selling agent and
entrust the marketing job with him. A sole selling agent is usually a large marketing
intermediary with huge resources and extensive territory of operation. He wil1,be
having his own network of distributor/stockist/wholeseller,semi wholeseller and
retailers, he takes care of most of the marketing and distribution functions on behalf
of the manufacturer. Obviously a sole selling agentfmarketer will earn a large margin1
commission compared to other types of intermediaries. A manufacturer can appoint
just one agency in a given territory. Usually sales agencies involve exclusive selling
rights for a territory for a specified period. This will prevent competition among
agents. Of course the sole agents must know the area well and must be able to
handle the given area effectively. The sole agents are given a special commission.
Stockist/Distributor: Stockist/Distributor is a large operator but not on a level
comparable with a sole selling agent, in size, resources and territory of operation. The
stockistfdistributor operates under the marketerlsole-selling agent where such an
arrangement is used by the manufacturer. A stockist/distributor buys the product in
large quantities from producer and resale the goods in sizeable lots to other
intermediaries down the line, such as semi-wholesalers and retailers. They add value
by performing a number of vital marketing functions. Stock holding and sub-
distribution are the main functions of the wholesellers. They also perform functions
like promotion, financing, and collection of accounts, receivables, and provision of
market feedback.

14.4.1 Classification
Wholesalers may deal in a large or limited variety of products, restrict their activities
mainly to wholesaling or perform various functions incidental to their trade, and may
operate in small or large geographical territories. Accordingly, wholesalers may be
classified on three different bases: (1) merchandise dealt with, (2) method of
operation, and (3) coverage of geographical area. Look at Figure 14.4 for
classification of wholesalers.

Merchandise Method of Operation

Merchandise Single line

Figure 14.4: Q p e s of Wholesalers

Merchandise Basis
On the basis of goods dealt with by the wholesalers, we may distinguish three types
of wholesalers:
Distribution Decisions i) General merchandise wholesalers- those who deal in two or more unrelated
types of products. For instance, a wholesaler may deal in a number of consumer
durables like electrical goods, sports goods, cosmetics, hosiery, etc.
ii) General-line wholesalers- those who carry a number of goods in the same
product line. For instance, a wholesaler may carry convenience goods of daily
household necessity like soaps, detergents, toothpaste, razor blade, etc., or may
stock cereals and provisions like wheat, rice, dal, etc.
iii) Single-line or speciality wholesalers- those who restrict their operation to a
narrow range of products or speeific products. Wholesalers dealing in a few
varieties of textiles (cloth), or carrying varieties of printing paper only may be
called speciality wholesalers, or single-line wholesalers.

Method of Operation
On the 6asis of the method of operations, wholesalers may be divided into two
categories:
i) Service Wholesalers- those who perform a variety of functions like
advertising, grading, branding, packaging, etc., on behalf of manufacturers and
retailers.
ii) Limited Function Wholesalers- those who undertake to carry out a few
limited functions, like packaging or grading.

Territory covered
On the basis of the geagraphical coverage of dealings, wholesalers may be grouped
into three types:
i) Local Wholesalers- those who restrict their operation to a particular city or
town and supply products to retailers in that area.
ii) District Wholesalers- those who have dealings with retailers located in a
district.
iii) Regional or National Wholesalers- those who specialise in products having
a national market and are nationally advertised. They have dealings with
retailers locate4 in a region or a country.

14.4.2 Functions
In the preceding section we have learnt that wholesalers perform limited functions or
undertake a variety of functions. Actually, the functions of a wholesaler depend upon
the nature of the products dealt with and the business policy of that particular
wholesaler. Of course every wholesaler must carry out the minimum functions of
buying, storing and supplying one or more products. Besides these primary activities,
several other functions may also be performed by wholesalers.
The wholesalers perform the following important functions of marketing:
1) Assembling: The wholesaler collects varieties of products from different
manufacturers and keeps them in stock for sale to the retailers at the time when
they need them.
2) Dispersion: The products assembled and stocked by the wholesalers are
supplied to the retailers who may be widely scattered.
3) Warehousing: The goods purchased by the wholesalers from the
manufacturers and producers have to be stocked in warehouse pending their
sale to the retailers. The arrangement for such storage is the responsibility of the
wholesaler.
 Transportation: The wholesaler has to move the goods from the various Marketing
4) Intermediaries
factories to his own warehouse and from there to the retail stores. He may do
so either by employing his own vans or by hiring public carriers.
5) Financing: The wholesaler in most cases provides goods on credit to the
retailers.
(6) Risk-assuming: The wholesaler assumes the risk arising out of the changes in
prices and demand as also loss due to spoilage fir destruction of goods in his
warehouse.
7) Grading and Packaging: The wholesaler has to sort out different grades of
products according to quality and other considerations and pack the goods into
smaller lots for retailers.
8) Price fixation: The prices of goods which consumers have to pay depend upon
the prices fixed by wholesalers and charged from retailers. This is an important
function performed by wholesalers because a number of factors including prices
of competing goods, effect of prices on demand, etc., have to be taken into
account.

14.4.3 Services
We have already learnt how wholesalers serve manufacturers and retailers by buying
goods in large quantities, holding stocks and supplying smaller quantities to the
retailers. In that way the wholesalers act as a bridge between producers and
retailers. Let us now examine closely the services rendered by wholesalers to the
manufacturers and retailers.
Services to Manufacturers: Wholesalers provide the following services to the
manufacturers:
1) The wholesalers place large orders with the manufacturers or procure large
of goods from manufacturers. Thereby manufacturers are relieved of
the task of marketing their goods, and they can concentrate on production only.
Manufacturers need not necessarily hold large stocks in their godown. Hence
there is saving of expenses on storage and warehousing.
2) Wholesalers remain in close touch with the retailers. They get regular
information from the retailers about changes in the consumer's demand for
particular products as also about competing products. On the basis of such
information, wholesalers place orders with manufacturers. Thus, wholesaler's
purchase orders reflect the changing market conditions. Hence the volume of
production can be regulated by the manufacturers in accordance with the
changing market conditions as reflected by the wholesaler's purchase orders.
3) Often the wholesalers place orders in advance on the basis of their expectations
regarding future demand of products even though the current demand is low.
This helps manufacturers to continue their production on an even pace.
4) Wholesalers may also participate in the advertising of products jointly with the
producers, which is of great advantage to both the parties.
Services to Retailers: Wholesalers render the following services to retailers:
1) A variety of goods can be procured by retailers in small quantities from the
wholesalers. Most retailers serve a large number of customers. Thus different
types of products have to be stored by a retailer to meet the needs of individual
consumers. It is difficult for him to.buy the products from different
manufacturers in small quantities. He can easily do so by contacting a few
wholesalers.
2) Small retailers can get repeated supplies of products from wholesalers. Thus 3 .'
Distribution Decisions they can able to run their business with a relatively small amount of capital.
Large stocks are not to be held by them, so there is saving of storage space as
well.
3) Wholesalers have expert knowledge of the lines of product? they deal with.
They procure the items from the best sources, that is from producers who
supply the best quality at competitive priceq. Retailers also get advantage of -he
wholesalers' specialised knowledge of the products.
4) Retailers are protected from the risk of loss which would arise if-they were to
hold large stocks of any product. It is the wholesalers who bear the maximum
business risks arising out of falling demand for products.
5) Most wholesalers supply goods on credit to the retailers. This enables small
retailers to pay for the goods after sale or customer payment on account. The
working capital required for retail trading is thus relatively small.
6) Generally ietailers come to know about new products only through the
wholesalers whu deal with manufacturers. Whenever any new product is
introduced, wholesalers bring it to the notice of retaiiers either through salesmen
or display in showrooms.

Check Your Progress B

1) Who is a wholesaler?
......................................................................................................................
......................................................................................................................
......................................................................................................................
2) Visit a wholesaler in your area and find out the following:
i) Whether he deals in general merchandise or general line or single line.
......................................................................................................................
......................................................................................................................
ii) The services rendered by him to the retailers.
......................................................................................................................
......................................................................................................................
......................................................................................................................
3) State whether the following statements are True or False.
i) Wholesalers do not sell products to ultimate consumers.
ii) Wholesalers sell goods to industrial users.
iii) Wholesaler is a mercantile agent.
iv) General line wholesalers deal in a very narrow range of products.
v) A local wholesaler normally have dealings with retailers located in a
regiodstate.

14.5 RETAILERS
In simple words retailing refers to all transactions which involve sale of goods to the
ultimate consumers for personal consumption. If the buyer uses the goods for
reselling purposes it will not be treated as a retailing transaction. Any individual or
business unit or shop primarily engaged in retail selling is known as a retailer or retail
store. In a general sense, even a manufacturer or wholesaler may sometimes engage
5
 in sale of ,goods to the ultimate consumers. But they are not called retailers as Markel
retailing is not the major activity of such a manufacturer or wholesaler. Thus a retailer Intermedial
or retail store is one whose business consists primarily of sale of goods to consumers
for their own use, but not for resale in business. Retail business may include other
types of transactions also. It will be treated as a retailing business if more than half of
its total sales revenue is from retail trading.
A retailer is a middleman because retailing invoives ;rocwing goods from suppliers
(generally wholesalers) and selling them to consumers for the personal use. Retailers
perform the very important task of making goods available to consumers, which after
all is the objective that underlies the production of goods, Retailers thus form a vital
link in the channel of distribution of products.
Dealers: Dealers are also a type of retailers. They work for a specific type of
products or sell the products of one or few manufacturers. Dealers are at the bottom
of the distribution hierarchy, working under stockists/distributors or serni-wholesalers,
as the case may be. In cases where a company operates a single tier distribuiion
system, dealers operate directly under the company. Retailers are also referred to as
dealers. They operate in a relatively small territory or at a specific location, but they
do not normally perform stock-holding and sub-distribution functions. The stocks they
maintain are operational stocks necessary for immediate sale at the retail outlet. They
buy assorted products in suitable lots and resale them to household consumers located
in a limited geographical area, competing with other retailers.
Since the retailers deal with a large number of consumers of many different
categories, the role of retailers in the physical distribution of goods is clearly of v'ital
importance. The retailers act as a link between the producers or wholesalers on the
one hand and the consumers on the other. Without retailers, neither the products
would sell in distant places nor would it be possible for consumers to buy goods of
their choice in shops located nearby. Due to large-scale manufacture of a wide
variety of consumer goods and the necessity of making them available to individuals
living in distant villages, cities and towns retailers are now regarded as the most
important middlemen in the chain of distribution of goods.

14.5.1 Functions
Like the wholesalers, retailers also perform a variety of functions connected with the
buying and selling of goods. They, in brief, perform the following functions.
I) Estimating the demand: All retailers - big or small- have to make an estimate
of the demand for different products and have to determine the nature of
products that consumers need to be supplied.
' 2) Procurement of goods: Most retailers deal in a variety of products. So they
may have to procure goods from different wholesalers. Besides, they must
decide to buy from those wholesalers who supply goods suited to the
requirements of consumers as to quality and price.
3) Transportation: Usually the retailers are to arrange the transportation of goods
procured from the wholesalers' place. Sometimes delivery is also arranged by
the wholesalers on the basis of orders placed with their salesmen.
4) Storing goods: Small-scale retailers have limited space for the goods to be kept
in stock. Large retail stores often have godowns to store different varieties of
goods in adequate quantities. But in all cases, goods have to be held in stock so
as to meet the customers, needs. For this purpose storage of goods must be so
arranged that customers may be served without delay. They must be given an
opportunity to select goods of their choice. This is often done by display of goods
on shelves and high show cases.
Distribution Decisions 5) Grading and packaging: Large-scale retailers often have to sort out goods
according to the quality and price to be charged. They also make convenient
packages of goods for the benefit of consumers. For instance, fruit vendors
purchase apples in containers (boxes), sort out on the basis of size znd charge
different rates for different sizes. Spiccs which are procured in bags, may be
divided-into small packets of 100 or 209 vvarns each
6) Risk-bearing: Since goods are held in stock, the retailers arc to beax ehz risk of
loss on account of deterioration of quality, fire, theft, etc. Large retail stores are
insured to cover the risks of theft or fire. But losses due to damage or
deterioration d quality caused by improper storage cannot be insured.
7) Selling: The main function of retailers is selling the goods to ultimate
consumers. They have to sstisfy the needs and preferences of different types of
customers and deal with them tactfully and politely so as to make them regular

14.5.2 Services
As middlemen engaged in the d~st~zbution of goods, retailers deal with wholesalers
and consumers. Manufacturers as wet! a s \vholesalers depend a (I- -.i dcai 011
retailers for reaching the ultimate consumers to supply various products. Retailers
provide the necessary outlet for goods and thus render very useful service to the
wholesalers and also to the producers indirectly. The services of retailers to the
consumers are sigcificant in several ways:
1) By holding ready stocks of various commodities required by the consumers,
retailers relieve the customers of the need for stocking a wide variety of goods
which could be extremely inconvenient and cumbersome.
2) By keeping a good assortment of the various varieties of a particular product,
say soap, toothpaRes, etc. retailers provide a wide variety of choice to their
customers.
3) By proper display of new products, the retailers keep the consumer- informed
about the changing trends in production of different varieties of goods, besides
helping manufacturers to promote their products.
4) Retailers very often guide their customers about the relative merits of the
various brands of a particular product and thus help them in the selection of

5) Retailers may provide special facilities to their customers, for example, free horn
delivery, extension of credit, after-sales service, etc.

14.5.3 Classification
Broadly speaking, we may divide the retailers into two categories as: 1) itinerant
retailers, and 2) fixed shop retailers. Fixed shop retailers can be further classifed as:
1) small scale retailers, and 2) large scale retailers. Retailers also may be further
classified on the basis of (a) form of ownership, and (b) non-store retailing. All these
categories are explained below.

Itinerant Retailers
Retail traders who carry on business moving about from place to place to sell their
goods are known as itinerant retailer. They do not have any fixed place of business.
They either move from house to house with their goods, or change their place of
business frequently according to convenience .and sales prospects. Thus these
itinerant retailers move about and try to reach as nearer to the buyer as possibl ,.
There are three types of itinerant retailers who are explained below: .
 Marketing
Intermediaries

1) Hawkers or Peddlers: These retailers move from door to door in (residential

localities and sell their wares which may consist of vegetables, fruits, utensils,
toys, ice cream, snacks, etc. They carry their articles in bags or trays hanging
from shoulders, on bicycles or push carts, small motor vans or horse-drawn

Pavement Traders: Pavement traders are found in busy market areas, street
.
2)
crossings, in front of railway stations and bus terminals. The goods traded by
them include items like hand bags, cut-pieces of cloth, readymade garments,
footwear, household utensils, toys, books and journals, pens and pencils, fruits,
vegetables, etc. These traders sometimes put up temporary sheds or make-shift
platforms for display of goods. More often they spread their wares on
pavements at different places depending on the prospects of sale.
3) Market Traders: This type of itinerant retailers generally sell their goods in
weekly markets held in small towns or villages. They move from one market to
another in the neighbouring places on specific days fixed for the market.
Services of Itinerant Retailers: These retailers serve consumers at the nearest
and the most convenient places: They serve either at the consumers' door-step or on
busy places which consumers normally visit. Thus, housewives and working people
find it very convenient to buy goods from itinerant traders like hawkers and pavement
traders Market traders in small towns and villages are also very useful to the
consumers as they do not have fixed shops within easy reach. All itinerant retailers
save time and effort of customers in buying articles of ordinary use. Housewives
have the satisfaction of siiopping leisurely at their doorstep.

Small-scale Retail Shops

Small-scale retail shops include those small shops dealing with miscellaneous products
of regular use, and shops selling particular products of different varieties. They hold
small stocks and do their business in fixed shops located in residential areas or market
places. According to the nature of goods sold, the small retail shops may be divided
into three categories as follows:
I) Stalls on Streets: Small shops on the road side are very common in cities and
towns. These are set up as stalls in front of large stores or in residential areas
selling a limited variety of products of regular use like statiol- ry, grocery, toilet
products, biscuits, etc. The shops are located within easy reach of consumers'
residence or nearby roads or street-crossings, or bus stops. These retailers meet
the needs of customers at convenient locations. They supply goods of regular
use for which customers are not prepared to go to central markets.
2) General Merchandise Shops: These are small retail stores which deal in all
types of general consumer goods of regular use including provisions, bread,
butter, stationery and toiletry. paper and pencils, cigarettes, matches, etc. These
shops are located in thickly inhabited residential areas and busy markets.
Consumers find it convenient to buy all their requirements in one shop. Regular
buyers are also offered home delivery services and credit facility.
3) Speciality Shops: Small retail shops which deal in only one or two special types
of goods are known as speciality shops. The goods dealt with may be only
electrical fittings of different kinds, or medicines, or motor parts, or books and
Distribution Decisions stationery, or bread and confectionary items, or ready-made garments, or toys,
etc. People often find it convenient to buy their requirements from these shops
due to the availability of different grades and sizes in the small product line.

Large-scale Retail Shops

Large-scale retail shops are so called because they deal in a large variety of goods,
and have large volume of business. The types of fixed shops in this category include
the following:
1) Departmental stores
2) Super-market
3) Multiple shops or chain stores
4) Mail order house
5) Consumer co-operative stores
6) Hire purchase traders
7) Discount houses
8) Super bazars
9) Automatic vending machines
We shall now discuss briefly the characteristics of each of these types of retail shops.

1. Departmental Stores: A department store is a large-scale institution comprising

a number of departments; each department specialising in a separate line of products.
All these departments are under one roof and one unified control. Department stores
offer the widest possible choice of products. The consumer can find all what he
needs in one store rather than move around from shop to shop. These stores are
located in central places in big cities so that they are easily accessible to customers.
Bigger department stores offer a great number of amenities like restaurants, post and
telegraph offices, recreation rooms and car parking. A department store indulges in
decentralised buying and centralised selling. In fact, department store is a medium of
mass merchandising.
Departmental stores grew up in developed countries mainly to cater to the
requirements of well-to-do people who required articles of high quality and looked
forward for comfortable shopping. But they have also become popular in urban
centres in many developing countries. In India too, we find a number of department
stores coming up in urban centres, specially in metropolitan cities. Spencers and
Nilgiri of Madras, Kamalalya of Calcutta and Akbarally of Bombay may be cited as

Departmental stores have the following advantages:

a Departmental stores make shopping convenient to consumers by providing them
a whole range of goods in one building.
a Their central location attracts a large number of customers leading to a large
turnover. Thus they can afford to make large profits even with smaller margins.
a Bulk-buying by department stores enables them to obtain heavy discountsfrom
manufacturers and thus buy at a cheaper rate. There are savings in freight
charges as well.
a Departmental stores can afford to have effective advertising through press,
radio and'television and thus they are able to attract more and more customers.
a Being large business units, department stores can afford to employ skilled and
expert staff for all their operations and thus they are able to achieve a high
 degree of efficiency in their working. Marketing
Intermediaries
Departmental stores suffer from the following limitations:
Experience has shown that operating costs of department stores tend to become
very high because of the necessity to run some departments at a loss to attract
customers and heavy emphasis in service. As a result, more often than not, their
goods are marked at higher prices.
Central location also involves higher rents and thus higher overheads. Central
location may not be convenient to persons living in far off places which means
that they will make their purchases of articles of everyday use from nearby
shops. However, in recent years, department stores have branched themselves
out to suburban areas as well to reach the customers nearer their location.
It may not be possible for customers in general to receive personal attention
which is possible when they deal with small retailers.

2. Super-market: A Super-market is a large-scale retail store which offers for sale

a wide variety of consumer goods of regular use. The articles may include stationery,
toiletry, dress materials, ready-made garments, toys, grocery items, crockery, kitchen
utensils, medicines, as well as bread, butter, meat, eggs, fruits, vegetables, etc. The
items are placed in separate stalls in the same building, or kept on shelves or tables in
a hall. The customers are to pick-up the items they need and then pay for the articles
at the cash counter. It works on a self-service basis though one or two salesmen are
there to help the customers.
The super-market, like the departmental store, deals in a large variety of goods. But
there are certain differences between the two types of stores:
i) In a super-market the products sold are generally low priced, fast-moving items
of daily need. Durable goods like refrigerators, electric fans, radio, television,
etc. are not available in super-markets. A departmental store mostly
concentrates on consumer durables and fashion goods.
ii) In a departmental store there are separate counters served by salesmen,
whereas super-market operates on a self-service basis.
iii) Customers are not provided with services and facilities like hair-dressing
recreation, etc., in a super-market. These may be available in large departmental
stores, although not in every such store.
However, now-a-days the departmental stores and super-markets have started
dealing in similar products. Therefore, the difference between the two is fast
fading.

3. Co-operative Stores: Consumers sometimes join together to form co-operative

societies to sell goods on retail basis. The basic purpose is to eliminate middlemen and
obtain their requirements at a lower price. The capital is subscribed by the members
through the purchase of shares of small denominations. Co-operative stores purchase
their requirements in bulk, from manufacturers or wholesalers. This enables the co-
operative stores to sell their products at somewhat lower prices than the ordinary
retailers. These stores usually sell on cash basis and thus avoid the loss due to bad

Kamdhenu, TUCS and ~ m u d h &in Madras.

Co-operative stores have the following advantages:
Consumers can be sure of the quality of goods in the sense that there is no
Distribution Decisions possibility of an adulteration practiced by some retailers in the private sector.
These stores aie able to offer valous products at more reasonable prices than
most other retailers.
Consumers are assured of availability of certain products even when there is an
overall shortage in the market and that too at reasonable prices. Retailers usually
take advantage of such situations by either increasing prices or earmarking
supplies to their favoured customers.
Co-operative stores suffer from the following limitations:
Consumers do not patronise these stores regularly, coming to these stores only in
times of shortages.
In practice, they have not been able to reap the benefit of bulk purchases from
manufacturers.
Large co-operative stores may tend to suffer from all the drawbacks of q

bureaucratic management.

4. Multiple Shops or Chain Stores: The multiple shop system denotes an

organisation which controls a number of stores under one common ownership and
management. The various stores are located in various cities and in various localities
I 4
of bigger cities. Multiple shops refer to a group o f , retail stores dealing in similar
types of goods. The basic idea behind the establishment of the multiple shops is to
approach th-e customer in his vicinity unlike department stores which .seek to attract
customers to a central location. Tnese shops could be operated by manufacturers or
by wholesalers with the basic objective of eliminating retailers. Bata Shoes and Usha
Sewing Machines are the-two examples of products for which multiple shops have
been opened by manufacturers in India. Some textile mills also have some shops of
their own in bigger cities. If wholesalers decide to operate multiple shops, they indulge
in centralised buying with decentralised selling. Some of the Important features of
these shops are:
Each shop deals in the same type of goods and products.
8 The goods dealt are generally those meant for everyday use.
There is a high degree of standardisation and uniformity in the interior layout of
stores, window displays and outward appearance.
A uniform policy of sales is adopted.
I
Multiple shops have the following ments:
Multiple shops are able to offer lower prices due to the economics of bulk buying.
As sales are on cash basis, losses on bad debts are eliminated and accounting is
also made simpler.
8 Rapid turnover and common advertising for all shops make the operation of
multiple shops economical.
Any shortage of goods faced by one branch can be easily made up by transfer
from
I
some other branch in the same c~ty.
Since advertising matenal and interior layout of each shop is s ~ m ~ l aeach
r , shop I

serves to advertise the other shops. This leads to further ecoiromy in advertising
and a quicker turnover.
Multiple shops suffer from the following limitations:
Multiple shops cannot offer the variety of choice which department stores or
 even ordinary retail stores offer.
Intermediaries
e These shops do not normally offer home delivery service or credit sales and thus
lose a good number of customers.
Each unit is controlled by the head office and thus branch managers cannot
adjust their sales policy to local conditions and emerging opportunities.
Limitations of bureaucratic organisation usually creep in so that the shop
'
personnel tend to lose initiative.

5. Mail-order House: Retail trading which consists of receiving orders by mail and
delivery of goods by parcel post is known as mail-order business. The mail-order
house IS thus a retail trading organisation which uses the post office as its channel of
distribution. Standard consumer goods with trade marks or brand names are generally
dealt with by mail-order houses. This is because customers are to place orders
without physically checking the items. Bulky goods which cannot be delivered by
post, and those for which delivery costs are relatively higher, are not included in the
items traded. Orders from customers may be secured by advertising in newspapers
or journals. Sometimes circular letters are issued by mail to certain categories of
customers. For this purpose, a mailing list may be prepared from the telephone
directory or from the list of members of a club, or traders' association. The mailing
list contains the names and addresses of persons likely to be interested in the
particular goods. Customers are invited to send their orders by post to the address of
the mail-order house. Delivery is made by V.PR (Value Payable Post). Goods are
thus available to the customers on payment of the price which is remitted by the post
office to the sender of goods.
Mail-order business helps customers to get their requirements at their own place and
save the time and expense of shopping. The mail-order house, on the other hand, is
also benefited in a number of ways. Goods can be procured according to the order
received. The business can thus be started with a small amount of capital. Payment
for goods is assured through the post office. A wide market can be covered by
means of postal communication. However, mail order business has not developed in
India mainly due to the existence of retail trading shops in every locality. Besides,
illiterate people cannot be approached through the mailing list.

6. Hire-purchase Trading: Hire-purchase trading consists of supplying durable

goods for use by customers who agree to pay the price by instalment at regular
intervals. The buyer acquires ownership of the goods only after the total price has
been paid. In other words, in hire-purchase trading, the buyer takes possession of the
goods, but does not get the ownership until the last instalment has been paid. The
instalments are regarded as hire charges. If there is default in paying an
instalment, the seller has the right to recover the goods or sue the buyer for the
balance amount due. Durable goods like refrigerators, television Sets, radio, sewing '
machines, electric fans, automobiles, industrial machinery, air-conditioners, etc., can
be sold by hire-purchase trading houses. The instalments payable by the buyer
includes interest on unpaid balance. Hence, the total price paid is relatively higher
than in the case of outright cash purchase. But the customers get the advantage of
deferred payment, as in the case of purchase on credit, and is also able to use the
goods meanwhile. Hence, hire-purchase becomes attractive as a means of saving
large initial payment required for outright purchase of goods.

7. Discount Houses: Large scale retail establishments which offer discounts on the
prices are known as 'Discount Houses'. Durable goods like household appliances
(cooking ovens, electrical gadgets, etc.) camera, binoculars, etc., are generally
available through discount houses at a relatively lower price as compared with the
Distribution Decisions price charged by other retail stores. This is possible as the discount houses directly
purchase from manufacturers and operate the business on a low margin of profits.
They expect to cover expenses and make substantial profits through large volume of
1
i
sales. 1
1
1
8. Super-Bazars: These are large retail stores organised by co-operative societies i
which sell a variety of products under a single roof. The goods traded by super-
bazars include consumer goods which are procured at wholesale rates from
manufacturers or wholesalers. The stores are operated either on the principle of self-
service or with separate counters served by salesmen. The difference between a
super-bazar and super-market is that the former is organised by co-operative society
whereas the latter is generally established as a private sector organisation. Similarly,
the difference between a consumer co-operative store and super-bazar is that a
consumer co-operative store is usually run on small scale, while the super-bazar may
be a large-scale establishment.
.
9. Automatic Vending Machines: Retail sale of articles with the help of coin-
operated automatic machines is known as automatic vending. Retailing on a large
scale is possible in this way by placing machines at convenient locations like bus
terminals, railway stations, airports, shopping centres, etc. This method of retail selling
is very popular in western cbuntries. Cigarettes, razor blades, postage stamps, milk,
ice-cfeam, soft drinks, soup, paper-back books, newspapers, etc., are sold in cities
through vending machines. Customers are required to insert necessary coins in a slot
and press a button whereby the article is released automatically. The coins are
collected from the machine periodically, and articles are put in as needed. Automatic
vending facilitates buying of small items round the clock. There is no necessity of
salesmen's services. However, the stocking capacity of machine is limited and there
are risks of mechanical failures imtating the customers. Moreover, paper currency
may not be used and coins of exact value are required to operate the machine. In
India, automatic vending has been used for limited purpose like selling postage
stamps, flight insurance, milk, etc. It is not a popular retailing device in India due to
the existence of a large number of small retail shops.

Form of Ownership
A retail business like any other type of business, can be owned by a sole proprietor,
partners or a corporation. A majority of retail business in India are sole
proprietorships and partnerships.
.
1. Independent Retailer: Generally operates one outlet and offers personalized
services, a convenient location and close customer contact. Roughly 98% of all the
retail businesses in India are managed and run by independents, including barber
.
shops, drycleaners, furniture stores, bookshops, LPG Gas Agencies and
neighbourhood stores. This is due to the fact that entry into retailing is easy and it
requires low investment and little technical knowledge. This obviously results in a high
degree of competition.
Most independent retailers fail because of the ease of entry, poor management skills
and inadequate resources.
2. Retail Chain: It involves common ownership of multiple units. In such units, the
purchasing and decision making are centralized. Chains often rely on specialization,
standardization and elaborate control systems. Consequently chains are able to serve
a large dispersed target market and maintain a well known company name. Chain
stores have been successful, mainly because they have the opportunity to take
advantage of "economies of scale" in buying and selling goods. They can maintain
their prices, thus increasing their margins, or they can cut prices and attract greater
sales volume. Unlike smaller, independent retailers with lessor financial means, they Marketing
can also take advantage of such tools as computers and information technology. Intermediaries
Examples of retail chains in India as Shoppers stop, West side and IOC, convenience
stores at select petrol filling stations.
3. Retail Franchising: Is a contractual arrangement between a "franchiser"
(which~maybe a manufacturer, wholesaler, or a service sponsor) and a "franchisee"
or franchisees, which allows the latter to conduct a certain form of business under an
established name and according to a specific set or rules. The franchise agreement
gives the franchiser much discretion in controlling the operations of small retailers. In
exchange for fees, royalties and a share of the profits, the franchiser offers
assistance and very often supplies as well. Classic examples of franchising are:
McDonalds, PizzaHut and Nirulas.
4. Cooperatives: A retail cooperative is a group of independent retailers, that have
combined their financial resources and their expertise in order to effectively control
their wholesaling needs. They share purchases, storage, shopping facilities,
advertising planning and other functions. The individual retailers retain their
independence, but agree on broad common policies. Amul is a typical example of a
cooperative in India.
Non Store Retailing
In non store retailing, customers do not go to a store to buy. This type of retailing is
growing very fast. Among the reasons are: the ability to. buy merchandise not
available in local stores, the increasing number of women workers, and the presence
of unskilled retail salespersons who cannot provide information to help shoppers make
buying decisions.
The major types of non store retailing are:
1. In Home Retailing: Where, a sales transaction takes place in a home setting -
including door-door selling. It gives tbe salesperson an opportunity to demonstrate
products in a very personal manner. HelShe has the prospect's attention and there
are fewer distractions as compared to a store setting. Examples of in home retailing
include, Eureka Forbes vaccum cleaners and water filters.
2. TelesalesITelephone Retailing: This involves contact between the prospect and
the retailer over the phone, for the purpose of making a sale or purchase. A large
number of mobile phone service service providerfs use this method. Other examples
are private insurance companies, and credit companies etc.
3. Catalog Retailing: This is a type of non store retailing in which the retailers offer
the merchanise in a catalogue, which includes ordering instructions and customer
orders by mail. The basic attraction for shoppers is convenience. The advantages to
the retailers include loer operating costs, lower rents, smaller sales staff and absence
of shop lifting. This trend is catching up fast in India. Burlington's catalogue shopping
was quite popular in recent times. Some multi level marketing companies like
Oriflame also resort to catalogue retailing.
4. Direct Response Retailing: Here the marketers advertise these products1
services in magazines, newspapers, radio andor television offering an address or
telephone number so that consumers can write or call to place an order. It is also
sometimes referred to as "Direct response advertising". The availability of credit
cards and toll free numbers stimulate direct response by telephone. The goal is to
induce the customer to make an immediate and direct response to the advertisement
to "order now". Telebrands is a classic example of direct response retailing. Times
shopping India is another example.
5. Automatic Vending: Although in a very nascent stage in India, is the ultimate in
Distribution Decisions non personal, non store retailing. Products are sold directly to customers/buyers from
machines. These machines dispense products which enable customers to buy after
closing hours. ATMs dispensing cash at odd hours represent this form of non store
retailing. Apart from all the multinational banks, a large number of Indian banks also
provide ATM services, countrywide.
6. Electronic Retailing/'-Tailing: Is a retail format in which retailers communicate
with customers and offer products and services for sale, over the internet. The rapid
diffusion of internet access and usage, and the perceived low cost of entry has
stimulated the creation of thousands of entrepreneurial electronic retailing ventures
during the last 10 years or so. Amazon.com, E-bay and Bazee.com HDFCSec.com
are some of the many e-tailers operating today.

14.6 TRENDS IN WHOLESALING AND RETAILING

Marketing intermediariesor middlemen in the distribution network are indispensable
because they perform specialized marketing functions such as buying, selling,
transporting, warehousing, grading, sorting, financing,risk-taking, and dissemination of
marketing intelligence. They create time, place, possession, and information utility.
Marketing intermediaries survive and prosper only as long as they perform one or
more of these essential marketing functions at cost which are competitive with other
intermediaries a d at levels matched to market demands. It should be clearly
understood that the marketing functions and services can be shifted and shared, but
they can never be eleminated. Even if a producer takes the products directly to the
user, the channel functions cannot be eliminated. The producer under direct sale must
perform all marketing functions such as buying, selling, stocking,pricing, promoting,
delivering, financing and so on. The direct sale may reduce the number of times or
the the frequency or the functions performed. But it cannot eliminate those typical
marketing functions. Besides, the direct sale may or may not reduce that cost. Under
such circumstances, where is the utility of eliminating middlemen in distribution? On
the other hand, it is preferable to utilize middlemen who specialize in those marketing
services and who offer the benefits specialization at reasonable cost. Wholesalers
and retailers, by practicing specialization and division of labour, reduce the operation
expense ratio. They can operate on relatively small profit margin. In case of
consumer goods bulk of perchanise even in advanced countries move through
wholesaling and retailing organization, hence wholesaler and retailer are two most
important marketing intermediaries. They have carved out a definite niche in our
distribution system by the efficient performance of marketing functions.
Marketing is a dynamic area of Management. As such, with a constantly changing
environment of business, various important developments have taken place in almost
all the areas of marketing. Some of the important developments have taken place in
the field of distribution channels also. These developments not only reflect the trends
in respect of major channel participants i.e., wholesalers and retailers, but also
indicate the future of these intermediaries in the country.
A major development is the emergence of Integrated Marketing Systems. Instead at
the conventional distribution system, in which an individual channel member operates
'independently on the basis of self-interest and without taking interest in what occurs
later in the chain, now the channel participants at different levels-have started
working in an integrated and coordinated manner. This integration may be either
vertical or horizontal. Vertical integration refers to coordination between channel
participants at different levels. For example, coordination between manufacturers and
wholesalers, between wholesalers and retailers. Such coordination may be organised
on a corporate, contractual or administered basis. The objective of such integration is
to achieve operating economies and increased market impact. Horizontal integration,
on the other hand, refers to alignment of two or more firms at the same level of Marketing
channel participation to jointly exploit a marketing opportunity. This integration may be Intermediaries
at the level of manufacturers or wholesalers or even retailers. For example, in India,
cement manufacturing companies have formed an 'Associated Cement Company' so
as to channelise their produce to the market. Similarly, tyre manufacturers had built
up a guild through which the prices, etc., of the tyres were being fixed jointly. This
tendency of integrated marketing is likely to grow in the coming years.
More number of firms are adopting direct marketing techniques for selling their
products. This is particularly so in the case of distribution of consumer durable
products. This is being done to ensure great control over the market and to bring
economy in the cost of distribution.
Trends in Wholesaling
Progressive wholesalers constantly watch for better ways to meet the changing
needs of their suppliers and target customers. They recognize that, in the long run,
their only reason for existence comes from adding value by increasing the efficiency
and effectiveness of the entire marketing channel. To achieve this goal, they
constantly improve their services and reduce their costs. For instance, McKesson
HBOC, the USA's leading wholesaler of pharmaceuticals and health care products,
automated its 36 warehouses, established direct computer links with 225 drug
manufacturers, designed a computerized accounts-receivable programme for
pharmacists, and provided drugstores with computer terminals for ordering
inventories. Retailers can even use its computer system to maintain medical profiles
on their customers. Thus, McKesson HBOC has delivered better value to both
manufacturers and retail customers, and remained cost effective than the
manufacturer's sales branches.
Consolidationwill significantly reduce the number of wholesaling firms. Surviving
wholesalers will grow larger, primarily through acquisition, merger and geographic
expansion. The trend toward vertical integration, in which manufacturers try to
control their market share by owning the intermediaries that bring their goods to
market, remains strong. In health care, for instance, durg makers have purchased
drug-distribution and pharmacy-management companies. Facing slow growth in their
domestic markets, many large wholesalers are now going global.
The distinction between large retailers and large wholesalers continues to blur. Many
retailers now operate formats such as wholesale clubs and hypermakets that perform
many wholesale functions. In return, many large wholesalers are setting up their own
retailing operations.
Wholesalers will continue to increase the services they provide to retailers -retail
pricing, cooperative advertising, marketing and management information reports,
accounting services, online transactions, and others. Rising costs on the one hand, and
the demand for increased services on the other, will put the squeeze on wholesaler
profits. Wholesalers who do not find efficient ways to deliver value to their customers
will soon drop by the wayside. However, the increased use of computerized,
automated, and Internet systems will help wholesalers to contain the costs.
Trends in Retailing
Structurally, retailing in India is still made up of traditional retail store formats like, the
'Kirana' (mom and pop) shops, hardware shops, weekly 'haats' and flea markets.
This is not to say that large retailing formats, like department stores, hyper-markets,
malls and spciality stores are non existent. Although, large retail formats are still in a
very early stage of development, with 2% share of the organized retail sector, it has
definitely established a firm base in India.
47
Distribution Decisions Till about a few years ago, organized retailing with the exception of BATA, was
'
confined largely to South India. But organized retailing is now experiencing a boom
throughout the country.
For Indian retailing, things started to change slowly around the 1980s, when the
Government began opening its economy. In the textile sector, companies like, Bombay
Dyeing, Raymonds, S. Kumar and Grasim, were the first to set up retail chains. Later,
Titan (Tatas) with its premium watches, successfully created an organized retailing
concept in India by establishing a series of elegant show rooms.
The latter half of 1990s however, saw a fresh wave of new entrants in the retailing
business. This time it was not a manufacturer looking for an alternative sales channel.
These were pure retailers with no serious plans of getting into manufacturing. The
fields they entered into, were diverse : Food world, Subhiksha and Nilgiri's in food and
FMCG, PlanetM and, Musicworld in music, Crossword and Fountainhead in books.
Retail growth is already gathering momentum and the organizeh.retail industry is
expected to grow by 30% in the next five years and is estimated to reach Rs.45,000
crore in 2005-06.
The forces propelling this evolution spring from increased levels of education,
technological change and people's life styles. Discretionary income is there to spend
but the time to spend it is not. Shopping once considered a pastime in the era of
traditional families is now a time consuring chore.
In recent years the nature of retailing has changed dramatically, as firms try to
protect their positions in the market place. Many customers are no longer wiling to
spend as much time on shopping as they once did. Some sectors of retailing have
become saturated, several retailers are operating under high levels of debt and
number of retailers after running frequent "sales", have found it difficult to maintain
regular prices.
Retailers are adapting to the shopping needs and time constraints of working women,
dual earner households and the increased customer interest in quality and customer
service.
Shopping Malls: A growing number of shopping malls are coming up all over the
country. In north India, there seems to be a proliferation of such malls surrounding
Delhi, in places like Gurgaon and Noida. In general they target higher income
customers, with their prestigious speciality shops, restaurants and department stores.
Factory Outlets: Manufacturers are opening factory outlets to sell off surplus
inventories and outdated merchandise. This forward vertical integration gives
manufacturers greater control over distribution, than selling the merchandise to off
price retailers. Mohini knitwear of Ludhiana (Punjab) and number and woollen and
hosiery manufacturers set up their outlets in Delhi during winters.
Non Store Retailing: Non store retailing is accelerating at a faster rate than in store
retailing. This includes direct marketing. InHome shopping, TV shopping and e-tailing
etc.
Diversification of Offerings: Scrambled (unrelated products or services)
merchandising is taking on a broader meaning and inter type competition among
retailers is growing. For instance Citibank is organizing tourist trips and sending mail
order catalogues to its credit card customers.
Impact of Technology on Shopping Behaviour: The way retailers present their
merchandise and conduct their transactions are changing. Cable TV Channnels are
used to present merchandise, Videos have replaced catalogues and w p u t e r linkages
to acquire information and make purchases are on the increase. Virtual shoppingd ' '
48 through PDAs is another possibility.
 Multi Channel Retailing: Traditional store based and catalogue retailers are placing
more emphasis on their electronic channels and evolving into multichannel retailers, Intermediaries :
because they can reach new markets and overcome limitations posed by traditional

Expansion Globally: Due to globalisation and liberalisation under the WTO regime,
retailers are also finding opportunities to expand globally. Retailers with unique
' formats and strong brand positioning are increasingly moving into othercountries.
Many are expanding internationally to escape mature and saturated home markets.
Over the years, several giant US retailers like McDonald's, Gap, Toys " R Us-have
become globally prominent as a result of their great marketing prowess. Similarly,
retailers from other countries that have gone global are Britain's Marks and Spencer,
Italy's Benetton, France's Carrefour hypermarkets, Sweden's 'IKEA home
furnishings stores,, and Japan's Yaohan supermarkets. Marks and Spencer, which
started out as a penny bazaar in 1884, grew into a chain of variety stores over the
decades and now has a thriving string of 150 franchised stores around the world,
which sell mainly its private-label clothes. In the context of global expansion, 18%of
US retailers, 40% .of European retailers and 3 1% of Asian retailers have their
presence in foreign countries. In the recent times, Government of India permitted
foreign direct investment in retailing. Therefore, there is scope for foreign retailers to
enter India in a big way.

With the rise in the number of people living alone, working at home, or living in
isolated and sprawling suburbs, there ha's been a resurgence of establishments that
regardless of the product or service they offer, also ,provide a place for people to get
together. These places include cafes, tea shops, juice bars, multiplex theatres,
bookshops, superstores, children's play spaces, brew pubs, and urban greenmarkets.

Check Your Progress C

1) How is a retailer different from a wholesaler?
......................................................................................................................
......................................................................................................................
......................................................................................................................
2) Differentiate between departmental store and multiple shop.
......................................................................................................................
......................................................................................................................
......................................................................................................................
3) Differentiate between a consumer co-operative store and super-bazar.
......................................................................................................................
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......................................................................................................................
4) State whether the following statements are True or False.
i) Retailers always buy goods from manufacturers.
ii) Retailers also sell goods to other retailers.
iii) Super-markets normally deal with consumer durables.
iv) Retail traders who move from place to place are called itinerant retailers.
Distribution Decisions v) Super-bazar is a retail shop organised by a co-operative society.
vi) Consumer co-operatives are run on no-profit no-loss basis.

14.7 LET US SUM UP

Intermediaries playa significant role in the distribution of goods and services. They
create a number of utilities, bring in economy of effort, make shopping convenient for
the buyers and help in regulating demand for the products. There are two broad
categories of intermediaries - primary and ancilliary. The primary participants are i
those who undertake the negotiatory functions of selling and transferring of title of
goods. The ancilliary participants such as financial institutions, public warehouses,
etc., on the other hand, assist the channel members (primary participants) in
performing the distribution task. The primary participants may again be divided into
two categories: 1) merchant middiemen (retailers and wholesalers) and 2) merchant
agents (brokers, ,commission agents, del credere agents- auctioneers, etc.).
Wholesalers are defined as merchant middlemen who are engaged in buying and
reselling goods to retailers, other merchants, industrial and commercial users, but not
to ultimate consumers. Wholesalers may be classified on the basis of merchandise
dealt with methods of operation, and geographical coverage of their dealings. The
functions performed by wholesalers include assembling, storage:, grading and
packaging, transportation, financing retail traders, price-fixation, risk-bearing and
making advances to manufacturers. Wholesalers render valuable services to
manufacturers as well as retail traders.
A retailer is one whose business consists primarily of selling goods to customers for
their own use, not for use in their business. If manufacturers sell goods to consumers,
they are not treated as retailers as retailing is not the major activity of a
manufacturer. The retailers perform several functions such as estimating demand,
procuring goods, arranging transport, holding stocks, grading and packaging, and
selling. They render valuable service to consumers, wholesalers and indirectly also to
the producers of goods.
Retailers may be divided into two broad categories: itinerant retailers and fixed-shop
retailers. Itinerant retailers (hawkers, pedlars, pavement traders, and market traders)
either move from house to house or change their place of business according to
convenience. Fixed-shop retailers locate their stores at fixed places where customers
can easily come and make their purchases. Fixed shop retail trading may consist of
two types: 1) Small-scale retailing (stall-holders, general merchandise shops, speciality
shops, and second-hand goods sellers) who deal in a limited range of products or
2) Large-scale retailers establish stores (departmental stores, super markets, multiple
shops, mail-order houses, consumer co-operative stores, super-bazars, hire-purchase
trading, discount-houses, and automatic vending) which deal in and stock a wide
range of products.
On the basis of the form of ownership, retailers may be deivided as independent
retailers, retail chain, retail franchising and cooperatives. Further, there are non-store
retailing such as in home retailing, telesales/telephone retailing, catalog retailing, direct
response retailing, automatic vending and electronic retailing.

14.8 KEY WORDS

Ancilliary Participants: Group of individuals and organisations which do not
perform the negotiatory functions of selling and transferring title of products but assist
the primary participants in performing the distribution tasks.
 Auctioneer: A middlemen appointed as an agent to sell goods by action. Marketing
Intermediaries
Automatic Vending: Sale of small articles of regular use by installing coin-operated
automatic machines at different places.
Broker: A middlemen who brings together the buyer and seller, and negotiates the,
terms and conditions of sale on behalf of either buyer or seller.
Commission Agent: A middlemen w11o sells goods on commission basis on behalf
of the owner.
Consumer Co-operative Stores: Retail stores run by co-operative societies
organised in the interest of consumer groups.

[' Departmental Stores: Large retail stores consisting of separate departments selling
different types of products.
, Discount Houses: Retail stores engaged in selling durable consumer goods at a
discount.
Factor: A mercantile agent who keeps the goods of other for sale. He can sell the
goods in his own name, pledge and do all acts necessary for sale.
Hire Purchase Trading: Supply of durable goods on hire against the payment of
periodical instalments with ownership transferred to the buyer, after all instalments
have been paid.
Itinerant Retailers: Retail traders who sell goods moving from house to house or
change their place of business frequently.
Mail-Order House: Receiving orders by mail and delivering goods through the post
office.
Mercantile Agent: A functional Middleman who undertakes specific functions of
sale or purchase of goods as agent of the owner without having ownership right. '
Merchant Middleman: A middleman such as wholesaler or retailer who buys and
sells goods in his own name and performs necessary functions in that connection.
Middleman: An intermediary between the producer and the consumer to help
1 distribution of goods.
Multiple ShopsIChain Stores: Retail stores under the ownership and management
of a single firm dealing in similar products at uniform prices and located at different
. places. Primary Participants: Group of individuals and organisations undertaking to
perform the negotiatory functions of selling and transferring title of the products.
Retailer: One who is engaged in wholesale trading.
Retailing: Purchasing goods from wholesalers or manufacturers and selling them to
I
consumers for their personal non-business use.
Speciality Shops: Small retail shops dealing in one or two special types of goods.
Super-Markets: Retail stores selling consumer goods of regular use and operating on
self-service basis.
Wholesaler: One who is engaged in wholesale trading.
I
Wholesaling: Purchasing and reselling of goods to retailers and merchants. I
Note: These questions will help you to understand the unit better. Try to write
answers for them. But do not submit your answers to the university for
assessment. These are for your practice only.
UNIT 15 MARKETING LOGISTICS
Distribution Decisions moved from the point of their origin to the point of their consumption. Here comes the
role of marketing logistics. The present unit focuses on various aspects relating to the
marketing logistics of a product. It describes the meaning, importance, role;
objectives, tasks involved and approaches of marketing logistics..

15.2 MARKETING LOGISTICS - MEANING AND

IMPORTANCE
No matter how good the product of a firm may be, if it does not reach the consumers
at the right time and place and in the best physical state, a great deal of effort would
go waste. For that, it is important to ensure mobility of goods.

15.2.1 Meaning of Marketing Logistics

From the point of view of management, marketing logistics has been described by
Philip Kotler as "planning, implementing and controlling the physical flows of
materials, final goods and related information from point of origin to point of
consumptiorz to meet customer 5 requirements at a profit ". In short, it involves
getting the right product in right quantity to the right customer in the right place at the

Traditional physical disctribution typically started with products at the plant and then .
tried to find low-cost solutions to get them to customers. However,.today's marketers
prefer marketing logistics, which starts with the marketplace and works backward
to the factory. To understand this, you have to first understand the concepts of
logistics management and supply chain management.
Logistics describes the entire process of moving raw materials and component parts
into a firm, moving in-process inveoty through the firm, and moving finished goods out
of the firm. Effective marketers create and maintain long-term relationships with a
chain of organizations to perform this logistics function. The term supply chain is
used to describe all the organizations that regularly supply a marketing company and
all members ofthe marketer's channel of distribution. The ideal supply chain is a
collaborative arrangement in which all organizations see themselves as partners
working together to increase logistical efficiency. Supply chain management or
logistics management, thus involves planning, implementation and controlling a
chain of organizational relationships to assure the efficient flow of both inbound
materials and outbound finished products.
Clearly, the term supply chain management is broad in scope because it encompasses
planning and coordinating the physical distribution of finished goods and managing the
movement and storage of raw materials and supply parts needed during the
procurement and production process. Slupply chain management, thus, includes two
aspects (1) Inbound logistics, which includes all the activities associated with
bringing raw materials and supplies to the point of production and moving the in-
process inventory through the firm. Inbound logistics is also referred to as
Production Logistics. (2) Outbound logistics which includes the broad range of
activities concerned with efficient movement of finished products from the end of
production line to the consumers. Outbound logistics is referred to as marketing
logistics. Thus, production logistics and marketing logistics put together called supply
chain management or logistics management. Study Figure 15.1 carefully to
understand the relationship between supply chain management and marketing
 Supply Chain Management

Figure 15.1: Supply chain Management or Logistics Management

Normally, marketing logistics and physical distribution are used synonymously by
many marketers. Moreover, there is slight difference in these terms.
Physical distribution is a term employed in manufacturing and commerce to
describe the broad range of activities concerned with efficient movement of finished
products from the end of the production line to the consumer. In short, physical
distribution refers to the flow or products from producers to consumers. Its major
focus is the physical aspects of that flow rather than the institutional activities within
channels of distribution dealing with changing title, facilitating exchanges, and
negotiating with intermediaries.
Historically, we have moved from physical distribution to logistics management and
then to supply chain manangement. This major difference seems to be that supply
chain management is the preferred name for the actualization of "integrated
logistics", with it acting as an enabler, it is now possible to have an integrated process
view about the logistics and all allied processes related to business.
You are now clear that the process of marketing logistics involves handling and
movement of products from the point of production to the point of consumption or
use. The important activity involved in this process includes order handling,
information processing, inventory", control, storage and transportation. Thus, the
major elements of marketing logistics may be listed as follows:
a Transportation
Inventory Maintenance
e Order Processing
a Acquisition
a Protective Packaging
a Warehousing
a Materials Handling
a Information Maintenance

55
Distribution 15.2.2 Importance of Marketing Logistics
Logistic activity is literally thousand ofyears old, dating back to the earliest form of
organized trade. As the area of study, however, it first began to gain attntion in the
early 1990s. More emphasis has been given to logistics after the Gulf war in I 990-9 1
when the efficient and effective distribution of store supplies and persons were the
key factors for success.
The effective logistics management can provide a major source of competitive
advantage. The source of competitive advantage is foundfirstly in the ability of the
organization to differentiate itself in the eyes of the customer from its competitor and
secondly by operating at a lower cost and hence at greater profit. There are two
bases of success in any competitive context. One is the cost advantage and second is
the value advantage. Cost advantage is achieved through greater productivity and
value advantage is pursued through a different plus over competitive offerings.
It is now recognised that marketing ligistics is a critical area of overall supply chain
management. Logistics expenditure accounts for 15-20% of GDP. Thus, by improving
the efficiency, logistics makes an important contribution in reducing costs as a whole.
Business logistical techniques can be applied to marketing ligistics so that costs and
customer satisfaction are optimised. There is little point in making large savings in the
cost of distribution if in the long run, sales are lost because of customer
dissatisfaction. Similarly, it does not make economic sense to provide a level of
service that is not required by the customer but leads to an erosion of profits. This
costkervice balance is a basic dilemma that physical distribution managers face.
The reason for the growing importance of marketing ligistics is the increasingly
demanding nature of the business environment. In the past it was not uncommon for
companies to hold large inventories of raw materials and components. Although
industries and individual f m s differ widely in their stockholding policies, nowadays,
stock levels are kept to a minimum wherever possible. Holding stock is wasting
working capital for it is not earning money for the company. To think of the logistical
process merely in terms of transportation is much too narrow a view. Physical
distribution management (marketing ligistics) is concernd with the flow of goods fiom
the receipt of an order until the goods are delivered to the customer. In addition to
transportation,marketing ligistics involves close liaison with production planning,
purchasing, order processing, material control and warehousing. All these areas must
be managed so that they interact efficiently with each other to provide the level of
service that the customer demands and at a cost that the company can afford.
With rising interest rates and increasing energy cost, logistics received more attention
as a major cost driver. Logistics cost became a more critical issue for many
organizations because of globalization of industry. This has affected logistics in two
primary ways. First, the growth of world-class competitors from other nations has
caused organizations to look for new ways to differentiate their organizations and
product offerings. Second, as organizations increasingly buy and sell offshore, the
supply chain between the organizations becomes longer, more costly and more
complex. Excellent logistics management is needed to fully leverage global
opportunities. Information technology input has given a next boom to logistics
management. This gave organization the ability to better monitor transaction intensive
activities such as ordering movement and storage of goods and materials. Combine
with the availability of computerized quantitative models; this information increased
the ability to manage flows and to optimize inventory levels and movement.
Other factor contributing to the growing interest in logistics include advances in
information technology, increased emphasis on customer service, growing

i6
 reorganization of the system approach and total cost concept. The profit leverage Marketing Logistics
from logistics and realization that logistics can be used as a strategic weapon in
competing the market place.

' 15.3 OBJECTIVES OF MARKETING LOGISTICS

Determining the objectives is the first step in managing an activity in a planned and
systematic way. It is so because the objectives serve as a guiding force for chalking
out the strategy for the successful completion of the task. In the area of marketing
logistics too, the strategy will depend upon the objectives sought to be achieved in
this regard. Thus, it is important for the firm to specify the major objectives of the
marketing logistics system.
The objective of any marketing logistics system is to move the goods to the right
place at the right time, and at the lowest possible cost. Thus, customer service and
cost reduction are the two basic objectives of an effective marketing logistics system
in an organisation. However, there may be some more specific objectives in a given
'
marketing situation. Some such objectives are described in detail below:

Improving Customer Service

As you know, the marketing concept assumes that the sure way to maximise profits
in the long run is through maximising the customer satisfaction. Thus, an important
objective of all marketing efforts, including the marketing logistics, is to improve the
customer service. This in turn, produces better sales and profits.
An efficient management of marketing logistics helps to improve the level of
customer service by developing an effective system of warehousing quick and
economic transportation and optimum level of inventory. But as discussed earlier, the
level of service directly affects the cost of distribution. Therefore, while deciding the
level of service, a careful analysis of the customers' wants and the policies of the
competitors is necessary. The customers may be interested in several things like
timely delivery, careful handling of merchandise, reliability of inventory, economy in
operations and so on. But the relative importance of these factors in the minds of
customers may vary. Thus, an effort should be made to know whether they value
timely delivery or economy in transportation, and so on. Once the relative weights are
known, an analysis of what the competitors are offering in this regard should be
made. This together with an estimate about the cost of providing a particular level of
customer service would help in deciding the level of customer service.

Reduce Distribution Costs

Another most commonly stated objective is to reduce the cost of distribution of the
products. It has already been explained that the cost of marketing logistics consists of
various elements such as transportation, warehousing and inventory maintenance, and
a reduction in the cost of one of the elements may result in an increase in the cost of
the other elements. Thus, the objective of the firm should be to reduce the total cost
of distribution and not just the cost incurred on anyone element. For this purpose, the
total cost of alternative distribution systems should be analysed and the one which has
the minimum total distribution cost should be selected.
The cost of distribution is also related to the level of customer service offered by a
firm. The higher the level of service offered, the greater would be the cost of
distribution. Thus, the objective of the finn may be to minimise the total marketing
logistics cost to achieve a target level of customer service. In other words, cost
minimisation is related to the level of customer service set by the company.
Distribution Decisions Generating Additional Sale
Another important objective of the marketing logistics system in a firm is to generate
additional sales. A firm can attract additional customers by offering better services at
lower prices through improvements in the physical distribution of the products. For
example, by decentralising its warehousing operations or by using economic and
efficient modes of transportation, a firm can achieve larger market share also by
arresting the out-of-stock situation, the loss of loyal customers can be arrested.

Creating Time and Place Utilities

The marketing logistics system also aims at creating time and place utilities in the
products. Unless the products are physically moved from the place of their origin to
the place where they are required for consumption, they do not serve any purpose to
the users. Similarly, the products have to be made available at the time they are
needed for consumption. Both these purposes can be achieved through the marketing
logistics system. For example, in order to create maximum time and place values, the
products should be kept in warehouse during the period they are available in excess
till they are in short supply. For this the warehouse should be located at places from
where they can be delivered can be provided and sufficient stocks levels should be
maintained so as to meet the emergency demands of the customers quickly.
A quicker mode of transport should be selected to move the products from one place
to the other in a short time. Thus, time and place utilities can be created in the
products through an efficient system of marketing logistics.

Price Stabilisation
marketing logistics may also aim at achieving stabilisation in the prices of the
products. It can be achieved by regulating the flow of the products to the market
through a judicious use of available transport facilities and compatible warehouse
operations. For example, in the case of industries such as cotton textile industry using
agricultural products as raw material, there will be fluctuations in the supply of raw
materials. In such cases if the market forces are allowed to operate freely, the raw
material would be very cheap during harvesting season and very dear during off
season. This fluctuation may be stabilised by keeping such raw material in
warehouses during the period of excess supply (harvest season) available during the
periods of short supply. Thus, prices can be stabilised with the help of physical
distribution activities.

Check Your Progress A

1) What is the meaning of marketing logistics?
......................................................................................................................
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2) Differentiate between marketing logistics and logistics management.
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3) What are the main objectives of marketing logistics in a firm? Marketing Logistics
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4) State whether the following statements are True or False.
i) Marketing logistics includes supply chain management.
i Marketing logistics is a outbound marketing logistics I1 hnction.
iii) Efficient customer service is the only objective of marketing logistics

iv) Effective marketing logistics system can bring in stability in prices.

v) Marketing logistics system creates time and place utilities in products.

15.4 MARKETING LOGISTICS TASKS

The important decisions in respect of marketing logistics are: i) how orders should be
handled? ii) where should the stock be located? iii) how much stock should be kept on
hand? and iv) how should goods be transported? In fact, as shown in Figure 15.2,
these aspects constitute the major components of the marketing logistics system.
Let us discuss about the components in detail.

Figure 15.2: Major Tasks of Marketing Logistics System

(Source: Mandell M. I and Rosenberg L.J.,Marketing, 2nd Ed., Pg. 424)

15.4.1 Order Processing

The starting point of the marketing logistics is the processing of customers' orders. In
order to provide quicker customer service, the orders received from customers should
be processed within the least possible time. Order processing includes receiving the
order, recording the order, filling the order, and assembling all such orders for
transportation. The company and the customers benefit when these steps are carried
out quickly and accurately. The error committed at this stage at times can prove to be
very costly. For example, if a wrong product or the same product with different
specificationsis supplied to the customer, it may lead to cancellation of the original
order (apart from loss in the credibility of the firm). Similarly, if the order is not
executed within a reasonable time, it may lead to serious consequences. High speed
data processing techniques are now available which allow for rapid processing of the
Distribution Decisions 15.4.2 Warehousing
Warehousing refers to the act of storing and assorting products in order to create time
utility in them. The basic purpose of the warehousing activity is to arrange placement
of goods, provide storage facility to store them, consolidate them with other similar
products, divide them into smaller quantities and build up assortment of products.
Some of the important decision areas in respect of warehousing are:
how many warehouses should the firm have?
where should these warehouses be located?
what should be the pattern of ownership of the warehouse (owned or rented)?
Generally larger the number of warehouses a firm has, the lesser would be the time
taken in serving customers at different locations, but greater would be the cost of
warehousing. Thus, the firm has to strike a,balance between the cost of warehousing
and the level of customer service.
For products requiring long-term storage (such as agricultural products or products in
limited demand), the warehouses are located near production sites. This helps in
minimising the charges on transportation of the goods. On the other hand, the
products which gain weight during production and bulky, hard for shipment.
(machinery, automobiles), and perishable in nature (bakery, meat, vegetables, etc.) are
kept at different locations near the markets. However, the factors which influence the
. location of warehouses may be listed as below:
Product type
Transportation cost
Proximity to markets . Rent
Labour Supply
Taxes
Geography
Competition
Look at Figure 15.3 carefully for a schematic representation of the problem of the
location of warehouses.
As regards ownership of the warehouses, the important factors determining the Marketing Logistics
choice are the amount of money the firm wants to spend on storage and the extent of
control it wishes to retain over its goods. Public warehouse is generally cheaper, but
the user has little say about warehouse operations. Own warehousing is better for
those firms which have financial resources and use full capacity throughout the year.
To avoid capital investment on construction, the firm can lease in some warehouse
depending on its requirement. Some of the other criteria used for deciding between
public and private warehouses is given in Table 15.2.
Table 15.2: Decision Variables In Choosing among'I).pes or Warehouses

Types of Warehousing Arrangements

Private Warehouse Public
Decision Owned Leased Warehouse
Variables
1) Fixed Very high Moderate, depends No fixed investment
investment on the lease's ,. is involved
terms
Unit cost High, if High, if volume Low, since rates are on
volume is low is low the basis of space used
and fixed costs are widely
distributed among users.
Control High High Low managerial control
Adequacy to Highly adequate Moderately May not be
product line adequate convenient
Flexibility Low Low High; termination of
usage can be easily
arranged

Depending upon the nature of the products stored and the services rendered,
warehouses may be classified as follows:
General merchandise warehouse: It handles a wide variety of goods.
Speciality warehouse: It handles a limited line of goods (e.g., hardware) or it
specialises in commodities difficult to store (e.g., grain, cotton).
Refrigerated warehouse: It handles perishable products like milk, fruits,
vegetables, etc., which require cold storage.
Bonded warehouse: It is insured against loss as well as regulated by certain
laws in the case of liquor.
Bulk storage warehouse: It handles liquids such as gasoline, petroleum, oil
extracts, etc., 'among other products.

15.4.3 Inventory Control

Linked to warehousing decisions are the inventory decisions which hold key to
success of marketing logistics especially where the inventory costs may go as high as
30-40 per cent (e.g. Steel and Automobiles). No wonder, therefore,-that the new
concept of Just-in-Time-Inventory decision is increasingly becoming popular with a
number of companies.
The decision regarding level of inventory involves estimation of demand for the
product. A correct estimate of the demand helps to hold proper inventory level and
control the inventory costs. This not only helps the firm in terms of the cost of
Distribution Decisions inventory and supply to customers in time but also to maintain production at a
consistent level. The major factors determining the inventory levels are:
The firm's policy regarding the customer service level.
Degree of accuracy of the sales forecasts.
Responsiveness of the distribution system i.e., ability of the system to transmit
inventory needs back in the factory and get the products in the market.
The cost of inventory which consists of holding cost (such as cost of
warehousing, tied up capital and obsolescence) and replenishment cost (including
the manufacturing cost).

15.4.4 Transportation
Transportation seeks to move goods from points of production and sale to points of
consumption in the quantities required at times needed and at a reasonable cost. The
transportation system adds time and place utilities to the goods handled and, thus,
increases their*economicvalue. To achieve these goals, transportation facilities must
be adequate, regular, dependable and equitable in the costs and benefits of the
facilities and service provided.
Often called carriers, transportation agents are classified by method of movement,
viz. roads, railroads, airways, shipways and pipelines.
Road Transportation
Road transport is characterised by the ability to move small shipments economically,
tamove shipments of varying sizes, short distances, and to deliver shipments to any
point in the country that is served by roads and highways. Road carriers of goods for
the market are commonly classified into three types:
common carriers
contract carriers
private carriers
Common carriers: They serve the public at large, moving goods of all types to any
part of the country. In practice, however, certain carriers restrict their operations to
the handling of one line of goods or closely related lines.
Contract carriers: These operators enter into rather formal arrangement to
transport goods for selected customers which is usually for definite period of time.
Private carriers: These are operated by business firms and individuals for
transportation of their own goods. Often, they are also let out to have a better return.
Truck is the main vehicle used for road transportation of nearly all kinds of goods,
particularly manufactured'productssuch as textiles, machinery and rubber and plastic
products. Trucks dominate in the movement of household goods and small packages.
However, now a variety of LCVs, auto carriers and articulated trucks too are used.

Rail Transportation
The main advantage of railways is their ability to handle heavy bulk products and to
share the load of road transportation without generating additional paperwork for
shippers. So@eof the special services provided by railways are:
Unitised train
Piggy-back service
Containerisation
 Unitised train: It consists of 100 or more cars carrying commodities like coal on a Marketing Logistics
shuttle basis between mines and a utility company. The use of modem loading and
unloading facilities, full time operation of the train and avoidance of switching at yards
allow excellent service at substantial cost savings. In recent years, unitised trains
have been used for transporting grains, iron ore, and other commodities too and their
use continues to grow. Computerised loading and unloading too exists between major
power plants and collieries (Korba for instance).
Piggy-back service: It is also known.as 'Trailer-on-float car' service. Piggy-back
refers to the hauling of loaded truck trailers over railroad lines on specially designed
flat cars. Shippers fighting higher transportation costs have shown an increasing
interest in this mode of transport because it affords substantial savings in freight
handling. Since it costs less per mile to transport a trailer on a flat rail car than over
the road, lower rates can be charged. Further advantages include less damages while
* enroute and reduction in delivery time. Piggy-back service is also available on
waterways where loaded vansl/retailers are moved by steamerslships between
designated points.
Containerisation: It refers to the design and use of filled van or trailer-size
container, which may be moved interchangeably between various types of carriers
without breaking bulk. For example, a container may be moved from truck to rail or
from truck to ship, thus reducing the handling charges, damages, losses, and pilferage
as well as speeding up the movement of shipments.

Air Transportation
In recent years, significant growth has taken place in the transportation of freight by
air, although total air-freight volume is still small as compared to movement by
railroads and roadways. The primary advantage of air shipment is the speed with
which the traffic moves between air terminals. But, the main disadvantage of air-
freight has been its higher costs.

Pipe-line Transportation
Most pipe-lines are used to transport" liquid petroleum products. Natural gas,
chemicals, coal, minerals, pulp, wood chips and for other non-liquid products also
pipelines are extremely economical mode of transport. The relative importance of
transportation types can be measured in 'tons originated' or 'ton miles'.
Tons originated means 'total amount loaded' and includes both inter and intra-city
movements. Based on tons originated, trucks are the most important carrier - about
60% of the total commercial traffic; railways about 30%; and the rest about 10%.
But, in 1950s, trucks would be just about 20%.
Ton miles means 'one ton moved one km'. Based on ton miles, railways move about
51% of all the ton miles freight in India - nearly twice of trucks. But the ton miles of
freight carried on inland waterways remains insignificant.
There are several factors that influence the choice of transportation. The following of
them merit our attention:
Services: transit privilege, reconsignment, containerisation.
Availability.

I
Flexibility: Cost, routing, speed, handling.

15.4.5 Information Monitoring

The marketing logistics managers continuously need up-to-date information about
inventory, transportation and warehousing. For example, in respect of inventory,
63
 Distribution Decisions information about present stock position at each location, future commitment and
replenishment capabilities are constantly required. Similarly, before choosing a carrier,
information about the availability of various modes of transport, their costs, services
and suitability for a particular product, etc., is required. About warehousing,
information with respect to space utilisation, work schedules, unit load performance,
etc., is required.
In order to receive all the information stated above, an efficient management
information system would be of immense use in controlling costs, improving services
and determining the overall effectiveness of distribution. Of course, it is difficult to
correctly assess the cost of distribution operations. But if correct information is
available it can be analysed systematically and a great deal of saving can be ensured.

15.5 MARKETING LOGISTICS APPROACHES

In marketing, there are basically two approaches to marketing logistics. They are: (I )
Total system approach to marketing logistics; and (2) Total cost approach to
marketing ligistics.
Now, let us study these two approaches in detail.

15.5.1 Total System Approach

As stated earlier, marketing ligistics involves the physical flow of goods. From this we
can imply that the marketing ligistics management is the development and operation
of efficient flow of systems for products.
The most commonly stated objectives of the marketing ligistics management in a firm
are to minimise the cost of distribution and maximise the services provided to the
customers. But actually it is not possible to simultaneously maximise customer service
and minimise the distribution cost. Maximum customer service implies large
inventories, faster transportation and best possible warehousing services. All ofthis
would add to the cost ofdistribution. On the other hand, minimising the cost of
distribution would mean using cheaper and slower transport, fewer warehouses and
keeping lower level of inventories. This would of course bring down the cost of
distribution but at the same time bring down the level of customer service also. Thus
the firms have to strike a balance between these two aspects. To do that, they first
set the level upto which they would extend service to the customers. This in turn
determines the cost of physical distribution.
Let us also have a look at the components of distribution task. The task of distribution
in any marketing organisation consists of the following major elements:
1) Transportation
2) Warehousing
3) Inventory carrying and handling
4) Interest on capital employed
The traditional approach of management treats all these components as independ,ent
of each other. In other words, the decision regarding say, transportation can be taken
independently of the decision regarding inventory or storage. Thus, according to this
approach, the cost of distribution can be minimised by keeping the cost of each of
these elements at a minimum level.
However, a closer examination of the situation reveals that the costs of each of these
elements described above cannot be minimised without affecting the other elements

I
as these activities often have conflicting and even diametrically opposite goals. For

64
 - -

example, use of rail transport over air transport would reduce the total cost of Marketing Logistics
transportation of the goods. But, as rail transport is relatively slow, the cost incurred
on other elements such as inventory carrying cost, interest on capital employed, etc.,
would increase. This, in turn, affects the level of customer service. Thus, it may be
stated that different marketing ligistics activities are interrelated. A decision in respect
of one activity cannot be taken in isolation of the other activities. So decisions with
regard to distribution activities should be based on a total systems approach.
The systems approach is a scientific way of management. It looks at the marketing
ligistics in its total form as a system consisting of several interconnected tasks or
parts operating together to achieve the given objectives. Thus, the systems approach
envisages integration of all the components of marketing ligistics as parts of a whole
whose market impact is maximum when they operate in synergy. In other words, it is
looking at the managing distribution activities as an integrated exercise in which
decisions in respect of different components are taken not in isolation of one another
but as a whole.

15.5.2 Total Cost Approach

The growing costs of marketing ligistics have forced marketers to study the structure
of distribution costs within the company and control them to increase the cost
effectiveness. Added to the growing costs is the service function to be performed by
distribution logistics. As you know, marketing ligistics seeks to minimise total costs of
distribution at a given level of customer service. In a competitive market where
substitutes are available to customers, a major advantage can be gained if distribution
costs are reduced while maintaining the required service levels.
The total cost of distribution consists of the costs of various elements such as costs of
storage, inventory maintenance, transportation, etc. The total cost approach is a
corollary of the systems approach. Total cost approach envisages the use of total cost
(and not the cost of each individual component) while choosing the alternative course
of action in respect of distribution of the products. In case total cost is not analysed,
there is every likelihood of taking a wrong decision. This is explained with the' help of
an illustration presented in Table 15'.1.
Table 15.1: Physical Distribution Costs under Alternative Approaches.
Physical Distribution Costs Alternative A Alternative B
Interest on working capital 100 150 (15 days)
employed in inventory
Transportation cost 230 200
Warehousing cost
Total Cost 430 480

As shown in Table 15.1, if the decision regarding choice of the mode of transportation
is taken independent of the other components of cost, rail transport (Alternative B)
would be selected as the cost in this case is Rs. 200, as compared to the road
transport (Alternative A) where it is Rs. 230. .But if we prefer rail transport, the cost
of other components (interest cost and warehousing cost) increases. We can see
from the table that the total cost in case of Alternative A is lower than that of
Alternative B. Thus, if the total cost is taken into consideration, Alternative A will be
selected as it is less expensive.
From this illustration it is clear that a reduction in the cost of one component may be
possible at the expense of the other element. If the transportation cost is reduced, the
cost of warehousing and inventory goes up. Therefore, in any attempt to improve the
'physical distribution efficiency and reduce cost, the total cost of performing the 65
Distribution Decisions physical distribution function should be taken into account. Management should think
in terms of trade off in reducing alternative costs so as to maximise profits. By doing
this, the fm can maximise potential profit.

Check Your Progress B

1) List the major tasks of marketing logistics.
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2) Distinguish between warehousing and inventory control in marketing logistics.
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3) What is information monitoring in marketing logistics?
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4) Differentiate between total system approach and total cost approach of

marketing logistics.
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5) List out the major subsystems of the total system of marketing logistics.
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15.6 LET US SUM UP

Marketing logistics refers to the activities involved in handling and moving goods from
the point of production to the point of use. An effective system of marketing logistics
greatly helps a firm in achieving its marketing objectives.Apart from creating time
and place utilities in the product, it relieves the customers of holding excess
inventories and helps in bringing down the cost of carrying inventory, transprtation
and other related costs.
The cost of marketing logistics consists of four important elements, viz.,
transportation,warehousing, inventory carrying and interest on capital employed. The
systems approach envisages integration of all the marketing logistics components as
parts of a whole system whose market impact is maximum when operated in synergy.
The cost approach to marketing logistics is a corollary of the systems approach. The
cost approach envisages the use of total cost and not the individual cost of each of
the components while choosing the alternative course of action in respect of
marketing logistics of the products.
66
The five important components of an effective marketing logistics system are: Marketing Logistics
1) order processing, 2) inventdries, 3) warehousing, 4) transportation, and 5)
information system. Other processing includes receiving, recording, filling and
assembling order for transportation to the customer. The customer and the firm
benefits when steps are taken quickly and accurately. Warehousing is the act of
storing and sorting products in order to create time utility in them. The important
decision areas in respect of warehousing are determining the i) number of
warehouses a firm should have, ii) the location of the warehouses, and iii) whether
the firm should own warehouses or use the public warehouses. A decision regarding
inventory is based primarily on the prediction about the demand for the product. A
correct prediction in this regard helps in minimising the cost of inventory.
As regards transportation, the firm has to constantly evaluate the different
alternatives available. Basically the decision has to be between the different modes of
transportation like rail, road, water and air. A systematic management information
system is necessary to ensure a continuous flow of data on all the components of
physical distribution system.
The broader objective of marketing logistics system is to move the right goods to right
place at right time at the lowest cost possible. Some of the specific objectives in a
given marketing situation, however, include improving customer service, reducing the
distributioncosts, generating additional sales, creating time and place utility and
sta5ilising the prices of the products.

15.7 KEY WORDS

Logistics: The activities involved in moving raw materials and parts into a firm,
moving in-process inventory through the firm, and moving finished goods out ofthe

Materials Management: The activities involved in bringing raw materials and

supplies to the point of production and moving in-process inventory through the firm.
Physical Distribution: Activities involved in efficient handling and moving goods
from the point of production to the point of consumption.
Supply Chain: All the collaboratingorganizationsthat help supply a marketing
company and help distribute the marketer's products. The supply chain alwlays
includes the channel of distribution.
Supply Chain Management: The planning, implementing, and controlling of a chain
of organizational relationships to assure the efficient flow of both inbound materials
and outbound finished products.
Total Cost Approach: Optimization of the overall cost-customer service relationship
ofthe entire physical distribution system.
Total Systems Approach: Looking at and managing physical distribution activity as
an integrated exercise where decisions in respect of different components are taken
not in isolation one another but as a whole.

15.8 ANSWERS TO CHECK YOUR PROGRESS'

A 4 i) False ii) True iii) False iv) True v) True
Note: These questions will help you to understand the unit better. Try to write
answers for them. But do not submit your answers to the university for
assessment. These are for your practice only.
Promotion Decisions and it easily available to the target market but it must also develop effective marketing
Emerging Issues communication for disseminating the relevant and pertinent marketing information
about the product availability, features and terms and explain how these will provide
the benefits to the target market. Therefore, every company in order to survive and
grow has to play the role of an effective communicator in the present competitive
environment.
The company's communication responsibility of disseminating marketing information
goes beyond the target market. It has to communicate to its various marketing
intermediaries in its microenvironment. In addition it has also to communicate to its
different external publics such as its shareholders, the financial community, and
independent media and to its internal publics. This means that a company should have
the knowledge of how to market itself to various groups in order to obtain their
confidence and goodwill. In this unit, an attempt is made to describe the meaning and
importance of marketing communication, communication process and its components,
the procedure of developing effective marketing communication, the concept and
components of promotion mix, various factors that influence promotion mix, the
methods of setting promotion budget, and the concept of integrated marketing
communication.

16.2 MEANING AND IMPORTANCE OF MARKETING

COMMUNICATION
Marketing communication plays an important role in a company's overall marketing
program. Marketing communication can be defined as the process of systematic and
scientific way of disseminating the relevant marketing information by a
company to its target market and other publics by using a mix of media. A
company through its marketing communication tries to persuade its target market to
purchase its products and services vis-h-vis its competitors. Since marketing
communication aims at influencing the consumer behaviour in favour of the
company's offerings, this is persuasive in nature. Various persuasive marketing
communication tools are more commonly called 'Promotion' and constitute one of the
four Ps of the marketing mix which was popularized by Jerome McCarthy in 1964.
Thus marketing communication refers to the various promotion tools used by
marketers to exchange persuasive messages and information to its target market and
other public.
The study of marketing communication, therefore, is the study of the promotion
function of marketing. It is to be noted that effective marketing function depends to a
great extent on how effectively the company is performing its promotion function.
There are innumerable examples where companies through their effective
communication are able to perform well in the market. For example, in the success of
the following products and services the marketing communication function played a ,
significant role: Nirma washing powder, Maggie noodles, Hero Honda motorcycles,~to
mention only a few. In the same .-lay ineffective marketing communication was
responsible for the below average performance of some products despite their good
quality and competitive prices.
With the tremendous increase in the competition in the market place and the variety
of products and brand choice available to the consumers it has become all the more
necessary for the marketers to come out with persuasive marketing messages of the
right kind to the right group of target market.

16.2.1 Functions of Marketing Communication

6 The following are the major functions of effective marketing communication.
1. Providing Information and Persuasion: Marketing is required to identify
consumer wants and then satisfy these 'wants with the right kind of products at the
right place and at the right price. The purpose of marketing communication is to
convey to customers the relevant and pertinent information about the features of the
product and persuade how it will satisfy consumer needs and wants. For instance, if a
company which is in the marketing of air conditioners is planning to offer off-season
discount, it is essential to communicate to potential customers about the extent of
discount, period during which discount is available, names of the stores where it is
available, etc. If all such information is not communicated to potential customers, then
providing the discount will not be beneficial to either the consumer or to the company.
Marketing communication, therefore, is an essential part of the marketing program of

2. Providing Information About a New Brand or Brand Extension: Marketing

communication is essential when firms introduce a new brand or extensions of
existing brands. A brand extension is an adaptation of an existing brand to a new
product area. For example, the Lux shampoo is a brand extension of the Lux soap.
When new brands or extensions are brought to market, the marketing communication
process is largely responsible for attracting attention to the new market offering. This
is often accomplished by sales promotion, advertising, and point-of-purchase displays.
These marketing communication tools provide the relevant marketing information
about the new products and brand extensions' features, quality and availability to the

3. Building and Maintaining Brand Loyalty Among Consumers: Loyalty to a

brand is one of the most important assets a firm can have. Brand loyalty occurs when
a consumer repeatedly purchases the same brand to the exclusion of the competitors'
brands. While the product itself is the most important influence on building and
maintaining brand loyalty, marketing communication plays a key role in the process as
well. Advertising reminds consumers of the values-tangible and intangible-of the
brand. Promotion often provides an extra incentive to consumers to remain brand
loyal. When a company creates and maintains positive associations with the brand in
the minds of the consumers, the company has developed brand loyalty. Consider a
customer who regularly buys CloseUp toothpaste or Lux Soap. Do marketers of
CloseUp toothpaste or Lux soap advertise to appeal to such customers? The answer
is yes, because even the most loyal customers must be reminded that a product has
served them well over the years and about the features that make the product
attractive. This is more so in an environment where competitors consistently attempt
to attract the customers of competing brands with their own informative and
persuasive messages. Thus, in addition to informing and persuading, another important
purpose of communication is building brand loyalty by reminding the customers. This
is why even the manufacturers of well established brands like Colgate, Lux, Surf,
Nescafe, Lifebuoy, Pepsi, Coca Cola etc., advertise quite extensively to sustain
customers' preferences and loyalty for these brands.

Check Your Progress A

I) What is marketing communication in the context of overall marketing?
.....................................................................................................................
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.....................................................................................................................
2) Differentiate between brand extension and brand loyalty.
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h
Promotion Decisions and
Emerging Issues .....................................................................................................................

.....................................................................................................................
3) In what way marketing communication strengthens brand loyalty?

.....................................................................................................................
4) State whether the following statements are True or False:
i) A company has to communicate only to its target market.
ii) The 4 Ps of marketing mix has been popularized by Philip Kotler.
iii) Promotion is necessary to build brand loyalty for existing brands.
iv) Promotion provides information for new brands and brand extensions to
the consumers.

16.3 THE COMMUNICATION PROCESS

Communication has been variously defined as the passing of information, the
exchange of ideas, or the process of establishing a commonness or oneness of
thought between a sender and a receiver. These definitions suggest that for
communication to occur there must be some common thinking between two parties
and information must be passed from'one person to another.
The communication process is often very complex. Success depends on such factors
as the nature of the message, the audience's interpretations of it, and the environment
in which it is received. The receiver's perception of the source and the medium used
to transmit the message may also affect the ability to communicate, as do many other
factors. Words, pictures, sounds, and colours may have different meanings to
different audiences. Therefore, marketers must understand the meanings that words
and symbols take on and how they influence consumers' interpretations of products
and messages. Let us now discuss the major elements of communication process
pertain to marketing.

16.3.1 Elements of Communication Process

Over the years, a basic model of the various elements of the communication process
has developed, which is shown in Figure 16.1. It is imperative on the part of the
marketers to understand how communication works if they want to utilize it
effectively. One may notice from this figure that the two elements represent the
major participants or parties involved in the communication process, the sender and
the receiver. Another two are the major communication tools that sender uses to
reach intended receivers, message and channels or media. Thus, communication
occurs when: 1) a sender transmits a message, 2) a receiver receives that message,
and 3) the sender and the receiver have a shared meaning. The communication
process itself involves the four communication functions and processes: encoding,
decoding, response and feedback. The last element, noise refers to any extraneous
factors in the system that can interfere with the process and works against effective
communication.
 ChannelIMedia

-------.----------------------------

Figure 16.1: Major Elements'in the Communication Process

Let us understand each of these elements in the communication process.

1. Sender: It is also called the source. Sender or source, of a communication is the
person or organization that has the information to share with another person or group
I
of persons. The source may be an individual (say, a salesperson or a celebrity, who
appears In a company's advertisement) or a non-personal entity (such as the
company or organizatibn itself).
2. Encoding: The communication process begins when the source or sender selects
words, symbols, pictures and the like, to represent the message that will be delivered
to the receiver(s). This process, known as encoding, involves putting thoughts, ideas,
or infonnation into a symbolic form. The sender's goal is to encode the message in
such a way that it will be easily understood by the receiver.
3. Message: The encoding process leads to the development of a message that
contains the information or meaning the source hopes to convey. The message
may be verbal or nonverbal, oral or written, or symbolic. Messages must be
put into a transmittable form that is appropriate for the channel of communication

4. Channel: This is also known i s medium. It is the way by which the sender
conveys the message to the receiver. At the broadest level, channels of
communication are of two types, personal and non-personal. Personal channel of
communication are direct interpersonal (face-to-face) contakt with target individuals
or groups. For example, in personal selling a salesperson contacts the customers and
directly communicates about the sales message to the prospective customers. Here,
communication flows in both directions and the salesperson receives immediate and
dlrect feedback. This enables the salesperson to have greater control over the
communication process. Non-personal channel of communication are those that that
carry a message without interpersonal contact between sender and receiver. Non-
personal channels of communication are generally referred to as the mass media or
mass cor~~nzunicution, since the message is sent to many individuals at one time.
Non-personal channel of communication consist of two major types, print and
broadcast. Print media include newspapers, magazines, direct mail, and billboards;
broadcast media include television, and radio.
5. Receiver: The party for whom the message is intended and is an active part of
the communication process. Generally, receivers are the consumers in the target
market or audience who read, hear, andlor see the marketer's message and

6. Decoding: Just as the sender encodes the message, the receiver must decode it.
Decoding IS the process by which the receiver attempts to convert symbols conveyed
Promotion Decisions and by the sender into a message. Receivers may decode or interpret the message in
Emerging Issues different ways because of their individual characteristics, experiences and
backgrounds. For effective communication to occur, the message decoding process of
the receiver must match the encoding of the sender. Simply put, this means the
receiver understands and correctly interprets what the sender is trying to
communicate.
7. Response: The receiver's set of reactions after seeing, hearing or reading the
message is known as a response. The receiver's response can range from
nonobservable actions such as storing information in memory to immediate action
such as visiting a dealer's shop or purchasing the product. Thus, response is a set of
reactions a receiver has after being exposed to the message.
8. Feedback: It is the communication from a receiver to the sender about how he/
she understood the message and reacted to it. In this reverse flow of communication,
receivers encode their messages and send them to the sender. The sender must then
decode the feedback message. The longer it takes the sender to receive and decode
the feedback, the less valuable it becomes. Feedback is more direct, more frequent
and more immediate when interpersonal communication (sales personnel) channels
are used e.g. salesperson to prospect. Good salespeople receive feedback directly
and immediately from their prospects and can modify their sales presentations to suit
the prospect's requirements. It is usually indirect, slow and hard to obtain when the
communication is through mass media. In fact it can be obtained only if the sender
has made some arrangement to receive. Sender may have to carry out marketing
research to determine whether the receivers have received the message, how many
times, whether they can recall the message, or not, etc.
9. Noise: Throughout the communication process, the message is subject to
extraneous factors that can distract or interfere with its reception. This unplanned
distortion or interference is known as noise. Noise can affect any or all elements of
the communication process. For example, if there are too many advertisements of the
same product (different brands) in a single newspaper or magazine, it can create
distraction. Noise may also occur because the field of experience of the sender and
receiver do not match. Lack of common ground may result in improper encoding of
the message-using a sign, symbol, or words that are unfamiliar or have different
meaning to the receiver. The more common ground there is between the sender and
the receiver, the less likely it is this type of noise will occur.
Successful marketing communication is accomplished when the marketer selects an
appropriate source, develops an effective message or appeal that is encoded properly,
and then selects the channel that will best reach the target audience so that the
message can be effectively decoded and delivered.

16.3.2 Developing Effective Marketing Communication

The model of marketing communication process described above shows a number of
key factors that are essential for an effective communication. Firstly, the sender must
know the audience characteristics to which it wants to communicate. Secondly, what
type of response is sought from the audience or what communication objective the
company wants to pursue? Thirdly, the encoding process should take into account
how the target audience decodes them. Fourthly, appropriate media have to be used
for reaching the audience. Finally, the communicator should be able to measure the
communication results to assess the effectiveness of communication process.
In this sub-section we will discuss various steps in developing effective marketing
communication.
1. Identifying the Target Audience Characteristics: The term target audience
refers to people for whom the marketing communication message is meant; and Communication
includes both present and potential customers. Therefore, to reach such people with a
meaningful message, the sender must identify the target audience and their
characteristics (like age, sex, income, education, omupation, life style, etc.), attitudes,
values, past experience, buying habits and buying decision process. By understanding
the profile of target customers, it becomes easier for the sender to match the
message. The target audience may be individuals, groups, special publics or the
general public. The target audience will heavily affect the communicator's decisions
on what will be said, how it will be said, when it will be said, where it will be said, and

In order to know the audience a company may use one important marketing tool,
which is known as imuge analysis. Before sending the message a company should
assess its current image, image of its products and the images of its major
competitors. Image analysis will help the company in finding out its strengths and
.weakness vis-a-vis its competitors and thus help in developing relevant and
appropriate marketing communication to the target customers.
2. Determining the Response Sought or the Communication Objective: After
haying identified the target audience, the sender decides on what response he is
expecting from the receiver. The marketer may be seeking a cognitive, affective or
behavioral response. Of course, in most cases, the final response is purchase. But
purchase is the result of long process of consumer decision making. The marketing
communicator needs to know where the target audience now stands and to what
state it needs to be moved. The response sought depends on the consumer readiness
states. There are six readiness states. These are awareness, knowledge, liking,
prc.fcre~zcr,corlvictiorz ond purchase. These six states are shown in Figure 16.2.

,
Figurel6.2: Consumer Readiness Sptes

The message developed should be in tune with the consumer readiness state. For
example, if the target audience is totally unaware of the product then the
communicator should build awareness and knowledge. If the target audience knows
the product then the communicator should try to build liking, preference and
conviction. Finally, some section of the target audience might be convinced about the
product, but they have not decided to purchase it. The communicator must lead them
to take the final step i.e. purchase.
3. Dedgning the Effective Message: After deciding about the type of response
sought from the receiver, the next step for the communicator is to develop an
effective message. The message should be able to attract the receiver's attention,
arouse interest, kindle desire for the product or service, and finally get a desired
action i.e. the actual purchase.
Promotion Decisions and There are four important decisions which marketing communicator has to keep in
Emerging Issues mind while designing an effective mat communication message. The important
decision areas relating to message design are: 1) message content (what to say?),
2) message structure (how to say it logically?), 3) messuge format (how to say it
symbolically?), and 4) message source (who should say it?). Let us discuss these
four dimensions of message design in somewhat detail.
Message Content: This dimension is related with the key or central idea or the
appeal of a promotional message that will produce the desired response from the
target audience. For instance, the central idea or appeal in the Pepsi TV
advertisement is "Yeh Dil Mange More". When an appeal or central idea is used
unchanged over a long period of time to lend consistency to the series of promotional
message: it is called a Theme. The appeal or theme in most promotional messages
relates to product features or claims about the product.
Marketers use three basic types of appeals in their marketing communication. They
are: i) ~ationalappeals, ii) emotional appeals, and iii) moral appeals.
Rational appeals show that the product will deliver the claimed benefits. These
appeals relate to a product's quality, economy (price), value or performance. In
fact most consumer durable marketers such as refrigerators, automobiles, air
conditioners, washing machines and other major appliances, and industrial
products, use rational appeals in their promotional messages including
advertising.
Emotional Appeals attempt to stir up either negative or positive emotions that
may motivate the target audience to purchase the product or brand of the
company. Such appeals use either negative emotions (such as fear, guilt. shame)
or positive emotions (such as love, joy, pride, humor) to stimulate action or
purchase. For example, fear appeal is often used by Life Insurance Corporation
(LIC) to encourage people to insure themselves. Emotional appeals are used for
the fast moving consumer goods (FMCGs), services, and some consumer
durable products. Examples include clothing, ready made garments,
perfumes, cosmetics, etc. Horlicks, a health drink uses love appeal in its
advertisements.
Moral Appeals aim to give the audience a sense of what is right and good.
They are often used to support various social causes such as planned family,
clean environment, and equal rights for women, etc. Moral appeals are used
seldom as far as commercial products are concerned.
Message Structure: Message effectiveness depends on structure as well as content.
For example, a communicator may think that one sided arguments or presentations
that praise a product would be more effective than two-sided arguments or
presentations that also mention some of the shortcomings of the product. Yet two-
sided messages may be more appropriate, especially when some negative association
must be overcome. Two-sided messages are found to be more effective in case of
educated audiences al~dthose who initially had a negative feeling towards the
product. The second issue in the context of message structure is the order of the
presentation. The order in which arguments are presented is also an important part of
message structure. It is observed that in case of one-sided message, presenting the
strongest argument'first has the advantage of attracting attention and interest. This is
important in newspapers and other media where the audience often does not attend to
the whole message. In case of a two-sided message, if the audience is initially
opposed, the communicator might start with the other side's argument and conclude
with the strongest argument.
Message Format: The communicator must develop a strong message format. For
example, if the message has to be used in a printed advertisement in newspapers or
magazines, the sender has to decide on the type and length of headline, the illustration
(or photograph), the copy (the written part of the advertisement, other than the
headline), colour etc. For radio, the communicator has to choose words, voice
qualities, and vocalization. If the message is to be carried in TV or in person, all of
these elements plus body language (nonverbal actions such as gestures, hand
movements etc) have to be planned. If the message is carried by the product or its
packaging, the communicator has to pay attention to colour, texture, smell, size and shape.
Message Source: The fact of how the target audience perceives the sender (or
source) can have a great impact on communication effectiveness. Messages
delivered by attractive or popular sources achieve higher attention and recall, which is
why advei-tifers often use celebrities as spokespersons. In particular, messages
delivered by highly credible sources are more persuasive, so pharmaceutical
companies use doctors to testify their products benefits because doctors command
high credibility. Source credibility refers to the target receivers' perception of the
sender's bel~evab~l~ty (i.e., how believable is the source or the sender?). Source
credibility has an influence on how target receivers will evaluate and react to the
message. There are three factors that underly source credibility: expertise,
rru.stworthiizess, and likeuhility.
e Expertise refers to the specialized knowledge which the sender is expected to
have by virtue of his professidn, occupation or experience. For example, doctors,
scientists, engineers, professors and other technical experts are rated high on
expertise in their respective areas.
Trristworthiness is related to how objective and honest the source is perceived
to be. Friends are trusted more than strangers or salespersons, and people who
are not paid to endorse a product are seen as more trustworthy than people who
ale paid. In fact tnistworthiness is related to expertise. If a well known expert
promotes a product, histher statements will be trusted more. If a company with
an excellent track record of producing high quality products launches a new
product, its product claims are more likely to be trusted than those of an
unknown company making the same product.
e Likeability describes or reflects the source's general attractiveness to the
audience (receivers). Qualities such as straight-forwardness, humor, naturalness,
good looks (appearance), good voice, etc., make a source more likeable to the

The source with the highest credibility would be one which has the best combination
of all the three factors described above.
4. Selecting Communication Channels: Once the promotional message has been
designed, the communicator must select efficient communication channels to cany it.
There are two broad types of communication channels through which the message
may reach to the audience. They are prsonal communication channels and
nottpersonal communication channels. -
Personal Communication Channels: Personal communication channels invoije two
or more persons communicating directly with each other face to face, person to
audience, over thetelephone, or through e-mail. These channels' effectiveness
depends to a great extent on the opportunities of individualizing the presentation and
feedback. For example, Redeffusion.com inv~teson-line customers to sign up for e-
mail services and recommendations from experts in their choice of various products
available on-line. These channels are of three types: advocate, expert and social
communication channels.
Advocate Channels consist of company salespeople contacting buyers in the
Promotion Decisions and Expert Channels consist of independent experts making statements to target
Emerging Issues buyers.
Social Channels consists of neighbors, friends, family members, and associates
talking to target buyers. The last channel is also popularly known as word-of-
mouth influence and may wield considerable influence in many product
categories.
Personal influence carries especially great weight in two situations. One is with '
products that are expensive, risky or purchased infrequently. The other situation is
where the product suggests something about user's status or taste. In both cases,
consumers will obtain information from others before making a purchase decision.
Companies can take several steps to stimulate personal influence channels to work on
their behalf:
Identify influential individuals and companies and devote extra efforts to them.
Create opinion leaders-people whose opinions are sought by others-by supplying
certain people with the product on attractive terms.
Work through community influentials such as local well known persons and head
of the civic organizations.
Use influential or believable people in testimonial advertising.
Develop word-of-mouth referral channels to build business.
Nonpersonal Communication Channels: Nonpersonal communication channels are
media that carry messages without personal contact or feedback. Nonpersonal
communication channels include media, atmospheres, and events.
Media consist of print media (newspapers, magazines, direct mail), broadcast
media(radi0, television), electronic med~a(audiotape, videotape, CD-ROM,
DVD, Web page), and display m d i a (billboards, signs, posters). Most
nonpersonal messages come from these media which are normally paid by the
marketers.
Atmospheres are designed environments that create or reinforce the
consumer's leanings towards product purchase. For example, many restaurants
decorate their dinning halls to attract consumers, advocates or law offices are
decorated with fine rugs, books and furniture to communicate confidence and
success, pharmaceutical companies insist their salespeople to wear specific
dress while making visits to the doctors for creating good impressions.
Events are occurrences designed to communicate particular messages to target
audiences. Companies through their public relation departments organize press
conferences, grand openings, cultural events, arts exhibitions, and other events to
communicate with specific audiences.
Although personal communiccltion is often more effective, nonpersonal channels
affect personal attitudes and behaviour through a two-step-flow of communication
process. Ideas often flow from radio, print, television, and Internet sources to opinion
leaders and from these to less media involved population groups. This two-step flow
has several implications. First, the influence of nonpersonal channels on public opinion
is mediated by opinion leaders, people whose opinions are sought or who carry their
opinion to others. Second, the two-step flow shows that people interact primarily
within their own social group and acquire ideas from opinion leaders in their group.
Third, two-step communication suggests that marketers using nonpersonal channels
should direct messages specifically to opinion leaders and let them carry the message
to others.
5. Measuring the Communication Results. After implementing the promotional
program, the marketing communicator must measure its impact on the target
points they recall, how they felt about the message, and whether they have changed I
the product, liked it, and talked to others about it. This step is also known as I
feedback.

Check Your Progress B

1) List out the various elements of communication process.
.....................................................................................................................

2) What isnoise in a communication process?

.....................................................................................................................

3) What factors should be considered in designing communication message?

.....................................................................................................................

4) Differentiate between personal and nonpersonal communication channels in

communication process.

5) State whether the following statements are True or ~ a l s e :

i) The basic goal of communication is a common understanding of meaning
between the sender and the receiver.
ii) The two inajor tools of communication are response and feedback.
iii) The twp broad types of channels used in communication are encoding and
decoding.
iv) Personal communication channels play more important role in case of costjy,
and less frequently purchased products. .. -
..

16.4 THE PROMOTION MIX

One can take a broad or a narrow view of the tools in the marketing communication.
Marketers use an array of tools for the purpose of communicating and promoting
their products and services. These tools are used in different proportions bvLa
Promotion Decisions and total array of tools available to the communicator whose major role is
Emerging Issues persuasive communication. These are the tools normally classified under promotion.
In our daily life we all are exposed to various tools of promotion by the companies
aiming at communicating one thing or the other to us. For example, at home we are
exposed to various advertisements while reading a newspaper, watching a TV
program, listening to radio or even examining the water, electricity or telephone bills.
On our way to the office or home similar communications are present on bus panels,
roadside hoardings, neon signs, posters and banners, etc. And, while at a retail shop
these take the shape of traffic builders, product displays, etc., all sharing information
relating to a specific product of a company.

16.4.1 Components of Promotion Mix

Each promotional tool has its own unique characteristics and costs. These
promotional tools can be broadly classified as advertising, sales promotion, public
relations and publicity, personal selling, and direct marketing. There is no way that an
individual activity, say advertising, can be managed fully without considering its
relationship with the other elements. Therefore companies normally adopt all these
elements though the relative importance placed on each element of the promotion mix
may differ from company to company. Historically, companies first made a separate
function out of personal selling, followed by advertising, sales promotion, public
relations and publicity, and finally with direct marketing. These major tools of
promotion mix are defined and described briefly in the following.
1. Advertising: It is defined as any paid form of non-personal communication
through mass media about a product, a service or an idea by an identified
sponsor. Advertising can be used to build up a long term image of a brand (Colgate
advertising) or trigger quick sales (a departmental store's advertisement for sale).
Advertising can reach geographically dispersed buyers efficiently. Certain forms of
advertising (TV advertising) typically require a large budget, whereas other forms
(newspaper advertising) can be done on a small budget. The media used could
include magazines, newspapers, radio, television, billboards (hoardings), direct mail,
etc. Sponsors may be non-profit organization (colleges, universities, and institutes),
companies or individuals. Advertising has four distinctive characteristics. These are:
Public Presentation-unlike personal selling it is a highly public mode of
communication. Its public nature confers a kind of legitimacy to the product.
Because many persons receive the same message, buyers know that their
motives for purchasing the product will be publicly understood.
Pervasiveness-advertising is a pervasive way of communicating the marketing
messages. It permits the seller to repeat a message many times. It also allows
the buyer to receive and compare messages of other competitors.
Amplified Expressiveness-it provides opportunities for dramatizing the
company and its brands through the artful use of print, sound, and colour. Over
dramatization sometimes dilutes or distracts from the message.
Impersonality-advertising despite being public, pervasive, and expressive in
nature can not be as compelling as personal selling and sales promotion. The
audience does not feel obligated to pay attention or respond. Advertising is only
able to carry on a monologue and not a dialogue with the audience.
2. Sales Promotion: It is defined as a variety of short term incentives to
encourage trial or purchase of a product or service. Although sales promotion
tools-coupons, contests, premiums, and the like-are highly diverse, they offer three
distinctive benefits to the consumers. These are:
Communicafion-attracts consumer attention and provides information that may
lead the consumer to buy the product.
 incentive-incorporates some concessions or inducement that gives value to the
consumer. Communication

invitation-includes a distinct invitation to engage in the transaction now.

I~iit~ally
sales promotion was used as an adhoc collection of sales tools to stimulate
short term demand. Now co~i~panies are using this promotion tool very often and its
, budget has increased over a period of time. Sales promotion plays a vital role in the
introduction and in the maturity stage of a product life cycle. The effects of sales
pron~otionare often more immediate and measurable than those of advertising. The
purpose of sales promotion many times is to supplement the advertising and personal
selling effort carried by the company.
3. Public Relations and Publicity: It is defined as a variety of programs
designed to promote o r protect a company's image o r its individual products.
The appeal of public relations and publicity is based on three distinctive qualities:
High Credibility-news stories and features seems to most readers, to be
authentic and credible than advertisements.
Ability to catch buyers off guard-publicity can reach to many potential buyers
who otherwise avoid salespersons and advertisements. This is because the
message is packaged in a way that gets to the buyers as news rather than sales
directed communication.
Dramatization-like advertising, publicity has the potential of dramatizing a
company or product.
Public relation and publicity is similar to advertising except that it involves an unpaid
and unsigned message, even though it may use the same mass media as advertising.
Publicity can either be positive (favorable) or negative (unfavorable) because the
message is in the hands of media and not controlled by the company. Marketers
spend a lot of time and effort in getting news items and articles placed in newspapers
and broadcasts so that a favorable image of the company is created.
4. Personal Selling: It is defined a s oral presentation in a conversation with one
o r more pr-o.spc<ctivehclyers for tlze purpose of making sales. Personal selling is a
person-to-person dialogue between buyer and seller, where the purpose of this face-
to-face contact is to persuade the buyer to accept a point of view or to convince the
buyer to take a specific course of action. In other words personal selling is a person-
to-person process by which the seller learns about the prospective buyer's wants and
seeks to satisfy them by making a sale. Personal selling has three distinctive qualities
which make it different from other promotion tools. These are:
Personal Confrontation-it involves an alive, immediate and interactive
relationship between two or more persons. Each party is able to observe at close
hand the characteristics and needs of other party and can make immediate
adjustments. Each party has the potential to help or hurt the other party by his/
her interest or lack of interest.
Cultivatiorz-it permits all kinds of relationships to spring up, ranging from a
matter-of-fact selling relationship to a deep personal friendship. Salesmanship is
an art and one should use this art to win the customers.
Response-in contrast with the advertising, personal selling makes the
prospective buyer feel more under obligation to listen to the sales presentation of
the salesperson as he is using up the salesperson's time. The response here is
instantaneous.
Promotion Decisions and response or dialogue from specific customers or prospects. Direct marketing has
Emerging Issues four distinct characteristics. They are:
Nonpublic-the message is normally addressed to a specific person.
Customized-the message can be prepared to appeal to the addressed individual.
Up-to-date-the message can be prepared quickly and can be changed according
to the latest situation.
Interactive-the message can be changed depending on the buyer's response.
16.4.2 Factors ARecting the Promotion Mix
Companies consider many factors when developing their promotion mix. All these
factors that influence the promotion mix may be grouped in four categories. These
are: 1) product specific factors 2) customer specific factors, 3) company specific
factors, and 4), and situation specific factors.
1. Product Specific Factors: Product specific factors include: 1) the amount and
complexity of product information to be communicated, 2) the stage of the product in
the product life cycle, and 3) product type and unit price.
Amount and Complexity of Product Information: Usually emphasis is placed
on advertising to convey simple ideas or to make consumers aware of a
whose features are easily observed. Advertising is also used for products that
are familiar to consumers. The messages which are simple and easily
understandable are generally conveyed through advertising. Personal selling and
sales promotion are considered more useful to demonstrate complex ideas. For
example, in the case of consumer durables.such as mixers, television sets, music
systems, computers, etc., personal contact enables consumers to try the product
and ask questions.
Stage of the Product in the Product Life Cycle (PLC): During the introduction
stage of a product, the basic promotion objective is to create awareness and
interest in the product. Extensive advertising, sales promotions and publicity help
in reaching potential customers and induce trial purchases. Personal selling is
useful in reaching marketing intermediaries such as wholesalers and retailers.
As competition starts building up during the growth stage, focus of promotion is
on differentiating the product (brand) by showing its advantages ovkr rival
brands. Promotion in this stage becomes more persuasive in order to build up
and maintain brand loyalty and ensure repeat purchase. Since a larger number of
people are trying and using the product, advertising is more economical way of
reaching target customers. As competition becomes more intense in the maturity
stage of the PLC, promotion efforts are at-the highest levels at that stage.
Promotion messages become more persuasive and advertising and sales
promotion gain relative importance over the other elements of the promotion
mix. Promotion is generally reduced to a minimum in the decline stage.
Whatever little promotion is carried out at this stage, it is normally done by
marketing intermediaries.
Type of Product and Unit Price: There seems to be a relationship between the
promotion and the type of product and the unit price. There is greater emphasis
on advertising for inexpensive, frequently bought consumer products which are
also known as Fast Moving Consumer Goods (FMCGs) such as soaps,
toothpastes, potato wafers, razor blades, etc., whereas more complex products
(industrial products like machines, large generators, etc.) with a higher unit price
require greater personal selling effort.
2. Customer Specific Factors: There are two types of customer specific factors
that affect the use of various elements of promotion mix: These are: 1) Target market
Characteristics, and 2) Type of buying decision.
 Target Market Characteristics : Generally, non-personal promotion tools, Marketing
Communication
(advertising and public relation and publicity) are more suitable for personal
consumers, and personal selling is relatively more important for business buyers.
As the size of the target market increases, non-personal forms of promotion
become more relevant. However, as the size of the target market increases, the
market becomes more heterogeneous (i.e., it becomes more mixed in terms of
sex, age, income, occupation, life styles, etc.). Thus the marketer needs to
segment his markets and design different promotional messages to appeal to
different market segments.
Type of Buying Decision: Buying decisions are of two types: routine dec~sions
and complex buying decisions. Generally, consumers making routine decisions do
not pay much attention to marketing information. If they make routine purchases
of a given brand, promotion focuses on reminding customers that the brand is
better than the other brands. When the decisions are complex, as in the case of
major consumer durables and appliances such as automobiles, TVs,
refrigerators, washing machines, etc., the promotion must contain messages
which are full of relevant information and adapted to the customer's primary
needs and wants. The effect of competitor's promotion might also be
considered. After the purchase the customers should be given assurance that
they have bought the right product, through letters and, therefore, personal visits
by salespeople become very important.
3. Company Specific Factors: There are three types of factors under this category.
They are: I) marketing channel and promotion strategies, 2) brand naming strategy,
and 3) budget considerations.
Marketing Channel and Promotion Strategy: There are two types of
strategies in terms of the role of the marketing channels and the promotion.
Some marketers place more emphasis on the marketing channels in building the
sales whereas others place more emphasls on the promotion tools for this
purpose. Therefore, they may use predominantly either a push strategy or a pull
strategy. We will discuss these two strategies below.
Push Versus Pull Strategy: Here the marketer tries to "push" the product
through distribution channels to final consumers. The marketer actively promotes
his product to distribution channels, who in turn actively promote it to final
buyers. In other words, each channel member (including the marketer) directs
his promotional effort to the next channel member in the distribution link. Push
strategy requires a great deal of emphasis on personal selling at the marketer's
level and various types of sales promotion methods directed to company
salespeople and intermediaries. In pull strategy marketer focuses promotional
efforts directly on the final consumers rather than on intermediaries. For
instance, in the case of a consumer product, the objective is to induce customers
to ask retailers for the product, in turn retailers ask wholesalers and wholesalers
ask the company for the product. Consumers thus, "pull" the product through the
marketing channel. A pull strategy involves a high degree of advertising and
various types of sales promotion directed to final buyers. Pull strategy is suitable
when the producer wants to create a strong company image. This requires
complete knowledge about target markets in order to design and develop the
right kind of appeals for such markets. Few companies use either of the
strategies. Big companies use a combination of these two with more emphasis
on any one. The two ~trategiesare compared in the figure 16.3.

19
 - Push Strategy
I I Consumers

Figure 16.3: Comparisons between Push and Pull Strategies

Brand Naming Strategy: A firm which adopts an individual branding name
strategy relies heavily on promotion to introduce a new product or brand. An
image has to be created for acceptance by both customers and intermediaries.
I

Acombination of personal selling, advertising and sales promotion will be needed

to create the image and establish the brand. Family branding strategy on the
other hand requires relatively lesser effort to introduce a new brand. Possibly
with a little advertising, new brands introduced by Tata, Godrej, Bajaj, Sony,
Samsung or Philips will find ready acceptance, because of the family brand's
image. Consumers may try it because of their satisfaction with other products
under the family brand name.
Budget Considerations: The relative use of various promotion tools also
depends on the availability of funds for promotion. Hence the choice of a
promotional element or elements would depend upon the relative costs of
reaching the target customers with each promotional tool. Personal selling, for
example, is more expensive per contact than advertising. Sales promotion can be
expensive or inexpensive depending on the type of sales promotion tool being
used. Marketers try to optimize the per rupee contribution of promotion through
the use of marginal analysis principle. Therefore, the promotion mix chosen will
depend upon the relative cost and efficiency of each element of the promotion
mix and the amount available with the company for promotions.
4. Situation Specific Factors: There are two situation specific factors which affect
the promotion mix: 1) Company's goodwill and public visibility, and 2) extent of
competition.
Company's Public Visibility: Some companies are better known to the public
because of their products, their relative position in the industry (i.e., large or
small) and their impact on physical, economic or social life of people. HLL,
Tatas, ITC, Reliance and many others companies not only have household
familiarity but they are also involved in various social and environmental
activities. Such firms generally like to project themselves as being sensitive to
the environment. To achieve this objective, these companies sponsor various
n event related with environment, sports, cultural and social activities in the
 interest of the general public. For example, Tatas have sponsored Cancer Marketing
Communication
Research, ITC and MRF sponsor sports events each year. Since a large number
of people are concerned with the actions of such highly visible firms, these firms
spend more money on public relations and publicity, in addition to the money and

. effort spent on promoting their products and services.

Extent of Competition: In a highly competitive situation companies very often
have to match or counter the promotional activities of their competitors to
maintain or increase their market shares. Hence the promotional effort of such
firms is affected and influenced by the activities of their rivals. For example
Bajaj Automobiles used to advertise its brands very seldom in the 1970s and -
-,

early 1980s but its advertising increased tremendously with the entry of Japanese
motorcycles in the Indian market. In recent times we have seen the advertising
war between soft drink giants Coca Cola and PepsiCo.

Check Your Progress C

1) What is promotion mix?
....................................................................................................................
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
2) Distinguish between personal selling and direct marketing.
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
3) Distinguidh between pull and push strategies in the context of promotion.
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
4) State whether the following statements are True, or False:
i) Advertising is a two way communication.
ii) One of the characteristics of publicity is dramatization.
iii) Sales promotion is used for short term duration.
iv) Personal selling may lead to long term relationship between a buyer and a
seller.

16.5 PROMOTION BUDGETING METHODS

One of the most difficult marketing decisions is determining how much to spend on
promotion. This question of how much to spend on promotion is a major recurrent
decision faced by the marketers. If too much is spent, resources are wasted; if too
little is spent, opportunities may be lost. In spite of this and despite the large amount
of money being involved, relatively few companies use a logically sound approach to
this problem i.e. how much to spend on promotion.
21
 Decisions and Industries and companies vary considerably in how much they spend on promotion.
Emerging Issues
Within a given industry, there are low- and high-spending companies. In addition to
this there are number of factors which influence the promotion budgeting decision.
The most important of this is the economic and competitive environment in which the
company is operating as this acts to determine the opportunities for promotion and the
role within the marketing program that promotion might reasonably be expected to
play. In addition, the value of the budget is affected by factors internal to the
company such as the age of the product and the stage reached in the life cycle.
Over a period of time companies have developed a number of methods through
practice and experience. This section reviews some of the more traditional methods
of setting budgets and the relative advantages and disadvantages of each. First, you
must understand two things: (1) many firms employ more than one method, and (2)
budgeting approaches vary according to the size and sophistication of the company.
These methods of budgeting can be broadly divided into top-down and bottom-up
approaches. We will now discuss some of the common methods under these two
approaches.

16.5.1 Top-downApproaches
Here a budgetary amount is established or set by the top management and then the
funds are passed down to the various departments. Top-down methods include: ( 1)
affordable method, (2) percentage of sales. (3) unit of sales, and (4) competitive
parity method.
1. Affordable Method: This method is also known as all-you-can-afford or funds
available method. Under this method the company determines th'e amount to be spent
in various areas such as production and operations. Then it allocates what is left to
advertising and promotion, considering this to be amount it can afford. The task to be
performed by the advertising/promotion function is not considered, and the likelihood
of under-or overspending is high, as no guidelines for measuring the effectiveness of
various budgets are established. There are three fundamental weaknesses of this
method. Firstly, it does not encourage the development of long term planning of
promotion expenditure (the amount the company can afford to spend may vary
greatly from year to year and these variations can not easily be predicted). Secondly,
short term promotion opportunities are likely to be overlooked.Thirdly, this method
completely ignores the role of promotion as an investment. Despite these
weaknesses, many companies use the affordable method-both small and big.
2. Percentage-of-sales Method: Of the numerous approaches to determining the
promotion budget, the concept of percentage-of-sales is the most popular. In its
simplest form percentage-of-sales involves applying a predetermined percentage
figure to the value of sales achieved in the previous financial year. This percentage
figure remains constant for a number of years. Thus if the company had sales in the
previous year of Rs.10 crore and the percentage figure company has used in the past
is 5%, the budget for the current year is Rs. 5,000,000. A slight variation which has
gained acceptance in recent years involves the percentage being applied not to the
previous year's sales, but to a forecast of sales for the period covered by the budget.
The obvious attraction of the percentage-of-sales is its simplicity. In addition, the
amount of money allocated to promotion will tend to vary with what the company can
afford, and, assuming that competitors tacitly agree to let promotion expenditures
follow a percentage-of-sales, some degree of competitive stability may result.
However, despite these advantages, this method represents a very mechanical
approach to decision making, and is hard to support analytically. The disadvantages of
this method are; First, that circular reasoning is employed as sales act to determine
promotion, rather than the other way round. Second, because the funds made
22
engaging in long term planning ofqromotion programs. Third, there is no apparent Communication
logical figure which should be employed for setting promotion budget. In addition,
implicit in this method is the fact that once the percentage figure has been decided it
is adhered to rigidly. This inflexibility is obviously undesirable in the face of changing
goals and market conditions and is likely to lead to short term opportunities being
overlooked. Fourth, having used percentage of sales to determine the budget, there is
tendency to allocate the budget in the same way rather than in a more innovative
fashion such as on the basis of opportunities. Finally, this method does not encourage
building the promotion budget by determining what each product and territory
deserves. Thus, despite its popularity, the percentage-of-sales method has no
apparent logical foundation and, like the affordable method, is unlikely to lead the
company to the profit maximizing outlay.
3. Unit of Sales Method: A variation on the percentage-of-sales method that a
company may use is the unit-of-sales method, which simply allocates a specified
rupee amount of promotion to each unit of a brand sold (or expected to be sold). This
i s merely a translation of the percentage-of-sales method into rupees spent per unit.
The budget is then determined by multiplying the individual unit figure by the forecast
of the sales for the forthcoming period. Thus, if the unit promotion expenditure on a
refrigerator is Rs.200 and sales of 80,000 units are forecast, the promotion budget is
Rs. 16,000,000. The unit-of-sales method has the same advantages and disadvantages
as that of percentage-of-sales method.
4. Competitive Parity Method: This is also referred to as share of marketlshare
rf voice method. Some companies set their promotion budget to achieve share-of-
voice parity with competitors. In this method, a company monitors the amount spent
by various significant competitors on promotion and allocates an equal amount or an
amount proportional to (or slightly greater than) the firm's market share relative to the
competition. To use this method it is necessary to collect data on total sales and total
pi-oinotionexpenditure by all firms in the market. If, having collected this information,
a correlation appears to exist between promotion expenditure and subsequent sales
performance it is possible to compute approximately how much funds need to be
spent on promotion to achieve any given market share. An illustration of this method
is shown in the Table 16.1 below.
Table 16.1: illustration of Competitive Parity Method

Brands Market Share in the Promotion Share in the

Industry Industry
Brand A 30 60
Brand B 15 30
Brand C 3 6
Others (including 52 Not Known
local brands
Total 100 100

On the basis of the figures given in the Table 16.1 the company can conclude that for

total industry promotion was required. Therefore, if the company which is

manufacturing Brand B whishes to maintain its 15% market share it must ensure that
its promotion budget is at least 30% of the industry's promotion expenditure.
Knowledge of the existence of any such relationship is obviously of value although in
~ r i c t i c eit is likely to occur only in a very stable market in which there is no
aggressive action on the part of any one company.
Promotion Decisions and Two arguments are made in support of the competitive parity method. One is that
Emerging Issues competitor's expenditures represent the collective wisdom of the industry. The other
is that maintaining competitive parity prevents promotion wars. Neither argument is
valid. There is no ground for believing that competitors are utilizing their financial
resources in a better way. Company reputation, resources, opportunities, and
objectives differ so much that promotion budgets are hardly a guide. Further more,
there is no evidence that budgets based on competitive parity discourage promotional
wars.

16.5.2 Build up Approaches

The major flaw associqted with the top-down methods is that these judgmental
approaches lead to predetermined budget appropriations often not linked to objectives
and the strategies designed to accomplish them. A more effective budgeting strategy
would be to consider the company's communication objectives and budget what is
deemed necessary to attain these objectives. The idea is to build up budget so that
promotional strategies can be implemented to achieve the stated objectives. The most
popular build-up budgeting method is objective and task method, which will be
discussed below.
Objective and Task Method: This method reverses the approach used in the top-
down methods discussed above. Instead of determining the size of the budget and
then allocating it by product and sales area, objective and task method requires the
company to set the budget on the basis of the cost of achieving the promotional
objectives. The objective and task method of budgeting uses a build-up approach and
consists of the following steps.
Establishing Communication Objectives to be Accomplished: These
objectives must be specific, attainable, and measurable, as well as time limited.
For example, a company may wish to create awareness among X percentage of
its target market.
Determining the Specific Strategies and Tasks Needed to Attain Them:
These tasks may include advertising in various media, sales promotions, and/ or
other elements of the promotion mix, each with its own role to perform.
Estimate the Costs Associated with Performance of these Strategies and
Tasks: This requires determining the estimated costs associated with the tasks
developed in the previous step. For example, it involves costs for developing
awareness through advertising, trial through sampling, and so forth. The total
budget is based on the accumulation of these costs.
Reevaluate objectives: If necessary, revise the goals and methods to level the
company can afford in case the costs are too high. The budget setting process
of objective and tasks method is shown in the Figure 16.4.
The major advantage of the objective and task method is that the budget is driven by
the objectives to be attained. The mangers closest to the marketing effort will have
specific strategies and input into the budget setting process. The objective and task
method is the most logical and defensible method for calculating and then allocating a
budget. It is the only budgeting method that specifically relates promotional spending
to the promotional objectives being pursued. It is widely used by major companies.
The major disadvantage of this method is the difficulty of determining which tasks will
be required and the costs associated with each. This process is easier if there is past
experience to use as a guide, with either the existing product or a similar one in the
same product category. But it is especially difficult for new product introductions.
However, the objective and task method offers advantages over methods discussed
earlier but is more difficult to implement when there is no track record for the
 r
. --
2. Determine the specific tasks to
1 (Include advertising in various media, sales promotions, and
other elements of promotion mix)

I
I
3. Estimate costs associated with each task and each element
of promotion mix

4. Reevaluate the objectives and revjse the costs, if necessary

Figure 16.4: Steps in Objective and Task Method

16.6 INTEGRATED MARKETING COMMUNICATION .

Today many companies are taking a new approach to marketing and promotion. They
integrate their advertising efforts with a variety of other communication techniques
such as sales promotion, direct marketing, publicity and public relations (PR), and
event sponsorships. They are also recognizing that advertising and other forms of
promotion are most effective when coordinated with other elements of the marketing
program. Coinpallies are using various marketing communication tools to promote
their products by adopting what is known as Integrated Murketing
Co~nmr~nic.ntions Approach to gain a competitive advantage.
Advertising and promotion are an integral part of our social and economic systems. In
our complex society, advertising has evolved into a vital communications system for
both consumers and businesses. Today, consumers have learned to rely on advertising
and other forms of promotion for information they can use in making purchase
decisions. Many companies also recognize the need to integrate their various
marketing communication efforts, such as advertising, direct marketing, sales
promotion, and public relations, to achieve more effective marketing communications.
Historically speaking for many years, the promotional function in most companies was
dominated by mass media advertising. Companies relied primarily on their advertising
agencies for guidance in nearly all areas of marketing communication. Most

services and often used on a per project basis. Public relations agencies were used to
manage the organization's publicity, image, and affairs with relevant publics on an
ongoing basis but were not viewed as integral participants in the marketing

present a consistent image to the target markets.

Promotion Decisions and During the 1980s, many companies came to see the need for the integration of their
Emerging Issues promotional tools. These firms began moving toward the process of integrated
marketing communication (IMC), which involves coordinating the various
promotional elements and other marketing activities that communicate with a
fir~n'scustomers. As marketers embraced the concept of integrated marketing
communications, they began asking their ad agencies to coordinate the use of a
variety of promotional tools rather than relying primarily on advertising alone. Many
agencies responded to the call for synergy among the various promotional tools by !
acquiring PR, sales promotion, and direct marketing companies and touting
themselves as IMC agencies that offer one-stop shopping for all of their client's
promotional needs.
A task force from the American Association of Advertising Agencies (the 4As)
developed the first definition of integrated market~ngcommunication (IMC). A
concept of marketing communications planning that recognizes the udded value
of a comprehensive plan that evaluates the strategic roles of a variety of
communication disciplines - for example, general advertising, direct response,
sales promotion and public relations - and combines these disciplines to provide
clarity, consistency and muximum communications impact through the seamless
integration of discrete messages.
The 4As definition focuses on the process of using all forms of promotion to achieve
maximum communications impact. Many companies have adopted this perspective of
IMC. They see it as a way to coordinate and manage their marketing communication
programs to ensure that they give customers a consistent message about the
company and /or its brands.
The IMC approach helps companies identify the most appropriate and effective
methods to contact customers as well as other stakeholders such as employees,
suppliers, investors, media, and the general public.

16.6.1 Reasons for Growing Importance of IMC

The move toward integrated marketing communications has been called one of the
most significant marketing developments of the 1990s. There are a number of
reasons why marketers are adopting this concept. A fundamental reason is that they
understand the value of integrating the various communication functions rather than
having them autonomously. By coordinating their marketing communication efforts,
companies can avoid duplication, take advantage of synergy among various
communication tools and develop more efficient and effective marketing
communicdtion programs. Advocates of IMC argue that it is one of the easiest ways
a company can maximize the return on its investment in marketing and promotion.
The move to integrated marketing communications also reflects an adaptation by
marketers to a changing environment, particularly with respect to customers,
technology, and media. Major changes have occurred among consumers with respect
to demographics, lifestyles, media use, and buying and shopping patterns. For
example, cable TV has vastly expanded the number, of channels available to
households. Some of these channels offer 24-hour shopping network; other contain
30-or 60 minute direct response appeals known as infomercials, which look more like
TV shows rather than advertisements. Every day more consumers are surfing the
Internet's World Wide Web. Marketers are responding by developing home page
where they can advertise their products and services interactively as well as transact
sales. Television, radio, magazides and newspapers are becoming more fragmented
and reaching smaller and more selective aud~ences.These factors are prompting
many marketers to look for alternative ways to commun'icate with their customers.
in the ways companies market their products and services. A major reason for the Communication
growing importance of the IMC approach is the on goin4 revolution that is changing
the rules of marketing and role of the traditional advertising agency. Major
characteristics of this marketing revolution include:
'e A shifting of marketing rupee from media advertising to other forms of
promotion, particularly consumer and trade - oriented sales promotions. .
e The fragmentation of media markets, which has resulted in less emphasis on
mass media like network TV and more attention to smaller, targeted media
alternatives like direct mail and event sponsorships.
e A shift in market place power from manufacturers to retailers. The large
retailers are demanding that companies should spend more on sales promotion.
This marketing revolution is affecting everyone involved in the marketing and
promotional process. Companies are recognizing that they must change the ways they
market and promote their products and services. They can no longer be tied to a

requires that a firm find the right combination of promotional tools and techniques,
defines their role and the extent to which they can or should be used, and coordinate
their activities.

Check Your Progress D

I) What do you mean by top-down and bottom-up approaches in advertising

.....................................................................................................................
.....................................................................................................................

.....................................................................................................................
.....................................................................................................................
2) List out different promotion budgeting methods under top-down approach.
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
3) State the steps involved in setting the objective and task promotion budget.
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
.....................................................................................................................
4) Indicate whether the following statements are True or False:
i) Top-down approaches of promotion budgeting are more popular.
i i ) In competitive parity method the collective wisdom of the industry is taken
into consideration.
iii) The objective and task method is the logical method of promotion budgeting.
iv) Through the integrated marketing communication the company can achieve
synergy in communication effort.
Promotion Decisions and
Emerging Issues 16.7 LET US SUM UP
Promotion is one of the four major components of marketing mix. A company has to
play the role of a good communicator. Promotion may be defined as applied
communication used by marketers to exchange persuasive messages and information
between the organization and its various publics.
It includes all the activities designed to stimulate demand. Effective communication
performs three important functions. They are: providing information and persuasion
for the existing and new products, building brand loyalty, and helping consumer5 in
taking purchase decisions. Thus, promotional strategy is designed to infoim, persuade
and remind about the existence and benefits of a product, a service or an idea.
Communication occurs when a sender transmits a message, a receiver receives that
message and the sender and the receiver have a shared meaning. The communication
process consists of nine components: sender, receiver, encoding, decoding, message.
media, response, feedback, and noise. Marketers must understand the process, of
communicating effectively with their target markets and the factors that are important
in developing effective communication are: 1) identifying the target audience
characteristics, 2) determining the response sought or communication objectives, 3)
designing effective message in terms of content, structure, format, and source 4)
selecting the most efficient communication channels, and 5) measuring the
communication results.
The promotion mix is the careful blending of the five components of promotion i.e.,
advertising, personal selling, sales promotion, public relations and publicity, and direct
marketing for the purpose of achieving communication objectives. Advertising is
defined as any paid form of nonpersonal communication through mass media about a
product by an identified sponsor. Personal selling is a face-to-face direct interaction
between the buyer and the seller, Sales promotion is short term promotional activity
that offers an incentive for a limited time period to increase sales and enhance dealer
effectiveness. Public relations and publicity is a non-personal, non-paid form of mass
communication not identified by a sponsor where the company strives to obtain
favourable media coverage. Direct marketing refers to the use of mail, telephone. fax,
e-mail or Internet to communicate directly with or solicit response or dialogue from
specific customers or prospects.
There are four factors that influence the use and relative emphasis of various
promotional tools. These are: 1) product-specific factors, 2) customer-specific
factors, 3) company-specific factors, and 4) situation-specific factors.
Deciding on the promotion budget is one of the most difficult recurrent marketing
decisions. Over the years various companies have developed a number of promotion
budgeting methods through practice and experience. These methods of budgeting can
be broadly divided into top-down and bottom-up approaches. Top-down methods
include: (1) affordable method, (2) percentage of sales, (3) unit of sales, and (4)
competitive parity method. The most popular build-up budgeting method is objective
and task method.
During the 1980s, many companies came to see the need for the integration of their
promotional tools. These firms began moving toward the process of integrated
marketing communication (IMC), which involves coordinating the various promotional
elements and other marketing activities that communicate with a firm's customers to
take advantage of synergy among various communication tools. The IMC approach
helps companies identify the most appropriate and effective methods to contact
customers as well as other stakeholders such as employees, suppliers, investors,
media, and the general public.
 Marketing
16.8 KEY WORDS Communication

Advertising: It is defined as any paid form of non-personal communication through

mass media about a product, a service or an idea by an identified sponsor.
Atmospheres: These are designed environments that create or reinforce the
consumer's leanings towards product purchase.
Audience: This refers to people for whom the marketing communication message is
meant; and includes both present and potential customers.
Brand Extension: Brand extension is an adaptation of an existing brand to a new
product area.
Brand Loyalty: Brand loyalty occurs when a consumer repeatedly purchases the
same brand to the exclusion of the competitors' brands
Build up Approaches: Promotion budgeting methods where first the objectives are
decided and then the amount of budget is built on the basis of objectives.
Channel or Media: The way by which the sender conveys the message to the
receiver.
Decoding: It is the process by which the receiver attempts to convert symbols
conveyed by the sender into a message.
Direct Marketing: It can be defined as direct communication with carefully
targeted individual consumers to obtain an immediate response.
Emotional Appeals: Appeals that attempt to stir up either negative or positive
emotions that may motivate the target audience to purchase the product or brand of
the company.
Encoding: The process of translating ideas, thoughts, or information into a symbolic
fonn.
Events: These are occurrences designed to communicate particular messages to
target audiences.
Feedback: It is the communication from a receiver to the sender about how helshe
understood the message and reacted to it.
Integrated Marketing Communication (IMC): The process of using promotional
tools in a unified way so that a synergistic communication effect is created.
Marketing Communication: The process of systematic and scientific way of
disseminating the relevant marketing information by a company to its target market
and other publics by using a mix of media.
Message Content: This is related with the key or central idea or the appeal of a
promotional message that will produce the desired response from the target audience.
Noise: The unplanned distortion or interference during the communication process.
Nonpersonal Channel of Communication: These are the mass media or mass
communication through which the message is sent to many individuals at one time.
Personal Channel of Communication: These are direct interpersonal (face-to-
face) contact with target individuals or groups.
Personal Selling: It is defined as oral presentation in a conversation with one or
more prospective buyers for the purpose of making sales.
Promotion Mix or Marketing Communication Mix: The careful blending of
total array of promotion tools available to the communicator whose major role is
persuasive communication.
I Pmmotion Decisions and
Emerging Issues
Public Relations and Publicity: It is defined as a variety of programs designed to
promote or protect a company's image or its individual products.

I Pull Strategy: A promotion strategy that calls for spending a lot on advertising and
consumer promotion to build up consumer demand.
Push Strategy: A promotion strategy that calls for using sales force and trade
promotion to push the product through channels.
Rational Appeals: Appeals that show that the product will deliver the claimed
benefits.
Receiver: The party for whom the message is intended.
Response: The receiver's set of reactions after seeing, hearing or reading the
message.
Sales Promotion: It is defined as a variety of short term incentives to encourage
trial or purchase of a product or service.
Sender: The person or organization that has the information to share with another
person or group of persons.
Top-down Approaches: Promotion budgeting methods where a budgetary amount is
established or set by the top management and then the funds are passed down to the
various departments.
-- ---

16.9 ANSWERS TO CHECK YOUR PROGRESS

--

A 4. i) False ii) False iii) True iv) True

B 5. i) True ii) False iii) False iv) True
C 4. i) False ii) True iii) True iv) True
D 4. i) True ii) True iii) True iv) True

16.10 TERMINAL OUESTIONS

I) Describe the importance and the main functions of Marketing Communication.
2) Explain the various elements of communication process giving suitable
examples.
3) What are the various steps that you should undertake for developing an effective
marketing communication?
4) Discuss the factors that affect the promotion mix of a company.
5) Explain the different budgeting methods under top-down approach.
6) Describe the concept of integrated marketing communication and discuss the
reasons of its erowine im~ortance.
 UNIT 17 PERSONAL SELLING AND SALES
PROMOTION
Structure
17.0 Objectives
17.1 Introduction
17.2 Importance of Personal Selling
17.3 Situations Conducive for Personal Selling
17.4 Types of Selling Jobs
17.5 The Sell~ngProcess
17 6 Qualities of a Good Salesperson
17.7 Sales Promotion
17.8 Sales Promotion Objectives
17.9 Sales Promotion Methods
17.10 Let Us Sum Up
1 7.1 1 Key Words
17.12 Answers to Check Your Progress
17.13 Terminal Questions

17.0 OBJECTIVES
After studying this unit, you should be able to:
explain the nature and role of personal selling and sales promotion;
list different types of selling jobs and qualities of a good salesperson;
describe the steps involved in the selling process;
discuss the process involved in planning sales promotions; and
explain the methods of sales promotion.

17.1 INTRODUCTION
In contrast to advertising and publicity, which use impersonal methods of
communication, personal selling makes use of direct personal communications to
~nfluencethe target customers. Personal selling is a highly distinctive method of

I
promotion, and makes use of ofal presentation in conversation with existing and
potential customers, for the purpose of making a sale.
It is one of the oldest methods of business promotion. The contributions made by
I personal selling in making the promotion function more effective have earned the

use of it, and a good number of them realise that they cannot, perhaps, live without it. I
Promotion Decisions and You have already studied that promotion mix consists of four components, viz.,
Emerging Issues personal selling, advertising, publicity and sales promotion. This unit discusses in detail
two components i.e., Personal Selling and Sales Promotion.

17.2 IMPORTANCE OF PERSONAL SELLING

The increase in complexity of products has increased the importance of personal
selling. Manufacturers of highly technical products such as computers, electronic
typewriters, digital phones, microwave, kitchen appliances, remote control
equlpments, etc. depend more heavily on personal selling t h ~ do
n grocery or toiletry
products manufacturers.
Ever growing competition from domestic and foreign sources have also increased the
importance of sales persons in the marketing effort of a firm. In personal selling
company's sales persons are often referred to as sales representative, salesman or
sales girl. They remain on the company's payroll or work on commission basis or
both, to push the product in the market by positively motivating the prospective
customer through oral presentation or demoilstrating the product.
Customers want all sorts of goods and services but inertia may keep them from
buying. Sales efforts stimulate the consumption process by reducing people's inherent
reluctance to make purchase decision. In fact sales persons act as catalyst in the
market place. When the nature of the product is such that the buyer needs special
information in order to use it properly, sales representative acts as a consultant to
consumer, to apprise him of products technicalities and usage.
In case of industrial products, the promotion mix mostly consists of person selling
rather than advertising. Being high value and complex product, personal contact with
the customer is essential to convince him of the product's quality and utility. On the
other hand, consumer product companies use personal selling together with
advertising, to influence prospects to try their brand. But personal selling in this case
cannot substitute for advertising, it can only be used tactically to intensify marketing
effort, mainly because it is expensive.
Personal selling is more effective during product launching stage. For example
McDowell, used personal selling tactics during launching of soft drink "SPRINT in
Delhi. Similarly Eureka Forbes, a manufacturer of appliances which includes vacuum
cleaner and a number of home care appliances, adopted personal selling for its
premium product vacuum cleaners. Since the vacuum cleaner is a high value product
and the concept was fairly new to the Indian market at the time of its launch,
demonstration was necessary to convince buyers, and personal selling successfully
achieved this. Other Companies e.g. Johnson and Johnson for its product in the so
called 'embarrassment' category, like sanitary napkins or contraceptive used personal
selling successfully.
During the product launching stage companies selling products like Richbru Coffee,
Signal Toothpaste, Surf, Dalda etc. utilised personal selling efforts.
4

The importance of Personal Selling in the Indian context stands out due to the !
following factors: I

1) In the absence of the availability of all India media many companies find it expedient
to extensively use personal selling to achieve their promotional objectives.
2) Companies which cannot afford a large outlay for advertising on a regular basis
also find personal selling a more reliable method.
3) The vast network of our distribution system needs the support of the
manufacturer sales force for market combing as well as development.
4) Low levels of literacy and lack of adequate customer education regarding
Promotion Decisions and .............................................................................................................................
Emerging Issues
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17.4 TYPES OF SELLING JOBS

From the foregoing discussion you have learnt that while sales as a function has a
common purpose, that is, to effect sales, the selling situations differ due to interplay of
various factors. These factors are nature of goods sold, type of distribution system
used, nature of demand and the type of sales strategy followed by the firm. These
factors require the salesforce to possess different traits and abilities suitable to the
selling situation with which they are associated. To underscore the difference, Robert
N. McCurry in "The Mystique of Super-salesmanship" classifies individual sales
position based on the degree of creativity required into seven categories. These seven
categories are described below:
1) Merchandise Deliveries: The sales person, whose primary job is to deliver the
product usually against routine orders-popularly called sales and delivery boys.
2) Inside Order-taker: Working inside a store, the primary job of such a sales
person is to service the customer's request or suggest appropriate product to
meet customer wants. Such type of salespersons are popularly called retail
salesmen.
3) Outside Order-taker: The salespersons engaged in the task of taking orders
from the resellers. They normally do not use hard selling approach for taking
orders.
4) Missionary Salesperson: The salesperson whose primary job is to educate,
give product detailing, build goodwill or create primary demand for the product.
Strictly speaking, missionary salespersons are not permitted to take orders.
5) Sales Engineer: The salesperson who acts as a technical consultant to the
client and as per the need helps him to design products or production. This type
. of salesperson is popularly called Technical Salesperson.
6) Tangible Product Seller: The salesperson whose job is to sell tangible
products such as furniture, appliances, automobiles, etc. The job involves abilities
to persuade and convince the customer.
7) Intangible Product Seller: Here the salesperson is associated with selling
intangible products or services such as advertising services, insurance,
education, etc., the common factor being difficulty in immediate demonstration
of the perceived benefits of the product. This selling job requires perhaps the
greatest degree of a creativity in the salesperson.
Defining the Salesprson's Job: The foregoing classification of the sales position
into seven categories, on the basis of degree of creativity required in the performance
of each job is only general in nature. Depending upon the organisational need, each
company should clearly define what it expects from a salesperson in terms of the
tasks to be performed by him. It should broadly specify how much of salesperson's
time should be spent on developing new accounts versus servicing existing accounts,
large accounts vers'us small accounts; bulk orders versus small orders; selling
individual products versus selling the product line; selling old products versus selling
new products; etc. Lack of clear definition regarding the selling tasks to be
performed, often results in disproportionate spending of time between the tasks and
the goals. To avoid this type of loss in productivity of the salesforce, it is worth
repeating that the job of the salesperson should be defined with sufficient specificity,
so that he can use it as a guidline to keep himself in the right direction.
 Personal Selling and
17.5 THE SELLING PROCESS Sales Promotion

Up to this point we were discussing the role of personal selling and the degree of
creativity required in a salesperson to perform his task satisfactorily. Now we will
take a look at the selling process followed for completing a sale. Though the steps in
the selling process discussed below will be applicable to most of the selling situation,
what will differ will be the degree of importance given to each step of the process
under different selling situations. The basic steps in the selling process are given in
Figure 17.1. A salesperson must become accomplished at performing the selling
steps. These steps are explained below.

Reassure customers on the correctness of their decision.

Check whether the order was filled and delivered when promised. POST SALE
Make certain the product is properly installed, used and serviced. FOLLOW-UP

Make conscious effort to close. CLOSING

Don't be afraid of being rejected. THE SALE

Understand reasons for objection

Have a positive attitude HANDLING
Avoid arguments. OBJECTIONS

SALES
PRESENTATION Arouse Desire

APPROACH Make initial contact with prospect

Study the organisation

PREAPPROACH
and those involved in buying
--
PROSPECTING Develop sales leads from various sources
ANDQUALIFYING "Separate the suspects from the prospects"

Know your product. Know your customer.

PREPARATION
Know your competitor. Know your company.

Figure 17.1: Steps in the Selling Process

Source: Ralph M. Gaedeke and Dennis H., Tootelian, Marketing Principles and Applications,
1983. p. 436 (preparation step added)

Preparation: Before starting the selling job, a salesperson should make a valuable
investment of time and resources to know the products he will be selling, know the
customers (i.e. customer types, buying motives and buying proces) to whom he will
be selling, know the competitors against whom he will be selling, and finally know the
philosophy, policies and range of products of his company. In short, he should be well
equipped with the fundamentals of selling.

Prospecting: This step of the selling process deals with locating and preparing a list
of prospective customers. Prospects can be located through (1) identifying the
potential of buying more in the existing customers, (2)recommendations of existing
customers, (3) winning back lost customers, (4) attracting competitor's customers,
(5) customers' information request from advertisement, (6) newspaper
announcements, (7) public records, (8) directories like telephone,-trade association
etc., (9) other salesmen, (10) references from friends, neighbours and business
associates, and (1 1 ) cold canvasing, that is, going from door-to-door.
Promotion Decisions and The located prospects should first be qualified broadly in terms of (i) whether they
Emerging Issues want the product and how intense their want is, (ii) whether they have the adequate
purchasing power, and (iii) whether and who possesses the power or authorisation to
purchase and spend the required money. The qualifying of prospects is the process of
separating the prospects from the suspects.
It is worth mentioning here that the ability to prospect is the most essential ability of a
successful salesperson. A good salesperson keeps examining, weeding out the
already tapped prospects and updating his lists of prospects, and remains in constant
search of new prospects.

Preapproach: The qualifying process of separating prospects from suspects further

requires that the salesperson should process detailed information relating to the
prospects in terms of existing products consumed, their scale of operation, product
range, their buying size, frequency, budget and the process, etc. In short, obtain
customer orientation. The sources of information for the purpose include company
annual reports, other salespersons, other suppliers to the prospects, census of
manufacturers, professional journals, newspapers and market intelligence. The
availability of the above information in as detailed a manner as possible will help the
salesperson in ranking the prospect in terms of their priority to the company. Good
salespersons use the above information in classifying the prospects in A, B and C
categories in terms of the immediacy of the attention to be given to them.

Approach: 'First impression counts'. As such, this step needs to be carefully

planned. This step has two distinct parts. One, of meeting the customer with a
positive set of mind, and the second, making an impact on him. For the former,
referrals of reliable persons known to prospects, calling after fixing an appointment,
use of door openers, help. For the latter the salesperson should equip himself
with the key benefit to be emphasised, samples or new literature to be handed over,

Sales Presentation: Through advance information relating to the prospect, every

effort should be made to match the product offered to the needslproblems faced by
the customer. The sales presentation should generally go according to the AIDA-
attention, interest, desire, and action approach. How can this be done? Use of key
benefit or a problem solver, or a unique act of the salesperson results in gaining
attention.
The presentation should proceed in a straightforward manner to help the prospect
know that you understand his problem and that is the reason of your being there. To
convince the prospect as early as possible, the salesperson should offer evidence
through demonstration of the product, use of exhibits, models, citing examples of its
successful applicationslusage, showing testimonials, etc. The overall approach should
be to build credibility and confidence in the supplying company, its products, and also
in its competence to render specialised type of service to the complete satisfaction of
its customers.
The flexibility of the sales presentations can range from the 'Canned' or previously
prepared presentation, to those allowing the salesperson complete freedom in the
presentation. Though both the extremes, or even the hybrid of the two, have their
own situational suitability, the important point to note is that salesmanship, being a
showmanship function, must arouse active participation of the prospect in the
presentation process. This can be done by introducing some action which would keep
the prospect captivated. One possible way would be a joint review of the problem
faced by the prospect. Another is helping the prospect imagine the projected benefits
of owning the product.
Step 6
Handling Objections: It is in the last phase of the sales presentation step that the
prospects start expressing doubts, or raising objections whether relating to price, need
for more time to think, satisfaction with the existing productfsupplieror product quality

These doubts ok objections should be welcome and they should be answered with
confidence. There is certainly no doubt that the prospect has to be thoroughly
convinced that the product would satisfy his need. The ability of the salesperson of
mind reading of the prospects, enables him to anticipate the prospect's objections and

The golden rules for handling objections are: (1) welcome the objection and show
respect to the prospect, and (2) do not argue with the prospect. Even when the
objections raised are half-baked or trivial in nature, the salesperson should handle the
situation tactfully. Even under these circumstances courtesy should not be lost sight
of, and while the discussion is on, the salesperson should start recounting the benefits
of the product agreed upon, and lead the prospect to make a favourable decision. It
should be remembered that handling objections sharpens the selling skills of the

Closing the Sale: Closing is that aspect of the selling process in which the
salesperson asks the prospect to buy the product. There is a critical point during each
presentation when the salesperson should ask for the order. Pending the location of .
the critical point, as the objections are being met, the salesperson should help reduce
the choice of options, summarise the benefits of buying, and the consequences of not
buying, and if need be, make use of the big idea appeal of buying' 'now' at that

The salesperson should have the ability of catching the buying signals given by the
prospect and should act on them fast. Some such signals are changing the sitting/
standing position and moving closer to the product; reading the instructions on the
product; perusing the testimonials; showing hesitation in being able to afford; asking
for another demonstration, if applicable; checking the warranty or asking questions
relating to warranty terms. These signals, show that the time is ripe to start taking the

Post-sale Follow-up: The selling process does not come to an end by writing the
order. A few repetitions reassuring the benefits of the product keep the customer
sold. Follow-up provides an opportunity to ensure that the product is being rightly
used, and if necesary to re-explain the method of using, handling, and storing of the

a good source of feedback too.

Let us conclude this section by stating that although the eight steps of the selling
process are essential in spirit, these may not always be followed. This could be partly
because of (i) the selling situation involved, e.g. in the case of insider order-taker or
retail salesperson the first three steps of the selling process are generally not '
applicable as the customer walks into the store for buying a product, (ii) the expertise
I
Promotion Decisions and
Emerging Issues
of the salesperson (such that he can ignore or assume some information), or (iii) the
seller's market of the product where customers generally queue up for the product.
Let us also look at the findings of a study by Robertson and Chase on the subject.
They point out that:
1) The more closely matched the physical, social and personal characteristics of
the customer and salesperson, the more likely is the sale.
I
2) The more believable and trustworthy the customer perceives a salesperson to
be, the more likely is the sale.
3) The more persuadable a customer is, the more likely is a sale.
4) The more a salesperson can make prospective buyers view themselves
favourably, the more likely a sale is.
Check Your Progress B
What general procedure should be followed when qualifying prospects? How can the
key prospects for photocopying machines be identified and qualified?
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17.6 QUALITIES OF A GOOD SALESPERSON

Some people say salesmen are born salesmen, while other believe that training can
help in making good salesmen.
Irrespective of these opinions, good salesman has certain qualities and abilities as a
result he is able to perform better than others. In this section we would discuss
qualities of a good salesperson.
Philip Kolter has identified two basic qualities of a good salesperson namely, empathy
and persuasion. But others have listed more. Some of the qualities of a good
salesperson are as follows:
1) Ability to estimate customer's needs and desires: He is alert and quickly
determines what the customer wants and the best way to sell.
2) Ambition: He likes to do a good job and is interested in getting ahead with your
company.
3) Appearance: Appearances mean a lot today and the successful salesman is
neat and organised. He presents himself well in person. Also, he keeps his desk,
books and manuals neat and ready for use.
4) Business Sense: He understands that you are in business to make a profit and
quickly l e m s the ins-and-outs of your organisation.
5)' Courtesy: He reveals a sincere desire to help customers and treats them as
guests even when he visits their places of business.
 Creativeness: Imagination, vision and the ability to create ideas make your Personal Selling and
Sales Promotion
man dynamic.
Curiosity: He wants to learn all he can about his job, his products and his
cutomers.
Enthusiasm: There is nothing that can drain away a prospect's buying interest
more than a half-dead salesman. Dullness should be left at home. A salesman
must radiate enthusiasm during and after the sales call.
9) Figure Sense: He should have the mathematical ability to figure and fill up
order form correctly and to make the necessary reports.
10) Flexibility: A good salesman is able to adapt himself to a variety of customers.
Each contact may require adapting the sales talk, speech habits and even
appearance.
I I) Friendliness: A salesman should be able to make people like him and he must
like to meet people.
12) Handwriting: He must write legibly so that his paper work can be readily
understood by his office people and by his customers.
13) Health: Good health generates energy and energy is needed to sell. Poor health
prevents many salesmen from fulfilling their potentials.
14) Integrity: A salesman must be trusted to do his job well. He cannothelp but be
successful when his customers trust him.
15) Interest in his job: He likes selling and working for your company.
16) Knowledge: In some business, an applicant must also have a thorough
knowledge of the highly specialised products or services his employer offers. In
some cases, this knowledge can be gained only by years of experience.
17) Loyalty: He must be able to impress upon his customers the idea that his
company is the best in the business.
18) Mental abilities: He has the intelligence to understand your products and those
of your competitors. He must know how to use words, to understand and direct
people and to remember names and faces. He should also be able to understand
prospective customers and know how to act under varying conditions.
19) Motivation: He must have more than just an interest in selling. Psychologists
have found certain predominant patterns in men who have become really
si~ccessfulsalesmen. They live in the present and not in the future. They do
want power over others and prefer not to work under close supervision.
20) Originality: He is constantly searching for new ideas to be used in selling your
products and will suggest better ways of doing things.
21) Persuasiveness: Very few products of any type actually sell themselves. They
must be sold. Your man must have the ability to get people to agree. There are
situations when persuasiveness may vary keeping in view the consumer's

22) Poise: His maturity is reflected in his behaviour. He should be positive and
confident, energetic and businesslike. He should be able to demonstrate to your
customers that he knows what he is talking about.
23) Self-control: He can handle difficult people and situations calmly.
24) Self-starter: Your man works well without constant supervision and is able to
make decisions on his own.
25) Speech: He can speak clearly and maturely in a natural tone. He can
emphasize sales points with sincerity and friendliness.
Promotion Decisions and Check Your Progress C
Emerging Issues
State whether following statements are true or false.
i) Personal selling provides marketers with greatest opportunity to adjust a
message to satisfy customers' information needs.
ii) The personal selling process begins with approaching the customer.
iii) An important function of the technical salesperson 1s to provide advice on the
application of the product.
iv) Missionary salesperson is aposition where salesperson builds goodwill and
educates the consumer while talung orders and selling the firm's goods and services.
V) Getting the order is called closing the sale.

17.7 SALES PROMOTION

Of all the methods of promotion that constitute the promotion mix, sales promotion is
the only method that makes use of incentives to complete the push-pull promotional
strategy of motivating the salesforce, the dealer and consumer in transacting a sale.
There is no single universally accepted definition of sales promotion. One can,
however, gather its essence by perusing a few definitions. Let us look at some of the
popular definitions of sales promotion.
According to American Marketing Association, sales promotion refers to
those activities other than personal selling, advertising and publicity, that
stimulate consumer purchasing and dealer effectiveness, such as display.
shows and exhibitions, demonstrations, and various other non-recurrent selling
efforts not in ordinary routine.
This definition suggests t@sales promotion is a catch-all for all those promotion
activities which do not fallklearly into advertising, personal selling or publicity.
Roger A. Strang offers a simpler definition: Sales promotion are short term incentives
to encourage purchase or sale of a product or service.
Yet another definition that seems fairly exhaustive, and hence, will be used in this unit
is the one given by Stanley M. Ulanoff in his Handbook of Sales Promotion. Stanley
defines sales promotion as all the marketing and promotion activities. other than
advertising, personal selling, and publicity, that motivate and encourage the consumer
to purchase by means of such inducements as premiums, advertising specialities,
samples, cents-off coupons, sweepstakes, contests, games, trading stamps, refunds,
rebates, exhibits, displays, and demonstrations. It is employed as well, to motivate
retailers, wholesaler; the manufacturer's salesforces to sell through the use of such
incentives as awards or prizes (merchanidise, cash and travel), direct payments and
allowances, cooperative advertising, and trade shows. It offers a direct inducement to
act by providing extra worth over and above what is built into the product at its
normal price. These temporary inducements are offered usually at a time and place
the buying decision is made.
Summing up, sales promotion deals with promotion of sales by the offer of incentives
which are essentially non-recurring in nature. It is also known by the names of Extra-
Purchase-Value (EPV) and Below-the-line selling.
Product group-wise, the major users of sales promotion are: tea, coffee and
beverages, soaps, toiletries, detergents and washing soaps, toothpaste, textiles, food
products and baby foods, household remedies, and consumer durables like fans,
refrigerators, music systems, televisions and household appliances.
Among the various types of sales promotion schemes used, contests at the consumer,
40 dealer and salesforce levels have made a significant headway.
 A perusal of the list of the product groups which emerged as the major uszrs of sales
promotion, and from the market feel, it seems clear that a transformation from the
seller's to the buyers' market is taking place and marketing has become more
competltlve in these product markets. In addition to increasing competition, other
reasons for rapid growth of sales promotion in India are summarized below:
sales promotion makes an immediate effect on sales.
measurement of the effectiveness of sales promotion is easier as against the
other promotional methods.
channels of distribution are emerging as powerful entities and demand greater
use of incentive5 to get desired results.
products are becoming standardised and similar, and so need increased support
of non-price factors of which sales promotion is an important one.
impulse buying is on the increase, and so is the rise in the number of marginal
customers. With virtually no brand loyalty, offer of attractive schemes help
manufacturers to Induce such customers to choose their product.

I As a powerful method of sales promotion with a capability to complement and

suvvlement the advertising function of marketing, sales uromotion helm marketers I
I salesforce. Some of the commonly attempted obiectives are to: I

make the sale of slow-moving products faster

stabilise a fluctuating sales pattern
idkntify and attract new customers
launch a new product quickly
educate customers regarding product improvements
reduce the perception of risk associated with the purchase of a product
motivate dealers to stock and sell more (including complete product line)
attract dealers to participate in manufacturer's dealer display and sales contests
obtain more and better shelf space and displays
bring more customers to dealer stores
make goods move faster through dealers
improve manufacturer-dealer relationship
motivate salesforce to take the achievement higher than targets
attract salesforce to give desired emphasis on new accounts, latent accounts,
new products, and difficult territories
reward salesforce for active market surveillance and for rendering superior
I customer service
put power into the sales-presentation
counter competitors' sales-promotion and marketing efforts
provide punch to the company's advertising efforts
build goodwill. 41
I'romation Decisions and Companies may use anyone or a combination of the above objectives in varying form
to suit the product-market needs of their product. What is of significance is that the
sales promotion objectives set to be accomplished must be integrated with the
promotion and marketing objectives pursued by the company.

17.9 SALES PROMOTION METHODS

Many methods of sales promotion are used by marketers. Depending upon the
creativity level of their sponsors, their variety seems very large. We refer here to
some of the most commonly used methods of sales promotion.
As noted above, the accomplishments of the desired promotion and marketing
objectives ultimately depend on the extent of the desired response received from
consumers, dealers and members of the salesforce. Hence various sales promotion
methods are built around these three target groups. Further, in terms of the desired
impact, the variety of sales promotion schemes offered are grouped into two
categories. One, aimed at producing immediate impact, and the other delayed impact
i.e. carrying on the impact over a periogof item. ~mmediateimpact schemes are
those schemes where the consumer, dealer or salesperson gets the incentive on first
contact, purchase or on performing a one-time act. On the other hand, under the
delayed impact schemes, the consumer, dealer or salesforce is called upon to comply
with the scheme over a period of time before receiving the full benefit of the scheme.
Price discounts, free samples or large quantity packs are the popular examples of
immediate impact schemes, whereas coupons, trade stamps, and contests are
examples of delayed impact category of sales promotion schemes. Table 17.1
represents the variety of sales promotion schemes directed at the consumer, dealer
and salesforce levels according to their grouping under immediate impact or delayed
impact categories. The meaning and objectives of these schemes are given in
Table 17.2.

Table 17.1: Sales Promotion ~ e t h d s

Dlrecred ar
Non-users TraddSuppliers Salesforce

* Price-off * Price-off * D~scounts * Perqulsrtes &

allowances
* Qty-off * Sampling * Shelf space
allowance
Immediate * Packaged Premium * OTC Premlum
* Banded Premium
* Container Premium
* OTC Premium * Post~ngof
Salesforce

* In Product * Merchandise * Sales Contests

over a period of Prem~ums Refund * Display Contests * Honours and

* Tradlng Stamps * Co-op Allowance *Customer Serv~ce
* Self-liquidators * Sales Contest Awards
* Contests/Lucky * Training Sales
Draws Force/Pnveleges
* The format of thls Table IS based on Donald W Cowell's artlcle on Sales Promot~onand the Market~ng
of Local Government Recreation and Llesure Services, European Journal of Marketing. 18.2.

-
 Table 17.2: Sales Promotion Methods: Meaning and Objectives Personal Selling and

Salcs Promotions Meaning Objectives

I . Price-offoffers Offering product at lower than the To encourage immediate sales,

normal price. attract non-users, induce new
product trial, counter competition,
inventory clearance at the retail
level, inventory build-up at the trade

2. Quantity-off offers Offering more quantity of the same To encourage moreilonger duration
product at no extra cost or with a consumption, higher or excess
very nominal increase in the price quantity movement from the
of the larger quantity packs. factory, trade up consumer for
higher quantity pack size.

3. Premium Offer of an article of merchandise as To encourage purchase, stimulate

an incentive in order to sell product loyalty, off-season s e s promotion,
or service. Its forms are: induce trial of new product, ensures
reach of premium to the consumer.
When the incentive article is packed
(inserted) inside the package of the

h ) Banded Premium Where the premium article is Sampling new products, adding
banded to the package of the speed to slow moving products.
product say with cellotape etc.
. c ) Over-the-counter When the premium article is neither To counter competition, improve
(OTC) Premium inserted inside nor banded to the inventory clearance at the trade
product package but is given away level.
to the consumer over the counter
alongwith the product package.
When the product itself is placed in
an attractive and reusable container As a durable reminder at home.
which serves as a gift.
e) Self-liquidating Where the consumer usually is
asked to pay a specified amount to To induce consumer to appropriate
liquidate or offset a part or full cost premium article, reinforce brand
of the premium article or the image, encourage more consumption,
scheme administration costs. enables sponsor to offer better
quality premium.
f ) Personality Where the consumer is required to
redeem a specified proof-of- To build loyalty and reward the
purchase for the premium article. consumer for that to counter
Proof-of-purchase may be labels, competitively offers.
pack tops, bottle tops, corks, etc.
When the consumer is entitled to
redeem a specific standard To encourage product trial, build
certificate for a product/article free loyalty, trade-up regular users,
o r in part payment. Coupons are stimulate re-purchase rate, solicit
used by both the manufacturer and inquiries.
the dealers for sales promotion.
I
Coupons may be distributed by
mail, by media advertisements,
door-to-door, inside product
package or by dealers on purchase.
5. Refund offers Offer of a refund of money to To induce trial from primary users,
consumer for mailing in a motivate several product purchases,
proof-of-purchase of a obtain displays at the retailers, help
particular product(s). ' retailers tie-in with other products,
switch competing brand users to
sponsor's brand, loading dealers
with increased stock.
Table 17.2 (contd.)
 ---
Promotion Decisions and Sales Promotions Meaning Objectives
Emerging Issues
6. Trading stamps Organised by Trading Stamp To encourage consumer loyalty to
companies or large retailers. certain retail stores.
Trading stamps are a kind of
discount coupons offered to
consumers linked with the quantum
of their purchase. On enough
accumulatio~~ these are redeemable
for various kinds of merchandise.
7. Consumer contests Where individuals are invited to To create brand awareness and
and Lucky draws compete on the basis of creative stimulate interest in the brand,
skills. The latter is based on the acquaint consumers with brand
chance or luck factor. usage and benefits, build traffic at
the store precipitate brand purchase,
obtain consumer feedback, promote
advertising theme of the company.

8. Dealer stock Display It is type of point-of-purchase To provide product exposure at the

contests advertising which used the show point of purchase, generate traffic at
windows of the dealers for the store, infuse enthusiasm among
providing exposure to the dealers.
sponsor's products. Dealers
participating enthusias~i~allyand
creatively are awarded.
9. Dealer Sales contests Where participating dealers are To increase sales, buy dealers'
invited to compete in terms of the loyalty, motivate dealcrs' staff to
sales performance. sell more.
10. Discounts Other than normal trade and cash To push more sales to trade, early
discounts. cash recover.
1 1. Trade Allowances These are temporary price
reductions reimbursement of
expenses incurred by dealers-in full
or in part, its varied types are as
under:
a) Trade or Buying Offer of price reduction on To load the trade.
allowance purchase of specified quantity of a
product.
b) Buy-back A secondary incentive which offers To encourage trade co-operation and
allowance a certain sum of money to trade for stimulate repurchase.
each additional unit bought over
and above the deal.
C) Count and When a specific amount of money To move stocks faster, reward on
recount allowance is offered after ascerlaining the sale only.
number of units sold during
specified period.
d) Merchandise An allowance to trade for providing To create enthusiasm in trade,
(display) desired sales promotion and improve traffic and exposure at the
allowance product displays. point-of-purchase, gain larger space1
effort of the trade in the promotion
of sponsor's product as against the
comptt',ltors.

e) Co-operative Wherein a manufacture shares at an To gain product and retail identity

advertising & agreed rate the advertising and motivate dealers to promote
Promotion promotional cost incurred by the manufacturer's product, obtain local
allowance dealer in the promotion of advertising and promotion.
manufacturer's product.
12. Dealer gifts Offer of useful articles and To improve dealer relations, make
attractive gifts to dealers for their impact on consumer schemelcontest
personal, family or office use. offered.

Table 17.2 (corzrd.)

 Srilc~Pro171orion.v Meanitlg Objectives Personal Selling and
Sales Promotion
I33kemium or Push ' When an additional compensation To push a specific product or
Money is offered to trade or salesforce for product line.
pushing additionally a specific
product or product line.
14. Merchandise Deals Whercin additional quantity of the To load dealers with inventory,,
(13 for 12) same or the same manufacturer's expose other products of the
another product is offcred to trade. sponsor, encouraging dealers to sell
May be offered jointly by non- more and early to realise their
competing manufacturers. incentive.
15. Point-o~-Purchase Those special displays, racks, To attract traffic at retail store,
(POP) , banners, exhibits, that are placed in remind customers, encourage
the retail store to support the sale impulse buying, ensure additional
of a brand. visibility to the advertising campaign,

* The format of this Table is based on Donald W'Cowell's article on Sales Promotion and the Marketing
of Local Govelnment Recreation and Leisure Services. European Journal of Marketing, 18,2.

Though ideal for consumer goods, sales promotions are also used for promoting
industrial goods. The difference in the use lies in the types of schemes offered, and in
the frequency of their offer. Sales promotion schemes offered to industrial customers,
besides thc usual gifts, price-off coupons and contests, include product demonstration,
training to customer staff, offer of interest-free instalment payment plan, ready and
regular availability of repairs and spares, and posting of trained staff to assist/
supel-vise in the working of the equipment in the client's premises, at the
manufacturer's cost. The sales promotion schemes offered at the level of industrial
distributors include: provision of extended credit, and p;ovision of specialised sales/
technical staff at the manufacturer's cost, besides the usual cooperative advertising
and sales promotion, gifts, and organisation of distributors contests. The sales
promotion schemes pdpular~yused to motivate industrial salesforce are: prizes and
awards on special achievements, sales contests, new accounts contests and prompt
service awards.
Check Your Progress D
State whether the following statements are true or false.
i) Sales promotion tends to be used to build up brand loyalty.
ii) The short-tesm trade promotion used frequently with the introduction of a new
product is a buying allowance.
iii) Cons~unersales promotion schemes stimulate trade to carry a product and
promote it aggressively.
iv) Sales promotion activities are only appropriate when directed at the salesforce
level.

17.10 LETUSSUMUP
Personal selling is a direct person-to-person selling and promotion method. The
specific role and goals of personal selling vary from firm to firm depending upon
nature of goods marketed, distribution system used, and the sales strategy adopted by
a firm. The changing market environment calls upon the salesforce to transform itself
in order to perform a more creative role.
Based on the degree of creativity required, McCurry classifies the sales positions into
seven types-merchandise deliverer, inside order-taker, outside order-taker,
missionary salesperson, sales engineer, tangible product seller and intangible product
Promotion Decisions and seller. To accomplish the job of making a sale satisfactorily, a salesperson should
Emerging Issues follow the basic elements of the selling process. These are: preparation, prospecting,
preapproach, approach, sales presentation, handling objections, closing the sale and
post-sale follow up. An understanding of these elements helps a salesperson in
developing skills necesary for successful selling.
Sales promotion, of late, has emerged as one of the more popular methods of
promotion in the case of consumer goods. Stated simply, sales promotion deals with
offering something extra as an incentive to motivate an early purchase. Sales
promotions can be offered at the level of the consumer, trade and salesforce. Sales
promotion schemes used to attain consumer pull include free samples, price-offs,
premium give aways, coupons and contests. Schemes offered for gaining the push
cover promotional allowances, gifts, discounts, cooperative promotions, contests and
awards. To save a sales promotion programme from getting misfired, it should be /
1
planned and managed in a systematic manner. i
1
Promotion is an important marketing function of each firm. And, rare will be a firm
which makes use of only one promotional method. The commonality in the ultimate
i
goal of all the promotional methods apart, their limited suitability in influencing only a
1
i
specific part of the consumer adoption process calls for the need to use the
promotional mix in an integrative manner. Given the complexities in the management i
\
of the promotion function and its vulnerability to failure, it is desired that the function
be managed professionally.

17.11 KEY WORDS I

Bounce Back Offer: An additional offer, with an earlier self-liquidating premium

offer on a usually related product.
Canned Presentation: A structured sales presentation made of an inflexible nature.
\
Cold Canvassing: Door to door conviction and sale of products.
Contest: A competition based on skill in which prizes are offered. Sometime also
used for referring to competition based on chance.
Dealer Loader: A premium given to a dealer in return for an order of a specified
value. This could take the form of a merchandise deal, price deal, gifts to dealers, or a
combination of these.
Hostees Gift: A gift given to a housewife who provides for a product demonstration
to be conducted in her home.
Lead: Name of an individual or organisation who might be a prospect.
Point-of-Purchase Promotion (POP): A sales promotion method using window
display and other display materials aimed at attracting customers to store and also
encouraging the retailers to push displayed products.
Price Deal: Short-run price decrease.
Proof of Purchase: A bottle cork, box top, pack flap, label, coupon, cash memo of a
product which qualifies a customer to receive a premium or refund.
Prospecting: The step during which probable customers are found for the product or
service.
Referral Premium: A premium offered to a satisfied customer, who refers the seller
to another person who purchases the product or service. It is also called use-the-user
premium plan.
 goal. The promotion mix includes advertising, sales promotion, publicity and personal Advertising and
selling. Each of these tools is used in different stages of a brand's life cycle in Publicity
different proportions to aid the success of the product offering. You have already
studied Personal Selling and Sales Promotion in the previous unit. We intend to cover
advertising and publicity in this unit of study. You will study what really advertising
means and how different it is from the publicity. You will also learn about the key
decisions you should take as a manager while designing an advertising program for
your flrrn. We will also cover the issues and role of publicity as a potential and
strategic tool for brand promotion in Indian context.

18.2 MEANING, OBJECTIVE AND ROLE OF

' Advertising is the poetry of marketing. In this section we are going to diicuss about
various definitions of advertising, their relevant meaning, objective and function of
advertising.
i
I 18.2.1 The Meaning of Advertising
The word advertising has been derived form the Latin word "Advert ere" which
rneans to turn (the mind) to. Broadly speaking, advertising does turn the attention of
people to a commodity or service. One of the earliest attempts in defining advertising
was as follows:" The dissemination (spreading) of information concerning a product,
service or idea to compel action in accordance with the intent of the advertiser".
This definition could include persuasive selling tbough personal communication. It
was, therefore, considered necessary to avoid this overlap. The American Marketing
Association defined advertising as "any paid form of non personal persuasion and
promotion of ideas, goods or services, by an identified sponsor". So advertising is a
paid, non personal (mass) communication with an identified sponsor with two distinct
goals of informing( for persuasion and influence) people( communication goal) and
increasing sales (sales goal). Rephrasing this definition we might say that following
are some of the key features of advertising:
1. Advertising is a form of communication for which payment has been made to
the media composite which has carried the communication. When there is no
direct payment or no payment, it is called publicity

I
2. The communication process is non perscnal as nobody has personally conveyed
the message 1.e there is no personal contact between the sender and the
receiver of the message. When a retail salesman speaks to us in the sales
counter, we can call it as personal selling as there is direct interaction between
the receiver ( buyer) and the sender( the salesman)
3. The presentation of the message is for promoting ideas, places, concepts, people,
pxtles, goods, services, organizations to create awareness and assist in the
process of consumer decision making. The awareness may lead to persuasion
and hence the consumer may be triggered to take a decision about buying the
product or service being advertised.
4. The sponsor is ~dentifiedin the advertisement either in the form of the brand
name or in the form of the company which produces it. This is relevant as the
ownership of tnessage communicated rests with the sender. If the sponsor is not
identified then the objective of the message will be lost as the potential buyer is
not sure where to search for further information in the form of enquiry or to go
for a consumption choice.
Pmmotinn Decisions and The theory of advertising says that most contacts with consumers or end users, which
Emerging Isbues are individually relatively low in value, must inevitably be handled by indirect means.
Of these the main process used to talk to consumers is advertising. Farris and Buzzell
concluded that advertising1promotion ratios are higher where
The product is standardized, rather than produced to order
There are many end users (almost all households)
The typical purchase amount is small
Sales are made through channel intermediaries rather than the direct to users

Check Your Progress A w

1. Define advertising

2. What are the main features of advertising?

3. Select any five TV advertising campaigns and identify the following in each case
a. Target audience
b. Sponsor
c. The advertising agency
d. Various media through which it comes
e. The message it wants to give to the audience
I
18.2.2 Objectivesof Advertising I

Advertising is a method of communication with a specified objective. The objectives

of advertising as explained before are grouped as sales objectives (measured in terms
of increase in sales, increase in market share and return on investment) and
communication objectives. The communication objectives of advertising can be
grouped into the following
Building awareness (informing): The first task of any advertising is to make
the audience appreciate that the product or service exists and to explain exactly
what it is
Creating favorable attitude (persuasion): The next stage and the one that
preoccupies most advertisers, is to crate the favorable attitude to the brand
which will eventually lead the consumers to switch their purchasing pattern
Maintenance of loyalty ( reinforcement): One of the tasks wHich is often
forgotten is that of maintaining loyalty of existing customers who will almost
always represent the main source of future sales.
There are various theories of advertising explaining the communication objectives.
We will discuss few important ones here. One of the earliest models of advertising
effectiveness measurement revolves around what communication goals marketers set
for a campaign, known as the AIDA model. It proposes that the effect is the action
 -
into which a potential customer is induced as result of advertising. The sequence
operates in the following fashion in a hierarchical manner within potential customers.

Attention

Fig. 18.1: A D A Model

This model highlights the importance of attracting the attention of the prospects and
creating interest through the advertising messages and its presentation. The desire to
obtain advertised goods/services may be generated to various degrees among
different prospects because of advertising. The final stage of action will depend not
only on the determination of the prospect but also on other factors, such as
availability, which is a function of distribution and logistics.
Lavidge and Steiner propound the second model. This gives much importance to the
Advertising and
Publicity

cognitive evaluations. With an increase in competition and an enhancement in

discerning abilities of potential buyers and users, information wouldlplay a greater
role. The persuasive power of advertising could in itself be a function of the
information content. This model takes the competition in to account. This competition
arises between brands of a product and between substitutive product categories also
as perceived by prospects constituting the target audience. The stage of liking
following those of awareness and knowledge may refer to the advertising, thus
emphasizing the creative aspects. Preference for the product or the brand may be the

- -
combined effect of product characteristics and their relevance to the target audience
and of advertising.
Awareness Knowledge Liking -b

Purchase Conviction Preference

Fig. 18.2: Lavidge & Steiner Model

Rogers propounded the third model, which is known as Innovation -Adoption Model.
This model has relevance to new product introductions and is particularly useful for
adoption of non-commercial services or practices in developing countries. The stages
of evaluation and trial before adoption (or purchase) are considered significant in the
design of advertising program. The decision in favor of making an evaluation is likely
to be influenced by information available from various sources including advertising.
Evaluatio~~ constitutes a major step towards the adoption of the product or service.

Fig. 18.3: Innovation & Adoption Model

Promotion Decisions and There are general objectives of advertising that covers goals like encouraging
Emerging Issues increased consumption of a product by current users, generating more sales leads,
increasing brand awareness, increasing repeat purchases and supporting the personal
selling efforts. Some of the broad advertising goals are explained below.
1. Launch of New Products and Services: In a saturated market, the introduction
of new products and brands can give the seller a tremendous opportunity for
increasing his sales. In the case of innovative products (totally new to the
market) such as Laptop Computers, a great deal of advertising has to be done
over an extended period of time to make people aware of "What the product is"
and "What it does" and "How the customers would find it useful". In addition,
the advertisement also carries information about the availability of the product
and facilities for demonstration/trial etc. Similarly new brands of existing
product categories are also promoted quite aggressively. Two recent examples
are the launching of "Pepsi Blue" soft drink during the cricket world cup and
launch of "Mountain Dew" in subsequent period.
2. Expansion of the Market to Include the New Users: Advertising can be used
to tap a new segment of the market, hitherto left unexplored. For example TV
and Video Camera manufacturers who have been concentrating on domestic
users and professionals can direct their advertising to the government institutions
and large qrganization for closed circuit TV networks, security systems and
educational purposes. Another way of expanding the consumer base is to
promote new uses of the product. For example, Johnson's baby oil and baby
cream were originally targeted to mothers. The same products have now been
directed towards the adult market for their personal use. Similarly, Milkmaid
was originally promoted as a substitute for milk. It is now being advertised as an
ingredient for making sweet dishes and also as a sandwich spread for children.
3. Announcement of a Product Modification: For such advertising, generally, the
terms "new", "improved", "Excel" etc. are used as prefixes to the brand name.
For example, "Sutf Excel" gives the impression of an advanced detergent
powder, although there may be no tangible difference between the earlier brand
and the new one. Sometimes a minor packaging change might be perceived by
the customer as a modified product e.g. "a new refill pack for Nescafe"
4. Announcement of a Special Offer: Because of competition, slack season,
declining sales, etc, advertising is used to make a special offer. For example,
Colgate Dental Cream campaign about 20% extra was to increase volumes
through a sales promotion campaign. Hotels offer special rates during off-
season. Similarly many products like room heaters, fans, air-conditioners, etc,
offer off-seasons discounts to promote sales.
5. To Announce Location of Stockiest and Dealers: To support dealers, to
encourage selling of stocks and to urge action on the part of readers, space may
be taken to list the names and addresses of stockiest and dealers.
6. To Educate,Customers: Advertising of this type is "informative" rather than
"persuasive". This technique can be used to inform new users about a well-
established product. It can also be used to educate the people about an
improved product e.g. Pearl Pet odor free jars and bottles. Sometimes societal
advertising is used to educate people on the usefulness or harmful effects of
certain products. For example, campaigns against unsafe sex and AIDS are
sponsored by government and voluntary agencies. Similarly, advertisements
discourage the consumption of liquor and drugs.
7. Reminder Campaigns: This type of advertising is useful for products, which
have a high rate of repeat purchase, or those products, which are bought
frequently e.g. blades, cigarettes, soft drinks, etc. The advertisement is aimed at
reminding the customer to ask for the same brand again. The campaign of "Dil
 Maange More" during television breaks of cricket matches is to have a top of
mind recall.
8. To Seek Dealer Cooperation and Motivation: A successful retail trader
depends upon quick turnover so that his capital can be reused as many times as
possible. Dealer support is critical, particularly for those who have limited shelf
space for a wide variety of products. Advertisers send "display" material to
dealers for their shops, apart from helping the retailer with local advertising.
9. To Create Brand Preference: This type of advertising does two things: (i) It
creates a brand image or personality (ii) It tells the target audience why Brand X
is better than Brand Y. In this type of advertisement, the product or brand
acquires a 'personality' associated with the user, which gives the brand a
distinctive 'image'. The second type of advertising also known as 'comparative
advertising' takes the form of comparison between two brands and proves why
one brand is superior to the other.
10. Other Kind of Advertising Objectives: Advertising also helps to boost the
morale of sales people in the company. It pleases sales people to see large
advertisements of their company and its products, and they often boast about it.
Other uses of advertising could include recruiting staff and attracting investors
through "Public Issue" advertisements announcing the allotment of shares etc.

18.2.3 The Role of Advertising

Advertising plays a great role in marketing. The significance of advertising is felt by
looking at the amount of money that is being spent for promoting products, services,
ideas, concepts and personalities all across the world. It is an all-pervasive fact for
many growing communities. It bears a consequence to both the audience and the user
of the advertised products. The economic and so@ impact has far-reaching
constquences than the return on investment model used to calculate the value of
advertising in strict economic sense.
There are various products available in the market in different categories and
different brands with varied proposition in the same category. So it is necessary to
provide information to consumers about the products. Advertising plays this
communicator role to the consumers. As the economy becomes more complex and
dimensions of competition undergoes change, advertising's role changes and has a
strategic significance in developed economies. Advertising plays a major role in
connecting the manufacturer to the consumer in providing services and new product
ideas from producers to consumers. Advertising is a reminder to the existing
customers and jt aims at cultivating new prospects also. So it is perceived as an
effective medium with the target audience.
The hierarchal structure of need theories propose that consumers do not pursue the
s a n e kind of need at all times and they need persuasion to move from the level of
'need' to a state of 'motive'. Motives are goal directed actions that consumers take.
Advertising plays the role of persuader to the consumers. In modem marketing, the
role of marketing is not confined to only infomiation dissemination function. The
consumer should be aware of the advertiser's persuasive interest no matter how
restrained or informative the message may be.
As more and more consumers start using the product, advertising expands the market
and hence the industry, leading to growth in the over all economic environment. It also
helps in developing new market segments and identifying buyers for new products.
Companies with high research and development costs always expect the advertising
to play a greater role in disseminating the new product information to a large number
of audience so that the investment can be ploughed to the organization's future
Promotion Decisions and Advertising plays the role of a motivator and de-motivator also in social advertising.
Emerging Issues In the anti smoking campaign and ant1 AIDS campaign it de-motivates people to
have these practices where as in family planning campaigns, advertising motivates
people to take the planned family concept. Therefore, advertising plays the role of a
vehicle to bring desired social changes.

18.2.4 Criticism of Advertising

Advertising is not free from criticism and many people feel that advertising is a waste
of money, which subsequently is transferred to the consumer leading to a high cost
for the advertised product. Following are the criticism of advertising.
1. Most Advertising is in Bad Taste: If advertisements speak the truth, then we
Indians smell worse, suffer from dandruff, colds, indigestion and bad teeth, more
than any other people in the world suffer. Movie advertisements are considered
repulsive by even the most liberal people. Advertisements are nolsy, 111timed
and sometimes even stupid.
2. Advertising Insults Consvmer Intelligence: When an advertisement claims,
that Brand X tyre gives more mileage; it does not say more mileage than what
do. The claim is indefinite. Most people do not like being talked down to. For
example an advertisement which begins with "Did you know.. ." is not well
received by many people.
3. Advertising Appeals Mainly to Emotions: It is felt that advertising is less
rational, objective, and more emotional. For example, an advertising appeal for
an After Shave Lotion states that it makes the user more desirable and
attractive to the opposite sex, rather than focusing on the antiseptic value of the
lotion or its price.
4. Advertising is a Source of Diswntent: This argument claims that if it were
not for advertising we would be less aware of the material things around us in
the world and would, therefore, feel more content. For example, a person sees
an advertisement for a Yamaha motorcycle. Here his want is not real because it
did not originate within him. It becomes a source of discontent for him, because
he can never be happy with the moped he presently owns.
5. Advertising Influences Media: Since advertiser provide a major source of
revenue for the media, the media are likely to be influenced by the former. This
financial dependence of media on advertisers can curb the freedom and
autonomy of the media. With the result, media will disseminate the kind of
information the business wants to disseminate rather than provide information in
line with public interest.
6. Some other economic objections are as follows:
i. Advertising is not Productive: Advertising does not produce any tangible

ii. Advertising Increases Cost: Since the price of a product also indudes the
expenditure on advertising, the consumer tends to pay a higher price.
...
ur. Advertising Leads to Monopoly: Advertising usually lays emphasis on
brands. This emphasis makes the consumer a slave of a particular brand.
Therefore, existing large producers tend to block new competitors from
entering the market, by creating a high degree of brand loyalty though -
advertising.
iv. Advertising Multiplies Needs and Wants: It takes business from one
concern and gives it to another. For example, people today are familiar with
soap, toothpaste, talcum powder. When a new kind of talcum powder is
introduced, advertising will only help to shift demand from one product to
another.
 8
Advertising has also a brighter side and you as a manager are free to weigh the pros
and cons of advertising before taking a decision for developing a campaign and its
overall impact on the society.
1. Benefits to Producers: Advertising is beneficial to producers in the following

i. It leads to an increase in sales volume. This increase in sales volume leads

to a hlgher rate of production, which in turn may lead to economies of scale
resulting in a lower cost per unit. Further, in the absence of advertising, the
company would be spending more money on other expensive means of
promotions such as personal selling and sales promotion.
~ i . Advertising helps in easy introduction of products in the market.
111. It helps to establish direct contact between manufacturers and customers
2. Benefits to the Middlemen: Middlemen, particularly wholesalers and retailers
derive the following benefits from advertising:
I. It is easier for them to sell products because consumers are aware of the
product and its quality through advertising.
ii. The product reputation which is created through advertising is shared by
wholesalers and retailers alike.
~ii. It enables wholesalers and retailers to acquire product information.
3. Benefits to Customers: Advertising is beneficial to customers in the following

i. Advertising stresses quality and very often prices. This forms an indirect
guarantee to customers. Furthermore large scale production assured by
advertising enables the seller to reduce the production cost and sell the
product at a lower price.
11. - It helps the customers to know where and when the products are available.
This reduces their shopping time.

of various substitute products.

iv. Modem advertisements are highly informative. It is perhaps the only means
through which consumers come to know about varied and new uses of

4. Benefits to the Community: Community as a whole also derives the

following benefits:
I. Advertising leads to large-scale production, thus creating more employment
opportunities. It assures employment opportunities to advertising
professionals i.e. artists, copywriters etc.
ii. It starts a process of creating more wants and their satisfaction, resulting in
a higher standard of living. Advertising has made more popular and
universal a number of inventions such as automobiles, radios, TVs and other
household appliances.
iir. Newspapers would not have become so cheap and popular if there had
been no adve~tisements. It is the advertising revenue that makes
newspapers thrive.
iv. Advertising need not necessarily lead to a monopoly. It is quite possible that
new entrants with better and newer products have a better chance of
acceptance by the consumers.
Promotion Decisions and
Emerging Issues 18.3 MAJOR INSTITUTIONS IN ADVERTISING
There are five parties involved in an advertising process as explained in the Figure
18.4. They are 1)advertiser 2) advertising agency 3) support organization 4)
media and 5) target audience( consumer)
1) Advertisers: These are the personslorganizations who sponsor the campaign.
They may be producers, retailers, wholesalers, service organizations, labor
unions, schools, government, politicians, individuals and many more. Advertisers,
in short, are people or organizations who pay the bills or the money required for
advertising.
2) Advertising Agencies: These are independent business organizations that
develop, prepare and place advertisements in media for clients who want to
communicate to customers ahout their goods or services. Advertising agencies
offer potential advertisers (clients) a variety of specialized service, which result
in a finished advertisement. Such services include the following
i. Copy Writing: This refers to the written part of a print advertisement,
including the headline, slogan and detailed description of product attributes
wherever required. In broadcast media, the equivalent of this is called
script-writing.
ii. Advertising Art: Refers to illustrations, drawings, photographs or other art
form required in the finished advertisement.
...
111. Media Buying: Involves specialists who negotiate rates with different
media and gather other relevant information for buying space andlor time in
suitable media.
iv. Client Servicing: An executive of the agency is assigned exclusively for
handling a particular client. HelShe is the connecting link between the
client and the creative department in the agency.
v. Other Services: Include research, public relations and merchandising on
behalf of the client
3) Support Organizations: Modem advertising calls for specialists not employed
by either the advertiser (client) or the advertising agency. These consist of
casting specialists, cinematographers, filrnltape editors, photographers, music and
sound effect experts. Thus, a lot of outside help is required by the agency to
produce a good advertisement. In addition, research has become a very
important input for most advertising decisions, particularly to find out
consumer attitudes, behaviors and profiles. It may not be possible for the
agency or the client to carry out this function by themselves. Therefore, they
hire the services of outside experts. All such organizations are known as
support organizations.
4) Media: Advertising is a non-personal form of communication through paid
media So media plays a crucial role. As such, advertisement needs a channel
through which the message can be conveyed to intended target audience. This
channel is called a medium. Various types of media commonly used are
newspapers, magazines, radio, television, hoarding, cinema slides, moving
vehicles, etc.
5) Consumers: These are the people whom the advertiser is trying to reach with
his message. However the correct term to use would be target audience.
Check Your Progress B
I. Advertising is said to be a 'force' which moves people up a series of steps
indicating their readiness to buy. List out these steps from the advertising theory
explained in this unit.

2. State some of the major objections against advertising.

3. Name important parties involved in the business of advertising.

 "
Emerging Issues
i. Advertising is non paid form of communication.
ii. Advertising is transmitted in mass communication media, not by individual
sales people
...
m. A series of advertisements with a common objective is called a campaign
iv. A Copy refers to the written part of a print advertisement, including the
headline, slogan and detailed description of product attributes wherever
required.
v. Advertising always adds up to the product cost.

Developing an effective advertising campaign requires a stream of interconnected

decisions on such matters as objective setting, budget setting, media decisions as well
as decisions on strong creative strategy. Following are the decisions that you should
take while designing an advertising programme:

Mission (Objective) Decision

Money and Budget Decision
Message Decision
Media Decision
Measurement of Effectiveness Decision

18.4.1 Mission (Objective) Decision

This is the first decision in any advertising campaign. This should emanate from the
over all promotion objective set for the firm. The objectives of advertising are briefly
explained in the beginning of the unit. The sales objectives and communication
objectives are set by the marketer, which lead to the next stage of decision.

18.4.2 Money and Budget Decision

There are various methods of deciding on advertising budget. This decision will be
largely influenced by the objective that we set for the campaign. For example if there
is a new product launch then the advertising campaign will have to be high where as
for launching a repeat campaign one would like to spend less. The most commonly
used advertising budgeting method include
1. Percentage of Sales Volume: The percentage is worked out on the basis of-a
firm's historical budget, industry norms or on the basis of the prevailing market
conditions. If the market has started an upward trend then one percent extra
amount will be put for advertising budget. Following this method without
considering market conditions may create problem. If the firm's market share is
on downward trend then the firm may decide to increase the advertising budget.
If the product is in the disinvestment stage, then disinvestment may be an option.
In such a case only marginal advertising budget is sufficient to clear the stock. If
the firm realizes that at the decline stage the competitors are moving out then
the firm can decide to take the leadership position through aggressive
advertising.
2. Unit of Sale Method: Consumer durable firms make use of this method as a
variant on sales percentage. While it mostly works out same as a sales
percentage, here the firm puts an amount of advertising expenses on the unit as
58 add on.
Promotion Decisions and Instead of reacting to competitor advertising results, firms can be proactive in
Emerging Issues their approach by planning their own goals of marketing and then the advertising
budget will emerge.
4. Historical Method: In this method last year's advertising budget is adopted for
the year with a view that practically no change has taken place in the market
and market growth is slow, which does not justify any addition to the budget.
Last year's budget could be multiplied by a factor to cover media rate increase.
5. Affordability Method: Some firms believe that advertising is tactical and not
strategic and hence does not need much attention. These kinds of firms follow a
method of affordability and spend what is left after managing the details of the
official expenses involved in paying to the factors of production.
6. Total Group Budget: In case of multi location and multi product line firms , a
total amount is decided for advertising and each strategic business unit receives
a share according to their needs. This method helps the group to segregate
some amount for corporate group advertising for building the image of the
organization.
7. Percentage of Anticipated Turnover: This method is useful in dynamic
markets and budget can be fixed on the estimated demand pattern.
8. Elasticity Method: This method takes into account the seasonality of business
and the periodicity in the purchase cycle of consumers into consideration. This
method takes into consideration the demand and supply situation and is more
used in industrial products.
9. Operational Modeling: Market research gives advertising expenses, market
response and sales per advertising figures and the modeling is done to explain
the budget.
10. Composite Method: This method takes into consideration several factors in
formulating the advertising budget which include indices like firm's past sales,
future sales projection, production capacity, market environment, sales problems,
efficiency level of sales personnel, seasonality of the market, regional
considerations, changing media scenario and changing media impact on the
target market segment, market trends and results of earlier advertising and
marketing program.
I I. Objective and Task Method: Marketing people follow this method more often
as this is a scientific method where the advertising goals are explicitly stated and
the cost to achieve the target is also spelt out. Taking each activity like
increasing geographic sales area, increasing market awareness by a certain
percentage over the figure obtained from the brand tracking study, they add up
the amounts needed for each activity. We can illustrate the process as below:
i) Establish the Market Share Goal: Let us say the company estimates 50 million
potential users and sets a target of attracting 8 percent of the market i.e. four
million users.
5) Determine the Percentage of the Market that should be Reached by
Advertising: The advertiser hopes to reach 80% (40 million prospects) with the
advertising budget.
ii) Determine the Percentage of Aware Prospects that should be Persuaded to
Try the Brand: The advertiser would be pleased if 25 per cent of aware
prospects (10 million) tried the brand. This is because it estimates that 40% of all
triers or 4 million people would become loyal users. This is called the Market Goal.
iv) Determine the Number of Advertising Impressions per I per cent of Trial
Rate: The advertiser estimates that 40 advertising impressions (exposures) for
every 1 per cent population would bring about a 25% trial rate.
 v) Deternzirte the Number of Gross Rating Points that would have to be Advettining and
I
Purchased: A Gross Rating point is one exposure to 1 per cent of the target Publicity
population. Because the company wants to achieve 40 exposures to 80% of the
population, it will want to buy 3,200 gross rating points
vi) Determine the Necessary Advertising Budget on the Basis of Average Cost
of Buyirtg a Gross Rating Point. To expose 1 per cent of the target population
to one impressions costs an average of Rs. 3277. Therefore, 3,200 gross rating
points would cost Rs. 10,486,400 in the introductory year.

18.4.3 Message Decision

The generation of ideas and the development of the advertising message or concept
make up the creative process. Advertising copy writers, art directors, and other
creative people are responsible for the task of answering two questions "What to
say" and "How to say it". These questions reflect the two basic parts of the
creative strategy. Advertising copywriters, art directors and other creative people are
responsible for answering the above two questions.

What to Say? (Appeal)

The central idea of an advertising message is referred to as the advertising appeal.
The purpose of the advertising appeal is to inform the potential customers what the
product offers and why the product is or should be appealing to them. When the same
advertising appeal is used in several different advertisements to provide continuity in
an advertising campaign, it is called as advertising theme. LG Electronic uses the
theme of health in all its product category to appeal to the customers.
How to Say? (Execution of a n Appeal)
Even when the creative head has an important and meaningful message to relate, its
effect can be lost if it is not presented in the right way and in the right context.
Marketing Research helps in this regard. Consumer research can give leads to the
creative people to develop themes and execution styles. How to say something is
more important than what to say. The characters delivering the message, the
emotional tone, the situation in which the action is executed, all of them combined
should create proper effect on the customers for a desired outcome. How an
advertisement says something is its creative platform or execution format. The media
in which the message will be executed influence the creative platform. By analyzing
the major ~reativeplatforms used in advertising, especially television commercials, we
can identify the details of a creative platform that include storyline, product use and
problem solution, slice of life, demonstration, testimonial and spokesperson, life style,
still life, association,montage and jingle
I. Tl~c]src~qllirzecreative platform gives a historical sketch or tells a story about
the product. In television commercials that use storyline creative platform, an
unseen announcer (called voice flying over) often narrates a story with a
recognized beginning, middle and end. Copywriters attempt to make the product
the hero in the storyline.
2. Prodrtct Use and Problem Solution is another creative platform.
Straightforward discussion of a product'suses, attributes, benefits or availability
is frequently utilized in advertising. A Unique Selling Proposition (USP) or a
. combination of Extra Value Proposition (EVP)is the central focus in such kind of
advertisements. The Pepsodent campaign talks about how the brand can help in
gum and teeth protection. Medicines always advertise on such platforms.
3. Tlte Slice of LGe dramatizes a typical setting wherein people use the product
being advertised. Most of these commercials center on a person, household or
business situation. For example Lolitaji of Surf was a revolutionary character
Promotion Decisions and reflecting the Indian middle class housewife. This kind of commercial begins just
before a character discovers an answer to a problem. Whether the trouble is
tooth decay, dandruff, bad breath, over weight,Qexual weakness emotions run
very high in these commercials. The product is then ~ntroducedand
recommended and the character on the screen gives a try for the product. Just
before the end of the campaign, the story talks about how happy/successful the
person is after the use of the product. For example, Tiku Talsania in the Vicks
Action 500 campaign talks about congestion and then uses the product to get an
instant relief.
4. Demonstration IS a creative platform where a clear-cut example of a product's
super~orityor enhanced consumer benefit is presented. For example, the latest
campaign of LG television, which shows the extra amount of sound that the new
television can give, compared to others also shows about the demonstration
effect. The Fevlcol campaign in which the chicken gives an egg, which cannot
be broken as the chicken, was taking food in the Fevicol pack is a demonstration
of the superior product quality of the brand as an adhesive. Unusual situations or
a bit of fantasy can draw attention to product benefits. Many demonstrations
occur in infomercials. These are television commercials, usually thrity minutes
long and have the appearance of a regular programs such as khana khazana or
jindegi hai safar suhana in cable networks. The product or service is repeatedly
demonstrated in the infomercial.
5. Compurative advertising as a platform directly contrasts one brand of a
product with another. This is one form of demonstration advertising. The
sponsor's product is shown as superior to other brands. An advertisement of Rin
soap in comparison with available detergent (like Nirma) is an example. The
famous campaign of Captain Cook salt in comparison to Tata salt is also another

6. Testimonial Evidence and Endorsements show a person, usually a prominent

film or sport personaldy making a statement establishing that he or she owns,
uses or supports the brand advertised. The idea is that people who identify with
the celebrity will want to be like that person and use the same product.
Alternatively, the advertiser hopes that the audience will see the endorser as an
honest person or role model who will not lend his name to a product unless the
product in itself is good. Amitabh Bachan for Parker Pen, Pepsi, Saharukh Khan
for Santro, Top Ramen smoodles, Pepsi and Sachin Tendulkar for TVS Victor,
Pepsi, MRF tires and many endorse the products. A variation to the testimonial
appeal is the use of the spokesperson. The spokesperson represents the
company and addresses the audience directly urging them to buy the company's
products. We have seen this kind of advertisements in Eureka Forbes Campaign
where Nitish Bhardwaj speaks on behalf of the company to buy its products by
enacting the role of a salesperson.
7., Life style is the most commonly used platform for advertising many dqrable and
fashion products. It combines scenes and sequences intended to reflect a
particular target market's life style. Soft drink and fast food advertisements as
well as those for many consumer goods frequently show product users m
different aspirational llfe style patterns.
8. Still Life creative platform shows the product in a visually attractive setting. The
product or package is the focal point of the advertisement. Reminder and
repetitive advertisements often use a still life creative platform because the
most important objective of the message is to reinforce the brand name. Tata
Tetley uses this platform to reflect the special class of its product.
9. The Association creative platform concentrates on an analogy or other
relationship to convey its message. This often borrows interest from another,
 more exciting product or situation. Thrilling activities and scenes of marvel are Advertising and
used as an association with the product. The advertisements of Bajaj scooters
and ThumsUp campaign show such kind of associations. Fantasy is a special
associative creative approach. The advertisements of MRF tires with the
unidentified flying objects for its Zigma Radial tires are examples of use of
fantasy. The fantasy appeal seeks to associate products not merely with a
glamorous setting but with target market's wildest dreams and hopes. This
allows the audience to fantasize about themselves in the position of the famous,
rich and adventurous as shown in the advertisements
10. A song or other short verse used in an advertisement as a memory aid is called
a jingle. The famous jingle of Remo Fernandez as " Yehi hai right choice baby"
or "Only Vimal" are examples of musical jingles used in advertising. Commercial
jingles have a higher memory value as people use to hum it very often.
11. Montage blends a number of situations, demonstrations and other visual effects
in to one commercial. The effect may be one of a swirl of colors or an exiting
array of possibilities associated with the product usage. Travel advertisements of
Goa Tourism Development Corporation can be taken as an example of a
montage. Pepsi's generation next campaign also uses montage as a creative

12. H~~nzoris also used as an effective creative platform. We have seen campaign
of Dabur hajmola candy, Titan watches and BPL mobile on creative platform
with humor as a potent storyline. Humor in India is not much used as its
acceptance in social setting is not healthy in India.
13. Fear is a critical platform, as managers have to be careful in using fear as a
creative platform. Research suggest that smaller amount of fear in the storyline
does not bring the desired change in the attitude of the people where as excess
use of fear creates a self-defensive mechanism among people and hence
reduces its effectiveness on people. Therefore, a moderate amount of fear is
useful. This is called the "Cap Theory of Fear Research" Life Insurance
Corporation, Insurance companies in general, Anti AIDS campaign use fear as a
creative platform.
14. Scx is also used in advertising as a creative platform. Creative directors were
using sex for advertising products related to sexual power enhancing pills and
other consumer shy products like condoms, pills and inner garments. Of late the
use of sex platform is gaining popularity due to changes in the social setting in
b our country and hence we see the advertisements of Tuff shoe, MR Coffee, Lee
Cooper shoe using sex platform. As every society has its own permissibility limit
a manager should be careful while using sex as a platform for advertising.
Other creative platforms include computer graphics and animation, pure product
information and emotional platform. Since we have discussed fear, sex, association
which are constituent of the emotion domain as creative platform , we conclude the
description of the creative platform here.

18.4.4 Media Decision

Media decision involves selection of the communication channel for the message. The
media selection strategy must take into account the message the advertiser wishes to
transmit, the kind of audience he wants to reach, the desired effect and its nature and
the budget to support the media choice. Media choice decision involves two issues
viz. which rnediu or set of media will effectively take the message to the
audience and what scheduling of media will neither create a hate for the
adverti'senze~ztnnd nor will make the acidience to forget the message.
Promotion Decisions and The term medium applied to advertising refers to a channel of communication or a
Emerging Issues 'vehicle' for carrying the advertiser's message to his target audience. The most
brilliant and original advertising ideas will be wasted if they are not presented in the ,.
right place, at the right time to the right people at the lowest possible cost. It is
interesting to note that the largest part of advertising expenditure goes towards the
purchase of advertising media, space and time. The success of an advertisement
depends as much on the medium as on the message.

1) Types of Media
Advertising media can be categorized into five broad types: i) Print media,
ii) Broadcast media, iii) Direct media, iv) Outdoor media, and v) Interactive media.
However, within each of these four categories there will be several classes. For
example, print media includes both newspapers and magazines. Under newspapers
we might have such classifications as daily newspapers, weekly newspapers, morning
newspapers, evening newspapers, and so on. In the case of broadcast media the
choice of units is limited to channels or stations. Let us ekamine various types of
media in detail.
i) Print Media: Print medium comprises newspapers and magazines. The main
difference between newspapers and magazines is the periodicity of their publication.
Netvspapers are published daily, whereas magazines are published periodically i.e.,
weekly, fortnightly, monthly, quarterly or biannually. In both cases, however, the
message is conveyed through words in print, sometimes along with pictures or
photographs. Words in print can be made as attractive, appealing and informative as
possible, so also the accompanying picture. But newspapers and magazines have
certain distinct features of their own, which are outlined below.
Newspapers: Published in different languages, newspapers are widely and
regularly read by the educated public. Reading newspaper is the daily habit of
many people in cities and towns and some literate people in the villages. Many
have also become accustomed to advertisements in newspapers and look for
them as sources of information. The circulation of some of the national dailies in
India runs into several million. Newspapers published in regional languages have
also wide circulation, sometimes in more than one state. Thus, as a medium of
advertising, newspapers reach a very large number of people. Secondly, 1
newspaper advertising is relatively cheaper than other media like radio and
television. The space to be used can be decided in accordance with the need
and cost involved. 'Thirdly, newspapers provide the facility of repeating the 4
message every day, if necessary. Besides, in case of urgency there is scope for
inserting an advertisement without much loss of time. Finally, it is possible to
select a particular newspaper suitable for the audience in view. For national
coverage, a newspaper which has nationwide circulation can be selected. For
regional coverage, a newspaper published in that regional language can be
selected. Since newspapers are read by the general public, they may be used as
suitable media for goods of mass consumption. Many people read the
newspapers in the morning and put them aside afterwards. So, the life of the
advertisement in a newspaper is short.
Magazines: Magazines are also called periodicals as they are published at
periodical intervals - weekly, fortnightly, monthly and so on. Different types of
magazines are published for different categories of readers. For example, there
are popular general magazines containing features articles, news and stories e.g.
India Today, Frontline, Dhann Yug, etc.
There are magazines for children (e.g. Target, Chandamama, etc.) which
include stories of their interest. There are magazines like Business India,
Fortune, Commerce, etc., for businessmen arid executives. Similarly, there are
 sports magazines (e.g., Sports Week, Sports Star, etc.) women's magazines (e.g. Advertising and
Femina, Women's Era), professional magazines (e.g. Indian Journal of
Marketing, Indian Medical Journal, etc.), film magazines (e.g. Star & Style,
Filmfare, etc.) and so on.

newspapers. On the other hand each magazine has a distinct category of

readers. Since magazines are generally read over a period of time, they have
longer life than newspapers. Thus, advertisers use magazines as a medium
selectively depending on the audience to be reached. For example, medical
books, drugs, surgical equipment, medical instruments, etc., are generally
advertised in medical journals. Manufacturers of office equipment, computers,
etc., advertise their products in business magazines, trade journals, and so on.
On the whole, the cost of advertising in magazines is relatively cheaper
compared to other media like radio and TV.
However, magazines have certain limitations. One relate-s to the timing of
publication which is periodical. Although the published advertisement has a
longer life, they are published periodically and not daily like newspapers. The
other limitation is the lack of flexibility in the choice of size and design of the
advertisement. The design cannot be changed as quicltly as in the case of a
newspaper. Moreover, the circulation of a magazine does not always indicate
the number of readers or the time devoted by the readers in reading it. A
magazine having limited circulation may be read more thoroughly or it may be
read by many more persons than another magazine with a large circulation.
ii) Broadcast Media: Broadcasting as a medium of advertising has become very
popular and important. Broadcast media includes Radio and Television. Radio is
simply an audio medium while TV is an audio-visual medium.
Radio broadcasting as a medium of advertising has become increasingly popular
in India due to the availability of radio sets at prices which people of low income
can also afford. In India radio sets are owned by a large number of population.
Thus, advertisement appeals can reach the general public in different parts of
the country very conveniently through radio broadcasts. In India advertisements
are broadcast by the All India Radio (Vividh Bharti Programme) in specified
channels. Radio Pakistan and Radio Ceylon also broadcast the advertisements
for Indian population. As a mass medium, radio broadcasting is well suited for
various consumer goods having a mass appeal such as movies, electric fans,
refrigerators, sewing machines, leather goods, travelling bags, etc. The
advantage of radio advertising is that, being an audio medium, it does not require
education to receive the message. The listners need not be literates. Besides, the
mesage which is orally communicated may be more impressive than the
message in print. The limitations of radio advertising are: 1) it is more expensive
than press advertising, 2) the life of the advertisement is very short, and 3) it is
difficult to remember the message in detail.
Television as a medium of mass communication has significantly increased in
India over the last 15 years. But its importance as a medium of advertising has
grown with the use of satellite transmission and establishment of more relay
stations to cover the remote parts.of the country. Individuals who cannot afford
to buy TV sets are able t o watch TV programmes in community centres and
public places. Use of television for advertising is increasing in recent times due
to its extensive coverage and the impact of visual communication on the
viewers. Its combination of sound, vision and movement permits the use of
advertisement to demonstrate the product and its advantages. For this reason
this medium is more effective than the press and radio. The major limitation of
this medium is the heavy cost of advertising, particul~lyfor advertisement
Promotion Decisions and before or after popular programme, known as prime time. Hence, only the large
Emerging Issues enterprises are in a position to make use of this medium. Another limitation is
that the duration of a commercial advertisement is only for a few seconds. Also
viewers often find it difficult to assimilate a large number of advertisements
within a short span of time.
iii) Direct Media: Direct response advertising is a type of interactive promotion that
solicits a direct response from the prospect (target audience) without intervention of a
third party. It is a two way communication between the advertiser and the target
audience. Direct advertising media are the channels through which advertisers
communicate directly with the target audience. Major direct media are direct mail
and advertising specialties.
Direct Mail: Sending personalized letters by post to the prospective customers
is a method of advertising, which often pays. These communications are mostly
in the form of circulars and sometimes accompanied by catalogues or price lists.
The idea behind mailing circulars is to approach the customers directly with the
advertising message and to arouse his interest in the product or service with
detailed explanation in a convincing manner. A mailing list is thus prepared and
the letter is carefully drafted with personalized wordings. The message having a
personal touch is expected to be more effective. The information may be
elaborated and hence likely to be more convincing. Addressed to individuals by
name, the message can draw the attention of the customer without distraction
from competing advertising.
Direct mail is not a suitable medium for advertising products meant for public
use on a mass-scale. It is best suited for products where the people to be
contacted can be easily identified. For example, a company manufacturing or
distributing pharmaceutical products (medicines) may easily identify the doctors
or chemists for direct communication of information relating to the products.
Similarly, a book publishing company may conveniently identify university
teachers and send circular letters to promote the sale of its publications. But, for
promoting the sale of (say) toilet soap or wrist watches, or pen, direct mail is not
a suitable means of advertising. It would be expensive and time consuming to
undertake direct mailing of circular letters to innumerable consumers of such
products who are widely scattered. A booklet, pamphlets, catalogues, etc. sent
by post to prospective customers also come under direct mail.
Advertising Specialties: These are free gifts like diaries, key-rings, purses,
paper weights, pens, calendars, T-shirts, etc., imprinted with a message along
with the advertiser's name and address. Since they bear the name of the
advertiser, they serve as reminders. This medium gives a personal touch. But
this is expensive and difficult to implement on large scale.
There are some other direct media like directory advertising and sponsored
magazines. Directory advertising includes advertising in Yellow Pages in
telephone directory and specific trade or association directories. In the case of
corporation sponsored magazines, the advertiser owns the magazine. For
example, Air India and Indian Airlines both have their own in-flight magazines
for passengers. Similarly, many hotels publish their own magazines for
circulation to a specialized group of readers and hotel guests.
iv) Outdoor Media: Outdoor media of advertising refers tq the media used to reach
people when they are out of doors or traveling rather than at home or in the office.
Pamphlets, posters, hoardings (billboards), neon signs, and electronic displays come
under the category of outdoor media. Pamphlets (printed handbills) are quite often
used as a medium of advertising for sales promotion in a local area Pamphlets are
distributed among passersby at street crossings, railway stations or bus terminals,
roadside market places, etc. Posters (message printed on paper) are generally fixed
on walls, roadside pillars, lampposts. Posters are also fixed inside public transport Advertising a
Public
vehicles like trams, buses and railway coaches. In these cases, space is ~rovidedon
payment. Neon signs and electronic displays are usually installed on rooftops or busy
streets crossings'to draw the attention of people. These are visible only in the night.
Hoardings (billboards) refer to large boards carrying the message, sometimes with life
size pictures, and installed at public places. Hoardings are specially designed to draw
the attention of the public. As the size of the hoardings is normally large,
advertisements are visible from a distance.
Outdoor media like pamphlets, posters, neon signs, electronic displays and hoardings
have different degrees of attention value. Pamphlets have temporary impact on the
people who receive them when they are passing by and often have other matters in
their mind. Posters have the disadvantage that only those who look at them may
notice the.ir existence. Besides, posters in public places are likely to have a short
existence either due to superimposition of other posters or their removal by other
posturing agents.
Neon signs and electrical displays normally attract more public attention but these are
effective only during the night time. Hoardings have the maximum attention value
due to the big size and installation at prominent locations. The cost of hoardings is
quite high due to the heavy initial expenditure required for its preparation and
installation. The rent to be paid for locating it at a public place is also quite high.
Neon sings and electric displays involve fairly high initial costs for preparation and
installation. It also involves considerable ricurring expenditure for use of neon gas or
electrical energy besides rent to be paid for location at public places. Posters fixed
on walls or pillars may be initially less expensive. Posters fixed on the space provided
in public transport (buses and railways coaches) involve payment of periodic charges.
However all outdoor media are largely less expensive than radio and television

Apart from the media discussed above, there are several other types of media used
for outdoor advertising. Some such media are slide projection in cinema houses,
films, exhibitions, display in show-cases, etc. Projection of slides in the cinema
theatre before and during the film show is one of the cheaper means of advertising.
Projection of short-films before the commencement of feature film is a relatively
more expensive medium of advertising. But it has the advantages similar to that of
television advertising. Moreover these short films are usually of longer duration
(about 5 minutes) than TV commercials. However, only local people present in the
theatre view slides or films during the show time.
Exhibitions also provide opportunities for advertising goods. Consumer goods can be
displayed and the use of industrial gqods like machinery can be demonstrated in the
exhibition. The limitation of exhibition is that their duration is restricted to specified
period. Showcases displaying goods are located in public places like railway stations,
airports, bus terminals, etc. to attract the attention of the public. Rent is payable for

v) Interactive Media: Nowadays more and more people are using the computers
and interactive media to gather information and entertain themselves. This invites us
to look at internet as a potential media for communication and product information
dissemination. interactive mediaallows an individual to seek information, ask
questions and get answers without the assistance of human beings.
A company website is one of the most common forms of internet advertising.
Consu~nerscan find answers to frequently asked questions from the website which is
normally done by a salesperson. A company web site is an ideal way to reach
. consumers who want details about specific products, as interactive media can provide
large amount of information. The problems of interactive media can be categ0rized.a~
tion Decisi~nsan* how to build traffic to the site, how to get the traffic stay longer at the site and how to
ng Issurb get the viewers to return to the site again for the content.
One of the ways to build traffic is to advertise on other popular and well-trafficked
websites. Advertising Banners (go to site www.vahoo.com to see an advertising
banner) is another form of Internet advertising. The company purchases the space on
a search engine or on the commercial website of an information provider like
ndtv.com or email facility provider like yahoo or hotmail. A typical objective for a
banner ad is to increase brand name recognition. Banners can go beyond achieving
brand awareness because they are hypertext links to the advertiser's website. The
advantage of such an advertisement is that the audience has self selected the topic,
so the marketer's message reaches the involved, highly targeted market.
Pop-up boxes are a refined version of banner advertising A visitor to a particular
website might find that window providing information for subscription pop ups after
the web page loads. The viewer typically has to close the window or enter a response
to the advertisement.
Streaming Media is multimedia content such as audio, video that can be accessed
on the internet without being downloaded first. Software like Realplayer and Apple's
QucikTime allows the internet users to access multimedia content such as audio and
video streams. When visitors to a site use such software to view a program or an
advertisement, they are said to be viewing streaming media. Streaming ads are more
effective than banners and pop ups. Today three dimensional computer generated
video can create phoio realistic results, which, users can either watch linearly or
interact with it. Interactive animated environment will take internet advertising to a
different sphere in coming future. Streaming media advertisements will become more
prevalent with the availability of higher bandwidth on broadband technology.
Broadband technology allows the transfer of data over internet at high speeds
creating a virtual reality.
Computer software programs like Smart Agents or Intelligent Agents find
~nformationwithout the user's having to do any searching function. They store that
information-sometimes that entire websites, complete with images and links on the
user's computer for later viewing. These kind of smart agents that leans the
consumer's preferences and searches out information is making advertising on the
internet and other interactive media more targeted and effective.
Email as an Advertising Medium: The use of email advertising as a promotional .
medium is gaining prominence after advent of internet technology and ecommerce.
This media has the advantage of personification, speed and interactivity. Advertising
via email is very similar to traditional direct mail advertising. Data mining and data
base management are extremely important as they allow the marketers to create
customer profiles and tailor message and products to them. Use of email makes it
easier for the marketer to measure the effectiveness of the medium. A major
disadvantage of email advertising is that the receiver may not read it because he or
she considers it spam, which is the term, used for unsolicited and unwanted email. If
the company sends too many emails, it may decrease the value of the information and
customer may start avoiding the information. Effective marketers have started
sending emails to people who allow them to do so voluntarily through a process called
as Permissive Marketing.

2) Media Scheduling
The media schedule is a time schedule identifying the exact media to be used and the
dates on which advertisements are to appear. Media planners select not only the
general media category but also the specific media vehicles. Selecting specific media
vehicles requires advertisers to consider reach, frequency and timing of the media.
 Reach is the percentage of people exposed to an advertisement in a specified Advertising and
medium selected for advertising. This is an important factor for determining the media
use. The advertiser aspiring to reach the maximum audience also has to make cost
comparisons. The major element of the media selection is deciding about the cost per
reach per medium. For example in medium A the tariff is Rs 2001 per column
centimeters and in B it is Rs 2501. If the circulation of the medium A is 50,000 and
medium B is 70,000; the readership ratio (readers per one print) is 1 :2.5 and 1:1.5
respectively for both the medium then the advertising manager has to calculate the
cost per reach for an impression of 15 centimeter by Zcolumn advertisement ( 30
Col. Cms.). The cost for both the medium will be Rs 200* 30= Rs 60001 and Rs
250*30=Rs7500 and the reach will be 50,000*2.5=112500and 70,000*1.5= 105000
respectively. Now the cost per reach will be Rs60001 11 2500=5.33 paisa per person
and Rs 75001105000= 7.14 paisa per person respectively. Therefore, the decision is to
go for Medium A than B though B has higher circulation Hence the cost per reach is
a criteria for deciding a particular media.
Frequency is another factor with cost implications, which highlights the nature and
size of repetition. This is the number of times the advertisement should come in a
specified period. It reflects the an average number of times an average individual is
expected to be exposed to an advertiser's message. The trade off for an advertiser is
between the reach and frequency. If one wants to increase the reach, within a given
budget, he has to trade off with the frequency. In repetitive advertisements the
frequency is more whereas the size of the advertisement is normally small.
However, cost is a significant factor but in large number of cases, strategic and
clualitative issues are also given importance. For example, a factor like the quality of
the reach is a deciding factor over the cost factor. The vernacular media is always
chosen ahead of the English language media due to the coverage. An English
newspaper may have a wider circulation but a vernacular media is a better choice
when one has to decide an entry in to the rural market. Factors like editorial climate,
printing quality, reputation of the media, size of the media and coverage of locality are
qualitative factors having significance on media decisions.

Media Timing is another complex issue. The decisions on spacing of the

advertisements on equal proportions through out the year, higher on off season or
peak seasons, concentration in a particular newspaper or areas, use of irregular
intervals and mix of media are to be taken while planning for the media timings. With
a vast geographic, psychographic and demographic variations in a country like India,
decisions on rnedia timing has a higher relevance in'deciding the effectiveness of
I advertising campaigns.
The characteristics of advertising media vary greatly and these variations play an
important role in the marketing manger's choice of media. The advertising objectives
determine which media will have the highest impact. Then the choices regarding the
reach, frequency and impact are taken..

18.4.4 Measurement of Effectiveness Decision

The last decision in the advertising process is about the methods to test the
effectiveness of advertising. This is necessary because there is a huge cost involved
in advertising. If a company launches a campaign and it is not effective then all the
money is wasted. Furthermore, there is also an opportunity cost involved in
advertising. A successful campaign would have generated additional sales, which one
has to lose because of poor campaign, and it provides a scope for the competing
brand to win over the customers in the absence of a good advertising campaign.
Therefore, managers should test the 'effectiveness of the communication message
before launching the campaign. Similarly, it is also important to study the impact of a
Promotion Decisions and campaign on customers so that in the next rerun, remedial measures if any can be L

Emerging Issues taken and changes can be made to the communication message through a modified
campaign. Advertising research can be divided in to two categories (I) the pretesting
methods and (2) post testing methods.
Pretesting Methods: Marketers are hesitant to spend a huge sum on advertising
campaign without testing the effect of the advertisement. Pretesting helps managers
to know the likely response of the designed advertisement on audience. The purpose
of advertising is to limit or at best to eliminate the risk of failure. Pretesting can be
conducted from the beginning of conception of an advertisement until the final
advertisement is ready for release. The basic appeal or the concept around which the
advertisement is built can be tested. Then the key constituent of the body copy
including the headline, slogan, body text can also be tested. These can be shown to
the sample audience and its appeal and believability of the claim can be gauged.
Focus group discussions with audience and experiments can be done for testing the
likely affect of a planned campaig.3. Most commonly used method is a consumer jury
test where a consumer panel is asked about their impression on the campaign.
Similarly, many advertisers test the print advertisement through a portfolio test. In a
portfolio method, the real advertisement to be tested is shown with a series of dummy
and competitor advertisements and the respondents give their liking on these
advertisements. There are various laboratory methods like psycho-galvanometer, eye
camera, pupil meter etc used for this purpose. Rough or near finalized television
commercials are shown in consumer homes through a method called in home
projector test or in specially equipped buses or trailers parked in shopping malls
(called trailer tests). After showing the trailer researchers use a consumer survey or
personal interview to obtain viewer's reaction. Pretesting attempts to evaluate the
effectiveness of an advertisement before that advertisement is placed in the mass
media.
Posttesting Methods: Once an advertisement has been run in the chosen media
schedule, post testing is done to determine whether the advertrsemer~thas met the
objectives set by management. Posttests measure hrand awareness through a
nieasure of TOMA (Top of the mind awareness), changes in attitude towards the
brand or/ and nunzher of inquiries generated aboul the product afzcr the
advertisenien~s.Advertisers must gain attention of buyers and get them to remember
the names of the brands or the stores in which the brand can be found. Many
posttests are designed to evaluate recognition and recall. Well known advertisers also
need to test the capability of a particular campaign in reinforcing the previously
established good images.
Recall test can take different forms. In an unaided test, the interviewer does not give
any clue as to the brand whereas in an aided recall test product category clues are
given to derive the brand name. Aided recall tests are not a strong method of \
measuring attention and memory as unaided recall test. Advertisers are also
interested in related recall-the ability of a person who has seen the advertisement to
repeat or playback, specific sales messages or images. These types of tests allow the
researcher to measure the level of achievement of the advertising goal set forth for
the purpose.
Measuring changes in attitude towards a product is more difficult as it demands the
measurement of attitude before exposure and after exposure. So a two part before
and after study is done in these situations.
Measuring inquiries about the product in a traditional media can be done through a
retailer survey. Advertisers of organizational products frequently compare the
numbers of inquiry generated by different magazine advertisements to measure
70 advertising effectiveness. Many advertisers have a toll free number to call for enquiry
1
i
1
advertising, web traffic analysis software can inform about the site traffic, the pages
viewed, number of FAQs attended and inquiries generated through the email route
to the company. When sales volume is the primary concern, test marketing research
and laboratory experiments are designed to simulate sales behavior though an
increase in sales cannot be solely attributed to advertising alone.

-Check Your Progress C

1) Explain the various copy appeals available to an advertiser.
..............................................................................................
..............................................................................................
..............................................................................................
..............................................................................................
2) What are the various interactive media? What advantage they have over the
traditional media?
..............................................................................................
..............................................................................................
..............................................................................................
..............................................................................................
3) State whether the following statements are True or False.
i) Media selection is the problem of finding the most cost effective media to
deliver the desired number of exposures to the target audience.
ii) Computer software programs like Smart'Agents or Intelligent Agents find
information without the user's having to do any searching function
iii) A banner ad is to increase brand name recognition in web media
iv) Outdoor media of advertising refers to the media used to reach people
when they are out of doors or traveling rather than at home or in the office
V) A song or other short verse used in an advertisement as a memory aid is
called a Montage

18.5 PUBLICITY
We have discussed the elements of promotion mix that includes advertising, sales
promotion, personal selling and now we will discuss the issues related to Publicity
which is gaining prominence in India as well as in global corporate scenario.
Publicity is defined as the non-personal stimulation of demand for a product, service
or business unit by planting commercially significant news about it in apublished
medium or obtaining favorable presentation of it on radio, televisidn or stage that is
not paid for by the sponsor. The salient features of this definition include
I) Non-Personal/Mass Media: Like advertising, publicity also reaches a very
large number of people at the same time (hence non-personal) through mass
media such as newspapers, radio, TV, etc.
2) Comnzer-cially Sign$icant News: This is one of the features that distinguishes
publicity from advertising. When information about a product or company is
considered newsworthy, mass media tend to communicate that information free
of cost. Since most publicity appears in the form of news items or articles
originating from the media, rather than the advertiser, it has higher credibility
Promotior! I>ecisions and 3) No Sponsor: Since the information originates from the media, there is no
Emerging Issues sponsor, that means the messages are unsigned. This is another point of
difference between advertising and publicity
4) Not Paid For: Since sponsor is not identified in publicity and the information is
not disseminated at his behest, he does not pay for it. This is the third feature
that differentiates publicity from advertising.
5) Purpose: 111some situations, where publicity is properly planned, it may lead to
the creation or reinforcement of a favorable impression about the company and
its products in the minds of people receiving the message. This may lead to a
failorable attitude towards the product or company and, thus, leads to increased
demand for the product.
The recent success of Maruti's public offer oversubscription is a case in point where
publicity was extensively used by the firm for creating investors goodwill. Similarly,
Reliance Infocom used publicity as a support for advertising blitz for launching their
Reliance Mobile business.
Negative publicity can damage the company or product's image, resulting in reduced
demand for the product. For instance, a great deal of adverse publicity was generated
when different media condemned the Union Carbide's negligence in Bhopal gas
tragedy through articles and editorials. Similarly Sterilte industries takeover bid of
Balco created negative publicity in Indian corporate world.

18.5.1 Difference between Advertising and Publicity

The main points of difference are indicated in Table 18.1. A careful reading of the
table will help you to distinguish between the two types of promotion.
Publicity is quite similar to advertising except that it involves an unsigned and unpaid
message even though it may use the same mass media as advertising does.

Table 18.1: Difference between Advertising and Publicity

-
I. Payment The sponsoring organization has Since the message is-designed
to pay for media space and/or and printed by media, the
time company does not have to pay

2. Sponsor Has a clearly identified sponsor No sponsor 1s identified. The

which may be either the company message orig~natesfrom the
or brand name media sources
3. Content The company has total control The Company has no control
over content and coverage of the over content and coverage,
message although it may bave initiate
m e d ~ ainterest and supplied the
necessary information
4. Schedule The company can schedule The company cannot schedule
repetit~onof the message as many repet~tionof messages

5. Intent The message is meant to create, Presented as news, is hence less

maintain and enhance a favorable persuasive. May create a
impression about the company favorable or unfavorable
and product impression
6. Credib~lity Low to moderate
 "

Publicity when managed properly can yield better results in building the corporate
image and saving the organization'at the crises. Publicity has advantages and
disadvantages as per the following.
Advantages: Publicity offers several advantages as a promotional tool.
1) It may reach people who do not ordinarily pay any attention to advertising, sales
promotion or sales people.
2) It has greater credibility than advertising because it appears in the context of
editorials or articles.
3) It is relatively inexpensive and provides coverage that would cost lakhs of

4) It can build up interest in a product category. Some companies and trade

associations have used publicity and public relations to rebuild interest in
commodities like "eggs" and "milk".

1) Advertisers have very little control over what media editors do with the publicity
material that advertisers prepare.
2) Media people disregard material that they do not consider newsworthy - subject
matter that is untimely, uninteresting or not accurate.
3) Even if the material is found newsworthy, the advertiser has no control over how
media people edit the content or schedule the appearance etc.

18.5.3 Generating Publicity

Information offered by public relations department often takes the form of news
release and press conference. Publicity can be generated by distributing news
releases, organizing press conferences, appearances and through company websites.
News Releases: Marketers may spend considerable time and efforts in getting
news releases and interviews with company spokesman placed in news papers and
television channels to promote favorable corporate organizational release. News
release is a brief written statement describing a newsworthy aspect of the product.
Well-executed news releases are written in a form that a newspaper, magazine or
news channel editor can easily incorporate in to a news story. Photographs, video
. tapes and films are often distributed to the media to accompany news releases.
Press Conference: It is another form of publicity that can create goodwill and
positive relations between an organization and the public. When an organization plans
a
to make a specific announcement, it may schedule a press conference so that
company officials can make a statement and reporters can ask questions.
Appearances: Talk shows are known for inviting people who promote their
products, corporate credibility -and services. The entertainment business is one of the
most extensive users of publicity. Performers' appearances are well-planned
approach to strategic marketing for the entertainment product. Shows like 'Movers
and Shakers', 'Aap ki Adalat' and 'Kiss main kitna Dum" are examples when
celebrities come and speak about their new films and serials.
Company Website: Many organizations provide considerable amount of accurate
information on company's products, services and operations on their website. Internet
visitors may find the information pertinent about the organization covering the
: organization's mission, vision statements, investor relations, financial statements and

other company news on the web.

 Emerging Issues the ones that appear in Economic Times and other business publications. These 1

generally relate to the company's achievements, expansion and diversification plans. 1

!
1

18.5.4 Public Relation

Publicity and public relations are not the same and there should not be any confusion
in understanding them. Public relations is a broader term that refers to all the means

financers, government, media, local public, environmental pressure groups, consumer

rightist activists and internal public or employees . One of the key jobs for the public
relation manager is to handle a crisis. Crisis management is aimed at disseminating
information during emergency, accidents and chaotic situations within and around
organizations. Company officials should make themselves available for press briefing 7

I People on the line of crisis management should be involved in the press briefings as
they can explain the real situations and measures already taken to arrest the problem.

Check Your Progress D

I. In what ways is advertising (i) similar to and (ii) different from publicity? I

i) Advertising is similar to Publicity

..........................................................................................
..........................................................................................
ii) Advertising is different from Publicity

..........................................................................................
..........................................................................................
2. Given here under are four situations. Which of these can be classified as
advertisements, publicity, or neither?

ii) Sales executive of a leading 5 star hotel visits the General Manager of a w
.......................................................................................... '

..........................................................................................
..........................................................................................
iii) A customer walks into a general merchant's shop and while buying 'Lux'
soap discovers that she can get a stainless steel spoon free if she buys
I 74 'Hamam' soap. Therefore, she bought 'Haman' soap.
 .......................................................................................... Advertising and

..........................................................................................
..........................................................................................
iv) A toothpaste manufacturing company advertisement claims its brand
whitens teeth. Some days later, a report from a Dental Surgeons'
Conference was published in a newspaper stating that there is no ingredient

..........................................................................................
..........................................................................................
..........................................................................................
3. Explain how public relation can help in crisis situations of a firm ?

.................................................................................................
.................................................................................................
4. How can a manger create a positive image by using the publicity? Explain this
.with three recent examples.
.................................................................................................
.................................................................................................
.................................................................................................

18j.6 LET US SUM UP

Advertising is the paid form of non-personal communication from an identified
sponsor using mass media to persuade or influence an audience. Good Advertising
must: a) generate attention b) be believable, c) be easily understood, and d) be
remembered. The three fundamental objectives of advertising are: i) to inform, ii) to
persuade, and iii) to remind the target audience. From these three basic objectives
emerge other generalized objectives, such as: 1) announce a new product, 2) expand
the market to new buyers, 3) announce product modifications, 4) make a special
offer, 5) announce location of stockiest and dealers, 6) educate customers, 7) remind
users, 8) please stockiest, and 9) create brand preference. One of the major
objectives of advertising is to change the attitude of a person in a way that moves him
closer to the product being advertised. It is important for the advertiser to know how
to move people to a higher state of readiness to buy along the Hierarchy of Effects.
Advertising plays a greater role in bringing changes in society and providing new
i product information to the customers. It also enhances productivity due to mass scale
consumption. However, there are many objections to advertising. It is said that
advertising increases prices, insults consumer intelligence, is a source of discontent,
tends to he monopolistic, and multiplies needs and wants of people.
Advertising can be seen as a five party business consisting of 1) advertisers, 2)
advertising agencies, 3) support organizations, 4) media, and 5) consumers. The
advertising management process consists of five major decisions. These are the
decisions about the mission or objective of the campaign, budget decision, message
decision, media decision and method of measurement of advertising effectiveness. A
budget decision involves various methods like percentage of sales method, affordability
'method. competitive parity method, percentage of turnover method, modeling method
and objective and task method. The message decision involves decision regarding the
theme and appeal of advertising, the execution of an advertisement.
 Promotion Decisions and A medium in advertising refers to the channel or vehicle for carrying the advertiser's
Emerging Issues message to his target audience. The media mix consists of 1) print media
(newspapers and magazines), 2) broadcast media (radio and TV), 3) direct media

email, search engines, pops, banners and video streams) .

Publicity is the news carried in mass media about an organization and its products,
policies, personnel or actions; it can originate with the media or the advertiser and is
published or aired at no charge to the organization for media space or time. Publicity
is quite simi,lar to advertising except that it involves an unsigned and unpaid message;
even though it uses the same mass media as advertising. Some of the major tools
used in publicity are news release, feature articles, press conference, appearances,
and audiovisual material.
Public relation has a wider coverage as it covers all the stakeholders with an
objective of creating positive goodwill for the corporation. A proactive public relations
strategy is always preferred to a reactive strategy in situations of crisis within and
around the organization as it can give the hard facts and strategies followed by the
corporation in arresting the crisis.

I (communication goal) and increasing sales (sales goal)

Audience Selectivity: A medium's relative ability to reach an audience whose
members are alike.
Advertising Media: Refers to channels of communication or vehicles for carrying
the advertiser's message to the target audience.
Broadcast Media: Consists of media such as radio and television, where messages
are sent through Carrier Waves.
Copy Writing: This refers to the written part of a print advertisement, including the
headline, slogan and detailed description of product attributes wherever required. In
broadcast media, the equivalent of this is called script writing.
Demonstration: It is a creative platform where a clear-cut example of a product's
superiority or enhanced consumer benefit is presented
Direct Advertising Media: Channels through which advertisers communicate
directly with the target audience.
Frequency: The number of times a member of the target audience is exposed to a
message within a given time period.
Geographic Selectivity: The medium's relative ability to reach people in selected
geographical areas.
Gross Rating Point: It is one exposure to 1 per cent of the target population
Montage: It blends a number of situations, demonstrations and other visual effects in
to one commercial
Publicity: It is defined as the non-personal stimulation of demand for a product,
service or business unit by planting commercially significant news about it in a
published medium or obtaining favorable presentation of it upon radio, television or
stage that is not paid for by the sponsor
 Reach: the number of individuals or households exposed to a given medium Advertising and
(message) at least once during a given time period. Publicity

Streaming Media: It is multimedia content such as audio, video that can be

accessed on the internet without being downloaded first
r
Target audience: All the people for whom the advertising message is meant. It
includes both present and potential customers.

18.8 ANSWERS TO CHECK YOUR PROGRESS

B 4 i) False ii) True iii) True iv) True v) False
C 3 i) True ii) True iii) True iv) True v) False

P D2 i) This isneither advertising nor publicity because the communication is one-

to- one (i.e. personal) and there is no mass media.
ii) Once again this is a one-to-one personal selling situation, hence it is neither
advertisingn~r~publicity.
iii) This is a case of sales promotion. It is neither advertising nor publicity.
iv) Since a non-personal, the media (no payment involved) communicate
unsigned message, voluntarily; it is publicity (negative, because it refutes the
advertiser's claim).

18.9 TERMINAL OUESTIONS

1) What is advertising? How it is different from publicity?
2) 'No single medium is ideal in all respects'. Discuss.
3) What advertising media will you select for each of the following and why?
i. Local temple
ii. Essel World
iii. Reliance Infocom
iv. McDowel No 1 whisky
4) What products are suited for Mass advertising, Direct advertising and
Interactive advertising?
L
5) What is publicity? Explain various tools of publicity.
6) Explain the advantages and limitations of publicity.
 UNIT 19 EMERGING ISSUES IN MARKETING
I Structure
\
19.0 Objectives
19.1 Introduction
1
19.2
19.3
Relationship Marketing
Marketing ofservices
I
19.3.1 Categories of Service Mix
19.3.2 Marketing Strategies for ServiceFims
19.4 Marketing on the Internet
19.4.1 Meaning and Features
19.4.2 Developing an Internet Program
19.4.3 Advantages and Limitations of Internet Marketing
19.5 Green Marketing
19.5.1 Meaning and Importance
19.5.2 Problems Associated with Green Marketing
I 19.6 Social Marketing
1
19.7 Rural Marketing
19.7.1 Importance of Rural Marketing
. 19.7.2 Nature of Transactions in Rural Marketing
19.7.3 Marketing Challengesin Rural Marketing
19.8 Let Us Sum Up
19.9 Key Words
19.10 Answers to Check Your Progress
i
I 19.11 Terminal Questions

19.0 OBJECTIVES
After studying this unit, you should be-able to: 1

explain the meaning, importance, elements and benefits of relationship

marketing;
narrate the importance, various categories of service mix and marketing
strategies for service firms;
explain the concept and various issues related to Internet marketing; 'I

describe the concept, importance and problems of green marketing;

narrate the concept and components of marketing mix for social marketing; and
, explain the importance and challenges of rural marketing in Indian context.

In Unit 1 you have studied that the marketing process consists of four steps: (1)
analyzing the marketing opportunities, (2) selecting target markets, (3) developing the
. marketing mix,'and (4) implementing and controlling. From Units 2 to 18 you have
already studied all aspects relating to these four steps. However, as a marketing .
, ,~r execut~veyou may come across certain terminology and issues which are not Emerging Issues in
discussed in the previous units. For instance, you may come across the concept of Marketing
Relationship Marketing, which speaks about establishing long-term relationships with
the stakeholders. How Internet technology is used for marketing? How different it is
to market products or services in the rural markets? How different it is to market the
ideas or concepts like Eradication of Polio, AIDS Control, Population Control, etc., to
the general publics? Some such issues are addressed in this Unit. In specific, this unit
,r is intended to introduce you to a variety of emerging concepts such as Relationship
, Marketing, Services Marketing, Internet Marketing, Green Marketing, Social
Marketing and Rural Marketing.

I 19.2 RELATIONSHIP MARKETING

Basic purpose of marketing is to create strong and lasting relationships with a core
group of customers by making them feel good about how the company does business
with them and by giving them some kind of personal connection to the business.
Marketers accomplish this by promising and delivering high-quality products and
services at fair prices to the other parties over time.
Relationship marketing builds strong economic, technical and social ties among the
btakeholders. It cuts down on transaction costs and time. In most successful cases,
transactions move from being negotiated each time to being a matter of routine. The
ultimate outcome of relationship marketing is the building of a unique company asset
called a n~arketi~zg rzehvork. A marketing netwmk consists of the company and its
supporting stakeholders (customers, employees, suppliers, distributors, retailers, ad
agencies, and others) with whom it has built mutually profitable business relationships.
Increasingly, the competition is not between companies but between marketing
networks, with the price going to the company that has built the better network. The
cardinal principle is simple: Build an effective network of relationships with key
stakeholders, and profits will follow.
Many firms have established relationship-marketing programs to foster usage loyalty
and 21 commitment to their company's products and services. A review of the
composition of 66 consumer relationship-marketing programs revealed three elements
shared by more than 50 percent of the programs. They are: (I) fostering ongoing
communication with customers (73% of the programs), (2) furnishing loyalty by
building extras like upgrades and other peaks (68% of the programs), and (3)
stimulating a sense of belonging by providing a "club membership" format (50% of
the programs). Like personal relationships between individuals who are willing to do
favor for each other, "relationship" marketers offer loyal customers special services,
discounts, increased communications, and attention beyond the core product or
service, without expecting an immediate payback. However, they hope that, over
time, they will reap the advantages of sustained and increasing transactions with a
core group of loyal customers.
Companies in a wide variety of product and service categories are practicing
relationship marketing, in the recent years. Many companies call their relationship
programs a chtb and some even charge a fee to join. Membership in a club may serve
as a means to convey to customers the notions of permanence and exclusivity
inherent in a "committed relationship". Members of these clubs receive on a regular
basis journals and newsletters, gifts, and variety of other materials. Airlines and major
hotel chains, in particular, use relationship-marketing techniques by awarding points to
frequent customers that can be used to obtain additional goods or services from the
company.
Ultimately, it is to afirm's advantage to develop long-term relationship with existing
Promotion Decisions and customers, because it is easier and less expensive to make an additional sale to an
Emerging Issues existing customer than to make a new sale to a new customer. However, the effort
involved for the firm in developing and maintaining a customer relationship must be
weighed against the expected long-term benefits. Marketers must determine the
"lifetime value" of a customer to ensure that the costs of obtaining, servicing, and
communicating with the customers do not exceed the potential profits. Some of the
possible benefits of a successful relationship marketing program are repeat
purchases, "extra" loyalty of the consumers, goodwill, positive word-of-mouth, lower
promotional costs for the firm, and so on.
Elements of Relationship Marketing: The relationship-marketing program
incorporates the following three key elements:
a) Identifying and building marketing databases of potential and present
customers: In relationship marketing, the customer database is a very
important strategic asset for manufacturers as the brand itself. Advertisers
need to use mass media and more targeted media channels as ways of
prospecting for customers. Once potential customers have been identified,
advertisers must capture their names and information on their lifestyles in a
database for future communications. It is important to keep in mind that not all
consumers are appropriate target for relationship marketing, and not all targets
are customers. Consequently, the initial database must be carefully refined and
segmented. Designed and developed properly, the marketing database will allow
companies to expand their internal capabilities to include relationship marketing.
Marketing research will play a crucial role in developing these databases. Most
of these databases can be build using secondary data.
b) Deliver differentiated messages to targeted households: Advertisers must
develop the ability to communicate with a defined audience of the existing and
potential users of their products. The media choices they make must therefore
offer the ability not only to broadcast the message to the entire circulation or
audience, but also to target precisely defined demographic segments. For
advertisers, more precise targeting means greater impact. Mass circulation
magazines are responding to advertisers' needs with selective binding and
personalized inkjet printing. Broadcast media are also relinquishing their positions
as passive media. Telemarketing innovations will allow broadcast media to
become increasingly interactive. At the same time, addressability will become an
important factor in both cable and broadcast.
C) Track the relationship to make media expenditures more effective and
'
more measurable: Common wisdom has it that half of all advertising amount is
wasted; the difficulty is knowing which half. The media innovations will allow
advertisers to pinpoint what works and what doesn't. Consequently, relationship
marketing's most important effect will be a shift in the way decisions are made
about where to advertise. Traditionally, decisions have been based on various ex
ante measures of exposure, such as cost-per-thousand, audience, or circulation.
In the future, however, decisions will be made on expost factors, such as :
evidence of penetration of the required target audience or even evidence of
sales results. In this new environment, the basis of measurement changes and
emphasis will shift from cost-per-thousand to the value of reaching a target
market. Advertisers must evaluate the cost of gaining and maintaining a
customer'relationship over several years. Once again, marketing research will
play a significant role in this phase of relationship marketing program. Tracking
usually will be done by survey research. The various statistical tools necessary
to process the information in the database may be used.
Role of Sales Force in Relationship Marketing: Companies are asking their
sales force to practice relationship marketing. In relationship marketing a sales
 representative sells a long-term partnership in which both parties collaborate on Emerging Issues in
identifying needs and developing, maintaining, and updating products and services Marketing
customized to fulfill them. The modem sales person is attempting to establish a long-
term, symbiotic relationship with clients, working with them as a solution provider.
One of the most valuable electronic tools for the sales representative is the company
Web site, and one of its most useful applications is as a prospecting tool. Company
Web sites can help define the firm's relationships with individual accounts and identify
those whose business warrants a personal sales call.
Relationship Marketing in Direct Marketing: Given the huge amount of
cornpetition in the given field, some catalogue retailers are trying to engage in
relationship marketing by including in their catalogues editorial content that they think f

will make them "human" to their customers. For example, some cookware catalogue
includes recipes and menus; some clothing catalogues include such infonnation as
i how silk fabric is produced or how cashmere sweaters are made. There is also some
I*
evidence that relationship marketing is helping catalogue retailers overcome the
perception thakatalogue prices are higher than store prices. Relationship marketing
is also being practiced by manufacturers and service providers.
Relationship Marketing in Retailing: Today's best retailers realize it is in their
interest to engage in relationship retailing whereby they seek to establish and maintain
long-term bonds with customers rather than activities where by each sales transaction
is a completely new encounter with them. This means the retailers must concentrate
on the total retail experience, monitor satisfaction with customer service and stay in
touch with customers to be effective. In relationship retailing, a firm has to keep t w o
points in mind. Firstly, because it is harder to lure new customers chan to make
existing ones happy, a win-win approach should be enacted. For the retailer to "win"
in the long run (attract shoppers, make sales, earn profits), the customer must also
"win" in the long run (receive good value, be treated with respect, feel welcome by
the retailer). Otherwise, the retailer loses (shoppers patronize competitors) and
customers lose (by having to spend time and money to learn about other retailers).
Secondly, due to advances in computer technology it is now much easier todevelop a
customer database with infonnation on their attributes and past shopping behaviour.
Thus, ongoing customer contact can be better, more frequent and more focused.
Benefits of Relationship Marketing: When a relationship-marketing program is
properly implemented, the firm will begin to focus as much on managing its customers
: as on managing its products. At the same time, companies should realize that while
there is a strong and warranted move toward relationship marketing, it is not effective
i
in all situations. Barbara Jackson (1985) argues that relationship marketing is not
effective in all situations but is extremely effective in the right situations. She sees
transaction marketing as more appropriate with customers who have a short time
horizon and low switching costs, such as buyers of commodities. Relationship
marketing pays off handsomely with customers who have long time horizons and high
switching costs, such as buyers of office automation systems. The customer for a
major system carefully researches competing suppliers and chooses one from whom
it can expect good long-term service and state-of-the-art technology. Both the
customer and the supplier invest a lot of money and time in the relationship. Anderson
and Narus ( 1991) believe that transaction versus relationship marketing is not so
much an issue of the type of industry as of the particular customer's wishes. Some
customers value a high service bundle and will stay with that supplier for a long time.
Other customers want to cut their costs and will switch suppliers for lower costs. In
this case, the company can still retain the customer by agreeing to reduce the price,
provided the customer is willing to accept fewer services. This customer would be
treated on a transaction basis rather than on a relationship-building basis.
81
I
Promotion Decisions and
Emerging Issues 19.3 MARKETING OF SERVICES
You have already studied about services in Unit 7 in Block 3 of this course. You will
study some more details about services marketing in this section.
Marketing theory and practice developed initially in connection with physical products
such as soaps, cars, and other tangible products. However, in the recent years there
has been a phenomenal growth of services. This trend we find world wide. More
than 50% Gross Domestic Product (GDP) is being generated by services and more
than 70% employment in services. More and more tangible or physical products now
contain a service camponent, both to meet the needs of the targeted customer
segment and to create a distinctive differentiation for competitive reasons. Many
manufactured goods are supported by services such as warranties or guarantees.
There are a large rlumber of companies who are mainly in the service business.
Service industries vary greatly in terms of services they provide and their size. In the
present world of information era, many service industries such as b a n h g and other
financial services are not only the mainstay of economy but also dominating Internet
and e-commerce.

19.3.1 Categories of Service Mix

A company may often include some services. The service component may be major
or minor of the tutal offering. Five categories of offerings can be distinguished.
a) Pure Tangible Good only: The offering is only tangible goods such as
toothpaste, soap, etc., but no services accompanying the product.
b) Tangible Good with Accompanying Service: The offering consists of a
tangible good accompanied by one or more service. Maruti Udyog, for example,
offers repairs, maintenance, warranty fulfillment, frees service up to a period or
kilometers, and other services along with its cars. For more technologically
sophisticated durable products, the sales depend on accompanying services.
Examples include computers, TVs, washing machines and many other durable
goods. Industrial goods particularly Capital goods also require certain types of
services along with the tangible product.
C) Hybrid: The offering consists of equal parts of goods and services. For
example, people go the restaurants both for food and service.
d) Major Service with Accompanying Minor Goods and Services: Here the
offering is predominantly in the form of a service. Here consumer primarily goes
for the quality of service but may give importance to accompanying minor goods
and services. For example, Airlines not only provide the transportation as the
major service, but also provide food, drinks, magazine and other facilities as
accompanying minor goods and services.
e) Pure Services: The offering consists primarily of service and no or very
insignificant accompanyingminor goods or services. For example, insurance,
banking, psychotherapy, baby-sitting, hair cutting, etc.
Because of this varying nature of goods-to-service mix, it is difficult to generalize
services without further distinctions. Services can be classified or distinguished as
follows:
i) Equipment based services (e.g. Automatic car washing, repair etc.) and
People based services (e.g. accounting services, banking, etc).
ii) Services requiring presence of clients (e.g. surgery, hair cutting, etc) and
services not requiring presence of clients (e.g. banking, broking, etc.).
82 iii) Services meeting personal needs ( e.g. telephone, credit cards, etc) and
 services meeting business needs (e.g. technical consultancy, call centre - Emerging Issues in
services, etc). Marketing

iv) Service providers with profit oriented objectives and service providers with
non-profit oriented objectives.
v) Service enterprises under private sector and service enterprises under public
sector.

19.3.2 Marketing Strategies for Service Firms

Service firms started using marketing tools very late. Traditional 4Ps work well for
tangible goods, but additional elements required. These additional Ps are (i) physical
evidence, (ii) processes, and (iii) people. Because most services are provided by
people, the selection, training and motivation of employees can make a huge
difference in customer satisfaction. Companies also try to demonstrate their services
quality through physical evidence. Example hostel, banks with atmospherics can show
quality of service.
Service firms can choose among different processes to deliver their services. For
example, installation of ATM by banks, Teller system, etc. In view of the complexity,
service marketing requires not only external marketing, but also internal and
interactive marketing. External marketing describes the normal work to prepare,
price, distribute and promote the service to customers. Internal marketing describes
the work to train and motivate employees to serve customers well. The interactive
marketing describes the employees' skills in serving the clients /customers.

Check Your Progress - A

I. What do you mean by relationship marketing?
......................................................................................................................
......................................................................................................................
......................................................................................................................
2. What is the difference between marketing and relationship marketing?
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
3. List out various categories of service mix.
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
4. State whether the following statements are true or false:
i) Relationship marketing ignores consumer satisfaction.
ii) Relationship marketing is not relevant in retail marketing.
iii) In relationship marketing, the firm focuses as much on managing its
customers as on managing its products.
iv) Elements of marketing mix for services are different from tangible

v) Services can be stored and consumed later whenever needed.

Promotion Decisions and
Emerging Issues 19.4 MARKETING ON THE INTERNET

19.4.1 Meaning and Features

The hottest medium going right now seems to be the Internet. The economist points
out that no communication medium or electronic technology has ever grown as
quickly, not even fax machines and PCs. Some think everyone has discovered this
new medium and its opportunities are limitless, others are not inclined to agree. We
will discuss this new medium, its advantages and disadvantages.
The lnternet is a worldwide means of exchanging information and
communicating through a series of interconnected computers. Started as a U.S
Defense Department project, the Internet or information superhighway, is now
accessible to anyone with a computer and a modem.
The following are the some of the features of the Internet:

I Electronic mail (e-mail) I Allows users to send electronic mail anywhere in I

the world
Usenet Discussion groups, newsgroups, and electronic

. bulletin boards, similar to those offered by online

services.
Telnet Online databases, library catalogs, and electronic
journals at hundreds of colleges and public
libraries.
File transfer protocol (ftp) or TIe ability to transfer of files from one mainframe
hypertext transfer protocol computer to another.
(http)
Client server Allows for the transfer of files from one
mainframe computer to another.
Gopher A document retrieval system used to search for
information
Wide area information server Enables one to use keywords in specific database t

(WAIS) and retrieve full text information.

- -

World Wide Web / Does much the same thing - as gopher

- - and WAIS, I
(www) but combines sound, graphic images, video and
hypertext on single page.

While the Internet offers a variety of services to users, the most powerful and
popular is the World Wide Web (WWW), commonly referred to as the Web. In fact,
many use the terms Internet and World Wide Web synonymously. For marketers, a
number of Internet features offer potential, but it is the Web that has developed as the
commercial component First, however, it would be useful to examine some of the
Internet terminology.

19.4.2 Developing an Internet Program

Like other media, using the Internet wisely also requires development of a plan. This
plan should consider target audiences (users of the Net) as well as specific objectives
and strategies and a way to measure effectiveness.
 Web Participants: The Web, like other media, has both advertisers and potential Emerging Issues in
Marketing
customers. Unfortunately. the actual degree of use and profiles of these groups is
extremely difficult to determine
Advertisers: Estimates of ad spending on the Web in the first half of 1996
vary, but most qources place this figure in the $66 to $7 1 million range, indicating
triple-digit growth from the same period in 1995. AT&T, Master Card,
American Airlines, MCI, and the Internet Shopping Network were some of the
top advertisers, though many consumer and business-to-business companies
participated. A variety of providers of Internet services have also surfaced.
Traditional ad agencies have developed Internet advertising departments. New
agencies that provide only Internet advertising assistance and website
developers are also appearing in increasing numbers
Users: An even harder profile to develop is that of the users of Internet.
Again, the estimated number of users constitutes a broad range, from as few as
18 million to over 90 million in the U.S and from 50million to 1lomillion
worldwide. Demographic profiles also vary, though most studies agree that the
heaviest users of Net are in their 30s and have above-average education and
income. Males log on more frequently than females, and a disproportionate
number of Web surfers are technology oriented, spending more than average
amounts of time on the computer.
While the exact profiles of advertisers and users of the Web may be difficult to
. obtain, m s t marketers remain optimistic about the potential for communicating with
h n d selling to consumers.
Web Objectives: The Web offers marketers an excellent opportunity to sell their
products directly to the consumers. Thus, one of the primary objectives of
advertising on the Internet is to generate sales directly. Advertisers on the
Internet [nay have additional objectives in mind, including the following:
i The website is an excellent place to provide in-depth information about a
company's products andlor services.
Advertising on the Web can be useful in creating awareness of an organization
in general as well as its specific product and service offerings,
The Web has been used by marketers to gain audience profile information to
determine their preferences, buying habits, and so on.
The website may be designed to project the image an organization or company
wishes to have.
Some websites offer electronic coupons to attempt to stimulate trial of their

The Web has the capabilities to move customers and prospects through
successive stages of the buying process.
Web Strategies: Web advertising may take place through the use of display
I~annersand the establishment of a website that provides mare extensive information

while others serve other communications objectives. Procter and Gamble is

increasing its ad expenditure in this area, and both McDonald's and Disney have
established websites to reach the children's market. Having a website does not, in
itself, guarantee a successful communications programme.
While the website can be valuable in providing information and even in making the
sale, consumers must first be attracted to the site. A number of companies are now
experimenting with a strategy of "web casting"-pushing out site information to Web
users rather than waiting for them to find the site on their own.
Promotion Decisions and Audience Measurement on the Internet: At least part of the problem in defining
Emerging Issues the Internet user is due to the infancy of this medium. In all media, audience
measurement providers have become involved only after the medium has achieved a
significant role in the marketplace. As Internet providers develop their offerings,
audience data will improve. Several sources of audience information are now
available or soon will be. Among them the following are some instances:
Nielsen Media Research and Commerce Net conduct surveys to determine
Web demographics and usage characteristics.
a IntelliQuest condllcts surveys of Web users to provide demographic, lifestyle, .
and usage information.
PC-Meter, a metering service, measures how much time computer users spend
at their machines, what software and online services they access, and how long
they spend online. It also provides demographic data.
Audit Bureau of Circulations, a print agency, is developing a product called
WebFacts to certify Web counts.
Simmons Market Research Bureau provides viewership profiles of the Internet
and other interactive media.
No specific criteria for setting advertising rates or measuring effectiveness of the
Web have been agreed on by all advertisers. Since ad rates are determined in part by
potential exposures, advertisers have demanded information regarding the potential
number of viewers of their banners and websites. However, since there are no
accurate figures on viewers, many companies have reservations at this costing
method. They argue that the number of people who see a banner is irrelevant and
that rates should be based on the number of visitors to a site.

19.4.3 Advantages and Limitations of Internet Marketing

Advantages: A number of advantages of advertising on the web can be cited as
follows:
Target Marketing: A ma-jor advantage of the web is the ability to target very
specific groups of individuals with a minimum of waste coverage.
Message Tailoring: As a result of precise targeting, messages can be designed
to appeal to the specific needs and wants of the target audience.
Interactive Capabilities: The interactive nature of the Web leads to a higher
degree of customer involvement.
Information Access: Once users visit the website, they can gamer a wealth of
information regarding product specifications, purchase information, and more.
Sales Potential: Because this is a direct-response medium, the ability to
generate sales is high.
Creativity: Proper design of a website can lead to repeat visits and generate
interest in the company as well as its products and services. Banners and
websites can be changed frequently to stimulate interest.
Market Potential: As household penetration of PCs increases and awareness
as well as interest in the Net continue to grow, the market potential will continue
to increase.
Limitations: The following are some of the limitations of Internet marketing:
Measurement Problems: Due to the novelty of this medium, sophisticated and
universally adopted measures of audience and effectiveness have not yet been
established.
86
I
Audience Characteristics: It is difficult to measure exact characteristics of Emerging Issues in
i Marketing
I Web users.
Web Snarl: A major complaint associated with the Web is the time required to
access information. As more and more people enter the web, this problem will
get worse. There are already indications of high dropout rates due to the
slowness of the Net.
I Clutter: As the number of ads proliferates, the likelihood of one ad being noticed
drops. E-mail is already experiencing floods of marketing related
communications.
Costs: Many advertisers believe the Web is an effective medium for high-ticket
items but less efficient for lower-priced consunier products like soups and
candies. Relatively high costs of advertising and delivery limit the Web's appeal.

19.5 GREEN MARKETING

One business area where environmental issues have received a great deal of
discussion in the popular and professional press is marketing. Terms like "Green
Marketing" and "Environmental Marketing" appear frequently in the popular press.
Many governments around the world have become so concerned about green
marketing activities that they have attempted to regulate them.

19.5.1 Meaning and Importance

Unfortunately, a majority of people believe that green marketing refers solely to the
promotion or advertising of products with environmental friendly characteristics.
Green marketing incorporates a broad range of activities, including product
modification, changes to the production process, packaging changes, as well as
modifying adveitising. Yet defining green marketing is not a simple task. Indeed the
terminology used in this area has varied, it includes: Green Marketing, Environmental .
Marketing and Ecological Marketing. Green marketing came into prominence in the
late 1980s and early 1990s.
Grcorz Marketing or Environmental Marketing or Ecological Marketing consists
o f a l l activities designed to generate and facilitate any exchanges intended to
satisfi hulltan l t e ~ d sor wunts, such that the satisfaction of these needs and
wt~lztsnc.r.urs. with minimal detrimental impact on the natural environment. This
definition incorporates much of the traditional components of the marketing definition
that is "All activities designed to generate and facilitate any exchanges intended to
satisfy human needs or wants." Therefore it ensures that the interests of the
organization and all i& consumers are protected, as voluntary exchange will not take
place unless both the buyer and seller mutually benefit. The above definition also
includes the protection of the natural environment, by attempting to minimize the
detrimental impact this exchange has on the environment.
Importance of Green Marketing: The question of why the importance of green
marketing has increased is quite simple. Mankind has limited resources on the earth,
with which shelhe must attempt to provide for the worlds' unlimited wants. In market
societies where there is "freedom of choice", it has generally been accepted<hat
individuals and organizations have the right to attempt to have their wants satisfied.
As firms face limited natural resources, they must develop new or alternative ways of
satisfying these unlimited wants. Ultimately green marketing looks at how marketing
activities utilize these limited resources, while satisfying consumers wants (both of
individuals and industry), as well as achieving the selling organization's objectives.
I
-
Promotion Decisions and
Emerging Issues
There are several reasons for increased use of Green Marketing by firms. Following
are the five possible reasons:
1) Opportunities: It appears that all types of consumers, both individual and
industrial are becoming more concerned and aware about the natural
environment. In a 1992 study of 16 countries, more than 50% of consumers in
each country (other than Singapore), indicated they were concerned about the
environment. Given these figures, it can be assumed that firms marketing goods
with environmental characteristics will have a competitive advantage over firms
marketing non-environmentally responsible alternatives. There are numerous
examples of f i m s who have strived to become more environmentally
responsible, In an attempt to better satisfy their consumer needs.
2) Social Responsibility: Many films are beginning to realize that they are
members of the wider cornrnur~ityand therefore must behave in an
environmentally responsible fashion. This translates into f i m s that believe they
must achieve environmental objectives as well as profit related objectives. This
results in environmental issues being integrated into the firm's corporate culture.
Firms in this situation can take two perspectives;
They can use the fact that they are envir~nmentallyresponsible as a
marketing tool.
They can become responsible without promoting this fact.
3) Governmental Pressure: As with all marketing related activities, governments
want to "protect" consumers and society; this protection has significant green
marketing implications. Governmental regulations relating to environmental
marketing are designed to protect consumers in several ways:
Reduce production of harmful goods or by-products;
Modify consumer and industry's use andlor consumption of harmful goods;
Ensure that all types of consumers have the ability to evaluate the
environmental composition of goods.
Governments establish regulations designed to control the amount of hazardous
wastes produced by firms. Many by-products of production are controlled
through the issuing of various environmental licenses, thus modifying
organizational behavior.
4) Competitive Pressure: Another major force in the environmental marketing
area has been firms' desire to maintain their competitive position. In many cases
firms observe competitors promoting their environmental behaviors and attempt
to emulate this behavior. In some instances this competitive pressure has caused
an entire industry to modify and thus reduce its detrimental environmental
behavior. For example, it could be argued that Xerox's "Revive 100%Recycled
paper" was introduced a few years ago in an attempt to address the introduction
of recycled photocopier paper by other manufacturers.
5) Cost or Profit Issues: Firms may also use green marketing in an attempt to
address cost or profit related issues. Disposing of environmentally harmful by-
products, such as polychlorinated biphenyl (PCB) contaminated oil are becoming
increasingly costly and in some cases difficult. Therefore, firms that can reduce
harmful wastes may incur substantial cost savings. When attempting to minimize
waste, firms are often forced to re-examine their production processes. In these
cases they often develop more effective production processes that not'only
reduce waste, but reduce the nee& for some raw materials. This serves as a
double cost savings, since both waste and raw material are reduced.
88
19.5.2 Problems Associated with Green Marketing Emerging Issues in

There may be n number of potential problems that a firm may face in case of
adopting green marketing approach. One of the main problems is that firms using
green marketing must ensure that their activities are not misleading to consumers or
~ndustry,and do not breach any of the regulations or laws dealing with environmental

Another problem firms face is that those who modify their products due to increased
consumer concern must contend with the fact that consumers' perceptions are
sometimes not correct.
When firms attempt to become socially responsible, they may face the risk that the
environmentally responsible action of today will be found to be harmful in the future.
Given the lim~tedscientific knowledge at any point in time, it may be impossible for a
firm to be certain they have made the correct environmental decision.
While governmental regulation is designed to give consumers the opportunity to make
better decisions or to motivate them to be more environmentally responsible, there is
diff~cultyin establishing policies that will address all environmental issues.
The push to reduce costs or increase profits may not force firms to address the
important issue of environmental degradation. End-of-pipe solutions may not actually
reduce the waste but rather shift it around. While this may be beneficial, it does not
necessarily address the larger environmental problem, though it may minimize its short
term affects. Ultimately most waste produced will enter the waste stream, therefore
to be environmentally responsible organizations should attempt to minimize their
waste, rather than find "appropriate" uses for it.

19.6 SOCIAL MARKETING

Soc ial Marketing is "the application of marketing technologies developed in the
commercial sector to the solution of social problems where the bottom line is
behaviour change. " It involves: "the analysis, planning, execution and
evul~lutio~zof programs designed to influence the voluntary behaviour of target
audiencrs to improve their personal welfare and that of society."
This definition highlights the fact that social marketers differ from other marketers in
that they take a prescriptive, focused ethical stance toward what the outcomes of
their efforts should be. Social marketers constrain themselves to trying to influence
behaviours that contribute to individual and collective welfare. Specification of what
constitutes that individual and collective welfare is usually derived from the
profesqional standards and norms of the arena of impact.
The concept of social marketing emerged in the 1970s, when Philip Kotler and Gerald
Zaltman realized that the same marketing principles that were being used to sell
products to consumers could be used to "sell" ideas, attitudes and behaviors. Kotler
and Andreasen defined social marketing as "differing from other areas of marketing
only with respect to the objectives of the marketer and his or her organization. Social
marketing seeks to influence social behaviors not to benefit the marketer, but to
benefit the target audience and the general society." This technique has been used
extensively in international health programs, especially for contraceptives and oral
rehydration therapy (ORT), and is being used with increasing frequency in many
countries of the world including India for such diverse topics as drug abuse, heart
disease, equality of female child, prohibition of liquor, national integration, planned
small families and organ donation. The key to a successful social marketing
campaign is learning.
Promotion Decisions and The following 4Ps of Marketing are equally relevant in Social Marketing also:
Emerging Issties
1) Product: The social marketing "product" is not necessarily a physical offering.
A continuum of products exist, ranging from tangible, physical products, to
services, practices and finally, more intangible ideas. In order to have a viable
product, people must first perceive that they have a genuine problem, and that
the product offering is a good solution for that problem. The role of research
here is to discover the consumers' perceptions of the problem and the product,
and to determine how important they feel it is to take action against the problem.
2) Price: "Price" refers to what the consumers must do in order to obtain the
social marketing product. This cost may be monetary, or it may instead require
the consumer to give up intangibles, such as time or effort, or to risk
embarrassment and disapproval. If the costs outweigh the benefits for an
individual, the perceived value of the offering will be low and it will be unlikely to
be adopted. However, if the benefits are perceived as greater than their costs,
chances of trial and adoption of the product is much greater.
3) Place: "Place" describes the way that the product reaches the consumers. For a
tangible product, this refers to the distribution system-including the warehouse,
transport, sales force, retail outlets where it is sold, or places where it is given
out for free. For an intangible product, place is less clear-cut, but refers to
decisions about the channels through which consumers are reached with
information or training. This may include doctors' clinics, shopping malls, mass
mellia vehicles or in-home demonstrations. Another element of place is deciding
how to ensure accessibility of the offering and quality of the service delivery. By
determining the activities and habits of the target audience, as well as their
experience and satisfaction with the existing delivery system, researchers can
pinpoint the most ideal means of distribution for the offering.
4) Promotion: Finally, the 4th "P" is promotion. Because of its visibility, this
element is often mistakenly thought of as comprising the whole of social
marketing. Promotion consists of the integrated use of advertising, public
relations, promotions, media advocacy, personal selling and entertainment
vehicles. The focus is on creating and sustaining demand for the product.
Research is crucial to determine the most effective and efficient vehicles to
reach the target audience and increase demand. The primary research findings
themselves can also be used to gain publicity for the program at media events
and in news stories.
Additional 3Ps of Social Marketing are the following:
5) Publics: Social marketers often have many different audiences that their
program has to address in order to be successful. "Publics" refers to both the
external and internal groups involved in the program. External publics include the
target audience, secondary audiences, policymakers and gatekeepers, while the
internal publics are those who are involved in some way with either approval or
implementation of the program.
6) Partnership: Social issues are often so complex that one agency can't make a
dent by itself. There is a need to team up with other organizations in the
community to really be effective. You need to figure out which organizations
have similar goals to yours (not necessarily the same goals) and identify ways
you can work together.
7) Policy: Social marketing programs can do well in motivating individual behavior
change, but that is difficult to sustain unless the environment they're in supports
that change for the long run. Often, policy change is needed, and media
advocacy programs can be an effective complement to a social marketing
program.
 Emerging Issm
19.7 RURAL MARKETING Marke

19.7.1 Importance of Rural Marketing

The underlying reasons for undertaking specific efforts to understand marketing
practices and to evolve a suitable framework for developing appropriate marketing
strategy for the rural India have their basis in two major developments. The first is
that on account of rising purchasing power in the rural India, corporate sector is
discovering the huge potential that must be realized by focusing marketing efforts in
the rural segment. The second reason is that rural markets and the rural consumers
are different enough to demand differential marketing effort and it is important for
you to be able to understand these differences as well as the marketing implications
that flow from them. The infrastructure and the marketing institution that characterise
the rural markets are very different from the urban setting which the marketers are
used to. There is therefore an immense opportunity for the marketer to create
innovative and creative solutions to tap the rural potential.
The other reason for studying rural marketing as a specific course emanates from the
knowledge that the rural consumer on account of his socio-economic and lifestyle
profile presents a differential challenge to the marketer. The reference points used by
the rural consumer are different from those used by his urban counterparts. Ability of
rural consumer to discriminate between alternatives may be different and his value
assignment behaviour has been shown to be different. We today do not really have an
adequate body of knowledge to understand all aspects of rural buying behaviour, and
application of appropriately modified research methods has only recently started being
made.
Another development which has focused marketer attention now on to the rural
markets is that slowly but surely the infrastructural scenario in the rural India is
changing. A look at the successive plan outlays will demonstrate the attention that the
policy makers are now directing at Rural Development. The plan outlays have
progressively escalated from Rs. 14,000 crores in the Seventh Plan to a mammoth
90,000 crores in the Tenth Plan. This resource allocation is expected to be invested in
the road network, communication linkages, power, health and educational services,
making incremental changes to the rural lifestyles. Added to all this, has been the
growth in institutional credit for agriculture in rural India, a sector typically dependent
on unorganized credit services. There was a 250% increase in institutional credit for
agriculture between 1995 and 2000, and a total of 24 million kisan credit cards have
been issued since the inception of the scheme in 1998,
Let us look at some interesting facts about the rural India which were presented as
part of the background paper at the FICCI Conference Rural Marketing and
Co~nmunicationon 24th April 2003, by Pradeep Kashyap, President, Marketing and
Research Team, New Delhi. Consider the following:
The number of transient rural supermarkets in India (haats) is around 470,000,
which is more than the total number of retail chain outlets in the US (35,000).
The Life Insurance Corporation of India in the year 2001-02, sold 55% of its
policies in rural India.
The 24 million kisan credit cards issued in the rural sector far outstrip the 17.7
million credit+debit cards issued in the urban sector. The amount of money
sanctioned under the KCC scheme is a phenomenal Rs. 52,000 crores.
The consumption of electricity by the agriculture sector went up from 17.6% of
the total consumption in 1980-8 1 to 29.2% in 1991-2000. During the same period
the industry share has dropped from 58.4% to 34.8%.
Promotion Decisions and These indicators show a definite trend towards growth of markets, and indicate
Emerging Issues towards the potential of rural India.

19.7.2 Nature of 'Ikansactions in Rural Marketing

The rural market may mean many things to many people. For quite sometime, rural
markets were synonymous with agricultural marketing or agriculture input marketing.
If you try to visualize the diversity of transactions that fall under the definition of
marketing or related activities, you would be able to identify a number of classes of
transactions. To name some.
Rural markets involve transactions of agriculture produce and agribusiness
products including dairy products, produced in the rural areas but sold all over,
including rural and urban markets.
e Rural markets involve transactions in non-agricultural products, made in villages
but sold in primarily urban locations. Handspun cloth, handblock printed fabric,
handicraft items, paintings and other local or heritage craft are included in this
class of transactions.
e Rural markets involve goods and services produced and created in the villages
and sold and consumed largely within the village as part of the sustained self
sufficient rural economy. These include products like earthenware pots and
pans, local carpentary and tailoring; services like hairdressing and transportation
as well as local products produced and consumed locally.
Rural markets also involve sale and consumption of goods made by organized
industry, in both urban and rural sectors.

19.7.3 Marketing Challenges in Rural Marketing

That rural markets for a large number of FMCGs and some consumer durables,
represent the new land of opportunity cannot be denied. Yet our lack of complete
understanding of the challenges presented by the rural market has acted as a barrier
inhibiting quite few companies from venturing into these terrains. Yet, the companies
that have taken time and effort to understand the needs and aspirations of the rural
markets have met with great success and some corporate giants like HLL and
Colgate Palmolive show a large share of their market (52 and 47.%respectively) is
now contributed by rural India.
Arvind Mills, finding that even the cheapest ready to wear jeans were outside the
paying capacity of most rural youth, introduced their ready to stitch Ruf and Tuf jeans
kit at Rs.195 against the ready to wear range of Rs. 250 to 300 at the lowest level.
Like all efforts at market building, Arvind Mills had to take specific initiatives and
make investment to create primary demand. Local retailers in locations with 5000+
population were stocked with the product, training was provided to village tailors and
special accessories enabling them to stitch heavy duty denim were also supplied.
Demand crossed a million kits in the first two months and a sales figure of five million
kits was crossed in eighteen months. The issue here is one of patience, of identifying
roadblocks and devising selution to overcome them.
Let us here take an overvie& of these challenges confronting a marketer as he
approaches the rural markets.
1) Getting to Know the Rural Consumer: The marketers' (barring a few)
understanding of the rural consumer is, for all intents and purposes, limited. Most
of their experiences have been earned in urban contexts which, as you have
seen are vastly removed from the rural ones. The economy, lifestyle, languages
spoken, awareness levels regarding alternative choices, exposure to media,
reference groups, family decision making, value perception, impact of culture
 and social mores are all very different. To add to the complexity, the urban rural Emerging Issues in
divide is not uniform, the differentials between urban and rural become
pronounced as the remoteness from urban locations rises. Heterogeneity in
dispersion of rural population and lifestyle across the country and between states
add to the marketer's problems of appropriately segmenting the markets on a
realistic assessment of buying motivations and buyer behaviour involved.
2) -
Accessing the Rural Consumers the Distribution Dynamics: Distribution
in rural India is considered a tough challenge to overcome, on account of 700
million + people spread in 600,000 + villages and that too unevenly. Less than
half the villages are connected through motorable, all weather roads. The rural
retai I institutions are fairly widespread, though the product choices made
available are few. Most marketers have reckoned, that for the FMCG sector
direct supply to feeder towns (population 20,000+) would be quite adequate, as
each of the distributors in turn, could service a supply network of more than a
hundred outlets in about fifty locations which can then cover majority of villages
with 2,000+ population. You must appreciate that while these villages
(2,00O+population)number only 85,000, they account for upto forty percent of
population and account for above sixty percent of the total rural consumption.
The problem of access is for reaching the balance 60% of the population
adequately. Marketers also contend that the rural consumption is at a certain
level today partly because access to desired products and services is low.
Utilizing the traditional outlets of haats and melas effectively, finding customized
local solutions, employing mobile vans for transportation cum sales purposes, are
some answers that marketers have chosen to employ.
3) Product and Pricing Choices: The rural consumer is an astute consumer and
a discerning buyer, partly because of the various demands on a limited
discretionary income. Marketers therefore need to understand that their product
mixes for the rural marketers would need to be judiciously planned in views of
the rural reality.
Smaller packs and stocking units have been imaginatively used by some
markets. Packaging has to be responsive to the rural preference for colour and
size while branding needs to be strongly associative. The plight of the marketer
is compounded by the blitz of spurious brands that flood the rural market in the
FMCG sector, taking advantage of the lack of exposure of rural consumers.
Product and brand recognition therefore, become a critical challenge. Marketers
also recognize that a majority of branded products are facing an introduction and
early growth stage of PLC in the rural market so their product strategies in
comparison to the urban efforts would need to vary..
Pricing in the rural market has now successfully overcome the myth that only
cheaper, stripped down variants will sell well in these markets. Rural consumers
certainly, like their urban counterparts, want value for money but may not have
buying capacity to buy larger units at a given purchase occasion. Adaptation of
pricing strategy, promotional pricing and price bundling are some of the ways
marketers have applied to their advantage.
4) Promotion in Rural India: Electronic media covers only 29% households in
this segment, making the most used media vehicles (print and audiovisual) have
a limited application as promotional media. The villagers' sources of information
about products and brands are limited, key influences are exerted by word of
mouth, opinion leaders and existing users. The limited information sources inhibit
the nlral confidence in buying new products and marketers have a key challenge
in building up trust and reassurance. In order to communicate effectively in rural
markets, marketers would need to have a clear understanding of rural
aspirations, fears, perceptions and role models. Traditional institution of haats
Promotion Decisions and and melas have not been adequately utilized by markets but their potential as.
Emerging Issues platforms for promotions is being fast realized.

Check Your Progress B

1) Differentiate between social.marketing and green marketing.

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2) List out the challenges faced by marketers in rural darketing in India.

3) State the 7 Ps of social marketing.

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4) What is Internet marketing?
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19.8 LETUSSUMUP
This Unit discussed a wide range of emerging concepts like Relationship Marketing,
Internet Marketing, Social Marketing, Green Marketing, Rural Marketing, etc.
Relationship marketing builds strong economic, technical and social ties among the
stakeholders. It cuts down on transaction costs and time. In most successful cases,
transactions move from being negotiated each time to being a matter of routine. The
ultimate outcome of relationship marketing is the building of a unique company asset
called a marketing network, which consists of the company and its supporting
stakeholders (customers, employees, suppliers, distributors, retailers, ad agencies, and
others) with whom it has built mutually profitable business relationships. ~ncreasingi~,
the competition is not between companies but between marketing networks. The
cardinal principle is simple: Build an effective network of relationships with key
stakeholders, and profits will follow.
Marketing theory and practice was developed initially for marketing physical products
such as soaps, cars, and other tangible products. However, in the recent years there
has been a phenomenal growth of services. This trend we find world wide. More
than 50% Gross Domestic Product (GDP).is being generated
- -- by services and more
than 70% employment in services. More and more tangible or physical products now
contain a service component, both to meet the needs of the targeted customer
segment and to create a distinctive differentiation for competitive reasons. Many
manufactured goods are supported by services such as warranties or guarantees.
There are a large number of companies who are'mainly in the service business.
Besides the traditional 4Ps (Product, Price, Promotion and Physical distribution),
 additional 3Ps are relevant in marketing of services. These additional 3 Ps are: Emerging Issues in
(i) Physical evidence, (ii) Processes and (iii) People. Marketing

The Internet is a worldwide means of exchanging information and communicating

through a series of interconnected computers. Started as a U.S Defense Department
project, the Internet, or information superhighway is now accessible to anyone with a
computer and a modem. While the Internet offers a variety of services to users, the
most powerful and popular is the World Wide Web (WWW), commonly referred to as
. the Web. In fact, many use the terms Internet and World Wide Web synonymously.
For marketers, a number of Internet features offer potential, but it is the Web that has
developed as the commercial component.
Green Marketing or Environmental Marketing or Ecological Marketing consists of all
. activities designed to generate and facilitate any exchanges intended to satisfy human
needs or wants, such that the satisfaction of these needs and wants occurs, with
minimal detrimental impact on the natural environment. As firms face limited natural
resources, they must develop new or alternative ways of satisfying these unlimited
wants. That is where green marketing looks at how marketing activities utilize these
limited resources, while satisfying consumers wants. There are several reasons for
the popularity of green marketing such as better market opportunities, social
res~onsibility,government pressure, competitive pressure, cost or profit issues, etc.
Social mal-ketingis the application of marketing technologies developed in the
co~nrnercialsector to the solution of social problems where the bottom line is
behaviour change. It involves the analysis, planning, execution and evaluation of
programmes designed to influence the voluntary behaviour of target audiences to
improve their personal welfare and that of society. Along with the traditional 4 Ps of
marketing (i.e., Product, Price, Promotion and Physical distribution), marketing mix
for social marketkg comprises of additional 3 Ps viz., Publics, Partnership and Policy.
I n India, 70% of population live in rural areas. There is a huge rural market in India,
which is distinctively different from urban markets. For marketing of goods and
services to rural markets, differential marketing efforts are required. Most of the
FMCGs and large number of consumer durable companies realised the potential
demand in nlral markets, and designing specific marketing efforts to tap the rural

19.9 KEY WORDS

Green Marketing: This is also referred to as Environmental Marketing or
Ecological Marketing. Green Marketing consists of all activities designed to generate
and facilitate any exchange intended to satisfy human needs or wants, such that the
satisfaction of those needs and wants occur with minimal detrimental impact on the
nahlral environment.
Relationalship Marketing: The process of creating, maintaining and enhancing
strong value laden relationships with customers and other stakeholders.
Services: Intangible and separately identifiable activities which provide satisfaction,
and which are not necessarily tied to the sale of a product or another service.
Social Marketing: Designing, implementing and controlling of programmes seeking
to increase the acceptability of a social idea, cause or practice among a target group.

19.10 ANSWERS TO CHECK YOUR PROGRESS

A 4 (i) False (ii) False (iii) True (iv) True (v) False