18MBA102 - MARKETING MANAGEMENT (Module -III)

By-Prof. S. K. Prusty Department of Marketing Management, BIITM, BBSR

PRODUCT

Product is considered to be one of the most critical elements of the marketing mix. Pricing,
Distribution, and Promotion strategies depend mainly upon what the product is, its attributes
are, and its function. There are many misconceptions about what a product is. Therefore,
attention must be directed to defining a product and the product mix.

Without a proper appreciation of what these terms mean from a marketing perspective,
understanding the strategies needed to introduce and maintain a product in the marketplace
successfully is almost impossible. Also, products fall into different categories, each of which
demands different attention from the marketer. Therefore, having knowledge of product
categories is essential for the pursuance of an appropriate marketing strategy.

In general, defining a product does not appear to be especially difficult. After all, calculator,
television, automobile, trouser, canned fruit, vegetable are all products in a traditional sense.

For example, automobiles are blends of metal, glass, plastic, rubber, and other materials
formed into products for carrying people where they want to go. Trousers are collections of
fabric, thread, buttons, and zippers combined into products used to protect people from the
elements of nature.

In the past, products were defined in terms of their components or attributes, or the functions
they performed, and as a result, they were viewed strictly in their tangible sense.
Contemporary marketing executives no longer accept this traditional definition. They define a
product as a combination of tangible and intangible attributes providing need-satisfaction to
consumers.

“A product can be defined as anything that can be offered to the market for attention,
acquisition, use, or consumption that might satisfy a consumer want or need.”

As a marketer we should realize, that consumers do not buy automobiles solely for
transportation, but also for the ‘new car smell’, and the status of owning a new model.
Similarly, a piece of trouser is chosen not just for protection or to conform to social customs
against nudity, but also for its fashion value.
Thus, a product is much more than just a collection of its functional attributes. In reality, the
functional aspects may be of only minor importance. Intangible attributes of the product can
frequently be more critical in the mind of consumers.

Marketers should actively consider the social-symbolic meanings that potential customers
may attach to a product. This is particularly important for products that are consumed or used
in public or social settings.

As a result, intangibles such as brand name and style affect the consumer’s status and
possibly even membership in a particular social class. We should know that the modern view
of a product is very broad.

It reflects a realization that consumers do not buy products; they buy satisfaction.
Contemporary marketing executives now recognize that a product does not have to be a
physical entity. They consider services as products in every sense of the definition. Products
encompass a wide range of goods, services, ideas, and personalities. Getting the product right
is the single most important activity of marketing. The basic product concepts and definitions
will be discussed first in this unit.

The product planner must consider what other products his company offers to the market. An
examination of the concepts of product mix and product line thus will help us understand
product planning.

LEVELS OF PRODUCT

A particular product has 5 levels (Core Benefit, Generic Product, Expected Level,
Augmented Product, and Potential Product). When a buyer buys a product, he buys a
package, not only the tangible product. Example, a purchase itself, is an image, and a
combination of number of interrelated satisfactions. Marketers should, therefore, need to
think about different levels of a product in planning their marketing programs. Different
levels add different value to the customers.

The five product levels are;

1. Core Benefit.
2. Generic Product or Basic Product.
3. Expected Level.
4. Augmented Product.
5. Potential Product.
1. Core Benefit

The first and the basic level is the core product/benefit the customers look at. It is the basic
good or service purchased, aside from its packaging or accompanying services. We buy a
product first because of its core or fundamental benefit – the problem it solves or the need it
satisfies.

Ex: From a bar soap, the core benefit we look at is: it cleans our skin. While the purchaser of
a cosmetic item buys beauty, the purchaser of a lottery ticket buys hope, and so on. A core
product’s benefits range from tangible to intangible.

2. Generic Product or Basic Product

The benefits that customers look at must be turned into a basic product by the marketer. Ex:
A calculator, includes plastic, metal, electronic circuits, and a liquid display crystal.

The most fundamental level is the basic product, which seeks an answer to the question:
What is the buyer really buying? The basic product forms the nucleus of the total product. It
constitutes the problem-solving features or basic benefits that consumers seek when they
acquire a product.

A person buying a car acquires mobility, which enables him to move from one place to
another. Theodore Levitt has pointed out that buyers “do not buy quarter-inch drills; they buy
quarter-inch holes.”

3. Expected Product

It includes a set of attributes and conditions that the buyer expects which marketer should
provide for purchase to take place. In the case of a calculator, the buyers expect it to be
handy, easy to operate, and so on.

4. Augmented Product
The augmented product is what the customer is really buying. It is a product, service, or an
idea enhanced by its accompanying benefits. It is a combination of what the seller intends,
and the buyer perceives. It gives customers more than they expect. People do not buy
products; they buy the expectations of benefits. The marketing view demands the active
recognition of this and acts accordingly. Modern-day marketers compete with each other
through the augmented product. A marketer deciding to augment his product should be well
aware of the total consumption system (identifying the tasks customers perform through the
use of the product) of buyers. Augmentation requires use of substantial expenses; the
marketer should take note, whether customers will be willing to take this load.

After getting the augmented benefits for sometimes, customers think those as rights, i.e., they
consider those benefits as expected, not augmented. The company should, therefore, look for
additional benefits to offer. Also note that soon after offering augmented products at a
premium price, some competitors may start offering the basic or expected product at a much
lower price. This will obviously pull a significant number of customers, thus causing the firm
a fall in sales. The company should therefore remain ever alert so that augmentation yields
the desired result.

5. Potential Product

It encompasses all the augmentations and transformations that the product might ultimately
undergo in the future.

Augmentation, you know, is concerned with what the product includes in the present term,
where the potential product is concerned with what may be added to the product in the future
to make it more desirable. The potential product is aimed at not only satisfying the customers
but present the product that delights and surprises the customers.
Classification/Types of Products (Consumer Products and Industrial
Products)

Marketers consider goods primarily in terms of whom they are being targeted. They classify
goods based on whether they are consumer goods or industrial goods.

Generally, products are classified into two types;

1. Consumer Products (convenience products, shopping products, specialty products,

unsought products).
2. Industrial Products (capital goods, raw materials, component parts, major equipment,
accessory equipment, operating supplies, and services).

Consumer products are those which are bought by consumers for ultimate consumption and
not for resale. These goods can be further classified based on how consumers buy them.
Consumer products include (1) convenience products, (2) shopping products, (3) specialty
products, and (4) unsought products.

Industrial products are those intended for use in making other products or operating a
business or institution. Thus, industrial products are differentiated from consumer products
based on their ultimate use. The types of Industrial goods are raw materials, component parts,
major equipment, accessory equipment, operating supplies, and services.

Let’s understand the two main types of product and their subcategories.

1. CONSUMER PRODUCTS

Consumer products are those designed to satisfy the needs and want of the ultimate
consumer.
But, this is not an adequate definition for marketing purposes. The consumer goods category
is far too broad and diverse to be meaningful when developing product strategies.

Consumer goods include everything from fresh corn to advanced electronic games and home
video recorders, from sweaters and jeans to books and pens.

As a result of this variation, marketing executives must further classify these goods, focusing
on the buying processes consumers use.

The four subgroups of consumer products are;

1. Convenience Products.
2. Shopping Products.
3. Specialty Products.
4. Unsought Products.

The marketing approaches and methods of these products vary because the way the
consumers buy those differ. Marketing consideration for various consumer products are
shown below:
 Type of Consumer Product
Marketing
Consider-
ations
Convenience Shopping Specialty Unsought

Little
Less frequent Strong brand
Frequent purchase, product
purchase, much preference and
little planning, little awareness,
Customer planning, and loyalty, special
comparison or knowledge
buying shopping effort, purchase effort,
shopping effort, low (or if a little
behavior comparison of little comparison
customer or even
brands on price, of brands, low
involvement negative
quality, style price sensitivity
interest)

Price Low price Higher price High price Varies

Exclusive
Widespread Selective distribution in
Distribution distribution, distribution in only one or a Varies
convenient locations fewer outlets few outlets per
market area

Aggressive
More carefully
Advertising and advertising
targeted
Mass promotion by personal selling by and personal
Promotion promotion by
the producer both producer and selling by
both producers
resellers producers
and resellers.
resellers

Life
Luxury goods, insurance
Toothpaste, Major appliances,
such as Rolex
Examples magazines, laundry televisions,
watches or fine Red Cross
detergent furniture, clothing
crystal blood
donations
Let us now have a brief idea on each of the different types of product:

1. Convenience Goods

These are products that consumers want to buy with as little difficulty and physical effort as
possible. Consumers know what they want, usually have purchased the product before, and
perhaps above all, do not want to spend considerable time making the purchase.

Goods falling into this group are known as convenience goods – they are the goods that the
customer usually purchases frequently, immediately, and with a minimum of effort in
comparison and buying.

A large number of products, of course, fall into this group. Milk, soap, candies, and various
other low-cost goods for which consumers are not totally brand loyal are examples of
convenience goods.

Marketing executives are especially careful to make sure that this type of product is readily
available. These goods, therefore, receive widespread distribution.

Marketing executives recognize that consumers do not view all of the convenience products
alike.

Ex: bread is a convenience item for some people who do not demand only one brand. If a
store does not carry a particular brand, another will be readily substituted.

Other consumers, however, are very loyal to a specific brand and will go out of their way to
find it. Marketers have identified four subgroups of convenience goods: Staple, Impulse, and
Emergency.

Staple goods

These are the goods that the consumer buys on a regular basis plans for the purchase, and
tends to be somewhat brand loyal. Ballpoint-pens, soft drinks, pickles, tobacco products, etc.,
are usually considered as staple goods. Brand loyalty for these particular products stems from
the desire to simplify the buying process by automatically selecting one brand and
minimizing purchasing time.

Impulse goods

Impulse goods are purchased without conscious forethought – they are the result of a sudden
but strongly felt need. Magazines, street foods, ice cream, are examples of impulse items.
One of the most common misconceptions about impulse goods is that they are bought
irrationally. Though such purchases are not preplanned, they satisfy consumer needs, and
therefore cannot be viewed as wasteful.

Emergency goods

These goods are closely related in some respects to impulse items because they are not
preplanned purchases. Emergency goods differ from impulse goods because they may be
planned for on short notice, but more importantly, are purchased to satisfy an immediate and
pressing situation. Candles, matches, antiseptics are certainly emergency goods.

2. Shopping Products

Shopping goods are those consumer goods which the customer in the process of selection and
purchase characteristically compares on such bases as suitability, quality, price, and style.
Shopping products are infrequently purchased products that customers plan and compare
carefully on brands, price, quality, and style.

Consumers devote much time and effort in obtaining information and making comparisons in
case of buying shopping products.

For example, refrigerators, air coolers, televisions, washing machines, and clothing are
shopping products.

In this category, marketing executives generally distinguish the shopping products into two
types;

1. Homogeneous shopping goods.

2. Heterogeneous shopping goods.

Homogeneous Shopping Goods

Shopping goods that consumers believe to be essentially the same in terms of quality, price,
styling and suitability for their needs are called homogeneous shopping goods.

The buyer considers homogeneous products similar in quality, such as refrigerators, but they
think that prices are different for which they tend to make comparisons.

Heterogeneous Shopping Goods

Heterogeneous shopping goods are products in which consumers perceive some discernible
differences in suitability, quality, price, or styling. Whether real or imagined, the differences
are important enough to cause consumers to evaluate the trade-offs between them.

Reversibly, in heterogeneous products such as clothing, consumers consider product features

are more important than price.

So a trader of heterogeneous shopping products must carry varied assortment to cater to

individual tastes and should employ well-trained salespeople to provide information and
advice to buyers.

3. Specialty Products

Specialty products are characterized by strong brand preferred and loyalty, special purchase
effort, little comparison of brands, and/or price sensitivity. These goods include those
consumer goods with unique characteristics and/or brand identification for which a
significant group of buyers is habitually willing to make a special purchasing effort.
The most important factors distinguishing specialty items from other goods are their high
brand recognition and the degree to which consumers will actively seek them. Consumers
show special preferences and make concerted efforts to find them.

Ex: expensive men’s suits, fancy groceries, health foods, hi-fi components, and photographic
equipment.

The unique feature of specialty products is that the buyer will look for only a specific brand.
The consumer does not care for substitutes but tries to procure the wanted brand, which may
require considerable time and effort.

Most specialty goods are relatively expensive, carry high-profit margins for the seller, and are
available in a limited number of outlets. They are sold in a few outlets because consumers are
unwilling to accept substitutes and will seek out stores carrying the brands of their choice.

4. Unsought Products

Unsought products are those consumer products of who’s existence the consumers are not
aware of. If they know about these products, they may not think of buying. “Unsought goods
are goods that potential customers do not yet want or know they can buy. Therefore, they
don’t search for them at all.

Consumers probably wouldn’t buy these goods even if they come across them – unless
promotion could show their value.

Consumers do not consciously want or actively seek out unsought goods. Consumers have no
intention of buying the product in the first place.

Ex: encyclopedia, life insurance and eye donations to the Eye Banks. As their characteristics
indicate, unsought products need aggressive advertising and personal selling by producers
and resellers.

The challenge involved in selling unsought products has led to developing some of the most
advanced personal selling methods. Costly personal selling is often required since people
often avoid these products.

2. INDUSTRIAL PRODUCTS

Industrial goods are those purchased by organizations for use either in other products or in
their operations. Manufacturers, commercial businesses, non-profit institutions, and
government agencies buy industrial goods. Industrial goods can be classified into raw
materials, component parts, major equipment, accessory equipment, operating supplies, and
services

If a consumer buys an air conditioner for use at home, the air conditioner is a consumer
product. If the same consumer buys the same air conditioner for use in his factory, it is an
industrial product.
Industrial goods can be classified into;

1. Capital goods.
2. Raw materials.
3. Component parts.
4. Major equipment.
5. Accessory equipment.
6. Operating supplies.
7. Services.

A brief discussion of these different types of industrial product can be presented as under;

Capital goods

Capital goods are industrial products that are directly used in production. Capital goods
consist of installations and accessory equipment. Buildings, plants, and machinery are
examples of installations.

Installations are usually bought directly from the producer. Accessory equipment includes
workman’s tools and office equipment like calculators, fax machines, etc.

Accessory equipment is marketed through intermediaries because the buyers of those

products are scattered over a large geographic area, and individual purchase volume is small.

Raw Materials

These are industrial goods that will be used in the making of other products. Included in this
category are natural resources such as forest products, minerals, water, oceanic products, and
agricultural products and livestock. In most instances, raw materials lose their individual
identities when used in the final product.

Materials and parts become a part of the buyer’s product through further processing. They
include raw materials and manufactured materials and parts. Raw materials include farm
products and natural products such as jute, cotton, wheat, fruits, crude petroleum, coal, iron
ore, and natural gas.

Farm products are supplied by many small producers who sell them to intermediaries. These
intermediaries then process and sell them. Natural products are of big bulk and low unit value
and to be transported from producer to user.

Producers of natural products are few in number and large. They market their products
directly to industrial users.

Manufactured materials and parts include component matters such as iron, yarn, cement, and
wires, and component parts such as small motors, tires, and casting. Component materials
usually are processed further.

For example, the pulp is made into paper. Component parts enter into the finished product
wholely. For example, amplifiers are fixed in CD players.

Generally, manufactured materials and parts are sold directly to industrial users. In marketing
manufactured materials and parts, more emphasis is given on price, and service is given more
attention than branding and advertising.

Component Parts

Unlike raw materials, parts usually have been processed before being used in the finished
product. Although they may not be visible, parts are left intact and assembled into the total
product.

Major Equipment

This category comprises industrial products used to make, process, or sell other goods. These
include machinery, typewriters, computers, automobiles, tractors, engines, and so on.

Normally, they are relatively expensive and have a useful life over one year. Major
equipment is not limited solely to the production process. It is found in wholesale (e.g.,
forklifts) and retail (e.g., cash registers) operations.

Accessory Equipment

This equipment includes industrial products used to facilitate the production process or
middleman sales. It does not become part of the finished product but aids in the overall
production or selling effort.

Accessory equipment would include tools, shelving, and many other products that tend to
have a lower cost and shorter life than major equipment.
Operating Supplies

Supplies include operating supplies like office stationery, repair, and maintenance items.
Supplies can be treated as convenience products of the industrial market as they are
purchased with minimal effort.

These are products that are incidental to the production or selling functions. Included in this
category are low cost and quickly (within one year) used up in the company’s operations.
Pencils, papers, lubricating oils, cash register, tape, and maintenance and repair items are
included in this category.

Services

Business services include maintenance and repair services, factory premise cleaning, office
equipment repair, and business consultancy services. These services are generally provided
through contracts by small producers and manufacturers of the original equipment.

Services normally should not be considered as a separate product classification. Depending

on the particular service, they are either consumer or industrial goods. They are activities,
benefits, or satisfactions offered for sale or are provided in connection with the sale of goods.

Industrial services are purchased for use in producing the buyer’s products or, more
frequently, general operations. Like consumer services, industrial services are not as
standardized as goods, nor are they as tangible or as durable.

As the complexities of business increase, so does the need for a specialized service.
Professional services like accounting, advertising, marketing research, legal advice, and
management consulting rely on more and more.

Conclusion: Product Classification Requires Development of Effective Marketing Strategies

Marketers begin with developing product classification schemes to formulate effective

marketing strategies. They classify products and services into two broad categories based on
the types of consumers that use them.

Industrial products are usually more standardized as compared against consumer products
that require frequent changes in fashion and style. Advertising is an important promotional
tool for consumer products, but may not be so in the case of industrial products. Personal
selling and after-sales service are generally more important for industrial products.

Industrial products generally involve high-value purchases, and this involves competitive
bidding based on price competition. Selling is done based on quality or tangible attributes.
However, consumer products are very often sold for psychological satisfaction.
For example, the Fair & Lovely offers you fair skin complexion like a film star. (Presumption
that film stars do have lovely complexions, as they appear to have on the screen.) But they
are facing a backlash as they are marginalizing the people of color, and promoting fairer skin
is better. So consumer products need very microscopic to board analysis before making a
marketing decision.

Consumer products require elaborate channels of distribution, but industrial products are sold
through fewer outlets and often directed by the organization.

These are some of the salient features of the marketing of consumer products against
industrial products. A more detailed treatment will follow in subsequent units on promotion
and physical distribution.

Once understanding the types of products is necessary to understand the definition of the
product. To understand what product the consumer wants and design a product that full fills
that want analyzing the levels of the product are important.

PRODUCT LINE

A product line is a group of products that are closely related because they function in a
similar manner, are sold to the same customer groups, are marketed through the same types
of outlets, or fall within the same price ranges. A group of related products manufactured or
marketed by a single company.

Ex: Nike produces several lines of athletic shoes, Motorola produces several lines of
telecommunications products, and AT&T offers several lines of long-distance telephone
services.

PRODUCT MIX

Product mix, also known as product assortment, refers to the total number of product lines
that a company offers to its customers. The product lines may range from one to many and
the company may have many products under the same product line as well. All of these
product lines when grouped together form the product mix of the company.

The product mix is a subset of the marketing mix and is an important part of the business
model of a company. The product mix has the following dimensions or components:

A product mix (or product assortment) consists of all the product lines and items that a
particular seller offers for sale.

Ex: Coca-Cola has product brands like Minute Maid, Sprite, Fanta, Thums up, etc. under its
name. These constitute the width of the product mix. There are a total of 3500 products
handled by the Coca-Cola brand. These constitute the length. Minute Maid juice has different
variants like apple juice, mixed fruit, etc. They constitute the depth of the product line
‘Minute Maid’. Coca-Cola deals majorly with drinking beverage products and hence has
more product mix consistency.
Ex: Avon’s product mix consists of four major product lines: cosmetics, jewelry, fashions,
and household items. Each product line consists of several sub lines.

A company’s product mix has four important dimensions: Width, Length, Depth, and
Consistency.

Product mix width refers to the number of different product lines the company carries. For
example, HUL markets a fairly wide product mix consisting of many product lines, including
paper, food, household cleaning, medicinal, cosmetics, and personal care products.

Width: Number of Product Lines

The width of the mix refers to the number of product lines the company has to offer.

Hindustan Uni-Lever offers wide width of its home care, personal care and beverage
products. Width of HUL product mix includes Personal wash, Laundry, Skin care, Hair care,
Oral care, Deodorants, Tea, and Coffee.

The width, or breadth, of a company's product mix pertains to the number of product lines the
company sells. For example, if you own EZ Tool Company and have two product lines –
hammers and wrenches – your product mix width is two. Similarly, if a company produces
only soft drinks and juices, this means its mix is two products wide. Coca-Cola deals in
juices, soft drinks, and mineral water hence the product mix of Coca-Cola is three products
wide.

Small and upstart businesses will usually not have a wide product mix. It is more practical to
start with some basic products and build market share. Later on, the company's technology
may allow the company to diversify into other industries and build the width of the product
mix.
Product mix length refers to the total number of items the company carries within its product
lines. Procter & Gamble typically carries many brands within each line. For example, it sells
eleven laundry detergents, eight hand soaps, six shampoos, and four dishwashing detergents.

Length: Total Products

The length of the product mix refers to the total number of products in the mix. That is if a
company has 5 product lines and 10 products each under those product lines, the length of the
mix will be 50 [5 x 10].

As in the given diagram of Hindustan Uni-Lever product mix, there are 23 products, hence,
the length of product mix is 23.

The product mix length is the total number of products or items in your company's product
mix. For example, EZ Tool has two product lines, hammers and wrenches. In the hammer
product line are claw hammers, ball peen hammers, sledge hammers, roofing hammers and
mallet hammers. The wrench line contains Allen wrenches, pipe wrenches, ratchet wrenches,
combination wrenches and adjustable wrenches.

Thus, EZ Tool's product mix length would be 10. Companies that have multiple product lines
will sometimes keep track of their average length per product line. In this case, the average
length of your company's product line is five.

Product line depth refers to the number of versions offered of each product in the line. Thus,
Procter & Gamble’s Crest toothpaste comes in three sizes and two formulations (paste and
gel). Finally, the consistency of the product mix refers to how closely related the various
product lines are in end use, production requirements, distribution channels, or some other
way. Procter & Gamble’s product lines are consistent insofar as they are consumer products
that go through the same distribution channels. The lines are less consistent insofar as they
perform different functions for buyers.

Depth: Product Variations

The depth of the product mix refers to the total number of products within a product line.
There can be variations in the products of the same product line. For example – Colgate has
different variants under the same product line like Colgate advanced, Colgate active salt, etc.

Depth of a product mix pertains to the total number of variations for each product. Variations
can include size, flavor and any other distinguishing characteristic. For example, if your
company sells three sizes and two flavors of toothpaste, that particular line of toothpaste has a
depth of six. Just like length, companies sometimes report the average depth of their product
lines; or the depth of a specific product line.

If the company also has another line of toothpaste, and that line comes in two flavors and two
sizes, its depth is four. Since one line has a depth of six and the second line has a depth of
four, your company's average depth of product lines is five (6+4=10, 10/2=5).
Ex: Close-up, brand of HUL is available in three formations and in three sizes. Hence, the
depth of Close-up brand is 3x3 = 9.

Consistency is Relationship

Product mix consistency refers to how closely products are linked to each other. Lesser the
variation among products more is the consistency. For example, a company dealing in just
dairy products has more consistency than a company dealing in all types of electronics.

Product mix consistency describes how closely related product lines are to one another – in
terms of use, production and distribution or in any other manner. Your company's product
mix may be consistent in distribution but vastly different in use. For example, your company
may sell health bars and a health magazine in retail stores. However, one product is edible
and the other is not.

The production consistency of these products would vary as well, so your product mix is not
consistent. Your toothpaste company's product lines, however, are both toothpaste. They have
the same use and are produced and distributed the same way. So, your toothpaste company's
product lines are consistent.

PRODUCT MIX DECISION

Product mix decision refers to the decisions regarding adding a new or eliminating any
existing product from the product mix, adding a new product line, lengthening any existing
line, or bringing new variants of a brand to expand the business and to increase the
profitability.

Product Line Decision - Product line managers takes product line decisions considering the
sales and profit of each item in the line and comparing their product line with the competitors'
product lines in the same markets. Marketing managers have to decide the optimal length of
the product line by adding new items or dropping existing items from the line.

Line Stretching Decision - Line stretching means lengthening a product line beyond its
current range. An organisation can stretch its product line downward, upward, or both ways.

1. Downward Stretching means adding low-end items in the product line, for example in
Indian car market, watching the success of Maruti-Suzuki in small car segment, Toyota and
Honda also entered the segment.

2. Upward Stretching means adding high-end items in the product line, for example Maruti-
Suzuki initially entered small car segment, but later entered higher end segment.

3. Two-way Stretching means stretching the line in both directions if an organisation is in the
middle range of the market.

Line Filling Decision - It means adding more items within the present range of the product
line. Line filling can be done to reach for incremental profits, or to utilise excess capacity.
NEW-PRODUCT DEVELOPMENT PROCESS (8 Steps)

When a product concept materializes, how does one develop it to eventually bring it to
market? With the right combination of business strategies, creativity, motivation, and
technical skills, business professionals can turn an idea into a product that addresses a market
need and generates revenue. The skills and knowledge developed in an MBA program can
facilitate success during each stage of the process.

Idea Generation

New-product development starts with idea generation – the systematic search for new-
product ideas. A company typically has to generate many ideas in order to find a few good
ones. The search of new-product ideas should be systematic rather than haphazard.
Otherwise, although the company may find many ideas, most will not be good ones for its
type of business. Top management can avoid this error by carefully defining its new-product
development strategy. Major sources of new-product ideas include internal sources,
customers, competitors, distributors and suppliers, and others.

Typically, a company generates hundreds of ideas, maybe even thousands, to find a handful
of good ones in the end. Two sources of new ideas can be identified:

Internal idea sources: A company finds new ideas internally. That means R&D, but also
contributions from employees.

External idea sources: A company finds new ideas externally. This refers to all kinds of
external sources, e.g. distributors and suppliers, but also competitors. The most important
external sources are customers, because the new product development process should focus
on creating customer value.

Idea Screening

The purpose of idea generation is to create a large number of ideas. The purpose of the
succeeding stages in to reduce that number. Idea screening means nothing else than filtering
the ideas to pick out good ones. In other words, all ideas generated are screened to spot good
ones and drop poor ones as soon as possible. The first idea-reducing stage is idea screening,
which helps spot good ideas and drop poor ones as soon as possible. Product-development
costs rise greatly in later stages, so the company wants to go ahead only with the product
ideas that are most likely to turn into profitable products. Dropping the poor ideas as soon as
possible is, consequently, of crucial importance.

Concept Development and Testing

An attractive idea must be developed into a product concept. It is important to distinguish

between a product idea, a product concept, and a product image. A product idea is an idea for
a possible product that the company can see itself offering to the market. A product concept
is a detailed version of the idea stated in meaningful consumer terms. A product image is the
way consumers perceive an actual or potential product.
We should distinguish

A product idea: an idea for a possible product

A product concept: a detailed version of the idea stated in meaningful consumer terms

A product image: the way consumers perceive an actual or potential product.

Concept development

Imagine a car manufacturer that has developed an all-electric car. The idea has passed the
idea screening and must now be developed into a concept. The marketer’s task is to develop
this new product into alternative product concepts. Then, the company can find out how
attractive each concept is to customers and choose the best one. Possible product concepts for
this electric car could be:

Concept 1: an affordably priced mid-size car designed as a second family car to be used
around town for visiting friends and doing shopping.

Concept 2: a mid-priced sporty compact car appealing to young singles and couples.

Concept 3: a high-end midsize utility vehicle appealing to those who like the space SUVs
provide but also want an economical car.

As you can see, these concepts need to be quite precise in order to be meaningful. In the next
sub-stage, each concept is tested.

Concept testing

New product concepts, such as those given above, need to be tested with groups of target
consumers. A more concrete and physical presentation of the concept will increase the
reliability of the concept test. The concepts can be presented to consumers either
symbolically or physically.

The question is always: does the particular concept have strong consumer appeal?

For some concept tests, a word or picture description might be sufficient. However, to
increase the reliability of the test, a more concrete and physical presentation of the product
concept may be needed. After exposing the concept to the group of target consumers, they
will be asked to answer questions in order to find out the consumer appeal and customer
value of each concept.

Some marketers are finding innovative ways to make product concepts more real to consumer
subjects. Example: Using virtual reality to test product concepts. Virtual reality programs use
computers and sensory devices (such as gloves or goggles) to simulate reality. For example, a
designer of kitchen cabinets can use a virtual reality program to help a customer “see” how
his or her kitchen would look and work if remodeled with the company’s products. Although
virtual reality is still in its infancy, its applications are increasing daily.
Marketing Strategy Development

The next step in the new product development process is the marketing strategy development.
When a promising concept has been developed and tested, it is time to design an initial
marketing strategy for the new product based on the product concept for introducing this new
product to the market.

The marketing strategy statement consists of three parts and should be formulated carefully:

i. A description of the target market, the planned value proposition, and the sales,
market share and profit goals for the first few years
ii. An outline of the product’s planned price, distribution and marketing budget for the
first year
iii. The planned long-term sales, profit goals and the marketing mix strategy.

The marketing strategy statement consists of three parts.

The first part describes the target market; the planned product positioning; and the sales,
market share, and profit goals for the first few years.

The second part of the marketing strategy statement outlines the product’s planned price,
distribution, and marketing budget for the first year:

The third part of the marketing strategy statement describes the planned long run sales, profit
goals, and marketing mix strategy:

Business Analysis

Once decided upon a product concept and marketing strategy, management can evaluate the
business attractiveness of the proposed new product. Business analysis involves a review of
the sales, costs, and profit projections for a new product to find out whether they satisfy the
company’s objectives. If they do, the product can move to the product-development stage.

In order to estimate sales, the company could look at the sales history of similar products and
conduct market surveys. Then, it should be able to estimate minimum and maximum sales to
assess the range of risk. When the sales forecast is prepared, the firm can estimate the
expected costs and profits for a product, including marketing, R&D, operations etc. All the
sales and costs figures together can eventually be used to analyse the new product’s financial
attractiveness.

Product Development

The new product development process goes on with the actual product development. Up to
this point, for many new product concepts, there may exist only a word description, a
drawing or perhaps a rough prototype. Nevertheless if the product concept passes the
business test, it moves into product development. Here, R&D or engineering develops the
product concept into a physical product to ensure that the product idea can be turned into a
workable market offering. The product-development step, however, now calls for a
huge/large jump in investment. It will show whether the product idea can be turned into a
workable product.

The R&D department will develop and test one or more physical versions of the product
concept, a prototype that will satisfy and excite consumers and that can be produced quickly
and at budgeted costs. Developing a successful prototype, however, can take days, weeks,
months or even years, depending on the product and prototype methods.

Also, products often undergo tests to make sure they perform safely and effectively. This can
be done by the firm itself or outsourced. In many cases, marketers involve actual customers
in product testing. Consumers can evaluate prototypes and work with pre-release products.
Their experiences may be very useful in the product development stage.

Test Marketing

If the product passes functional and consumer tests, the next step is test marketing, the stage
at which the product and marketing program are introduced into more realistic market
settings. Test marketing gives the marketer experience with marketing the product before
going to the great expense of full introduction. It lets the company test the product and its
entire marketing program – positioning strategy, advertising, distribution, pricing, branding
and packaging, and budget levels.

Test marketing gives the marketer experience with marketing the product before going to the
great expense of full introduction. In fact, it allows the company to test the product and its
entire marketing programme, including targeting and positioning strategy, advertising,
distributions, packaging etc. before the full investment is made.

The amount of test marketing necessary varies with each new product. Especially when
introducing a new product requiring a large investment, when the risks are high, or when the
firm is not sure of the product or its marketing programme, a lot of test marketing may be
carried out.

Test marketing has given management the information needed to make the final decision:
launch or do not launch the new product. The final stage in the new product development
process is commercialisation. Commercialisation means nothing else than introducing a new
product into the market. At this point, the highest costs are incurred: the company may need
to build or rent a manufacturing facility. Large amounts may be spent on advertising, sales
promotion and other marketing efforts in the first year.

Factors that needs to be considered before the product is commercialized:

INTRODUCTION TIMING: For instance, if the economy is down, it might be wise to wait
until the following year to launch the product. However, if competitors are ready to introduce
their own products, the company should push to introduce the new product sooner.

INTRODUCTION PLACE: Where to launch the new product? Should it be launched in a

single location, a region, the national market, or the international market? Normally,
companies don’t have the confidence, capital and capacity to launch new products into full
national or international distribution from the start. Instead, they usually develop a planned
market rollout over time.

In all of these steps of the new product development process, the most important focus is on
creating superior customer value. Only then, the product can become a success in the market.
Only very few products actually get the chance to become a success. The risks and costs are
simply too high to allow every product to pass every stage of the new product development
process.

Standard Test Markets

Using standard test markets, the company finds a small number of representative test cities,
conducts a full marketing campaign in these cities, and uses store audits, consumer and
distributor surveys, and other measures to gauge product performance. The results are used to
forecast national sales and profits, discover potential product problems, and fine-tune the
marketing program.

Controlled Test Markets

Several research firms keep controlled panels of stores that have agreed to carry new products
for a fee.

Controlled test markets usually cost less than standard test markets and take less time (six
months to a year). However, some companies are concerned that the limited number of small
cities and panel consumers used by the research services may not be representative of their
products’ markets or target consumers.

Simulated Test Markets

Companies can also test new products in a simulated shopping environment. The company or
research firm shows ads and promotions for a variety of products, including the new product
being tested, to a sample of consumers. It gives consumers a small amount of money and
invites them to a real or laboratory store where they may keep the money or use it to buy
items. The researchers note how many consumers buy the new product and competing
brands. This simulation provides a measure of trial and the commercial’s effectiveness
against competing commercials.

Commercialization

Test marketing gives management the information needed to make a final decision about
whether to go ahead with full fledged launch the new product. Commercialization is the
process of bringing new products or services to the market. The broader act of
commercialization entails production, distribution, marketing, sales, customer support, and
other key functions critical to achieving the commercial success of the new product or
service.
PRODUCT LIFE CYCLE
The term product life cycle refers to the time period a product is introduced to consumers into
the market until it’s removed from the market. The product life cycle is the process almost
every product goes through from when it is first introduced into the market until it is removed
from the market.
Some of the products may stay in a long maturity state, all products eventually phase out of
the market due to several factors including saturation, increased competition, decreased
demand and dropping sales.
This concept is used by management and by the marketing department of companies as a
factor in deciding when it is an appropriate time to increase advertising, reduce prices,
expand to new markets, or redesign packaging. The life cycle of a product has 4 stages-
introduction, growth, maturity, and decline stage.
4 stages of the product life cycle
The product life cycle includes five (0+4) stages defining the journey of a product in the
market. However there are generally four stages that are accepted in a product life cycle-
0. Development Stage
1. Introduction stage
2. Growth stage
3. Maturity stage
4. Decline stage
Development Stage
The first stage of the product life cycle is the development stage at which the new product is
being developed. Here, the company needs to pay off various costs involved in product
research, manufacturing or acquisition without generating any revenue from it. The features
of this stage are as follows:
 Generation of a workable product idea
 Making investment
 No sales revenue
Introduction stage
After successfully developing the product is being launched into the market and the
prospective customers are acquainted with it. The demand for the product is created at this
stage. When a new product is introduced, it is often a high-stakes time in the product’s life
cycle – although it does not necessarily make or break the product’s ultimate success.
This stage basically includes a substantial investment in advertising and marketing focused
on making consumers aware of the product’s features and its benefits. The market for the
product is not competitive initially and also the company spends initially on the
advertisement and uses various other tools for promotion.
In the introduction stage, the company is first able to get a sense of how consumers respond
to the product, if they like it or not and how successful it may be. It is also a heavy-spending
period for the company with no guarantee that the product will pay for itself through
sales. However, in the introduction stage company want to attract customer’s attention as
much as possible and confirm the product’s initial distribution, the company does not need to
worry about the competition generally as the products are new.
The characteristics of the introduction stage are as follows:
i. Demand has to be created by promotion
ii. Customers have to be promoted to buy the product
iii. Cost of the product is very high
iv. Low sales volumes during this stage
v. No or low-profit stage
vi. May encounter brand issues
vii. Little or no competition
viii. Makes a little revenue

Growth stage
The third stage of the product life cycle is the growth stage where the product sales, demand
and profits accelerate. After successful introduction of the new product a gradual rise in its
sales volume could be seen. At some point in this rise, a significant increase in consumer
demand occurs and sales started to take off.
Other companies become aware of the product and its area in the market, which is beginning
to attract attention and increasingly pull in revenue. If competition for the product becomes
high, the company has to heavily invest in advertising and promotion to beat out competitors.
As a result of the product sales growth, the market itself tends to expand.
As the market expands, more competition often drives prices down to make the specific
products competitive. However, the product is visibly available in the market, and the
product has habitual consumers. More new customers are becoming aware of the product and
trying it. If the customers are becoming satisfied with the product they will buy it again and
again.
The characteristics of the growth stage are as follows:
i. Sales volume starts to increase significantly
ii. High-profit margin
iii. Profitability increases
iv. High marketing and promotional expenses
v. Awareness of the product increases
vi. Manufacturing cost decreases
vii. Constant price
viii. Market segment penetration
ix. Competition begins to increase with new companies in establishing market
x. Increased competition leads to decreases in price

Maturity stage
This is the most profitable stage, as the production volume increasing, the costs of producing
and marketing decline. Also, its sales tend to slow – that indicating a largely saturated
market. At this point, sales can even start to drop. Companies will reduce the marketing and
starts to develop new or altered products to reach different market segments.
Given the highly saturated market, it is typically in the maturity stage of a product that less
successful competitors are pushed out of competition is called the “shake-out point”. Making
the brand or the product differentiation through rebating and giving discount so as to support
the recalling the outlet distribution.
Longer or shorter stretch of the maturity stage depends on the product. For some brands, the
maturity stage is very drawn out, like Coca-Cola.
The characteristics of the maturity stage are as follows:
i. Production costs are decreased as a result of economies of scale and experience curve
effects
ii. Sales volume at the peaks and market saturation is reached
iii. Increase in the number of competitors entering the market
iv. Prices of the product tend to drop due to the proliferation of competing products
v. Feature and benefits diversification is emphasized to maintain or increase market
share
vi. Requires brand differentiation or feature diversification to sustain in the market
vii. Industrial profits start to go down as sales go down
viii. The sales of the product are at its peak and price is competitive at the maturity stage.
 ix. Optimum sales volume
x. Market saturation

Decline stage
This is the last stage of the product where the demand shrinks and its sales start declining.
Although companies try hard to keep the product alive in the maturity stage as long as
possible, the decline stage for every product is unavoidable because of the deletion of the
product from the market. The product at this stage may be kept but there should be a fewer
advertisement.
In this stage of the product life cycle, product sales drop rapidly and consumer behaviour
changes as there is decreasing demand for the product. The product loses more and more
market share, and competition tends to cause sales to decline.
Eventually, the product will be retired out of the market unless it has loyal customers or it is
able to redesign itself to remain in-demand.
The features of the decline stage are mentioned below:
i. Product costs become counter-optimal
ii. The number of sales declines significantly
iii. Low margin, Prices, profitability diminishes
iv. Implementation of new strategies
v. Introduction of a new product
vi. Profit becomes more a challenge of production, distribution efficiency than increased
sales
Advantages of the Product Life Cycle
A product life cycle is extensively used by the organizations to understand and estimate the
performance of a product in the market. The company can benefit in the followings ways
from a product life cycle:
Easy Sales Forecasting: The product life cycle is an estimation of the sales which the
product will be able to make in its life span.
Competitive Advantage: Analyzing the life of a product in the market and framing the
strategies accordingly, helps the company to face competition.
Defined Strategies: If the company is aware of the product’s future performance, the
company can determine and plan the strategies in the long run.
Decision Making: To make crucial decisions related to the product such as product
development or improvement, product life cycle analysis is essential.
Marketing Target and Positioning: Product life cycle provides for targeting the right
audience and establishing the brand image of the product.
Disadvantages of the Product Life Cycle
The product life cycle is a mere forecast and depends upon the prospective sales estimate. It
has various other limitations which are as follows:
Varying Market Conditions: The market conditions vary from place to place, and the same
product life cycle may not be suitable for every market.
Inapplicable to Every Product: Some services like mobile network and computer software,
keep on frequently updating from time to time. However, it does not mean that the brand gets
obsolete.
Fluctuation in Sales Data: Variation in the sales data is essential for the product life cycle.
But it is difficult for the company to predict such information to plot the PLC curve.
Effect of Other Elements: The analysis of the product life cycle is also affected by the
various elements of the 4 Ps of the marketing mix, including the product itself, price, place
and promotion.
Delay in Analytics: The product life cycle requires collection and analysis of the sales data,
which is delayed or unavailable at times.
Product Life Cycle Management
The management has to concentrate on various business areas or fields to make the product a
success. Following are the specialized management fields which need to be taken care of
right from the launch of the product to its decline in the market:
Manufacturing: The cost of production of goods and services matter and vary to a great
extent during a product’s life cycle. This cost is too high at the development stage whereas it
gradually decreases at the growth and maturity stages.
Marketing: The strategy for marketing the product varies at each stage. When the
introduction stage requires excessive marketing and promotion, unlike the growth stage
where the product requires less publicity and is popular among customers, this strategy
changes entirely at the decline stage.
Financing: The initial capital requirement at the introduction stage of a product is quite high.
Whereas, at the growth and maturity stage, the product self finances itself through sales and
profit earned by it.
Development: At the development stage of a product, the management needs to focus on
research and analysis. It invests maximum time, energy and efforts in the development of a
new product.
Information: The collection and analysis of potential data, including market trends, effective
means of promotion, prospective growth, etc. are necessary for the management.

Conclusion
The product life cycle planning and analysis is an integrated function of all the departments
of the organization. Also, it is an ongoing process which never ends.

Product Life Cycle management

Product life cycle management (PLM) refers to the effective handling of the product while it
goes through the Product life cycle. Handling includes production of the goods and making
marketing strategies. Product planning has a huge role in Product life cycle management. The
concept of product life cycle helps inform business decision-making, from pricing and
marketing to expansion or cost-reduction.
Effective product life cycle management brings together the many other companies,
departments, and employees involved with the product’s manufacturing to streamline their
activities, with the ultimate goal of producing a product that beats its competitors, is highly
profitable, and lasts as long as consumer desire and technology permit.
As a technology adoption, PLM software helps businesses to develop new products and bring
them into the market. The software makes it easy to track and share data along the product
value chain, from the product design through manufacturing, supply chain management and
operations, and asset maintenance.

BRAND
Meaning: The brand is any service, product or concept which is publicly different from that
of other services, products and concepts so that it can be communicated as well as marketed
easily. The brand name is the name of that distinctive service, product or concept and
branding is the process of creating and distributing the brand name.

Usually, brands are protected from being used by others through a service mark or a
trademark from an authorized agency which is usually affiliated with the government.
Definition of Brand

Brand is the name, design, type, symbol or any other features which tend to distinguish a
tangible product or intangible product, service or concept from that of its competitors in the
eyes of customers. With time, the image of the product, service or concept is associated with
a certain level of quality, credibility and satisfaction for the customers.

Branding, is a marketing practice in which a company creates a name, symbol or design

that is easily identifiable as belonging to the company. Your brand is built to be a true
representation of who you are as a business, and how you wish to be perceived.

Branding is a process that is used by the businesses to utilize marketing strategies to enhance
their product or service image so that it is more readily recollected by the customer. Branding
helps the product or service to make a favorable impact on the target customer while the
branding concepts help in outlining the guidelines that should be followed during the
branding process.

Branding of any product or service should follow some constants that help in establishing a
brand in the long run.

Branding should be simple

The most popular brands in the world have very simple, easy to remember logos. The reason
behind this concept is, we tend to remember and associate ourselves with simple things and
choose to ignore or forget complex ideas.

Branding should be different

Your brand should have individuality, should be different. The brand should stand out from
other similar product or service; otherwise the whole idea of branding is lost. Only an
individualistic brand makes a mark on the psyche of the target customer and he remembers it
when he makes a buying decision. This is why most of the MNCs take strict action on
trademark violations.

Branding should be safe

Play safe and do your research if you are catering to international audience. If you are using
symbols in your logo make sure they do not offend the target market in any way or you can
chances of shutting your shop before making any sales. Therefore keep the regional and
cultural sensibilities in mind during the branding process.

The three most important branding concepts that are the basis of all branding processes are
brand promise, brand attributes and brand personality.

A brand promise is a promise or commitment the company makes to its customers. The
promise should be clearly stated and tells about the most important benefit of the product or
customer.
Brand attributes are the features that describe the customers experience like quality,
innovation or customer service. The attributes help the company to deliver the brand promise.

Brand personality is the characteristic the customer experiences when they experience the
brand. Thus the essence of the brand is a symbiosis of all three.

Defining your brand is like a journey of business self-discovery. It can be difficult, time-
consuming and uncomfortable. It requires, at the very least, that you answer the questions
below:

 What is your company's mission?

 What are the benefits and features of your products or services?
 What do your customers and prospects already think of your company?
 What qualities do you want them to associate with your company?

Do your research. Learn the needs, habits and desires of your current and prospective
customers. Know what they think.

As defining your brand and developing a brand strategy can be complex, consider leveraging
the expertise of a nonprofit small-business advisory group or a Small Business Development
Center.

Once you've defined your brand, how do you get the word out? Here are a few simple, time-
tested tips:

 Get a great logo. Place it everywhere.

  Write down your brand messaging. What are the key messages you want to
communicate about your brand? Every employee should be aware of your brand
attributes.
 Integrate your brand. Branding extends to every aspect of your business--how you
answer your phones, what you or your salespeople wear on sales calls, your e-mail
signature, everything.
 Create a “voice” for your company that reflects your brand. This voice should be
applied to all written communication and incorporated in the visual imagery of all
materials, online and off. Is your brand friendly? Be conversational. Is it ritzy? Be
more formal. You get the gist.
 Develop a tagline. Write a memorable, meaningful and concise statement that
captures the essence of your brand.
 Design templates and create brand standards for your marketing materials. Use
the same color scheme, logo placement, look and feel throughout. You don't need to
be fancy, just consistent.
 Be true to your brand. Customers won't return to you or refer you to someone else,
if you don't deliver on your brand promise.
 Be consistent. I placed this point last only because it involves all of the above and is
the most important tip I can give you. If you can't do this, your attempts at
establishing a brand will fail.

IMPORTANCE

Branding is important for businesses as it creates a memorable impression on customers and

allows both customers and clients to know what they can expect from it. It is a great way to
distinguish the product or service from competitors and makes it easier for customers to
understand why the product, service or concept is a better choice.

A strong and consistent brand image is very helpful in establishing a business. Brand enables
customers to recognize, remember and recommend the product or service to others. Brand
image is usually a brand logo which should be designed so that it has a strong impression on
the target market at first glance.
In addition to this, a business can benefit from branding to generate future businesses. A
well-known and strong brand can increase the value of your business and will provide more
leverage in the industry. In this way, businesses can capitalize on potential investment
opportunities as it is firmly established in the marketplace.
Establishing an effective brand also allows companies to win referral businesses. Having a
strong brand means that customers have a positive impression of that product or service and
will likely be associated with other businesses because of the assumed familiarity and
dependability of that name which can be trusted upon.

BRAND CONCEPTS
Brand Name: It is that name which is given by the manufacturer or maker of the product or a
range of products. A brand name is most often trademarks.

Brand Attribute: This includes brand characteristics and its core values. Brand attributes
include consistency, credibility, sustainable, relevancy and appealing.

Brand Positioning: This involves determining where the brand is standing in the competitive
market. Positioning is that unique or distinctive position that the brand holds in the market or
in the mind of consumers.

Brand Identity: This is the way in which any business perceives its brand. This is basically
the image of the brand from the point of view of its maker and how the maker wants it to be
perceived by consumers.

Brand Image: It is the perception of customers about a particular brand. It is basically how
consumers perceive the brand.

Brand Personality: Brands also have the characteristic to speak and behave with customers.
Brand personality can be associated with human personality traits such as the brand of being
caring, luxurious, and honest, etc.

Brand Awareness: This refers to the degree to which customers are familiar with a particular
brand.

Brand Loyalty: This refers to the tendency of a particular group of customers who will
continue buying the particular brand instead of other similar brands in the market.

Brand Association: Brand association is a link which a customer creates in his mind about
the brand. This link should be positive so that the brand is perceived as positive.
Brand Equity: This is the impact a brand can impose over the purchasing decision of a
customer.it is a set of brand assets and liabilities which can either add or subtract from the
brand value.

Brand Extension: This type of branding strategies basically uses a well-established brand
name for launching a new product or new product category.

Co-Branding: This is amongst brand management strategies which make use of multiple
brand names of a product or service as a part of a strategic alliance.

Sonic Branding: This refers to the use of sound in advertising a particular product or service.
The underlying concept is that when a customer hears that sound, they will think of that
particular product.

AAKER BRAND EQUITY MODEL

In the field of marketing, Brand Equity means the value of a brand. The concept of the value
of a brand is very interesting and deeper than what it looks like. The generally accepted
notion for a brand owner is that a well-known brand in the market will give more revenues
and goodwill rather than the lesser known ones. There have been multiple approaches and
studies happened to understand the concept of brand value.

Different fields of consumer and brands have given different definitions and ways to identify
the brand value. As per cognitive psychology, the brand equity depends upon the consumers’
awareness and how they associate with a brand, however, information economics suggests
that since a strong brand name is an identifier of the good quality product, the monetary value
that it can generate will be the parameter of brand equity model.

Many other types of research in the field have suggested that brand is one of the most
important assets of a company as it can significantly help in improving the financial
performance of the company. One of the many types of research, tools, concepts in brand
equity is the Aaker’s Brand Equity Model.

Aaker’s Brand Equity model was developed by Professor David Aaker of the University of
California. His model viewed the brand equity model as a combination of brand awareness,
brand loyalty and brand associations, which then combines with each other to finally offer the
value provided by a product or service. For Aaker, brand management begins with building
up a brand identity, which is one of a kind arrangement of brand affiliations speaking to what
the brand stands for and offers to consumers a desiring brand picture.

Four Elements of Brand Identity as per Aaker’s Brand Equity Model

Aaker primarily sees brand identity as a combination of 8-12 elements which fall under four
perspectives:

Brand as Product – This consists of product scope, product attributes, quality or value of the
product, uses, users and country of origin.

Brand as Organization – it consists of organizational attributes, local workings versus global

activities.

Brand as Person – it consists of brand personality and consumer brand relationships.

Brand as Symbol – it consists of audio and visual imagery, metaphorical symbols and brand
heritage.

The motive of the Aaker Model is to help in making a brand strategy comprising of various
brand components or patterns, in order to illuminate, advance and separate a brand from its
rivals. An organization deliberately utilizes few of these components to impart to the buyers
what their brand stands for.

5 Components of Brand value as per Aaker’s Brand Equity Model

Aaker states that brand value is controlled by associated five components. We will
understand the brand value in the next section in details but before that let’s understand these
components and how are they integrated with brand value. This is essential for understanding
the general picture of brand equity model. These components are:-

Brand Loyalty – The extent to which people are loyal to a brand

Brand Awareness – The extent to which a brand is known among the public

Perceived Quality – The extent to which a brand is considered to provide good quality
products

Brand Associations – The associations triggered by a brand

Other Proprietary – Assets like patents and intellectual property rights, relations with trade
partners. The more proprietary rights a brand has accumulated, the greater the brands
competitive edge in those fields.

How brand Value in branding management is created as per Aaker’s Brand Equity
Model?

As per Aaker’s model, brand assets create value for both customers and the firm in different
ways. Let us see below how this value is created in multiple ways:-

 Brand value can enable a customer to decipher, process, store, and recover a gigantic
amount of data about products and brands.

 It can influence the client’s trust in the purchase choices; a client will naturally be
more relaxed with the brand that was last utilized, is considered to have high quality,
or is familiar.

 Perceived quality and brand affiliations offer value to the consumers by improving the
consumer’s satisfaction.

 Brand value can improve the productivity and adequacy of promotional programs. An
advertisement, for instance, will be more viable if it is a usual brand of a customer.

 Brand awareness, perceived quality and brand associations would all be able to
reinforce the loyalty towards the brand by expanding consumer loyalty and giving
motivational reasons to purchase the product.

 Brand equity model will normally give higher edges to products, allowing premium
pricing and decreasing dependence on promotional activities. Brand value can
likewise give a stage to development by brand extensions and can help in the
distribution channels as well.

 An established brand works as a strong barrier to switching to other competitors.

Therefore, all in all, Aaker model provides a deep insight into this whole concept of brand
equity and how to evaluate it. The model can be used at various stages of marketing like
improving the perception of a product performance, to increase the loyalty of customers
towards a brand, and sometimes to differentiate from competitors as well.
Aaker’s Brand Equity Model

David Aaker defines brand equity as a set of assets and liabilities linked to a brand that add
value to or subtract value from the product or service under that brand. He developed a brand
equity model (also called Five Assets Model) in which he identifies five brand equity
components −

BRANDING STRATEGIES

With so many branding strategies to choose from, it may be difficult to pinpoint which
branding types work well for your business. Some of the best ways to select the proper
branding strategy begin with understanding what branding is and defining your brand
identity.

Once you learn how to position yourself as a brand and you take advantage of brand
strategies, you will be on your way to earning brand loyalty, recognition, equity, and
awareness.

What Is Branding?
Branding is a marketing practice that helps individuals to differentiate your business’
products or service from others. Branding often involves creating elements such as a logo,
mission statement, and design that is consistent throughout each marketing communication
type.

Your brand is a representation of who you are as a business, and using effective brand
strategies can help your business to grow and reach beyond your target audience.

7 Types of Branding Strategies

There are several types of branding that may add value to your company depending on your
target audience, industry, budget, and marketing campaigns. Here are seven types of branding
strategies that have the potential to build brand equity for your business.

Personal Branding

Personal branding describes branding that is used for an individual person, instead of
branding for a whole business. This type of branding is often used to establish a person’s
character, personality, or work as a brand.

Celebrities, politicians, thought leaders, and athletes often use this form of branding to
present the best version of themselves to the public.

For example, Seth Godin, entrepreneur and author of over 20 marketing books, positioned
himself as a business and marketing expert. Seth has a recognizable personal brand, and
individuals now associate him with his short blog posts that pinpoint one idea at a time.
People want to hear from Seth Godin rather than a company or organization due to the
effectiveness of his personal brand.

Product Branding

This is one of the most popular branding types. Product branding focuses on making a single
product distinct and recognizable. Symbols or designs are an essential part of product
branding to help your customers identify your product easily.

For example, Monster Energy drinks have distinct packaging and logos that make it easily
distinguishable from Red Bull energy drinks.

Corporate Branding

Corporate branding is a core value of business and a philosophy that a business develops to
present itself to the world and its own employees.

Effective corporate brands often seek to display the company’s mission, personality, and core
values in each point of contact it has with prospective customers, current customers, and past
customers.

For example, Nike’s core values and mission are recognizable across all of their platforms
and products. Nike’s mission statement is “To bring inspiration and innovation to every
athlete in the world.” And its slogan, next to their famous swoosh check mark logo, is “Just
do it”.

As a corporate brand, Nike positions themselves as a brand for athletes, sports enthusiasts,
and anyone who is passionate about fitness. They also make it clear that they believe anyone
can be an athlete.

Service Branding

Service branding leverages the needs of the customer. Companies that use service branding
seek to provide their customers with world-class service. They aim to use excellent customer
service as a way to provide value to their customers.

For example, Chick-fil-A is known for its excellent customer service – making it now
synonymous with its brand.

Co-Branding

Co-branding is a form of branding that connects companies together. Essentially, co-branding

is a marketing partnership between two or more businesses. This helps brands impact each
other positively, and it may result in one growing its business, spreading brand awareness,
and breaking into new markets.

For example, Frito Lay and Taco Bell came together and made the Doritos Locos Taco that
appealed to both audiences.

Online Branding

Online branding, also known as internet branding, helps businesses to position themselves as
a part of the online marketplace. This type of branding includes a company’s website, social
media platforms, blogs, and other online content.

Most companies use some aspect of online or internet branding in today’s marketplace.

No-Brand Branding

This type of branding is also known as minimalist branding. These brands are often generic
brands that seek to let their products speak for themselves without all the extras many others
provide their consumers with.

Some of the most noteworthy no-branding branding examples include Brandless and m/f
people. As you can see on Brandless‘ website, their packaging, colors, and overall aesthetic is
very simple. This aligns with their mission of providing fairly priced food to people without a
typical brand.

Despite the fact that Brandless recently announced its closure, it is an excellent example of
no-brand branding that saw great success for several years.
m/f people adopts simplicity in everything, from their branding and packaging to their
product designs. For example, their skincare products are packaged in bottles with black and
white colors and a simple font.

This decision to opt for simplicity aligns with their commitment to making gender-neutral
products and pursuing their overall mission: “We aim to make life simple, so you can focus
on what matters most.” They don’t need loud colors and flashy font. They want minimalistic
appeal.

How to Select the Best Branding Strategies for Your Business

Many businesses use several brand strategies to reach their goals. Selecting the right
strategies is important for your success. Follow these steps to find the best approach that fits
your business.

Define Your Brand Identity.

Before you select the proper brand strategies for your business, you should define your brand
identity. This involves asking yourself and others involved in the marketing and sales process
a series of questions, such as:

What are my company’s mission and core values?

If I had to describe my company in three words, what would they be?

What do I want to be known for in the marketplace?

What kind of difference do I want to make in my industry?

What do I want my brand to look like visually?

Asking yourself these questions helps you to determine your goals and direction in the
marketplace as a unique brand.

Determine Your Brand Objectives.

Once you identify your brand identity and answer the key questions mentioned above, you
should be able to determine your brand objectives. For example, your objective may be to
position yourself as an industry leader in a set period of time or to increase customer
interactions through reviews, website visits, or online product purchases.

This way, you’ll be able to select a brand strategy that aligns with your business goals and
objectives.

Define Your Brand’s Audience.

The best way to define your target audience is to consider what they’re interested in, where
they’re located, their age, what they think of your brand currently, and how you will attract
them to your services or products.
Knowing your target market allows you to gather enough data to solidify your message and
select the correct brand strategy that helps you appeal to your target audience.

Consider Your Industry.

Each industry likely has different goals and objectives it would like to achieve. Each brand
strategy has different things to offer your business. However, not every strategy will fit your
specific industry.

To help you decide which brand strategies to choose, you may consider conducting a
competitive analysis with the competitors in your industry. Conducting such an analysis will
help you to uncover your opportunities and threats in your respective marketplace.

Best Practices for Building Your Brand

It takes time to build a brand, and as your credibility and reputation grows, your brand
strengthens. Follow these best practices to expedite this process and foster trust with your
audience.

Bring Perfection to your Use of Visual Content.

Visuals are an important part of branding and marketing.

In fact, according to a study conducted by HubSpot, visuals are processed and retained by
individuals at faster rates than text. And visuals such as infographics are 3X as likely to be
shared on social media over other forms of content.

Visuals make up a large part of what your prospects and customers remember about your
brand. Make sure your visuals are related to your overall brand theme and core values.

This provides you with brand consistency and makes it so that your customers can easily
identify your brand later on when they see similar images.

For example, the manufacturing company, General Electric, provides its customers with
engaging and interesting visuals on its social media channels. This visual content helps them
to tell their story to consumers and it establishes their brand identity.

Their Instagram shows real people using their products. Their captions provide descriptions
of specific products, like their a-CT7 engine mid-frame in the bottom left image.

Their post describes what the engine is, where it’s made (in their GE Additive Pittsburgh
Center), and how their team simplified the assembly process. They do a great job of
educating their audience about their offerings and telling a story that is visually appealing.

Humanize Your Brand.

Making your brand more human means finding something to believe in and marketing that
message to your prospects and customers.
The best way to do this is to find unique solutions to your consumers’ problems by
understanding that their problems have three parts: external, internal, and philosophical.

When you identify their needs and problems, you can begin to weave a story into your
marketing messages that provides your customers’ with value and makes them believe that
you have the answers to their problems.

For example, the SaaS company Drift, provides its prospects and customers with the idea that
the internet is a conversation. This helps them to tell their story that “emphasize(s) the value
of human interactions and connections” as stated on the about us page of Drift’s website.

Although they sell software that isn’t very “human,” they market and appeal to people
through their stories and what they believe in. They do these things while addressing their
customers’ internal, external, and philosophical problems regarding the internet and software.

Keep the Conversation Going.

A large part of positioning yourself as a strong brand includes getting people to talk about
your brand and contributing to the conversation.

Keeping the conversation going involves having a strong online presence that allows you to
post and comment about the things that your brand cares about.

Give back to your customers and thank them for remaining loyal to your brand. Direct
interaction with your prospects and customers in person and via phone, email, or social media
helps you to maintain and increase engagement, which leads to building a strong brand.

For example, the tech giant Google perfects their customer and engagement by keeping the
conversation going with its customers on social media sites such as Twitter and Instagram.
They respond directly to customer complaints and concerns on Twitter and post meaningful
images on Instagram that keep people engaged and talking.

Building a brand includes various elements that require patience to develop and execute. As
you move forward with understanding the needs of your business and what you hope to
deliver to your consumers, you will be able to select the right brand strategy for your
business, and your brand will grow and delight your customers.
BRAND DIFFERENTIATION

Brand differentiation is an essential aspect of a brand marketing strategy. It enables

companies to reveal their profitable qualities that help develop a unique selling proposition.
This way, they understand their competitive advantage and stand out among competitors.

IMPORTANCE OF BRAND DIFFERENTIATION

Customers don’t value brands that sell the same items and don’t provide them with new
solutions. It makes them believe that these companies are easily interchangeable. This can
cause a price war among brands because the only thing left to compete for is the price. As a
result, undercutting your competitors’ prices leads to lower net profit.

Companies need their brands to stand out to avoid predatory pricing. This strategy provides
them with both short-term and long-term goals. The main one is to find your competitive
advantage — a unique offer that your business opponents don’t have. It will help boost your
market share in the long term. As a result, you’ll increase your targeted audience, sales
volume, and revenue.

In addition, a clear and valuable unique selling proposition will help you build an army of
loyal clients who love your brand not only for your product but for the positive user
experience and values you share. Hence, it’s crucial to thoroughly analyze your potential
clients to reveal their problems, wants, and needs. This way, you’ll create a successful brand
differentiation strategy.

Let’s find out how to create one for your business.

BRAND DIFFERENTIATION STRATEGIES

1. Become an innovator. This method is a surefire way to stand out. You can either
create a product that people have never seen before or optimize and improve an
 existing one. For this purpose, you need to carry out research to understand your
customers’ needs, pain points, preferences, etc. Brands that bring innovations to the
market are the most successful, remarkable, and trusted.

2. Choose a winning pricing strategy. You can make your brand stand out either with the
lowest price for a high-quality product, which will make you a leader in the mass
market, or you can become a premium brand charging more for a better experience
like Starbucks does.

3. Solve clients’ unique problems. You may successfully occupy a concentrated niche
offering an exceptional quality that your competitors don’t provide. Today custom T-
shirt design or sewing lingerie according to personal measurements is not surprising,
but someone once came up with this idea. Hence, you can also create a better product.

4. Appeal to emotions. People will definitely remember such a brand and come back for
an extra dose of dopamine. These brands sell not products but experiences customers
have after buying them. Coca-Cola is associated with joy, happiness, and holiday;
Nike motivates people to take action with their “Just do it”; Apple makes its clients
feel like they belong to something huge by selling products that have their own
ecosystem.

5. Deliver unique customer support. While taking care of a prospect before the purchase
is mundane, do your best to support your client after the sale. You can offer a
prolonged guarantee or any special and personalized services depending on your
product type. Customers appreciate brands that care about them after they’ve paid.

BRAND REJUVINATION

Over time, brands can start to feel a little tired and lackluster. While you’re focusing on day-
to-day business operations, your company’s image can start to fall into the past – often so
slowly that you don’t even notice it’s happening.

Take phone manufacturer, Nokia, for example. Making solid, sturdy little handsets worked
for years for Nokia but in 2011, the company realised they had to make some serious changes
to keep up with the smartphone era.

So, Nokia rejuvenated its brand and tone-of-voice to stay competitive and appeal to younger
generations. Nokia’s head of marketing for the UK and Ireland said:

“The trick is to remember to not just wade in; otherwise our personality could look like the
drunken uncle dancing at the wedding.”

How did they manage it? They partnered with celebrities that would appeal to the youth
market, increased their social media marketing and completely refreshed their tone-of-voice.

Is your brand in need of a refresh? This guide from The Sphere Agency covers all you need
to know about brand rejuvenation; from what it is to how your company can get itself back
on the right track.
WHAT IS BRAND REJUVENATION?

Brand rejuvenation is all about changing how consumers see your brand. It means keeping
the fundamentals the same, but changing its image to present it in a whole new way; updating
elements like the logo, colour scheme, tone-of-voice and website. Essentially, it’s giving your
business a makeover.

It might be time to rejuvenate your brand if the structures are still working fine, but its overall
look feels dated. When new customers interact with your brand, if you appear old-fashioned
compared to your competitors, this can put them off buying from you.

Stay fresh, relevant and powerful with a solid brand rejuvenation strategy.

BRAND REJUVENATION VS REBRANDING

Many people get confused between the two as there are some overlaps, the meanings vary
slightly.

A brand goes beyond the name, logo and visual elements of a business. It describes how your
business exists in the minds of your consumers; how they feel about your business, rather
than just how it looks. That means that a re-brand is more than just changing the name or
redesigning the logo. It’s about creating an entire new identity for your business, setting it
apart from its competitors and making it memorable because of the way people feel about it.

FIVE STEPS TO BRAND REJUVENATION

Re-establish your brand’s edge and focus with a brand rejuvenation strategy. If it’s time to
make a change but you’re feeling a little daunted by the process ahead, follow these simple
five steps to brand rejuvenation and take back your share of the market.

1. Understand why you need to change

So many business owners are reluctant to make a change and we hear the phrase “But that’s
how we’ve always done it!” far too often. Many organisations play it safe, tweaking small
aspects here and there.

This isn’t what brand rejuvenation is about. You need to challenge what you know and be
prepared for a significant image overhaul. Understand that the alternative is to appear dated
and behind-the-times compared to your competition, which is guaranteed to cause your
customers to gradually fall away.

2. Think beyond your audience’s demographics

Understanding the age, income, gender and interests of your customer base helps you build a
product and a message that appeals to them. However, rejuvenating your brand is a good
chance to take this a step further.

Dig deeper than consumer behaviour. What are their goals, passions and struggles? Tap into
their mindset to create a personal, intimate brand that will appeal to their emotions, too.

3. Refresh from top to bottom

A spring clean should involve cleaning the entire house; not just one room. What we mean is
that you need to refresh your brand as a whole; otherwise some aspects will look shiny and
new, while others gather cobwebs.

Think about what your brand represents. Keeping the “heart” of your business the same (after
all, your customers are already drawn to that), think about changing the entire presentation of
it. Consistency is important as you evolve based on your audience and vision.

4. Rewrite your narrative

Your brand’s history is what makes it fundamentally you. This stage isn’t about overriding
your history or erasing your brand’s story, but about presenting a new angle to your narrative
that will engage customers.

Your website is the perfect place to tell your story and connect with new audiences. A
refreshed tone that creatively tells the people why you have started the business.

5. Hire experts

We understand that taking an objective look at your business can be difficult. When you’ve
grown so attached to your original branding and story, it’s hard to see beyond that, to how the
public perceive your image.

If you can’t figure out why sales are declining or people aren’t connecting with your brand
the way you’d like, hire an expert who can offer fresh eyes and ideas to help you reach your
full potential.

REVITALISE YOUR BRAND WITH THE SPHERE AGENCY

Is it time to hit refresh? Make The Sphere Agency your partner in a brand rejuvenation
strategy and build an image that puts you leagues ahead of your competition. From the tiny
details to the bigger picture, we’ll work with you to push boundaries and transform the way
the market perceives your brand.

If you’re ready to make an impact, start a conversation today.

BRAND REVITALIZATION
Definition: The Brand Revitalization is the marketing strategy adopted when the product
reaches the maturity stage of product life cycle, and profits have fallen drastically. It is an
attempt to bring the product back in the market and secure the sources of equity i.e.
customers.

Reasons to revitalize a brand:

1. Increased Competition in the market is one of the major reasons for the product to go
under the brand revitalization. In order to meet with the offerings and technology of
competitor, the company has to design its brand accordingly so as to sustain in the
market.

2. The Brand Relevance plays a major role in capturing the market. The brand should be
modified in accordance with the changes in tastes and preferences of customers i.e. it
should cater the need of target market.

3. Nowadays Globalization has become an integral part of any business. In order to meet
the different needs of different customers residing in different countries the brand has
to be revitalized accordingly.

4. Sometimes Mergers and Acquisitions demand the brand revitalization. When two or
more companies combine, they want the product to be designed from the scratch in a
way that it appeals to both and benefits each simultaneously.

5. Technology is something that is changing rapidly. In order to meet with the latest
trend, the companies have to adopt the new technology due to which the product can
go under complete revitalization.
 6. Some Legal Issues may force a brand to go under brand revitalization such as
copyrights, bankruptcy, etc. In such situations, the brand has to be designed
accordingly, and the branding is to be done in line with the legal requirements.

WAYS THROUGH WHICH BRAND REVITALIZATION CAN BE DONE

1. The Usage of a product can be increased by continuously reminding about the brand
to customers through advertisements. The benefits of the frequent use of a product can
be communicated to increase the consumption, e.g., the usage of Head & Shoulders
on every alternate day can reduce dandruff.

2. The untapped market can be occupied by understanding the needs of the new market
segment. The brand revitalization can be done to cater to the needs of new customers,
e.g.; Johnson n Johnson is a baby product company but due to its mild product line the
same can be used by ladies to have a soft skin and hair.

3. The brand can be revitalized by entering into an entirely New Market. The best
example for this is Wipro, who has entered into a baby product line.

4. Another way of getting the brand revitalized is through the Re-positioning. It means
changing any of the 4 P’s of marketing mix viz. Product, price, place and
promotion.The best example of re-positioning is Tata Nano. On its launch, it was
tagged as the “cheapest Car” that hurt the sentiments of customers, and the sales fell
drastically. To revive the sales, the new campaign was launched “Celebrate
Awesomeness” that re-positioned its image in the minds of the customer.

5. A brand can be revitalized by Augmenting the Product and Services. The company
should try to give something extra along with the product that is not expected by the
customer. Some additional benefits can revive the brand in the market e.g. A plastic
container comes with a surf excel 1 Kg pack that can be used for any other purpose.

6. The brand can be modified through the Involvement of Customer The feedback about
the product and services can be taken from ultimate consumer and changes can be
made accordingly. Customer’s involvement is best seen in service sector wherein
feedback forms are filled in at the time of availing the services such as hotels,
restaurants, clubs, flights, trains, etc.

This shows that brand revitalization is an essential to the success of any product. The firm
takes all the necessary steps to keep its product very much alive in the market.

SUB-BRANDING

Sub-branding is when a business creates a secondary brand within its own brand. The
secondary brand usually has its own distinct voice and personality. This can help the business
target a specific market or reach a new audience. While this brand is distinct, it still relates to
the parent brand.
Examples of successful sub-brands

If you're thinking about creating a sub-brand, it can be beneficial to consider some examples
of successful sub-brands. These examples can give you some inspiration and might help you
to decide if secondary branding is a suitable option. Some examples of successful sub-brands
include:

Coca-Cola

Coca-Cola is a famous and well-established brand that has several other sub-brands. These
sub-brands serve a variety of different audiences, including people who want a lower-calorie
alternative to Coca-Cola products. Some of its sub-brands are closely related to the main
brand, such as Coke Zero, but others have a more distinct brand and personality.

McDonald's

McDonald's has created a variety of distinct sub-brands for notable menu items, such as the
Big Mac and McFlurry. These sub-brands appeal to different customer demands and each
modify the customers' expectations for the brand. In this case, secondary branding helps to
brand individual menu items as distinctive signature products that are different from its
competitors.

Hilton

The hotel chain Hilton has created several sub-brands to serve different sections of the hotel
market, including different budgets and traveller requirements. These sub-brands all share the
Hilton name and have a close relationship with each other, but still have their own distinct
personalities. This helps the business to reach sections of the market that might be
challenging for the main Hilton brand and it can do this without altering the main brand.

Samsung

Samsung offers a broad range of products and secondary branding helps to create a greater
focus on its diverse product range. Sub-brands can be highly useful for companies of this
size. In this scenario, effective sub-branding helps to differentiate between the company's
products and communicates the purpose and personality of the product more successfully.
 PACKAGING AND LABELING

The packaging is the science, art, and technology of enclosing or protecting products for
distribution, storage, sale, and use. Packaging also refers to the process of design, evaluation,
and production of packages. Packaging can be described as a coordinated system of preparing
goods for transport, warehousing, logistics, sale, and end-use. Packaging contains, protects,
preserves, transports, informs and sells. In many countries, it is fully integrated into
government, business, institutional, industrial, and personal use. Package labeling or labeling
is any written, electronic, or graphic communications on the packaging or on a separate but
associated label. Packaging and Labeling is one of the key functions of marketing.

Packaging

Packaging is the activity that involves designing and manufacturing of a wrapper, container,
box, etc., for a product. While crafting a packaging material the primary responsibilities like
protection of the product, easy handling and storage space should be taken into consideration.
Packaging is one of the essential marketing tools, because it gives customers the first
impression of the product, encouraging them to buy. In simple words, the packaging is a
process not only to create a container where the product is kept to protect it from physical
damage but at the same time has to be appealing to attract the customers.

PURPOSES OF PACKAGING

Physical protection - The objects enclosed in the package may require protection from,
among other things, mechanical shock, vibration, electrostatic discharge, compression,
temperature, etc. Eg: Egg, Bottles, Match sticks, Electronic goods.

Barrier Protection - A barrier from oxygen, water vapor, dust, etc., is often required.
Controlled atmospheres are also maintained in some food packages, keeping the contents
clean & fresh. Permeation is a critical factor in design. Some packages contain desiccants or
Oxygen absorbers to help extend shelf life. Modified atmospheres or controlled atmospheres
are also maintained in some food packages. Keeping the contents clean, fresh, sterile, and
safe for the intended shelf life is a primary function. Eg: Fruits, Vegetables.
Containment or Agglomeration - Small objects are typically grouped together in one
package for reasons of efficiency. For example, a single box of 1000 pencils requires less
physical handling than 1000 single pencils. Liquids, powders, and granular materials need
containment. Eg: Chocolates, Biscuits, Face powder.
Packages and labels communicate how to use, transport, recycle, or dispose of the package or
product. With pharmaceuticals, food, medical, and chemical products, some type of
information are required by government agencies. Some packages and labels also are used to
track and trace.

Marketing - The packaging and labels can be used by marketers to encourage potential
buyers to purchase the product. Package graphic design and physical design have been
important and constantly evolving phenomenon for several decades. Marketing
communications and graphic design are applied to the surface of the package and (in many
cases) the point of sale display. Eg: Chips, Biscuits.

Security - Packaging plays an important role in reducing the security risks of shipment.
Packages can be made with improved tamper resistance to deter tampering and also can have
tamper-evident features to help indicate tampering. Packages can be engineered to help
reduce the risks of package pilferage: Some package constructions are more resistant to
pilferage and some have pilfered indicating seals. Packages may include authentication seals
and use security printing to help indicate that the package and contents are not counterfeit.
Packages also can include anti-theft devices, such as dye-packs, RFID tags, or electronic
article surveillance tags that can be activated or detected by devices at exit points and require
specialized tools to deactivate. Using packaging in this way is a means of loss prevention. Eg:
Coke drinks, Water bottles etc.

Convenience - Packages can have features that add convenience in distribution, handling,
stacking, display, sale, opening, re-closing, use, dispensing, and reuse. Eg: Sauce, Jam.

Portion Control - Single-serving or single dosage packaging has a precise amount of

contents to control usage. Commodities such as petrol, edible oil, salt etc. can be divided into
packages that are a more suitable size for individual households. It also aids the control of
inventory: selling sealed one-liter-bottles of milk, rather than having people bring their own
bottles to fill themselves. Eg: Milk, Ice creams.

PACKAGING TYPES
Packaging may be looked at as being of several different types. For example, a transport
package or distribution package can be the shipping container used to ship, store, and handle
the product or inner packages. Some identify a consumer package as one which is directed
toward a consumer or household.
Packaging may be described concerning the type of product being packaged: medical device
packaging, bulk chemical packaging, over-the-counter drug packaging, retail food packaging,
military material packaging, pharmaceutical packaging, etc.
It is sometimes convenient to categorize packages by layer or function: “primary”,
“secondary”, etc.
1. Primary packaging is the material that first envelops the product and holds it. This
usually is the smallest unit of distribution or use and is the package that is in direct
contact with the contents.
2. Secondary packaging is outside the primary packaging, perhaps used to group primary
packages together.
3. Tertiary packaging is used for bulk handling, warehouse storage, and transport
shipping. The most common form is a palletized unit load that packs tightly into
containers.
These broad categories can be somewhat arbitrary. For example, depending on the use, a
shrink wrap can be primary packaging when applied directly to the product, secondary
packaging when combining smaller packages, and tertiary packaging on some distribution
packs.

Most physical products must be packaged and labeled. Some packages such as coke bottles
are world-famous. Many marketers have called packaging the fifth P, along with price,
product, place, and promotion.
LABELLING
Labeling is the display of all the information on the packaging material or product itself.
While labeling a product the company has to fulfill and adhere to all the legal requirements
like ingredients, nutritional and safety information mentioned under Competition and
Consumer Act 2010. Most of the customers make a decision according to the details
mentioned on the labeling of the product. There are three types of label.

 Brand label: This part of labeling gives information about the product.
 Descriptive label: This specifies product usage.
 Grade label: It specifies the aspect and features of the product.

Labeling is any written, electronic, or graphic communications on the packaging or on a

separate but associated label. It is the display of the product information on its container,
packaging, or the product itself.
i. Brand Identification - Labeling helps in the identification and principal place of
business of the person by or for whom the prepackaged product was manufactured,
processed, produced, or packaged for resale
ii. Description - Labels provide information regarding the food product. It describes the
contents, nutritional values, cost, product usage methods, shelf life, etc.
iii. Promotion - Finally labels help in promoting the product through attractive and bright
graphics replacing paper labels glued on cans and bottles.
It is very important for the identification of a product with the brand name and description.
Labeling may help to become unique in the target customer audience and market the product
directly to the customer. As well as it may include measures, ingredients, health and safety
instructions, production and expiration dates, brand ownership, and contact information to
communicate with the customer straightly. This guidance is very important to maintain
customer service as a key function of marketing.
DIFFERENCE BETWEEN PACKAGING AND LABELLING

Parameters Packaging Labeling

Meaning It is a process of designing and creating a It is a display of all the information

container for a product on the packaging material or product
itself.

Purpose To protect the product, product To provide product features and

identification, marketing tool influence the customer’s decision

Function It helps the customers’ with the decision- To give clear information about the
making process product

Advantages Product safeguard, facilitates storage, Helps in selling the product by giving
helps in the sales process, minimizes a clear picture of the product
adulteration
 PRICE
Pricing in Marketing

“Pricing is a managerial task that involves establishing pricing objectives, identifying the
factors governing the price, ascertaining their relevance and significance, determining the
product value in monetary terms and formulation of price policies and the strategies,
implementing them and controlling them for the best results”.

Pricing is the process of determining what you’re going to charge for your company’s
products or services.

Pricing Strategy is a tool used to fix the price of a particular product or service by considering
various factors like the consumption of resources, Market conditions, the ability of
customers, demand and supply, need of the product like regular item or occasional, etc. The
operative term is “process” in the theory and principles behind product pricing.

Introduction

Earning more profit and acquiring more market share is the basic motto of any organization.
The profit can be earned by selling products in the market. Obtaining market share can be
done by showing more qualitative products at less prices than the other companies. Pricing
plays a crucial role in the growth of the organization. So, let's see how the prices are made
and what are the Pricing Strategies available?

Pricing the product or service is one of the most important business decisions you will make.
You must offer your products for a price your target market is willing to pay and one that
produces a profit for your company or you won’t be in business for long. There are many
approaches to pricing, included scientific and unscientific. Here is one framework for making
pricing decisions that takes into account your costs, the effects of competition and the
customer’s perception of value.
(i) Cost is the total of the fixed and variable expenses (costs to you) to manufacture or offer
your product or service.
(ii) Price is the selling price per unit that customers pay for your product or service.
So, the price you set is the cost to the customer. Ideally, it should be higher than the costs you
incurred in producing the product.
Think of your cost as the surface of the ocean. You must set your price above the surface to
cover costs or you will quickly drown. Of course, there will be times when you decide to set
prices at or below cost for a temporary, specific purpose, such as gaining market entrance or
clearing inventory.
Definition of Pricing Strategy

Pricing strategy refers to method companies use to price their products or services. Almost all
companies, large or small, base the price of their products and services on production, labour
and advertising expenses and then add on a certain percentage so they can make a profit.
There are several different pricing strategies, such as penetration pricing, price skimming,
discount pricing, product life cycle pricing and even competitive pricing.

Types of Pricing Strategies

We have had different Pricing Strategies available in practice form for a long time.
Organizations can opt for a suitable strategy that meets their requirements and expectations.
Let us see all the product Pricing Strategies one by one to get a clear idea.

Penetration Pricing Strategy

A company that uses penetration pricing typically sets a low price for its product or service
with the hope of building market share, which is the percentage of sales a company has in the
market versus total sales. The primary objective of penetration pricing is to garner lots of
customers to gain a foothold in the market with low prices and then use various marketing
strategies to retain them. For example, a small Internet software distributor may set a low
price for its products and subsequently email customers with additional software product
offers every month. A small company will work hard to serve these customers to build brand
loyalty among them. Once the customers get used to that product, the price may increase.

Price Skimming Strategy

It is an occasional Pricing Strategy where the well-known product has reduced its sales
drastically, in which a company sets its prices high to quickly recover expenditures for
product production and advertising. The key objective is to achieve a profit quickly.
Companies often use price skimming when they lack financial resources to produce products
in volume. Instead, the company will use the quick spurts of cash to finance additional
product production and advertising.
Cost-Plus Pricing

Cost-plus pricing is an incredibly simple pricing strategy — it’s your costs plus your markup.

To set prices for a new product, you take the total cost of producing it, then add a percentage
on top to determine your price.

It’s easy to calculate but not really suitable for anything other than physical products, where
your production costs align reasonably closely with an increase in the number of units
produced.

With software products, however, the majority of the production costs happen up front. The
cost to develop the product is the cost to develop the product; that doesn’t change each time
you land a new customer.

As such, cost-plus pricing is generally unsuitable for subscription-based businesses.

On the other hand, the major benefit of using this pricing strategy is that it guarantees your
profit margin and provides some security as far as profitability is concerned. If you build a
50% margin into your pricing, then you’ll always maintain a healthy profit margin.

Product Life Cycle Pricing

All products have a life span, called product life cycle. A product gradually passes through
different stages in the cycle: introduction, growth, maturity and decline stages. During the
growth stage, when sales are booming, a small company usually will keep prices higher.

For example, if the company's product is unique or of higher quality than competitive
products, customers will likely pay the higher price. A company that prices its products high
in the growth stage also may have a new technology that is in high demand.

Competitive-Based Pricing
There are times when a company may have to lower its price to meet the prices of
competitors. A competitive-based pricing strategy may be employed when there is little
difference between products in an industry. Competitive pricing is a fairly straightforward
strategy. You’re simply setting your prices in accordance with what your competitors are
charging.

It’s not a sophisticated strategy, but it’s an easy one and one that can help you find a decent
pricing range fairly quickly, assuming your product or service is very similar to the
companies you’re competing with.

A company using the competitive pricing strategy would assess the competitive landscape
and the various pricing models used and then determine whether they want to sit slightly
above, slightly below, or on par with the market.

For example, when people purchase paper plates or foam cups for a picnic, they often shop
for the lowest price when there is minimal product differentiation. Consequently, a small
paper company may need to price its products lower or lose potential sales.

Temporary Discount Pricing

Small companies may use temporary discounts to increase sales. Temporary discount pricing
strategies include coupons, cents-off sales, seasonal price reductions and even volume
purchases.

For example, a small clothing manufacturer may offer seasonal price reductions after the
holidays to reduce product inventory. A volume discount may include a buy-two-get-one-free
promotion.

Premium Pricing:

In the premium Pricing Strategy, the prices of goods and services are a bit higher than the
general prices. These are especially concentrated on premium segment people. Some people
may have a perception that if the price of the product is high, then only the quality maintains
up to the mark. If anyone announces a discounted sale or half price, they even suspect the
reliability and quality of that product. Especially for those people, the premium Pricing
Strategy was used at the same time they needed to maintain the quality, which means that
price.
Economy Pricing:

Economy pricing is all about sales volume.

With the economy pricing strategy, you aim to produce a product with lower production costs
than your competitors (which often means you create an inferior product) and sell it at a
lower price. The idea is to sell the product at a higher volume and thereby generate the same
profit as you would if you sold a lower volume at a greater price.

Economy pricing is one of the best Pricing Strategies, which considers the generalized
category of customers. These are majorly affordable and reasonable prices as much as they
can provide. The economy class can be easily understood if we consider the scenario of flight
tickets. The least amount required for the entire journey will be fixed as the price for the
economy category.

This is the pricing strategy that generic soda brands use to compete with established and
recognizable brand names like Coca-Cola and Pepsi.

However, it’s not a great fit for subscription and SaaS businesses, as it limits your revenue
potential and generates downward pressure on market pricing.

Plus, it incentivizes producing an inferior product, which is not a strategy that’s suitable for
delivering long-term growth in SaaS, where customer relationships are everything.

Dynamic Pricing

Dynamic pricing is a pricing strategy that involves rapid changes to product pricing in
response to either market demand or costs of production. Depending on the approach you
take, you set your initial price (based on current conditions) and then continue to alter it
upward or downward based on cost or demand.

For example, Entities like Shell and Mobil, use a dynamic pricing strategy to set pricing for
their fuel. In this case, their dynamic pricing is informed by the cost of crude oil.

On the demand side, we can look to Uber for an example of the dynamic pricing model in
action. When immediate demand for Uber’s service is high, the company imposes “Surge
Pricing,” an inflated pricing differential designed to capitalize on the fact that a high number
of users in the area are seeking to access Uber’s driver network.
Geographic Pricing

The geographic pricing strategy involves setting different prices based on your customers’
geographic location. Market demand differs from country to country, which has a major
impact on local pricing expectations. As such, it may be appropriate to use different pricing
structures in different markets.

This approach ensures you’re capturing maximum revenue in markets where demand and
price expectations are high and meeting the largest market possible in markets where the
opposite is true.

Psychological Pricing:

Among the three major Pricing Strategies, psychological pricing is also there. This Pricing
Strategy can be seen everywhere. For example, Bata introduces a new kind of shoes, and the
price is Rs. 1,999/-. The psychology of the human brain is ready to accept Rs. 1999/-, and it
is not ready to take Rs. 2,000/-. That's the reason several companies use this psychological
Pricing Strategy. Usually, electronic appliances were tagged with this Pricing Strategy. Bata,
Samsung, Amazon, etc., can be considered as examples of Pricing Strategies.

Product Line Pricing:

It is one of the differential Pricing Strategies. Here the prices may vary based on the size of
the product. Even though the product is the same if we purchase a single product, the price
may be 10 rupees. If we purchase 5 pieces, the price may be rupees 45. Similarly, 100gm oil
is 20/- 500ml is 80/-.

Pricing Variations:

Another differential Pricing Strategy is variations in the pricing structure. It is usually

observed in travel agencies. For example, if we book an air ticket 2 months before, the price
will be less. If we book the ticket as we thought it would be before, the price may increase
slightly. If we want to buy Tatkal tickets, the price may be higher.

These are the various types of product Pricing Strategies. It is to be noted that apart from
these types, we have different kinds of classifications based on the requirement, scenario,
product, etc. So, the company needs to choose according to its product, Market share,
competitors, etc.
 PLACE (THE DISTRIBUTION CHANNELS)

INTRODUCTION
Channel of distribution deals with the concept of identifying the most efficient and effective
manner in which to place a product in the market and is the mechanism of connecting the
producer with the customer. Earlier we referred to the creation of time and place utility. This
is the primary purpose of the channel. It is an extremely complex process, and in the case of
many companies, it is the only element of marketing where cost savings are still possible.
Channel selection is not a static, once-and-for-all choice, but that it is a dynamic part of
marketing planning. As was true for the product, the channel must be managed in order to
work. Unlike the product, the channel is composed of individuals and groups that exhibit
unique traits that might be in conflict, and that have a constant need to be motivated. These
issues will also be addressed. Finally, the institutions or members of the channel will be
introduced and discussed.

THE DUAL FUNCTIONS OF CHANNELS

Just as with the other elements of the firm’s marketing program, distribution activities are
undertaken to facilitate the exchange between marketers and consumers. There are two basic
functions performed between the manufacturer and the ultimate consumer. The first is called
as the exchange function, involves sales of the product to the various members of the
channel of distribution. The second, the physical distribution function, moves products
through the exchange channel, simultaneously with title and ownership. Decisions concerning
both of these sets of activities are made in conjunction with the firm’s overall marketing plan
and are designed so that the firm can best serve its customers in the market place. In actuality,
without a channel of distribution the exchange process would be far more difficult and
ineffective.

The key role that distribution plays is satisfying a firm’s customer and achieving a profit for
the firm. From a distribution perspective, customer satisfaction involves maximizing time and
place utility to: the organization’s suppliers, intermediate customers, and final customers. In
short, organizations attempt to get their products to their customers in the most effective
ways. Further, as households find their needs satisfied by an increased quantity and variety of
goods, the mechanism of exchange—i.e. the channel—increases in importance.
Types of Distribution Channels
Everything you need to know about the types of distribution channels. A manufacturer may
plan to sell his/her products either directly or indirectly to the customers.
In case of indirect distribution a manufacturer has an option to use a short channel consisting
of few intermediaries or involve a large number of middlemen to sell his/her goods.
Therefore, there are various forms of channel networks having different number and types of
middleman.
Channels can be long or short, single or multiple (hybrid), and can achieve intensive,
selective or exclusive distribution. The length of channel could have any number of
inter-mediaries or be direct to customers.

Some of the types of distribution channels are:-

A. Direct Channel: With the direct channel, the company sells directly to the customer. For
example, a brewery that brews its own beer and sells it to customers at its own brick-and-
mortar location employs a direct channel of distribution. The seller delivers the product or
service directly to customers. The vendor might also maintain its own sales force or sell its
products or services through an e-commerce. The direct channel approach requires vendors to
take on the expense of hiring and training a sales team or building and hosting an e-
commerce operation.

1. Selling at Manufacturer’s Plant 2. Door-to-Door Sales

3. Sales by Mail Order Method 4. Sales by Opening Own Shops

B. Indirect Marketing Channel: Indirect channels use multiple distribution partners or
intermediaries to distribute goods and services from the seller to customers. Indirect channels
can be configured in the following ways: With the single-tier distribution model, vendors
develop direct relationships with channel partners that sell to the customer. In the two-tier
distribution model, the vendor sells to distributors that provide products to channel partners,
which, in turn, package products for the end customer. Two-tier distribution helps smaller
channel partners that would have difficulty establishing direct sales relationships with large
vendors.

1. One-Level Channel 2. Two-Level Channel

3. Three-Level Channel 4. Four-Level Channel

C. Hybrid Distribution Channel or Multi-Channel Distribution System: Hybrid channels

combine the characteristics of direct and indirect channels. The seller uses both direct and
indirect methods. For example, a manufacturer might sell an item on its e-commerce website,
but then an intermediary delivers the physical product to the customer. The customer still has
a direct interaction with the seller, but an intermediary is also involved.

FLOWS IN MARKETING CHANNELS

One traditional framework that has been used to express the channel mechanism is the
concept of flow. These flows reflect the many linkages that tie channel members and other
agencies together in the distribution of goods and services. From the perspective of the
channel manager, there are five important flows.
 Product flow
 Negotiation flow
 Ownership flow
 Information flow
 Promotion flow

The product flow refers to the movement of the physical product from the manufacturer
through all the parties who take physical possession of the product until it reaches the
ultimate consumer. The negotiation flow encompasses the institutions that are associated with
the actual exchange processes. The ownership flow shows the movement of title through the
channel. Information flow identifies the individuals who participate in the flow of
information either up or down the channel. Finally, the promotion flow refers to the flow of
persuasive communication in the form of advertising, personal selling, sales promotion, and
public relations.

These flows are illustrated for Perrier Water.

FUNCTIONS OF THE CHANNEL

The primary purpose of any channel of distribution is to bridge the gap between the producer
of a product and the user of it, whether the parties are located in the same community or in
different countries thousands of miles apart. The channel is composed of different institutions
that facilitate the transaction and the physical exchange. Institutions in channels fall into three
categories: (a) the producer of the product–a craftsman, manufacturer, farmer, or other
extractive industry producer; (b) the user of the product–an individual, household, business
buyer, institution, or government; and (c) certain middlemen at the wholesale and/or retail
level. Not all channel members perform the same function.

Channel performs three important functions:

  Transactional functions: buying, selling, and risk assumption
 Logistical functions: assembly, storage, sorting, and transportation
 Facilitating functions: post-purchase service and maintenance, financing, information
dissemination, and channel coordination or leadership

These functions are necessary for the effective flow of product and title to the customer and
payment back to the producer. Certain characteristics are implied in every channel. First,
although you can eliminate or substitute channel institutions, the functions that these
institutions perform cannot be eliminated. Typically, if a wholesaler or a retailer is removed
from the channel, the function they perform will be either shifted forward to a retailer or the
consumer, or shifted backward to a wholesaler or the manufacturer. For example, a producer
of custom hunting knives might decide to sell through direct mail instead of retail outlets. The
producer absorbs the sorting, storage, and risk functions; the post office absorbs the
transportation function; and the consumer assumes more risk in not being able to touch or try
the product before purchase.

Second, all channel institutional members are part of many channel transactions at any given
point in time. As a result, the complexity may be quite overwhelming. Consider for the
moment how many different products you purchase in a single year, and the vast number of
channel mechanisms you use.

Third, the fact that you are able to complete all these transactions to your satisfaction, as well
as to the satisfaction of the other channel members, is due to the routinization benefits
provided through the channel. Routinization means that the right products are most always
found in places (catalogues or stores) where the consumer expects to find them, comparisons
are possible, prices are marked, and methods of payment are available. Routinization aids the
producer as well as the consumer, in that the producer knows what to make, when to make it,
and how many units to make.
Fourth, there are instances when the best channel arrangement is direct, from the producer to
the ultimate user. This is particularly true when available middlemen are incompetent,
unavailable, or the producer feels he can perform the tasks better. Similarly, it may be
important for the producer to maintain direct contact with customers so that quick and
accurate adjustments can be made. Direct-to-user channels are common in industrial settings,
as are door-to-door selling and catalogue sales. Indirect channels are more typical and result,
for the most part, because producers are not able to perform the tasks provided by middlemen

Finally, although the notion of a channel of distribution may sound unlikely for a service
product, such as health care or air travel, service marketers also face the problem of
delivering their product in the form, at the place and time their customer demands. Banks
have responded by developing bank-by-mail, Automatic Teller Machines (ATMs), and other
distribution systems. The medical community provides emergency medical vehicles,
outpatient clinics, 24-hour clinics, and home-care providers. Even performing arts employ
distribution channels. In all the cases, the industries are attempting to meet the special needs
of their target markets while differentiating their product from that of their competition. A
channel strategy is evident.
Distribution Channel: Functions and Levels
Distribution channel is a means used to transfer merchandise from the manufacturer to the
end user through retailer and other necessary intermediaries. An intermediary in the channel
is called an agent/middleman. Channels normally vary from two-level channels without
intermediaries to five-level channels with three intermediaries.

For example, a leather handbag manufacturer who prepares handbags and sells it directly to
the customer is in a two-level channel. A poultry farmer sells chicken and eggs to a restaurant
supplier, who sells to individual restaurants, who then serve the customer, is in a four-level
channel. Agents/intermediaries in the channel of distribution are used to facilitate the delivery
of the merchandise as well as to transfer title, payments, and information about the
merchandise.

According to Philip Kotler, the channel decisions are among the most important decisions
that management faces and will directly affect every other marketing decision. These
decisions are set of interdependent organizations (intermediaries) involved in the process of
making a product or service available for use or consumption by the consumer or business
user.

Functions of a Distribution Channel:

Distribution channels are well organized arrangements that perform all the necessary tasks to
assist exchange transactions. The basic function of a distribution channel is to provide a link
between production and consumption and to create time, place and possession utilities which
constitute the added value of distribution.

Intermediaries (wholesalers, retailers, agents, brokers) are needed because manufacturers lack
the necessary financial and human resources to carry out direct marketing. Maruti Suzuki
Corporation sells its cars through more than 600 dealer outlets in India and abroad. It will not
be feasible for Maruti Suzuki Corporation to buyout its dealer network and sell car
throughout the country and abroad.

Distribution channels can be exemplified by the number of intermediary levels that separate
the manufacturer from the end consumer. The choice of a particular distribution channel is
determined by factors related to market size, buyer behaviour and organization’s
characteristics. A typical distribution channel has to perform various functions as mentioned
below.
All the above mentioned functions should be considered logically in any market. The idea is
to know what functions are to be performed, who will perform them and how many levels it
requires to make the distribution efforts cost effective, is another important decision to take.

CHANNEL LEVELS:
Each layer of distribution intermediaries that performs some work in bringing the product to
its final consumer is a channel level.

(i) A Zero Level Channel:

A zero level channel known as direct marketing channel has no intermediary. In this channel
framework manufacturer sells merchandise directly to customers. An example of a zero level
channel would be a factory outlet store. Many service providers like holiday companies, also
market direct to consumers, bypassing a traditional retail intermediary – the travel agent.
Eureka Forbes, leaders in domestic and industrial water purification systems, vacuum
cleaners, air purifiers & security solutions is pioneered in direct selling that makes it an
Asia’s largest direct sales organization. The remaining channels are known as indirect-
marketing channels.
(ii) A One Level Channel:
A one level channel contains one selling intermediary. In consumer markets, this is usually a
retailer. The consumer electrical goods market in the United Kingdom is typical of this
arrangement whereby producers such as Sony, Panasonic, Canon etc. sell their goods directly
to large retailers such as Comet, Dixons and Currys which then sell the goods to the final
consumers.
(iii) A Two Level Channel:
A two level channel encompasses two intermediary levels – a wholesaler and a retailer. A
wholesaler typically buys and stores large quantities of merchandise from various
manufacturers and then breaks into the bulk deliveries to supply retailers with smaller
quantities. For small retailers with limited financial resources and order quantities, the use of
wholesalers makes economic sense.
This agreement tends to work paramount where the retail channel is jumbled – i.e. not
dominated by a small number of large, dominant retailers who have an encouragement to cut
out the wholesaler. Distribution of drugs/ pharmaceuticals in the Europe and United Kingdom
is typical example of such arrangement.
(iv) A Three Level Channel:
A third level channel, as the name implies, encompasses three intermediary levels – a
wholesaler, a retailer and a jobber. In the poultry industry, products like mutton, chicken,
eggs etc. are first sold to wholesalers; he then sells it to jobbers, who sell to small and
unorganized retailers.
One point in this regard, is to be noted that the levels of distribution vary from industry to
industry and country to country. In Japan, food distribution system usually may involve as
many as five or six levels while rest of the world, rely on two to three levels distribution
network.

CHANNEL CONFLICT
Definition: Channel conflict can be explained as any dispute, difference or discord arising
between two or more channel partners, where one partner’s activities or operations affect the
business, sales, profitability, market share or similar goal accomplishment of the other
channel partner.
As we know that every manufacturing company needs to plan its distribution and marketing
channel appropriately, to ensure market captivity and customer satisfaction along with growth
and profitability.
In the process of the constant supply of products in the market, several channel partners and
intermediaries join the supply chain of the brand. Any clash and disturbance among these
trading partners can be considered as a channel conflict.
1. Types
2. Conflict Magnitude
3. Causes
4. Consequences
5. Management

1. TYPES OF CHANNEL CONFLICT

The channel conflict can be classified majorly into the following four categories depending
upon its flow and the parties involved:

Vertical Level Conflict

In the vertical level conflict, the channel partner belonging to a higher level enters into a
dispute with the channel member of a lower level or vice-versa.

For instance, channel conflict between dealers and retailers or wholesalers and retailers.

Horizontal Level Conflict

The conflict among the channel partners belonging to the same level, i.e., issues between two
or more stockists or retailers of different territories, on the grounds of pricing or
manufacturer’s biases, is termed as horizontal level conflict.
Inter-type Channel Conflict

These types of conflicts commonly arise in scrambled merchandising, where the large
retailers go out of their way to enter a product line different from their usual product range, to
challenge the small and concentrated retailers.

Multi-channel Level Conflict

When the manufacturer uses multiple channels for selling the products, it may face multi-
channel level conflict where the channel partners involved in a particular distribution channel
encounters an issue with the other channel.

2. CONFLICT MAGNITUDE

The level to which the conflict is considered critical or needs the attention of the channel
leader, i.e., manufacturer, is known as its magnitude.

The magnitude of conflict can be determined through the proper analysis of the change in
market share and the company’s sales volume in a particular area or region.

3. CAUSES OF CHANNEL CONFLICT

Following are some of the key reasons for which the organizations need to face channel
conflict:

Role Ambiguity: The uncertain act of an intermediary in a multi-channel arrangement may

lead to disturbance in the channel of distribution and cause conflict among the intermediaries.

Incompatible Goals: When the manufacturer and the intermediaries do not share the same
objectives, both work in different directions to meet their ends, these results in channel
conflict.

Marketing or Strategic Mis-Alignment: Sometimes, two-channel partners promote the

manufacturer’s product in a different manner, which created two different images of the same
product in the consumers’ mindset, which creates conflicting brand perception.

Difference in Market Perception: The manufacturer’s understanding of the potential market

and penetration into a specific region or territory may vary from the perception of the
intermediaries, which can create conflict and reduce the intermediary’s interest in capturing
that particular market.
Change Resistant: When the channel leader plans to modify the distribution channel, the
intermediaries may or may not accept this change. Thus, it may result in a condition of
discord or non-cooperation.

Improper Geographic or Demographic Distribution: If the sales territory has a narrow

consumer base, and the channel leader allows many selling partners, they tend to lose interest
soon because of low profit and limited sales.

4. CONSEQUENCES OF CHANNEL CONFLICT

Now that we know about the causes of such conflicts, we must also understand how
dangerous these may prove to be for an organization.

Given below are some of these outcomes:

Price Wars: Due to channel conflict, the partners compete with each other on the grounds of
price, and therefore, the consumer may defer the purchase searching for the best deal.

Customer Dissatisfaction: If there exists a channel conflict, then the distributors or retailers
may show much interest in the company’s products and resist to assist the consumers, which
results into their resentment towards the brand.

Sales Deterioration: Conflicts can adversely affect the sales of the products due to the
decline in distributors’ interest and an increasing number of consumers shifting to
competitors’ products.
Distributors Exit: For the manufacturers, it is essential to retain the distributors or partners
to increase product sales. When there is a channel conflict, the chances of various distributors
leaving the channel increases.

Poor Public Relations: The unsatisfied distributors may negatively publicize the brand and
its products as a result of manufacturer’s unhealthy public relations with them.

5. CHANNEL CONFLICT MANAGEMENT

It is a universal fact that the conflicts cannot be eliminated, though these can be handled
smartly to reduce its negative impact on business.

Following are some of the ways to manage the channel conflicts:

Mediation, Arbitration and Diplomacy

To resolve a dispute, the manufacturer can adopt the strategy of intervention where a third
person intervenes to create harmony. The other option is arbitration, where an arbitrator
listens to the argument of the parties involved in a conflict and declares a decision or the
parties can resort to diplomacy where the representatives of both the parties conversate and
find a solution.

Co-optation
The manufacturer should hire an expert who has already gained experience in managing the
channel conflicts in other organizations, as a member of the grievance redressal committee or
board of directors, for addressing such conflicts.

Dealer Councils and Trade Associations

To handle the horizontal or vertical conflicts, the manufacturer forms a dealer council where
the dealers can unanimously put up their problems and grievances in front of the channel
leader. To bring in unity among the channel partners or intermediaries, they can be added as
members in trade association which safeguards their interest.

Superior Goals

Establishing a supreme goal of the organization and aligning it with the individual goals or
objectives of the channel partners, may reduce the channel conflicts.

Regular Communication

The channel leader should take regular feedback from the channel partners through formal
and informal meetings to know about market trends and dynamics. Also, the channel
partner’s issues and conflicts can be addressed through frequent interactions.

Legal Procedure

When the conflict is critical and uncontrollable by the channel leader, the aggrieved party can
seek legal action, by filing a lawsuit against the accused party.

Fair Pricing

Most of the channel conflicts are a result of the price war, and therefore, these can be
resolved by ensuring that products are equally priced in all the territories and a fair margin is
provided to the channel partners.
PROMOTION MIX

The last element of the marketing mix is promotion, which includes activities undertaken by
the marketer to communicate with the customers and distribution channels so they can
enhance the sales of the firm. Through promotional communication, an organisation’s aim is
to inform and persuade the customer to purchase the goods and inform him/her regarding the
benefits of the product. Hence, Promotion Mix is an important decision and includes all
decisions of an organisation related to the promotion of a sale of goods and services. Some of
the important decisions under promotion mix are selecting a media to advertise the product,
selecting promotional techniques, public relations, etc.

The tools or ingredients or the variables mixed together by the marketers to interact with a
specific market are known as Marketing Mix. It is the essence of any marketing endeavour
and is the main building block of the marketing efforts of an organisation. The concept of
marketing says that on the side there is the producer or marketer and on the other side there is
the customer. The organisation wants to have a transaction with the customers and to do so it
has to first develop or produce a product or service, design it, pack it, price it, name it, label
it, promote it, and distribute it. Every one of these decisions is the core of a marketing mix,
which consists of four elements; viz., Product, Price, Place, and Promotion.

Philip Kotler: “Marketing mix is the set of marketing tools that firm uses to pursue its
marketing objectives in the target market.”

William J. Stanton: “Marketing mix is the term used to describe the combination of four
inputs which constitute the core of a company’s marketing system, the product, the price
structure, the promotional activities and the distribution system.”

The four major elements of the promotion mix are Advertising, Sales Promotion, Personal
Selling, Direct Marketing, and Public Relations.

1. Advertising

Any paid form of non-personal presentation and promotion of goods and services by an
identified sponsor is known as Advertising. It is one of the most common tools of promotion.
Information regarding benefits, price, features, etc., of products and services, is provided with
the help of advertising. It is an impersonal method of promotion because there is no direct
contact between the customer and the advertiser. It targets a large number of people at a time.
This is a non-personal promotion of products and services. Marketers use advertising as a
vital tool for increasing brand awareness. Advertisers show promotions to masses of people
using email, webpages, banner ads, television, radio, etc.

According to Philip Kotler, “Advertising is any paid form of non-personal presentation and
promotion of ideas, goods and services through mass media such as newspapers, magazines,
television or radio by an identified sponsor”.

According to David Ogilvy, “If you are tiring to persuade people to do something, or buy
something, it means to me you should use their language, the language in which they think “.

The three main features of advertising are:

a) It is in paid form.

b) It is an impersonal method of promotion.

c) It is always undertaken by an identified sponsor.

2. Sales Promotion

Short-term incentives, which are offered to encourage the buyers to make an immediate
purchase of a product or service is known as Sales Promotion. It helps to boost the sales of a
company. It also aids other promotional efforts, such as advertising and personal selling. All
the activities that provide short-term incentives to boost sales are included in sales promotion.

Sales Promotion uses its tools for:

Customers in the form of discounts, free samples, contests, etc.

Traders or middlemen in the form of cooperative advertising, dealer discounts, dealer

incentives, contests, etc.

Sales Person in the form of bonuses, contests, special offers, etc.

Sales Promotion techniques are useful because:

They bring a short and immediate effect on sales.

They help in stock clearance.

They induce customers and distribution channels.

They help to win over competitors.

3. Personal Selling

The process of informing customers and persuading them to purchase the products through
personal communication is known as personal selling. Two-way communication and face-to-
face contact are involved in the case of personal selling. Under this, sales staff are used to
create product awareness and preferences and sell products. It helps in building personal
rapport with the customers, which increases the sales of the business.

This is a set of short-term activities that are designed to encourage immediate purchase. Sales
promotions are a campaign that uses time-sensitive offers - sales, discounts, coupons, etc., to
engage existing consumers and bring in a larger audience. Many companies make this a core
component of their marketing efforts, though sometimes it’s the most annoying type of
communication for people.

According to Philip Kotler, “Personal selling is a type of personal or local presentation by the
firm’s sales force for the motive of making sales and building customer relationship”.

According to Prof. William J. Stanton, “Personal selling is the personal communication of

information to persuade a prospective customer to buy a service or idea”.

Personal selling is flexible as the sales person can change the presentation of the product
according to the needs of the purchasing situation. Also, as there is direct and face-to-face
contact between salespersons and customers in personal selling, direct and immediate
feedback is given by the customers, which helps an organisation in making required changes
in the required field. Besides, for personal selling, the companies decide in advance who will
be their target customer and then approaches those customers only which results in minimum
wastage.

4. Public Relations

The deliberate, planned, and sustained effort to establish and maintain mutual understanding
between an organisation and its public is known as Public Relations. It is a continuous
activity and aims to create and manage relations with the public successfully.

This type of promotional method determines the way people treat the brand. Companies using
PR try to build a firm and attractive brand image by planting interesting news stories about
their activities in the media. Public relations are not fully controlled by the company, though,
as some reviews and webpages may negatively highlight the brand. If a company adequately
solves these issues, people will reward them with positive word-of-mouth consideration.

According to The Public Association Relations, “Public Relations is the art and social science
of analysing trends, predicting their consequences, counselling organisational leaders and
implementing planned programme of action which will serve both the organisation and the
public interest”.

According to The Chartered Institute of Public Relations, “Public Relations is a strategic

management function that adds value to an organisation by helping it to manage its
reputation”.

The word ‘Public’ in Public Relation does not only include customers. It also includes
shareholders, suppliers, intermediaries, investors, creditors, government, etc. Therefore, the
cooperation of the public is essential for running the business smoothly. Public Relations
create a favourable image toward an organisation, its people, products, etc. It aims at
establishing healthy relations between the organisation and the public.

5. Direct Marketing:

This marketing communication competency enables companies to reach out directly to

consumers without intermediary channels such as those required for advertising. This
component of the marketing communication process includes direct mail, catalogs, coupons
and inserts, telemarketing, online marketing and television infomercials.

Done correctly, Direct Marketing is extremely effective in the long run and allows for a
targeted marketing approach to specific consumers to create valuable lasting relationships.

Direct Marketing is the marketing communication method that enables companies to interact
with a relatively large number of customers and encourage a “call to action” or “most wanted
response” which is usually a purchase.

The downside of Direct Marketing is that it is usually unsolicited and seen as a nuisance by
the general public. Telemarketing, e-mail spamming and junk mail are universally despised
and so Direct Marketing tools should be used with thought and caution. Visit the Direct
Marketing Association website for guidance on legal and ethical Direct Marketing.
PROMOTION MIX IMPORTANCE

 Improves the effectiveness of promotional campaigns. Promotion is a crucial part of

any business, so companies develop a promotion mix, putting all efforts to make
promotions at the right place, at the right time, and to the right audience. It helps one
get the most out of their marketing resources by optimizing their budget and saving
time.

 Helps segment the audience. To develop a compelling promotion mix, a company

needs to identify its target audience. Potential subscribers may include various groups
of people who have something in common, for example, age, gender, preferences,
etc., and they all require an individual approach. A promotion mix is a key method for
delivering a relevant promotion message via the most suitable channel for each
segment.

 Improves communication with clients. Companies develop a promotion mix trying to

speak their consumers’ language. If prepared correctly, it helps build trust between the
brand and its customers. This is a crucial factor in lead nurturing and customer
retention. For example, automated email campaigns help achieve these goals by
responding to people’s actions instantly.

 Informs subscribers. Some promotions, on Instagram for example, aim to show the
product from the best angle, and others, like SMS, emphasize the advantages of local
services. When using a promotion mix, companies define the best ways to educate
people about the products and services they provide.

 Stands out from the crowd. People are bombarded with all sorts of advertising at
every turn. With a promotion mix, it is possible to stand out from the crowd without
creating chaos in your customers’ heads. Successful companies make quality prevail
over quantity, promoting their product or service at the right place and right time.

-BEST OF LUCK FOR A BRIGHT AND SHIGNING FUTURE-