1

MARKETING MANAGEMENT
STUDY PAPERS

AS PER
SCIENCE COLLEGE AUTONOMOUS, HINJILICUT
SYLLABUS
(2021)
PRESENTED BY: PRITAM KUMAR JENA
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CONTENTS
S.L NO. CHAPTER PAGE NO.

1 UNIT-I Introduction 3-49

2 UNIT-II Product Decisions 50-85

3 UNIT-III Pricing Decisions 86-116

4 UNIT-IV-Promotion And Distribution 117-148

Decisions
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UNIT-1
Marketing- Definition
Marketing is a dynamic process that changes with the changing business environment and
the concept of market.
Brown (1925) defined it “as the process of transferring goods through commercial channels
from producer to consumer”. Duddy &Revzan (1953) defined marketing as – “an economic
process by means of which goods and services are exchanged and their values determined
in terms of money prices.”
The marketing process will be successful and efficient when the seller will be able to make
available the appropriate goods and services to the customers at right time, at convenient
location and at right price, thereby creating time and place utility.
A committee of the American Marketing Association defined marketing as “the
performance of business activities that direct the flow of goods and services from producer
to consumer or user.”

Marketing – Meaning
In the early stages of civilization, goods were exchanged for goods. This was known as the
Barter System. Then, barley, silver, gold, copper etc., were used as a standard for valuation.
The invention of coins started a meaningful system of exchange. As we enter the 21st
century, goods are still exchanged for money, but organizations are trying to create a
relationship with the ultimate customers.
Now that businesses are operating in a globalized economy, things are moving at a faster
pace, and markets are being characterized by hyper competition. Emerging technologies are
challenging every business, who need to adopt and empower consumer.
An organization can survive only when it is able to acquire resources for its existence. In the
case of public utilities and government companies, the resources are supplied by
government.
Similarly, the underworld or the mafia obtains its resources by hook or crook. Some
organizations survive only through charity; like churches, charitable institutions, etc. The
last mode of survival is exchange; when an organization creates and offers goods and
services that are able to attract and satisfy purchasers.
This is the marketing solution to survival. The organization identifies a set of products and
services to satisfy these needs, communicates the benefits of these products, makes them
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available and accessible, prices them in a reasonable manner and convinces buyers to
exchange their resources for these products.
In order to take advantage of the exchange, its process and marketing firms must constantly
change according to changing circumstances, because the needs, preferences and interests
of buyers keep changing. For example- Ambassador Cars were popular in India in the
1980’s, enjoying monopoly power; but now their market share is negligible as compared to
other car manufacturers. This is a clear example of a company’s failure to change as per
changing circumstances.
After the liberalization and opening up of the economy, Indian companies, in order to
withstand competition from foreign firms, laid specific emphasis on improving their market
strategies and to sustain themselves in the market. Moreover, the service sector, like
schools, colleges, financial institutions and hospitals, is beginning to look seriously into
marketing.
The new economy is based on the digital revolution. Information can be duplicated to a
greater number of people who are on a network and it can reach them with great speed, to
the extent that the information is public and accessible. People will be better informed and
able to make better choices.

Marketing – Evolution
Development of marketing is dependent on the development of society and economy. In
purely agrarian economy the people were largely self- sufficient because they grew their
own food, made their own cloths, and built their own shelter and tools. There was neither
surplus nor deficit; so the need for exchange or marketing was not felt up to a large extent,
as time passed, people tried to concentrate on producing more and more.
The result was excess of production than the individual need. On the other hand there was
felt need of some those things which were not produced by a particular individual. Overall
the situation was that the majority of people had some commodities in surplus and some
commodities needed. Thus, whenever people make more than they want or want more
than they make, the foundation of trade or exchange is laid, which is the rudimentary point
of marketing.
Marketing has evolved through three consecutive stages of development viz. production,
sales and marketing. In fact, most firms begin with a production orientation then evolve in
either sales or marketing orientation. The experiences of the Pillsbury Company, U.S.A
provide an excellent example of a business march toward marketing philosophy.
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I. Production Orientation:
During the first fifty years of operation other it’s founding in the 1860s, the principal goal of
the Pillsbury Company was production. ‘We manufacture flour’ was the philosophy and the
self-image of the company. Management worked at increasing output and reducing
production costs through scientific improvements. Sales departments were considered
secondary, because it was assumed that consumers would want to buy high quality
products.
II. Sales Orientation:
During the 1930s, the emphasis at Pillsbury shifted from production to sales. In addition to
seeing themselves as manufacturers of flour, management began, to realise that ‘we sell
flour’. The company created first time, a research department for the study of consumer’s
needs habits and motivations. The basic managerial problem is not shortage of goods but
shortage of consumers. So advertising, merchandising and distribution became important in
competitive era.
III. Marketing Orientation:
After Second World War, Pillsbury realizes that the wheel of production keeps on moving by
the belt of marketing. Instead of trying to sell whatever products the Pillsbury focused on
determining what products consumer really wanted. Product development based on
marketing information and research became more important, with the emphasis on
consumers’ satisfaction.
When it was learned that housewives wanted more finished products, such as readymade
desserts and biscuits, entirely new divisions were developed to meet consumers’ needs.
The customer orientation of marketing was viewed as essential for business success.

Marketing – Philosophy:
Marketing philosophy is the thought process of the top level management [TLM], according
to which goals of an organization can be best achieved through identification and
satisfaction of the stated and unstated needs and wants of the customer.
The Marketing Philosophies which are being discussed below, help the management in
determining the marketing approach, Companies approach and conduct business in
different ways in order to achieve the organizational goals.
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The five competing philosophies, by which companies are guided in their marketing efforts,
are:
1. Production Philosophy:
Production philosophy, which is based on the fact that consumers favour products that are
available and affordable. Concentration on production efficiency and effective distribution
networks outweigh the customer’s actual needs and wants. This is used primarily when
demand exceeds supply and the focus is on finding production methods that can bring the
price down to attract more customers.
2. Product Philosophy:
Product philosophy, which is based on ways to improve the quality, performance, and
features, packaging, schemes etc., to attract buyers. This philosophy tends to spend too
much time adding features to their products, rather than thinking about what people
actually need and want.
3. Selling Philosophy:
Selling philosophy, which places the focus on sales rather than what people actually need or
want. Most of the time the product is misrepresented which results in high customer
dissatisfaction. This is, invariably for the short run success and quick profits.
4. Marketing Philosophy:
Marketing philosophy, this focuses on what people need and want more than the needs of
the seller. This concept is about the importance of satisfying the customer’s needs to
achieve company success. Products are developed around those needs and wants.
5. Societal Marketing Philosophy:
Societal marketing philosophy, which not only uses the same philosophy as the marketing
concept, but also focuses around the products benefit to the betterment of society as a
whole. Greater emphasis is put on environmental impacts, population growth, resource
shortages, and social services.
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Marketing – Scope:
1. Marketing is Consumer-Oriented Process:
A business exists to satisfy human needs. Therefore, it is essential that the organization
must first find out the customers’ needs. Only such goods should be produced which best
satisfy consumer needs. In the words of Levitt, instead of trying to market what is easiest
for us to make, we must find out much more about what the consumer is willing to buy.
2. Market Starts and Ends with the Customer (C2C):
Marketing starts even before production starts. Under consumer oriented marketing, it is
essential to understand what customers really want. Understanding of customer wants is
possible only when the information is collected from the customers regarding their tastes,
fashions, buying habit etc.
Therefore, establishment of proper information system is essential for the success of the
marketing function. Marketing research helps the organization to understand customer
wants. Reliable information helps the organization to produce right type of goods that are
needed by the consumer. This helps in satisfying both the customers and the organization.
3. Marketing is the Guiding Element of Business:
In the past marketing was considered as a function concerned with getting goods and
services into the hands of customers. Today marketing is much more than this. Modern
marketing is a function directed towards economic development of the country and in
raising the standard of living of the people.
Modern marketing involves the integration of various activities involved in marketing
process. The responsibility of modern marketing is to reach customers at a maximum speed
with minimum cost.
4. Marketing is a System:
Marketing has been viewed as an ongoing or dynamic process involving a set of interacting
and interrelated activities to reach customer. It receives inputs from the environment
(customers) in the form of valuable information. Using these valuable information,
organization supply the desired products and services to satisfy customer needs and
thereby earns profit.
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5. Marketing is a Goal-Oriented Process:

Marketing seeks to achieve some useful goals like any other business activity. The very basic
aim of marketing is to generate considerable amount of profit through customer
satisfaction. Increase in volume of sales, increase in profit and increase in growth are the
three objectives of marketing. While attaining these objectives, organizations should
assume social responsibilities to a greater extent.
6. Marketing is a Process of Exchange:
Marketing essentially a process of exchange. Goods and services are exchanged between
the buyers and the sellers. Goods and services are handed over to the buyers by the
organizations and the customers in turn gives money to the organization. One more
important exchange observed in marketing is information.
Marketing information is exchanged between the buyers and the sellers. Information is
power. Information is the foundation on which the organization success depends.
7. Marketing is a Process:
Marketing involves various functions to be performed in an order. Various activities should
be properly related. This process should be flexible. Any changes in social and
environmental factors influence the marketing process. Therefore, marketing management
should have a watch on these changes. The process should be improved to suit these
changes.

Marketing – 2 Major Concept

Traditional View of Marketing Concept:
Traditionally defined, “Marketing consists of those efforts which effect transfers in
ownership of goods and care for their physical distribution”. It is the process by which
products are made available to the final consumers from the place of production. It consists
of all those activities which are meant to ensure the flow of goods and services from the
producers to the final consumers.
Thus, marketing is a wider and more comprehensive term and includes the whole process
of distribution and the process before distribution. Marketing makes the goods useful to
the society by getting them where they are wanted, when they are wanted, by transferring
them to those by whom they are wanted. In this sense, marketing has been defined as by
experts in the following way.
Huegy& Mitchell: “The activities involved in the creation of place, time and possession
utilities”.
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Ralph S. Alexander and Others: “The performance of business activities that direct the flow
of goods and services from producers to consumer or user”.
Prof. Tousley, Clark and Clark: “Marketing consists of those efforts which effect transfer in
ownership of goods and services and care for their physical distribution”.
American Marketing Association: “Marketing includes all those activities having to do with
effecting changes in the ownership and possession of goods and services. It is that part of
economics which deals with the creation of time and place and possession utilities and that
phase of business activity through which human wants are satisfied by the exchange of
goods and services for some valuable consideration”.
These views imply that ‘marketing’ was merely facilitating the transfer of goods to
customers. Simply it involved the selling activity. All the efforts were directed towards
selling, sometimes even ‘somehow’ or ‘by whatever way’ or ‘dumping the goods at
customers’ end, not thinking about perfect matching with needs and desires of customers.
Those efforts were as that of exhausting the stock by any means.
Modern View of Marketing Concept:
These ideas are expressed by various experts on marketing as follows:
C.C. Knight – “Marketing embraces all efforts made in the discovery of consumers’ actual
and potential requirements for commodities and services and the steps taken for securing
their adequate distribution”.
J.F. Pyle – “Marketing is that phase of business activity through which human wants are
satisfied by the exchange of goods and services”.
Cundiff and Still – “Marketing is the business process by which products are matched with
the markets and through which transfer of ownership is effected”.
H.L. Hansen – “Marketing is the process of discovering and translating consumer wants into
product and services specifications and then in turn, helping to make it possible for more
and more consumers to enjoy more and more of these products and services”.
Willliam J. Stanton – “Marketing is a total system of interacting business activities designed
to plan, price, promote and distribute want-satisfying products and services to present
potential customers.”
Philip Kotler and Gary Armstrong – “Marketing as a social and managerial process by which
individuals and group obtain what they need and want through creating and exchanging
products and value with others”.
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Thus, in broader sense, “the value proposition is fulfilled through marketing offers. The
value proposition is a set of benefits that promise to consumers to satisfy their needs. So,
the marketing offers consist of some combination of products, services, information or
experiences offered to a market to satisfy a need or want. Marketing offers include both
tangible and intangible things i.e., goods and services”.

Marketing – Characteristics
Some of the important characteristics of marketing are described below:
i. Modern concept of marketing is customer-oriented.
ii. Marketing is the bridge which fills gap between producer and consumer.
iii. That is, First Ascertain What Consumer Wants and then Produce.
iv. Emphasis is upon Customer Satisfaction.
v. Here, Marketing begins and ends with customers.
vi. Accordingly, according to this concept –
a. A producer must produce what consumer needs that is emphasis is on customer’s needs.
b. Price be fixed what customer can afford.
c. Production must be in quantity that customer requires, that is, customer’s demand
determines production.
d. Goods must be distributed through channels suited to consumers.
e. Ultimate object is customer satisfaction.
f. Customers enjoy supreme importance (as against product).
vii. Marketing aims at earning profits through consumer satisfaction.

Marketing – Nature:
The marketing process deals with identifying customers need and want and delivering
satisfaction to customers more than their competitors do, by delivering them desired
product. The marketing process revolves around buyers, sellers, product or services,
advertisement, promotion, market and the distribution system and most importantly
customer satisfaction and customer relation.
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The natures of marketing are discussed below:

1. Mixture of Art and Science:
The basis of marketing lies in understanding the human behaviour. Marketing begins with
understanding the needs and wants of targeted customer and continues even after selling
the desired product and services to the customer, when satisfaction of the consumer, post
consumption is analysed. All marketing decisions and actions hinges upon consumer
psychology and consumer behaviour. In other way it is a study of consumer behaviour
towards marketing actions of the firm.
Hence it can be termed as a science of studying consumer psychology and behaviour. The
best the firm and the marketer understands the consumer behaviour the more successful it
will be. This involves art and skill and ability to foresee the future. Marketing require
scientific skill for measuring and analysing the effectiveness and acceptance of the
marketing actions.
Marketing is an art as it requires a lot of skill, creativity to persuade and attract customers,
to develop a product and brand, to design the product, to conceive the promotional ideas.
Thus marketing is the mixture of art and science. Phillip Kotler says that often marketing has
been described as “the art of selling products.”
2. Process of Exchange:
Marketing is based on the concept of exchange that is “act of obtaining a desired object
from someone by offering something in return.” The needs and wants of the customers are
satisfied by the products or services offered by the marker in exchange of price paid by the
customer for the product or services.
3. Management Process:
Marketing is a managerial process where the management functions of planning,
organising, coordinating and controlling are judiciously practiced by the marketer to
accomplish the functions of marketing. Marketing process involves product planning,
pricing decision making, planning of promotional and distribution activities.
All activities related to product development, manufacturing, promotion and distribution
should be well organised and coordinated to make appropriate products available to
customers at right time and at convenient location. Forecasting plays an important role in
identifying marketing opportunities, threats and challenges so that marketer is prepared
beforehand to handle such situation.
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4. Dynamic Process:
Identification of consumer’s need and want is the primary function of marketing. Human
needs and wants are influenced by their culture, personality, social class, and demographic
parameters which are dynamic. Apart from this the business environment comprising of
demographic, economic and market conditions are ever changing. Hence marketing
concepts, decisions, functions and activities are dynamic in nature to deal with the changing
circumstances.
5. Basic Function:
According to Peter Drucker, an Austrian-born American management consultant, educator,
and author – “A business has two, and only two, basic functions – marketing and
innovation.” Marketing is the basic function around which all the activities of production,
selling, distribution revolve. The business aims at achieving profit through sale of goods or
services and the entire process of marketing gives shape and assists to achieve this
objective.
6. Creation of Consumer’s Demand and Consumer:
Consumer’s need is inherent. Marketing converts the needs to want and demand.
Marketing provide different ways of how a consumer’s need can be satiated. Marketing
creates goods and services that best satisfies consumer’s need. Marketing creates
customer, converts the prospective customer to actual customer.
7. Customer Satisfaction:
The principal objective of marketing is achieving sales and profitability through customer
satisfaction. Delivering customer satisfaction is considered as pivotal task of the
management, which will ensure longer sustenance of the firm. All marketing decisions and
actions are directed towards delivering customer satisfaction. A satisfied customer makes
repeat purchase and also tells others about their good experience with the product.
Therefore customer satisfaction is the key to success.
8. Marketing Mix:
The marketing process propel with the integration of 4Ps-product, price, promotion and
place and 4Cs-customer, cost, convenience and communication. The product, price,
promotion and place are controllable marketing tools that form the essential ingredients of
marketing. All the factors combined in appropriate proportion are addressed to the target
market to get best results. All these factors are interrelated and form the part of marketing
decision and strategy.
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Marketing – Objectives:
The broad objectives of marketing are as follows:
1. Customer Satisfaction:
The marketing manager must study the demands of customers before offering them any
goods or services. Selling the goods or services is not that important as the satisfaction of
the customers’ needs. Modern marketing is customer-oriented.

2. Generation of Profits:
The marketing department is the only department which generates revenue for the
business. Sufficient profits must be earned as a result of sale of want-satisfying products. If
the firm is not earning profits, it will not be able to survive in the market. Moreover, profits
are also needed for the growth and diversification of the firm.
3. Increase of Market Share:
Every business aims at increasing its market share, i.e., the ratio of its sale to the total sales
in the economy. For instance, both Pepsi and Coke compete with each other to increase
their market share. For this, they have adopted innovative advertising, innovative
packaging, sales promotion activities, etc.
4. Creation of Goodwill and Public Image:
To build up the public image of a firm over a period is another objective of marketing. The
marketing department provides quality products to customers at reasonable prices and
thus creates its impact on the customers. The marketing manager attempts to raise the
goodwill of the business by initiating image-building activities such as sales promotion,
publicity and advertisement, high quality, reasonable price, convenient distribution outlets,
etc.

Marketing – Process:
The total marketing process of a business has three distinct levels.
The processes are:
1. Marketing Probe.
2. Marketing Priorities.
3. Strategic Marketing.
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4. Tactical Marketing.
5. Marketing Administration.
1. Marketing Probe:
Marketing Probe is the first stage where the Marketer will organise to gather, collate &
tabulate information from the external marketing environment, operational environment
and internal environment and thereafter analyse its prospects. This in the case of a new
business is simply to analyse whether the external needs can be matched by internal
resources or in an existing business to ascertain whether it is happening and what other
opportunities are available.
2. Marketing Priorities:
Marketing Priorities having analysed the prospects the marketer can move to the second
stage, which is deliberating its Priorities. Here the Marketer with the information available
will identify key issues and make a set of assumptions. Having done so the next will be to
focus on a set of appropriate goals and to drive those goals the organisation would need to
have specific, measurable, attainable, result & time oriented (SMART) objectives.
3. Strategic Marketing:
Strategic Marketing is the third stage, which concerns determining the strategic choice and
developing the strategic direction. Market segmentation, targeting market segments,
differentiating and finding unique value and positioning are key elements in strategic
marketing.
4. Tactical Marketing:
Tactical marketing this is the stage at which the marketing-mix is applied. The marketing-
mix evolved as – 4 P’s — Product, Price, Place, Promote and later expanded to 7 P’s —
People, Process, Physical Evidence and the eighth element is Customer Care. The additional
four elements were evolved from the purpose of fulfilling needs of the service industry.
Today the marketing mix comprises of 8 elements.
5. Marketing Administration:
Marketing Administration is the stage at which all of the above are brought to the ‘drawing
board’ and an appropriate Marketing Plan is developed. This plan will thereafter be
implemented through careful control.
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Marketing – Benefits to Consumer, Manufacturers, Sellers and Society

1. Benefits to Consumers:
i. Wide choice of products and services – Marketing brings to the doorsteps of consumers
the latest products and services and thus gives the consumers an opportunity to consume
them.
ii. Appropriate products and services – Marketing enables the manufacturers to design the
goods in accordance with the needs and requirements of the consumers and thus enables
the consumers to consume products and services of their liking.
iii. Educative value – Marketing in the process of communicating to the consumers also
provides them with substantial information and thus educates them.
iv. Affordable prices – Marketing compels the manufacturers to price the products and
services to suit the consumers’ pockets and thus brings the products and services to them
at an affordable cost.
v. Voicing of grievances – Marketing being a two way channel of communication,
communicates the consumers’ feedback to the manufacturers and thus enables the
consumers to voice their grievances.
2. Benefits to Manufacturers and Sellers:
i. Increases sales – Marketing enables manufacturers and sellers to understand the
consumers and design appropriate products, services and terms of sale and thereby enables
them to increase sales.
ii. Understanding the consumers – Marketing enables manufacturers and sellers to
understand the consumers in order to design appropriate products.
iii. Profit maximization – Marketing enables manufacturers and sellers to understand the
consumers, design appropriate products, sell in large quantities and thus maximize profits.
iv. Customer loyalty – Marketing enables manufacturers and sellers to understand the
consumers and deliver a high degree of satisfaction. This establishes customer loyalty.
v. Image creation – Marketing enables manufacturers and sellers to advertise their products
under different brands and ultimately create brand image, brand loyalty and brand recall in
the minds of the consumers.
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3. Benefits to Society:
i. Creation of jobs – Marketing in its process of advertising, consumer surveys etc. creates a
large number of jobs.
ii. Economic development – Marketing enables the manufacturers and sellers to increase
their sales and ultimately brings about economic development.
iii. Standard of living – Marketing brings large variety of appropriate goods and services to
the people and ultimately raises their standard of living.
iv. Equilibrium between demand and supply – Marketing equalizes the demand and supply
for goods and services and stabilizes the economy.
v. Value addition – Marketing creates time ability and place ability and thus adds value to
the products.

Marketing – Difficulties:
1. Resistance to change – Resistance to change from existing performance goals originally
set and what needs to be accomplished is a big problem faced by the marketing personnel.
2. Insufficient resources and budget – There is usually an insufficient resources and budget
for market testing, analytics, or research to bring the intelligence necessary to drive more
profitable performance.
3. The lack of cooperation between marketing and sales departments – The lack of
cooperation between marketing and sales departments defers and delays the targets of
marketing
4. Product/Customer Needs – Rather than isolating an R&D department from sales and
customer service, marketing management must ascertain customer needs by interacting
with customers to find out what they really want and are willing to pay for.
5. Price/Cost to the User – Customer relationship management should produce a mutually
beneficial association between customer and producer. Not only must marketing
management consider initial price but also convince consumers of the overall value. In turn,
management must decide which customers are most profitable to the business, and which
ultimately drain revenue away by simply demanding too much and delivering too little to
the relationship.
6. Globalization – Globalization affects Place/Convenience aspect of the marketing mix most
directly. Companies can find customers and competitors anywhere. Marketing management
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must stay abreast of technology updates that equip the supply web with stronger links, and
enable greater, smoother, more transparent transactions
7. Promotion/Communication – This challenge to marketing management transforms the
inline Four Ps into a circular Four Cs. Consumers of today demand the right to talk back,
become part of the ongoing market cycle. Marketing management can take advantage of
technology by talking with customers, and not only develop products needed by consumers
but also foster loyalty among current customers.
8. Changing face of consumers – Gone are the days when the elders or males of the house
decided on ‘what to buy’. Today this scenario has totally changed. Not only the lady of the
house has a bigger say in ‘what to buy’ but even the children have a say in these matters.
Therefore, it is necessary to study the buying behaviour of women and children.
9. Increased demand for tourism and holiday products – Marketers must take note of the
fact that the money market is good and salaries have gone up. Couples of today like to plan
several short trips over the weekends and go to holiday resorts quite often. More
innovation is required in this area.
10. Growing consumer awareness – The consumer of today is very much aware of his/her
rights and is very concerned about the quality, quantity and features of the product. Several
cases are, every day, filed with the consumer’s courts. The marketer has to take a serious
note of this issue.
11. Ever growing competition – The companies are facing competition not only from the
indigenous competitor but also from the multinational companies. The companies have to
gear up to combat the fierce competition.
12. Ever increasing markets – Due to growth in population and growth in tourism, the world
is experiencing a revolution in the markets. The markets have expanded phenomenally. This
provides a big opportunity to the marketer.

Marketing Mix
Meaning:
The process of marketing or distribution of goods requires particular attention of
management because production has no relevance unless products are sold. Marketing mix
is the process of designing and integrating various elements of marketing in such a way to
ensure the achievement of enterprise objectives.
The elements of marketing mix have been classified under four heads—product, price,
place and promotion. That is why marketing mix is said to be a combination of four P’s.
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Decisions relating to the product includes product designing, packaging and labelling, and
varieties of the product. Decision on price is very important because sales depend to a large
extent on product pricing.
Whether uniform price will be charged or different prices will be charged for the same
product in different markets are examples of decision pertaining to the price of the product.
The third important element is place, which refers to decision regarding the market where
products will be offered for sale.
Promotion involves decisions bearing on the ways and means of increasing sales. Different
tools or methods may be adopted for this purpose. The relative importance to be attached
to the various methods is decided while concentrating on the element of promotion in
marketing mix.
In short, marketing mix involves decisions regarding products to the made available, the
price to be charged for the same, and the incentive to be provided to the consumers in the
markets where products would be made available for sale. These decisions are taken
keeping in view the influence of marketing forces outside the organization (e.g., consumer
behaviour, competitors’ strategy and government policy).

Characteristics/Features/Nature of Marketing Mix:

1. Marketing mix is the crux of marketing process:
Marketing mix involves many crucial decisions relating to each element of the mix. The
impact of the mix will be the best when proper weightage is assigned to each element and
they are integrated so that the combined effect leads to the best results.
2. Marketing mix has to be reviewed constantly in order to meet the changing
requirements:
The marketing manager has to constantly review the mix and conditions of the market and
make necessary changes in the marketing mix according to changes in the conditions and
complexity of the market.
3. Changes in external environment necessitate alterations in the mix:
Changes keep on taking place in the external environment. For many industries, the
customer is the most fluctuating variable of environment. Customers’ tastes and
preferences change very fast. Brand loyalty and purchasing power also change over a
period. The marketing manager has to carry out market analysis constantly to make
necessary changes in the marketing mix.
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4. Changes taking place within the firm also necessitate changes in marketing mix:
Changes within the firm may take place due to technological changes, changes in the
product line or changes in the size and scale of operation. Such changes call for similar
changes in the marketing mix.
5. Applicable to business and non-business organization:
Marketing mix is applicable not only to business organizations but also to non-business
organizations, such as clubs and educational institutions. For instance, an educational
institution is expected to provide the right courses (product), charge the right fees (price),
promote the institution and the courses, and provide the courses at the right place.
6. Helps to achieve organizational goals:
An application of an appropriate marketing mix helps to achieve organizational goals such
as profits and market share.
7. Concentrates on customers:
A thorough understanding of the customer is common to all the four elements. The focus
point of marketing mix is the customer, and the marketing mix is expected to provide
maximum customer satisfaction.

Elements of Marketing Mix

The elements which form the marketing mix are – Product, Price, Placement and
Promotion. They are popularly known as ‘4Ps’ as all these four elements begin with the
letter ‘P’. These four elements got their recognition in the year 1960 when Marketing
Professor and author E. Jerome McCarthy developed an effective marketing strategy.
The author says the marketing element is dependent on the type of industry and the target
of the specific marketing plan which the industry wants to implement. Marketing Managers
thus take various types of approaches and formulate their strategy to manage each of the
four Ps. The four elements can be examined independently, while in practice, they are best
used when blended. Let us know about the four elements. They are as under:
1. Product:
Product decision involves deciding what goods or services should be offered to customers.
The product or service serves the basic need of the customer. The product provides the
primary value to the customer. The customer gets interested in the company primarily
because of the product or service it is producing or proposes to produce. All other elements
should be reinforcing the value proposition of the product.
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An important element of product strategy is new product development. As technologies

and tastes change, products become out-of-date and inferior to competition. So companies
must replace them with new designs and features that customer’s value. The challenging
task is to include the latest available technologies and solutions to the latest needs of the
customer in a company’s product.
It also has to decide its branding strategy, and how the other three Ps will complement its
product strategy, which essentially involves decisions regarding packaging, warranties and
services.
2. Price:
Price is the cost that customer is willing to bear for the product and the way it is made
available to him. Price represents on a unit basis what the company receives for the product
which is being marketed. All other elements of the marketing mix represent costs.
Marketers need to be very careful about pricing objectives, methods to arrive at a price and
the factors which influence setting of a price.
The company gives discounts and allowances to lure customers to buy its products, which
means that a company’s realized price is less than its list price. Therefore, if a company is
generous in giving discounts and allowances, it should keep its list price high. The list price
should always have negotiation margin built in it. Payment periods and credit terms also
affect the real price, and if a company has generous payment periods and credit terms, it
should keep its list price high.
In comparison to other elements of the marketing mix, price can be changed easily. But an
ill-considered change in price can alter customer perceptions about the value of the
marketing mix. In the absence of any objective knowledge about the quality of the product,
the customer builds a strong association between price and quality.
If the price of a product is reduced, customers may start regarding it as an inferior quality
product. If a company raises price, customers may consider it a high quality product, but
there is also the risk that customers may regard the price as too high for the value that they
are getting from the product. Price change, though easy to make, should always be done
taking into consideration the effect the change will have on the attractiveness or otherwise
of the marketing mix.
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3. Promotion:
Decisions have to be made with respect to promotional mix advertising, personal selling,
sales promotions, exhibition sponsorship and public relations. By these means, the target
audience is made aware of the existence of the product and the benefits that it confers to
customers.
The type of promotional tool used has to gel with other elements of the marketing mix. An
expensive product, like machinery, with limited number of customers should be promoted
through personal contacts between buyers and salespersons.
Advertising in the mass media would be wasteful as the number of customers is far too
small, and it would be ineffective as the customer will not make a decision to buy such an
expensive product based on a little information provided in an advertisement. He will
require extensive information to be able to make a choice. But an inexpensive product
bought by the mass market can be advertised in the mass media.
Even the nitty-gritty of a chosen promotional tool should enhance the marketing mix. The
media used, the celebrity chosen to endorse the product, the training provided to the
salesperson, etc., should reflect and reinforce other elements of the marketing mix.
Normally the company makes its first contact with customers through its promotional
efforts. A customer does not buy a product unless he has formed certain expectations
about the product. Promotion shapes the expectations of customers about the product.
Used rightly, promotion can raise customer expectations and drive sales. But if a product is
hyped, though customer expectations are raised, he will be disappointed when he actually
uses the product and does not find it up to his expectations. Such disappointments
engender negative word-of-mouth publicity and may leave a permanent dent in the
company’s reputation.
4. Place:
Place involves decisions concerning distribution channels to be used, the location of outlets,
methods of transportation and inventory levels to be held. The product should be available
in the right quantity, at the right time and place. Distribution channels consist of
independent intermediaries such as retailers, wholesalers and distributors through which
goods pass on their way to customers.
These intermediaries provide cost-effective access to the marketplace. It will be extremely
costly and cumbersome if the manufacturer had to set the entire infrastructure needed, to
manage the transfer of goods to the customers. The manufacturer has to manage and
structure relationships with these intermediaries in such a way that interests of the
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manufacturer and intermediaries are served. Distribution channels perform three distinct
functions. They transfer products from the manufacturer to the customers, they pass
information from the manufacturer to the customers, and they retrieve payment from the
customers to the manufacturer.
It is possible to segregate these three functions as alternate means of delivering products,
passing information and collecting money are developed. In internet marketing,
information is provided on the manufacturer’s website, the product is sent from the
manufacturer’s store to the customer through courier service, and payment is collected by
banks through credit cards.
A company should have an open mind while designing its distribution strategy. The three
functions have to be performed, but it is not essential that all the three functions are
performed by one channel. Three separate channels can perform a function each,
depending on each channel’s efficiency and effectiveness in carrying out the function.

Importance of Marketing Mix

1) It helps in a clean mix creation
Your marketing mix should have all the P’s compatible with each other. The price should be
compatible with the placement of the product. The product should be compatible with
the promotions. In general, all the P’s are intrinsically linked to each other.
As a result, when you are making a marketing mix, it becomes a chain of strong bonds. And
these bonds then guide you forward in making the chain longer. Whenever you are
considering adding a new feature or changing existing things, you have to look at the overall
picture, which helps in creating a clean marketing mix for the product.
2) Marketing mix helps in New product development
While designing an existing product, there are any number of ideas which can come up for a
related product that can be designed by the company. The pricing, place and promotions
might be different for such a product. Nonetheless, it can be classified as a new product and
hence while designing the marketing mix, the company can come up with good ideas for
NPD as well.
3) Marketing mix helps increase the product portfolio
Whenever you want to increase the product depth or product line and length, you have to
make minor changes to the product. In essence, you are making minor changes in the
marketing mix itself. You are making changes to the product features, to its pricing and
 23

possible to its promotions. As a result, by altering the marketing mix and certain features
within it, you can end up with an enlarged product portfolio.
4) It is a guide to improve a business
Physical evidence was an important P in the service marketing mix. If a restaurant or an
interior design business realises its important, then naturally they can act on it and improve
the physical evidence of their business thereby bringing in more business.
The importance of marketing mix is evident in more then a single P. People and process are
important to the organization too and optimizing both can improve the overall working of
the organization. Hence, marketing mix is an excellent guide if someone wants to improve
their business and is doing gap analysis.
5) It helps in differentiation
When you analyse the marketing mix of Competitors, there are many different ways that
you can differentiate yourself from the competitor. The competitor might have poor
promotions and by analysing them, you can create better promotions of your own product.
The competitor might have poor placement of products or he might have the wrong
process or the wrong people in place. All this can be improved upon giving you a better
marketing mix and therefore a competitive advantage in the market.
6) Finally, it helps you in being dynamic
A company which is well prepared is also prepared when disaster strikes. During recession
or during a poor business environment, a company should be ready to respond. At such
times, the company needs to be dynamic in nature. Such a company needs to understand
its product, processes, people, promotions and all other P’s better. If it understands them, it
will respond with a better agility.

Strategic marketing planning

Strategic marketing planning is the process of writing and following a plan to reach a
specific marketing goal. Companies may develop strategic marketing plans to increase
revenue and profits, achieve greater visibility, discourage competitors or improve their
appearance through a total rebranding. Management and operations teams work together
to identify the goal, outline the steps, assign tasks and measure the success of the effort.
They may revise their steps over time, but they begin with a research-backed, practical plan
in place.
 24

7 steps to a strategic marketing plan

Here are 7 steps you can take to create a strategic marketing plan:
1. Find your starting place
To ensure all team members share a common view of the company, its products and its
future prospects, start with a basic question exercise: What does our company exist to do?
You can discuss the company's mission statement and niche market, then reflect on what
you have accomplished and what is upcoming.
To accurately assess your company's current situation, try conducting a SWOT
analysis which will prompt you to list the company's current strengths, weaknesses,
opportunities and threats. From this vantage point, you can determine what opportunities
are available and achievable.
2. Conduct market research
After reviewing your company's mission and status, compare your findings to others in the
same market. If your competitors are facing similar threats, you can research how they are
able to engage with customers. As you're deciding how to launch a new product, search
how companies have released similar products in the past and distinguish your approach.
Before you go further in your planning, get to know your customers again. You may send
out a survey or invite some buyers to participate in a focus group concerning an existing
product. Ask concrete questions that test your assumptions, such as:
 Where did you find our product?
 How do you use it?
 Would these changes improve your experience?
3. Define a target audience
Consider sketching a profile of your average customer, including their needs and
complaints. Determine their age range and where they live, their family size, job title,
lifestyle choices, money habits and other identifying qualities. You may even describe a
typical day in their life to demonstrate their unique behavioral characteristics like resilience,
curiosity and sensitivity toward others.
You may also want to consider the other places your ideal customer spends money, such as
gyms, theaters and groceries and market to them.
 25

4. Set a measurable goal

Whether you're planning to improve brand awareness, drive more sales, increase customer
engagement or enter a new market, you will need to set goals to assess the progress of
your marketing plan. One way to do this is to write a SMART goal, which prompts you to
take a Specific, Measurable, Attainable, Relevant, Time-bound approach to your goal
setting.
This set of criteria may help you visualize your goals, assign them to the appropriate team
members and use them as an ongoing source of focus and motivation. It may also help you
identify shortcomings in your plan, such as achieving an unrealistic number of email signups
in a short timeframe. Spotting and correcting this error in advance helps a marketing team
pursue appropriate goals and stay positive in the process.
5. Get budget approval
Depending on your company's resources and processes, you may need to seek budget
approval after you decide your marketing strategies rather than before. If you know your
budget will be limited, it may be helpful to present the material you've gathered from the
first four steps in order to find out how much you will assign to the plan. You can then
determine your strategies based on what is financially realistic. Whichever step you take
first, it may be helpful to see these steps working in tandem rather than as two separate
steps.
As you prepare a budget request for your manager, remember you are selling to them in a
similar way you sell to customers. Begin with the results you expect from achieving your
marketing goals. If your manager oversees other company budgets, such as personnel and
technology, you may need to investigate how other departments' costs are achieving the
company's goals.
Essentially, the company's strategic marketing plan is an investment in the company's short-
term and long-term goals. By explaining what the return on investment (ROI) will be and
how this detailed plan will progress, you may persuade your manager that the success of
your plan will, in time, fund other company plans.
6. Decide on a mix of strategies
Your market research will help you determine which tactics to use to reach your target
audience. There are dozens of marketing strategies to decide between, and one helpful way
of working through your options is to use the 4 Ps of Marketing method, which includes
Product, Price, Promotion and Place strategies
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7. Craft a detailed schedule and begin

Create clear expectations for each person contributing to the plan, including target dates
for weekly, monthly or quarterly reviews.
It may be helpful to assign goals to team leaders who can manage the details of those goals
and delegate tasks to their team members. When it's time to measure and evaluate the
success of your strategies and possibly revise your goals, you can meet with the team
leaders rather than the team at large.

Strategic Marketing Planning – Importance

1. The Marketing Plan:
A marketing plan is part of an organization’s overall strategic plan, which typically captures
other strategic areas such as – human resources, operations, equity structure, and a host of
other non-marketing items. The marketing plan is an action- oriented document or
playbook that guides the analysis, implementation, and control of the firm’s marketing
strategy.
Creating a marketing plan requires the input, guidance, and review of employees
throughout the various departments of a firm, not just the marketing department, so it is
important that every future business professional understand the plan’s components.
The specific format of the marketing plan differs from organization to organization, but
most plans include an executive summary, situation analysis, marketing strategy, financials
section, and controls section. These five components communicate what the organization
desires to accomplish and how it plans to achieve its goals.
2. Mission Statement:
The first step in creating a quality marketing plan is to develop an effective mission
statement. A mission statement is a concise affirmation of the firm’s long-term purpose. An
effective mission statement provides employees with a shared sense of ambition, direction,
and opportunity.
A firm should begin the process of developing a mission statement by considering the
following classic questions posed by Peter Drucker, who is considered the father of modern
management –
i. What is our business?
ii. Who is our customer?
iii. What is our value to the customer?
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iv. What will our business be?

v. What should our business be?
These basic questions are often the most challenging and important that a firm will ever
have to answer.
3. Executive Summary:
Once you have graduated and begun your career, you will likely come into contact with
senior level executives at your firm in casual places, such as – the break room or elevator.
When they ask what you are working on, you won’t have 20 minutes to discuss yourself and
your projects.
More likely, you will have time for only a short elevator pitch, which is a one- to two-minute
opportunity to market yourself and share the main points of the work you are doing.
The executive summary serves as the elevator pitch for the marketing plan. It provides a
one- to two-page synopsis of the marketing plan’s main points. In the same way that you
should put great effort into making sure that every second of your elevator pitch counts,
every line of an executive summary should convey the most valuable information of the
marketing plan.
4. Situation Analysis:
The situation analysis section is often considered the foundation of a marketing plan
because organizations must clearly understand their current situation to make strategic
decisions about how to best move forward. A situation analysis is the systematic collection
of data to identify the trends, conditions, and competitive forces that have the potential to
influence the performance of the firm and the choice of appropriate strategies.

Strategic Marketing Planning – 3 Main Levels

1. Corporate Level Strategic Plans:
These strategic plans are the ones that are chalked out at the helm of the organizational
ladder where the top brass of management is entitled to decide about –
i. Corporate mission,
ii. Strategic business units (SBUs),
iii. Allocating resources to SBUs, and
iv. Filling up strategic planning gaps for existing and new businesses.
 28

2. Business Level Strategic Plans:

An organization consists of a number of SBUs. Each SBU develops its own missions,
objectives, and strategies to achieve. Each SBU explores its marketing opportunities
separately and analyses its external threats as well. It lays down its own strategic plans
which must not contradict the overall corporate plan.
The components of the SBU’s strategic plan, in general, are:
i. Defining the business mission.
ii. Analysing the external environment for identifying opportunities and threats.
iii. Analysing the internal environment for introspecting strengths and weaknesses.
iv. Developing business objectives and goals.
v. Developing business strategies.
vi. Preparing programmes or action plans.
vii. Implementing action plans.
viii. Monitoring feedbacks and take corrective actions.
3. Product/Functional Level Strategic Plan:
A strategic plan provides the framework for preparing marketing strategies for a specific
product or service. These product/functional level strategies should be consistent with the
business strategies.

Marketing Environment
Marketing activities are influenced by several factors inside and outside a business firm.
These factors or forces influencing marketing decision-making are collectively called
marketing environment. It comprises all those forces which have an impact on market and
marketing efforts of the enterprise. According to Philip Kotler, marketing environment
refers to “external factors and forces that affect the company’s ability to develop and
maintain successful transactions and relationships with its target customers”.
The marketing programme of a firm is influenced and shaped by a firm’s inwardly need to
begin its business planning by looking outwardly at what its customers require, rather than
inwardly at what it would prefer to produce. The firm must be aware of what is going on in
its marketing environment and appreciate how change in its environment can lead to
changing patterns of demand for its products.
 29

It also needs to assess marketing opportunities and threats present in the surroundings. An
environment can be defined as everything which surrounds and impinges on a system.
Systems of many kinds have environments with which they interact. Marketing can be seen
as a system which must respond to environmental change.

Importance of Environment Analysis:

1. It helps in marketing analysis.
2. It can assess the impact of opportunities and threats on the business.
3. It facilitates the company to increase general awareness of environmental changes.
4. It is possible to develop effective marketing strategies on the basis of analysis.
5. It helps to capitalize the opportunities rather than losing out to competitors.
6. It facilitates to understand the elements of the environment.
7. It helps to develop best strategies, in the light of analyzing “what is going around the
company”.

Concept of Micro and Macro Environment:

A marketing oriented company looks outside its premises to take advantage of the
emerging opportunities, and to monitor and minimize the potential threats face by it in its
businesses. The environment consists of various forces that affect the company’s ability to
deliver products and services to its customers.
The marketing environment is made up of:
1. Micro-environment and
2. Macro-environment.
We discuss them in detail:
1. Micro-environment:
The micro-environment of the company consists of various forces in its immediate
environment that affect its ability to operate effectively in its chosen markets.
This includes the following:
(a) The company
(b) Company’s Suppliers
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(c) Marketing Intermediaries

(d) Customers
(e) Competitors
(f) Public
A brief explanations are given below:
(a)The Company:
In designing marketing plans, marketing management takes other company groups into
account – Finance, Research and Development, Purchasing, Manufacturing, Accounting, Top
Management etc. Marketing manager must also work closely with other company
departments. Finance in concerned with funds and using funds to carry out the marketing
plans.
The R&D Department focuses on designing safe and attractive product. Purchasing
Department is concerned with supplies of materials whereas manufacturing is responsible
for producing the desired quality and quantity of products. Accounts department has to
measure revenues and costs to help marketing know-how. Together, all of these
departments have impact on the marketing plans and action.
Internal Environment (Within the Co.):
The marketing management, in formulating plans, takes the other groups into account:
1. Top Management
2. Finance
3. R&D
4. Manufacturing
5. Purchasing
6. Sales Promotion
7. Advertisement etc.
(b)Company’s Suppliers:
Suppliers provide the resources needed by the company to product its goods and services.
They are important links in the company’s overall customer “value delivery system”.
Supplier developments can seriously affect marketing. Marketing managers must watch
supply availability – supply shortages or delays, labour strikes and other events can cost
 31

sales in the short run and damage customer satisfaction in the long run. Marketing
Managers also monitor the price trends of their key inputs. Rising supply costs may force
price increases that can harm the company’s sales volume.
In business-to-business marketing, one company’s supplier is likely to be another
company’s customer and it is important to understand how suppliers, manufacturers and
intermediaries work together to create value. Buyers and sellers are increasingly co-
operating in their dealings with each other, rather than bargaining each transaction in a
confrontational manner in order to make supply chain management most effective and
value-added products are sold to the target markets.
(c)Marketing Intermediaries:
Intermediaries or distribution channel members often provide a valuable link between an
organisation and its customers. Large-scale manufacturing firms usually find it difficult to
deal with each one of their final customers individually in the target markets. So they chose
intermediaries to sell their products.
Marketing intermediaries include resellers, physical distribution firms, marketing service
agencies, and financial intermediaries. They help the company to promote, sell, and
distribute its goods to final buyers. Resellers are distribution channel firms that help the
company to find customers for goods. These include whole-sellers and retailers who buy
and resell merchandise. Selecting and working with resellers is not easy. These
organisations frequently have enough power to dictate terms or even shut the
manufacturer out of large markets.
(d)Customers:
Consumer markets consists of individuals and households that they buy goods and services
for personal consumption. Business markets buy goods and services for further processing
or for use in their production process, whereas reseller markets buy goods and services to
resell at a profit.
Government markets are made up of government agencies that buy goods and services to
produce public services or transfer the goods and services to others who need them. Finally,
international markets consist of the buyers in other countries, including consumers,
producers, resellers and governments. Each market type has special characteristics that call
for careful study by the seller.
 32

(e)Competitors:
No single competitive marketing strategy is best for all companies. The company’s
marketing system is surrounded and affected by a host of competitors. Each firm should
consider its own size and industry position compared to those of its competitors. These
competitors have to be identified, monitored and outmanouvered to gain and maintain
customer loyalty.
Industry and competition constitute a major component of the micro-environment.
Development of marketing plans and strategy is based on knowledge about competitors’
activities. Competitive advantage also depends on understanding the status, strength and
weakness of competitors in the market.
Large firms with dominant positions in an industry can use certain strategies that smaller
firms cannot afford. But being large is not enough. There are winning strategies for large
firms, but there are also losing ones. And small firms can develop strategies that give them
better rate of return than large firms enjoy.
(f)Public:
General public do take interest in the business undertaking. The company has a duty to
satisfy the people at large along with competitors and the consumers. A public is defined as
“any group that has an actual or potential interest in or impact on a company’s ability to
achieve its objectives.
Public relations is certainly a broad marketing operation which must be fully taken care of
Goodwill, favourable reactions, donations and hidden potential fixture buyers are a few of
the responses which a company expects from the public. Kotler in this regard has viewed
that “companies must put their primary energy into effectively managing their relationships
with their customers, distributors, and the suppliers, their overall success will be affected by
how other publics in the society view their activity. Companies would be wise to spend time
monitoring all their publics understanding their needs and opinions and dealing with them
constructively”.
Every company is surrounded by seven types of public, as shown below:
1. Financial—banks, stock-brokers, financial institutions.
2. Media—Newspaper, magazines, TV.
3. Government—Government departments.
4. Citizen—Consumer Organisations; environment groups.
 33

5. Local—neighbourhood residents, community groups.

6. General—General Public, public opinions.
7. Internal—Workers, officers, Board of Directors.
2.Macro Environment:
The macro-environment consists of broader forces that not only affect the company and
the industry, but also other factors in the micro-environment.
The components of a macro-environment are:
(a) Demographic Environment
(b) Economic Environment
(c) Physical Environment
(d) Technological Environment
(e) Political Environment
(f) Legal Environment
(g) Social and Cultural Environment
A. Demographic Environment:
Demography is the study of population characteristics that are used to describe consumers.
Demographics tell marketers who are the current and potential customers, where are they,
how many are likely to buy and what the market is selling. Demography is the study of
human populations in terms of size, density, location, age, sex, race, occupation and other
statistics.
Marketers are keenly interested in studying the demography ethnic mix, educational level
and standard of living of different cities, regions and nations because changes in
demographic characteristics have a bearing on the way people live, spend their money and
consume.
Income:
Income determines purchasing power and status. Higher the income, higher is the
purchasing power. Though education and occupation shapes one’s tastes and preferences,
income provides the means to acquire that.
 34

Life-style:
It is the pattern of living expressed through their activities, interests and opinion. Life-style
is affected by other factors of demography as well. Life-style affects a lot on the purchase
decision and brand preferences.
Sex:
Gender has always remained a very important factor for distinction. There are many
companies which produce products and services separately for male and female.
Education:
Education implies the status. Education also determines the income and occupation. With
increase in education, the information is wider with the customers and hence their
purchase decision process is also different. So the marketers group people on the basis of
education.
Social Class:
It is defined as the hierarchical division of the society into relatively distinct and
homogeneous groups whose members have similar attitudes, values and lifestyle.
Occupation:
This is very strongly associated with income and education. The type of work one does and
the tastes of individuals influence one’s values, life-style etc. Media preferences, hobbies
and shopping patterns are also influenced by occupational class.
Age:
Demographic variables help in distinguishing buyers, that is, people having homogenous
needs according to their specific wants, preferences and usages. For instance, teenagers
usually have similar needs. Therefore, marketers develop products to target specific age
groups.
The youth are being targeted through advertisements and promotional campaigns, stores
are being designed with ‘youthful’ features, youth events are being sponsored, and even
new technology is developed with their tastes in mind.
 35

B. Economic Environment:
Economic environment is the most significant component of the marketing environment. It
affects the success of a business organisation as well as its survival. The economic policy of
the Government, needless to say, has a very great impact on business. Some categories of
business are favourably affected by the Government policy, some adversely affected while
some others remain unaffected. The economic system is a very important determinant of
the scope of private business and is therefore a very important external constraint on
business.
The economical environmental forces can be studied under the following categories:
(i) General Economic Conditions:
General Economic Conditions in a country are influenced by various factors. They are:
1. Agricultural trends
2. Industrial output trends
3. Per capita income trends
4. Pattern of income distribution
5. Pattern of savings and expenditures
6. Price levels
7. Employment trends
8. Impact of Government policy
9. Economic systems.
(ii) Industrial Conditions:
Economic environment of a country is influenced by the prevalent industrial conditions as
well as industrial policies of a country.
A marketer needs to pay attention to the following aspects:
1. Market growth
2. Demand patterns of the industry
3. Its stage in product life cycle.
 36

(iii) Supply sources for production:

Supply sources required for production determines inputs which are available required for
production.
They are:
1. Land
2. Labour
3. Capital
4. Machinery and equipment etc.
Economic environment describes the overall economic situation in a country and helps in
analysis GNP per capita rate of economic growth, inflation rate, unemployment problems
etc.
C. Physical Environment:
The physical environment or natural environment involves the natural resources that are
needed as inputs by marketers or those that are affected by marketing activities.
Environmental concerns have grown steadily in recent years. Marketers should be aware of
trends like shortages of raw materials, increased pollution, and increased governmental
intervention in natural resources management. Companies will have to understand their
environmental responsibility and commit themselves to the ‘green movement’.
Potential shortages of certain raw materials, for examples, oil, coal, minerals, unstable cost
of energy, increased levels of pollution; changing role of Government in environment
protection are a few of the dangers the world is facing on physical environment forces.
Other aspects of the natural environment which may increasingly affect marketing include
the availability and cost of raw materials, energy and other resources, particularly if those
resources and energy come from non-renewable sources.
D. Technological Environment:
The technological environment is the most dramatic force now facing our destiny.
Technological discoveries and developments create opportunities and threats in the
market. The marketer should watch the trends in technology. The biggest impact that the
society has been undergoing in the last few years is the technological advancement,
product changes and its effects on consumers.
 37

Technology has brought innumerable changes in human lives, be it in the field of science,
medicine, entertainment, communication, and travel or office equipment. Name any field,
and one can see changes in product or efficiency and faster services.
One of the most dramatic forces shaping people’s lives in technology. Technology has
released such wonders as penicillin, open-heart surgery and birth control pill. It has
released such horrors as the hydrogen bomb, nerve gas, and the sub-machine gun. Every
new technology is a force for “creative destruction”. Transistors hurt the vacuum tube
industry, xerography hurt the carbon paper business, autos hurt the railroads, and
television hurt the newspapers.
E. Political Environment:
The political environment consists of factors related to the management of public affairs
and their impact on the business of an organisation. Political environment has a close
relationship with the economic system and the economic policy. Some Governments specify
certain standards for the products including packaging.
Some other Governments prohibit the marketing of certain products. In most nations,
promotional activities are subject to various types of controls. India is a democratic country
having a stable political system where the Government plays an active role as a planner,
promoter and regulator of economic activity.
F. Legal Environment:
Marketing decisions are strongly affected by laws pertaining to competition, price-setting,
distribution arrangement, advertising etc. It is necessary for a marketer to understand the
legal environment of the country and the jurisdiction of its courts.
The following laws affected business in India:
1. Indian Contract Act 1872
2. Factories Act 1948
3. Minimum Wages Act 1948
4. Essential Commodities Act 1955
5. Securities Contracts Regulation Act 1956 (SEBI Act)
6. The Companies Act 1956
7. Trade and Merchandise Act 1958
8. Monopolies and Restrictive Trade Practice Act 1969
 38

9. The water (Prevention and Control of Pollution) Act 1974

G. Social and Cultural Environment:
Socio-cultural forces refer to the attitudes, beliefs, norms, values, lifestyles of individuals in
a society. These forces can change the market dynamics and marketers can face both
opportunities and threats from them. Some of the important factors and influences
operating in the social environment are the buying and consumption habits of people, their
languages, beliefs and values, customs and traditions, tastes and preferences, education
and all factors that affect the business.
Understanding consumer needs is central to any marketing activity and those needs will
often be heavily influenced by social and cultural factors. These cover a range of values,
beliefs, attitudes and customs which characterize societies or social groups. Changes in
lifestyle of people affect the marketing environment.
As health problems in people have increased because of significant changes in their
lifestyle, they have become concerned about their food. They prefer to eat low fat, low or
no cholesterol food. This is specially true for people above 40 years. To a great extent, social
forces determine what customers buy, how they buy, where they buy, when they buy, and
how they use the products.

impact of macro and micro marketing environments on marketing decision

Laws and Government
Changing laws affect all aspects of business, marketing included. New taxes on business can
affect your bottom line and require a reduction in the amount of marketing you produce.
New restrictions on purchases can affect your customers' ability to shop for your brand.
New laws governing consumer age limits, licensing requirements or any number of other
factors can place limits on the consumer and hinder your opportunities to sell. In some
cases, new laws can be directed at controlling your marketing efforts directly. For example,
privacy laws may remove valuable access to consumers and cause a change in marketing
strategy altogether.
Supply Lines
Product supply lines are affected by factors such as weather, natural disasters and the cost
of fuel. When your product supply is affected, so is the way you market your products. If
supply costs suddenly double due to political issues abroad, you may have to change your
marketing from a price-focused approach. You also may have to put major marketing
initiatives on hold until the supply becomes more reliable or costs level out. On the other
 39

hand, if supply costs suddenly drop due to cheaper labor and a struggling job market, your
marketing may be able to shift focus to the great deals to be had.
Consumer Trends
Market trends can change the entire direction of your businesses marketing with very little
notice and to great effect. Trends can be the result of endorsements, fads or any sudden
change in consumer preference or buying habits on a large scale. When trends change, your
marketing must respond to position products and the brand itself in a new light to remain a
valid option for the consumer and not fall out of favor. For example, you have been touting
your brand of widgets as the most stylish available for the past 10 years but the market
suddenly trends strongly toward high-tech over style when it comes to widgets. It is up to
your marketing to reposition your widgets as technologically advanced and viable in the
new market climate.

Marketing Segmentation
Market segmentation is a recent development in marketing thinking and strategy. It is
based on the natural variations found in a general or total market. Diversity is the basic
characteristic of a market, be it a consumer market or industrial market. Marketers must
understand natural diversity for effective marketing. In today’s highly competitive
environment, market segmentation, target market selection and effectively positioning the
offerings are very essential requirements for gaining competitive advantages. For instance,
a ready-to-wear garment seller must first identify his customer segment groups.
He may subdivide his customers in terms of sex and age group-men’s wear and ladies wear.
Then he may go on selecting a particular segment or all the segments. Accordingly, he may
cater to the needs of each segment efficiently. Likewise, a hotelier may subdivide his
customers as vegetarians and non-vegetarians. A further sub-division can be average
customers and affluent customers. For affluent customers he may provide air-conditioned
and luxurious services. What we understand from the examples given above is that
customers are not alike and they differ in many aspects including purchasing power and
buying habits.
The process of dividing a market into smaller homogeneous markets with similar
characteristics is called market segmentation. The firm will focus only on those submarkets
which can be served most effectively on the basis of their evaluation of market
requirements. This is called target marketing.
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Criteria for Market segmentation:

The market segmentation to be worthwhile six criteria.
1. Identity:
The marketing manager must have some means of identifying members of the segment,
that is, some basis for classifying an individual as being or not being a member of the
segment. There must be clear differences between segments. Members of such segments
can be readily identified by common characteristics which display similar behaviour.
2. Accessibility:
It must be possible to reach the different segments in regard to both promotion and
distribution. In other words, organisation must be able to focus its marketing efforts on the
chosen segment. Segments must be accessible in two senses. First, firms must be able to
make them aware of products or services. Secondly, they must get these products to them
through the distribution system at a reasonable cost.
3. Responsiveness:
A clearly defined segment must react to changes in any of the elements of the marketing
mix. For instance, if a particular segment is defined as being cost-conscious, it should react
negatively to price rises. If it does not, this is an indication that the segment needs to be
refined.
4. Size:
The segment must be reasonably large enough to be a profitable target. It depends upon
the number of people in it and their purchasing power. For example, makers of luxury
goods may appeal to small but wealthy target markets whereas makers of cheap
consumption goods may sell a large number of persons who are relatively poor. The idea is
that enough potential buyers must exist to cover the costs of production and marketing
required in that segment. This is often called as substantiality.
5. Nature of Demand:
It refers to the different quantities demanded by various segments. Segmentation is
required only if there are marked differentiation in terms of demand.
6. Measurability:
The purpose of segmentation is to measure the changing behaviour pattern of consumers.
For example, the segments of a market for a car are determined by a number of
considerations, such as economy, status, quality, safety, comforts etc.
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Bases for consumer Market segmentation:

On the basis of consumer personal characteristics (non-behavioural):
Geographic Segmentation:
In geographic segmentation, the whole market is divided into different geographical units.
Generally, the market is divided into regions-northern, southern, western, eastern and so
on. Each region may consist of several states and districts. A national marketer may treat
the whole nation as his market and divide it on the basis of region or zone for business
operations.
For example, in the detergent market, Hindustan Level and Proctor and Gamble are all
national marketers in India. Moreover, a multinational company (MNC) may divide the
global market on the basis of continental characteristics. For example, Coca-Cola may
consider the entire Asia as its market but for further business operations, it may divide Asia
into South Asia, Middle-east, Far-east Asia etc. Perhaps, each country may also be
considered as a geographical segment.
Demographic Segmentation:
In demographic segmentation, the market is subdivided into different parts on the basis of
demographic variables-age, sex, family size, income, occupation, education, family life cycle,
religion, nationality etc. Demographic variables have long been the most popular bases for
distinguishing significant groupings in the market place. One reason is that consumer wants
or usage rates are often highly associated with demographic variables; another is that
demographic variables are easier to measure than most other types of variables.
Psychographic Segmentation:
Consumers are subdivided into different groups on the basis of personality, life style and
values. These characteristic lead to psychographic segmentation. People exhibit different
life-style and they express them through the products they use. Some social segments are
very orthodox and tradition bound at home. But the same people look very modem and
conspicuous when in the outside world.
Marketers of cosmetics, textiles, soft-drinks, fast-food providers etc. must understand the
lifestyle of the target market. Personality is another psychographic characteristic which is
used to segment the market. Particularly, automobile manufacturers-two wheelers and
passenger cars-must consider different personality traits in dividing the market. Values are
also used by marketers to segment a market. Values are beliefs which determine people’s
product choices and desires.
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Socio Economic Characteristics:

Income, occupation, education, religion and social classes are the important socio-economic
data required for market segmentation. These are all components of socio-economic
characteristics of a target population. Income and occupation characteristics are generally
used in market segmentation for durable products such as automobiles, household
appliances, electronic items, personal computer etc.

On the basis of consumer responses (behavioural):

Benefit Segmentation:
Buyers can be classified according to the benefits they seek. On a purchase of same
product, different customers look for different benefit because of which they buy products
from different companies which satisfy their specific needs. Let us take the example of a
car. The basic function of a car is transportation.
User Status:
The users of a product or service can be classified as heavy users, medium users and light
users- heavy buyers, medium buyers and light buyers. Marketers of soft drinks, hot drinks
etc. for example, may segment the market in terms of the above said criteria. A firm,
generally, is interested in the heavy buyers or users. Sometimes, a firm may select light
users as their target market with the intention of wooing and changing these customers
into heavy users.
Usage Rate:
Markets can be segmented into various classes depending on usage rate. Considering the
cosmetics usage, the different categories of usage rate are as follows:
(a) Light:
These are the categories of the users who are very infrequent users. In case of cosmetics an
average housewife who is not very fashion conscious is a light user of cosmetics.
(b) Medium:
The fashion-conscious teenagers are the medium users of cosmetics, that is, they use it
frequently.
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(c) Heavy:
There are people for whom the cosmetics are the most important purchase and they are
heavy users of it. Celebrities in entertainment world, the models etc. need cosmetics on a
regular basis, as it is the most important part of their profession.
Loyal Status:
Consumers have varying degrees of loyalty to specific brands, stores and other entities.
Buyers can be divided into four groups according to brand loyalty status.
(a) Hard-core-Loyals:
Consumers who buy one brand all the time. We find people who have been using Colgate
for years without caring which other brands are coming in and going out of the market.
(b) Split or Soft Core Loyals:
Consumers who are loyals to two or three brands. Pepsodent after its launch found some
customers of Colgate switching between the two brands.
(c) Shifting Loyals:
Consumers who shift from one brand to another. Customers can be found to keep on
switching off from Colgate to close up and then to Pepsodent without any consistency.
(d) Switchers:
Consumers who show no loyalty to any brand. These are the people who will buy any brand
that is available in the market.
Attitude:
A market may be segmented by classifying people in it according to their enthusiasm for a
product. Five attitude groups can be found in a market.
(a) Enthusiastic:
These are people having tendency of impulsive purchase. They may not carry cash all the
time but suddenly decide to buy something. They definitely need credit cards.
(b) Positive:
They are serious buy mobile people who need to buy suddenly at any time.
 44

(c) Indifferent:
There are some people who are technology averse with systematic purchasing pattern.
They would prefer to purchase with cash after thinking over the need for purchase. They do
not prove to be potential users of credit cards.
(d) Negative:
People can be spendthrifts who fear of loosing money or misusing it. They would never go
for a credit card.
(e) Hostile:
People at times become very much irritated either by sales-people calling or meeting any
time, giving false promise or by the service provided. For example, in case of credit cards,
there are some hidden costs which are not clarified by the sales-person during selling.

The Concept of Market Segmentation:

Mass Marketing:
Before the onset of the marketing age, there was widespread adoption of mass marketing,
mass production, distribution and promotion. That is, offering the same product and
applying the same marketing-mix to all customers assuming that there is no significant
difference among consumers in terms of their needs and wants.
The Coca-Cola Company follows this approach. The company feels that no segmentation is
necessary. The company designs its marketing programmes to appeal to all buyers. This is
undifferentiated marketing strategy. This type of marketing is well suited for fruits,
vegetables, drugs, chocolates, bakery items, stationery items etc.
Product Variety Marketing:
Once it is learnt that consumers would not accept standard products, the marketer might
try to provide different sizes, colours, shapes, features, qualities etc. to attract them. For
example, when Maruti 800 introduced into Indian roads, it was a variety product because it
used two versions-Standard and Deluxe with different colours.
Target Marketing:
The modem marketing concept starts with the definition of target markets. The target
marketing has its root in the marketing age.
Target marketing requires marketers to take three steps:
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(a) Market Segmentation

(b) Market Targeting
(c) Market Positioning.

Benefits of Market Segmentation

1. Determining market opportunities:
Market segmentation enables to identify market opportunities. The marketer can study the
needs of each segment in the light of current offerings by the competitors. From such study,
the marketer can find out the current satisfaction of customers.
Segments with low level of satisfaction from present offering may represent excellent
market opportunities. For example, customers may not be satisfied with the current
offering of water purifiers in terms of product or after-sale service. Such situation enables a
marketer to launch a new range of water purifiers and market them well.
2. Adjustments in marketing appeals:
Sellers can make best possible adjustments of their product and marketing appeals. Instead
of one marketing programme aimed to draw in all potential buyers, sellers can create
separate marketing programmes designed to satisfy the needs of different customers.
Proper advertising and sales promotional appeals can be made depending on the target
audience.
3. Developing marketing programmes:
Companies can develop marketing programmes and budgets based on a clearer idea of the
response characteristics of specific market segments. They can budget funds to different
segments depending on their buying response.

4. Designing a product:
Market segmentation helps in designing products that really match the demands of the
target audience. Products with high market potential can be designed and directed to meet
the satisfaction of the target market.
5. Media selection:
It helps in selection of advertising media more intelligently and in allocating funds to various
media. The funds are allocated to various media depending on the target audience, impact
of the media, competitor advertising, and so on.
 46

6. Timing of marketing efforts:

It helps in setting the timings of the promotional efforts so that more emphasis is placed
during those periods when response is likely to be at its peak. For instance, consumer goods
can be heavily advertised to Christians during Christmas season and to Hindus during Diwali
time.
7. Efficient use of resources:
By tailoring marketing programme to individual market segments, management can do a
better marketing job and make more efficient use of the marketing resources. For example,
a small firm can effectively use its limited resources – money, sales force, etc. – in one or
two segmented markets rather than unsuccessfully aiming at a wider market.
8. Better service to customers:
Market segmentation enables a company to concentrate its marketing efforts in a particular
market area, thereby, providing a better service to the target customers. Proper marketing
segmentation can facilitate customer satisfaction.

Limitations of Market Segmentation

1. Limited Production:
In each specific segment, customers are limited. So, it is not possible to produce products in
mass scale for every segment. Therefore, company cannot take advantages of mass scale
production; scale of economy is not possible. Product may be costly and affect adversely to
the sales.
2. Expensive Production:
Market segmentation is expensive in both production and marketing. In order to satisfy
different groups/segments of buyers, producers have to produce products of various
models, colors, sizes, etc., that result into more production costs. In the same way, the
producers are required to maintain large inventory for different styles, colors, and sizes of
products.
3. Expensive Marketing:
Market segmentation also results into expensive marketing. Due to different groups of
buyers, the marketer has to consider all the segments in terms of needs, interests, habits,
preferences and attitudes. Marketer has to formulate and implement several marketing
strategies for different segments.
 47

4. Difficulty in Distribution:
Company needs to make the separate arrangement for each of the products demanded by
different classes of customers. Salesman’s recruitments, selection, training, payments, and
incentives are more difficult and costly. Company has to maintain separate channels and
services for satisfying varied customer groups.
5. Heavy Investment:
Market segmentation leads to heavy investment. In order to satisfy different needs and
wants of various groups, a company has to produce variety of product lines and product
items. For the purpose, the company requires to invest more on technology and other
inputs that may demand heavy investment.
6. Promotion Problems:
Market segmentation also creates promotional problems and multiplies promotional
difficulties. It is obvious that different segments are made on the basis of distinguished
characteristics of buyers. Each group differs in terms of advertising media, appeal or
message. In order to influence various segments of buyers, the company is required to
prepare a separate advertising programme or strategy. Similarly, personal selling and sales
promotional activities become more complex. Company needs to spend more to take
benefits of specialization.

positioning in marketing
Simply put, positioning in marketing is a strategic process that involves creating an identity/
image of the brand or product within the target customers’ minds.
The process indicates how you differentiate your product/ service from that of your
competitors and then determine which market niche to fill. A company’s marketing
positioning strategy is affected by plenty of variables related to customers’ requirements
and motivations, as well as by its competitors’ actions.
Let’s see some typical examples of marketing positioning:
 Tesla and Audi position themselves as a luxury status symbol.
 Starbucks positions itself as a trusted source of upscale quality coffee and beverage.
 McDonald’s positions itself as a place to get quick and cheap meals.
 Microsoft and Apple position themselves as a tech company that offers innovative
and user-friendly products.
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Types of positioning in marketing

Pricing
Pricing is an essential factor that impacts the decisions of most customers. Companies with
the lowest-priced products at a reasonable level of quality usually wins in many product
areas.
Quality
Quality can help rebuff most pricing wars. In some markets, such as luxury cosmetics or
cars, quality can define who the competitors are.
Differentiation
Differentiation is what sets your product or service apart from the crowd. If your product or
service is dramatically different, rivals may not pose as much of a threat.
Convenience
Convenience creates an easier life for customers. From location to usability, convenience
could incorporate something like free returns and E-commerce.
Customer service
Customer service emphasizes creating helpful and friendly interactions. This can be
especially critical in specific industries, such as restaurants and banking areas.

Benefits of positioning in marketing

Create a strong competitive position
Proper positioning influences how customers perceive your product or service relative to
the competition. When you create a positive image of your product/ service in the
customers’ minds, you’re likely to enjoy an ongoing market advantage. By doing this, you
can claim your position in the competitive landscape, which helps you a lot to stay ahead of
the curve.
Improve sales
One of the main goals of any business is to improve sales and revenue. By having a more
relevant offering and communicating it more effectively, your company may be able to
penetrate a new market, which can translate into new clients and additional sales.
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Define a clearer target market

Positioning in marketing allows you to claim a specific feature or benefit and focus your
products/ services accordingly so that you appear as an expert in the services. As a result,
your value to prospects will increase significantly.
Make more effective decisions
Once you have the core message that ensures successful positioning strategies, you’ll be in
a position to make more effective decisions throughout the process. Clear positioning in
marketing also drives effective communication, provides healthier and stronger
relationships with customers.
Connect to consumer needs
Through positioning in marketing, companies have an opportunity to communicate the
critical benefits that their product/ service offers. It not only helps to energize the product
but also connects it to the specific customer that needs it.
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UNIT-2
Product
Anything of value that fulfils the requirement of the end-user is known as a product. It can
be goods or services, tangible or intangible, physical or psychological. The customers and
competitors largely depend upon the products offered by the company.
A product is something that is manufactured for sale in the market. Customer needs are
met by the usage of products. Product is one of the main components of marketing—all
marketing activities revolve around the product. Products can be tangible or intangible.
Tangible products are known as goods while intangible products are called services.

Levels of Product
 Core or Generic Product: It is the raw product that satisfies the customer’s primary
need. The core product is at its raw form, not bearing any brand name and remains
undifferentiated.
For example: – Wheat is a grain that one can consume.
 Basic Product: The core products differentiated from the rest become the basic
product. It adds some necessary features to the products like Brand Name, Packaging
andLabel,etc.
For example: – Fortune Chakki Fresh Atta (wheat flour).
 Expected Product: These products include the key features that customers look
forward to. It also contains standard features that a product should have.
For example: – Chapati is prepared from wheat flour.
 Augmented Product: To differentiate products from competitors, companies
add distinctive features to them. These additions depend on the market survey
conducted for the product. They try to create a Unique Selling Proposition (USP) for
theirproducts.
For example -Brown Bread and Cookies.
 Potential Product: It refers to all the possible features that a product can have in the
future. These features depend on the market conditions and economic changes.

Product – Concept
Product refers to a good or service that satisfies the needs and wants of customers. It is
offered in the market by an organization to earn revenue by meeting the requirements of
customers. Product is an asset of an organization and referred as the backbone of
marketing mix.
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According to Peter Drucker, “Suppliers and especially manufacturers have market power
because they have information about a product or a service that the customer does not and
cannot have, and does not need if he can trust the brand. This explains the profitability of
brands.”
It is very important for an organization to understand the needs of customers. For example,
some customers use mobile phones for talking; whereas, some use mobile phones for
talking as well as business purposes, such as teleconferencing. Needs of the customers
depend on their purchasing power.
For example, a customer whose basic need is surfing over the Internet may opt for a simple
computer; whereas, a software engineer may need a high configuration computer.
Therefore, when the level of need increases then the level of product also increases.

Product – Features of a Product

i. Tangibility:
Products are tangible in nature, customers can touch, seen or feel a products. For example,
car, book, computer etc.
ii. Intangible Attributes:
Service products are intangible in nature, services like, consultancy, banking, insurance etc.
The product may be combination of both tangible and intangible attributes like restaurants,
transportation, in case of a computer it is a tangible product, but when we will talk of its
free service provided by dealer, then the product is not only a tangible item but also an
intangible one.
iii. Associated Attributes:
The attributes associated with product may be, brand, packaging, warranty, guarantee,
after sales services etc.
iv. Exchange Value:
Irrespective of the fact that whether the product is tangible or intangible, it should be
capable of being exchanged between buyer and seller for a mutually agreed price.
v. Customer Satisfaction:
A product satisfies the customer needs and wants of customers, value of products is also
determined by the level of satisfaction given by a product after purchase.
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Classification of Products
1. Consumer products, and
2. Industrial products.
1. Consumer Products:
Consumer products are those products that are bought by the final customer for
consumption.
Consumer products are of four types:
i. Convenience products,
ii. Shopping products,
iii. Speciality products, and
iv. Unsought products.
i. Convenience Products:
Convenience Products are usually low priced, easily available products that customer buys
frequently, without any planning or search effort and with minimum comparison and
buying effort. Such products are made available to the customers through widespread
distribution channels-through every retail outlets. This category includes fast moving
consumer goods (FMCG) like soap, toothpaste, detergents, food items like rice, wheat flour,
salt, sugar, milk and so on.
ii. Shopping Products:
Shopping products are high priced (compared to the convenience product), less frequently
purchased consumer products and services. While buying such products or services,
consumer spends much time and effort in gathering information about the product and
purchases the product after a careful consideration of price, quality, features, style and
suitability.
Such products are distributed through few selected distribution outlet. Examples include
television, air conditioners, cars, furniture, hotel and airline services, tourism services.
iii. Speciality Products:
Speciality Products are high priced branded product and services with unique features and
the customers are convinced that this product is superior to all other competing brands
with regard to its features, quality and hence are willing to pay a high price for the product.
 53

These goods are not purchased frequently may be once or twice in lifetime and are
distributed through one or few exclusive distribution outlets. The buyers do not compare
speciality products.
iv. Unsought Products:
Unsought product is consumer products that the consumer either does not know about or
knows about but does not normally think of buying. In such a situation the marketer
undertakes aggressive advertising, personal selling and other marketing effort. The product
remains unsought until the consumer becomes aware of them through advertising. The
price of such product varies. Examples of unsought product are cemetery plots, blood
donation to Red Cross, umbilical cord stem cell banking services.
2. Industrial Products:
Industrial Products are purchased by business firms for further processing or for use in
conducting a business .The distinction between consumer product and industrial is based
on the purpose for which the product is bought. Like a kitchen chimney purchased by a
consumer is a consumer product but a kitchen chimney purchased by a hotel is an industrial
product.
Business products include:
i. Material and parts,
ii. Capital items,
iii. Supplies, and
iv. Services.
i. Material and parts – Material and parts include raw material like agricultural products,
crude petroleum, iron ore, manufactured materials include iron, yarn, cement, wires and
component parts include small motors, tires, and castings.
ii. Capital items – Capital items help in production or operation and include installations like
factories, offices, fixed equipments like generators, computer systems, elevators and
accessory equipments like tools office equipments.
iii. Supplies – Supplies include lubricants, coal, paper, pencils and repair maintenance like
paint, nails brooms.
iv. Services – Services include maintenance and repair services like computer repair
services, legal services, consultancy services, and advertising services.
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Product Decisions:
Decisions regarding the product, price, promotion and distribution channels are decisions
on the elements of the “marketing mix”. It can be argued that product decisions are
probably the most crucial as the product is the very epitome of marketing planning. Errors
in product decisions are legion.
These can include the imposition of a global standardised product where it is inapplicable,
for example large horsepower tractors may be totally unsuitable for areas where small scale
farming exists and where incomes are low; devolving decisions to affiliated countries which
may let quality slip; and the attempt to sell products into a country without cognisance of
cultural adaptation needs.
The decision whether to sell globally standardised or adapted products is too simplistic for
today’s market place. Many product decisions lie between these two extremes. Cognisance
has also to be taken of the stage in the international life cycle, the organization’s own
product portfolio, its strengths and weaknesses and its global objectives.
Unfortunately, most developing, countries are in no position to compete on the world stage
with many manufactured value-added products. Quality, or lack of it, is often the major
letdown. Most developing countries are likely to be exporting raw materials or basic and
high value agricultural produce for some time to come.

Elements of Production Decisions

In decisions on producing or providing products and services in the international market it is
essential that the production of the product or service is well planned and coordinated,
both within and with other functional area of the firm, particularly marketing.
For example, in horticulture, it is essential that any supplier or any of his “out grower” (sub-
contractor) can supply what he says he can. This is especially vital when contracts for supply
are finalised, as failure to supply could incur large penalties. The main elements to consider
are the production process itself, specifications, culture, the physical product, packaging,
labelling, branding, warranty and service.
Production Process:
The key question is, can we ensure continuity of supply? In manufactured products this may
include decisions on the type of manufacturing process – artisanal, job, batch, flow line or
group technology. However in many agricultural commodities factors like seasonality,
perishability and supply and demand have to be taken into consideration.
 55

Quantity and quality of horticultural crops are affected by a number of things. These include
input supplies (or lack of them), finance and credit availability, variety (choice), sowing
dates, product range and investment advice. Many of these items will be catered for in the
contract of supply.
Specification:
Specification is very important in agricultural products. Some markets will not take produce
unless it is within their specification. Specifications are often set by the customer, but
agents, standard authorities (like the EU or ITC Geneva) and trade associations can be useful
sources.
Quality requirements often vary considerably. In the Middle East, red apples are preferred
over green apples. In one example French red apples, well boxed, are sold at 55 dinars per
box, whilst not so attractive Iranian greens are sold for 28 dinars per box. In export the
quality standards are set by the importer. In Africa, Maritim (1991), found, generally, that
there are no consistent standards for product quality and grading, making it difficult to do
international trade regionally.
Culture:
Product packaging, labeling, physical characteristics and marketing have to adapt to the
cultural requirements when necessary. Religion, values, aesthetics, language and material
culture all affect production decisions.
Physical Product:
The physical product is made up of a variety of elements. These elements include the
physical product and the subjective image of the product. Consumers are looking for
benefits and these must be conveyed in the total product package.
Physical characteristics include range, shape, size, color, quality, quantity and compatibility.
Subjective attributes are determined by advertising, self-image, labelling and packaging. In
manufacturing or selling produce, cognisance has to be taken of cost and country legal
requirements.
Again a number of these characteristics is governed by the customer or agent. For example,
in beef products sold to the EU there are very strict quality requirements to be observed. In
fish products, the Japanese demand more “exotic” types than, say, would be sold in the UK.
None of the dried fish products produced by the Zambians on Lake Kariba, and sold into the
Lusaka market, would ever pass the hygiene laws if sold internationally. In sophisticated
 56

markets like seeds, the variety and range is so large that constant watch has to be kept on
the new strains and varieties in order to be competitive.
Packaging:
Packaging serves many purposes. It protects the product from damage which could be
incurred in handling and transportation and also has a promotional aspect. It can be very
expensive. Size, unit type, weight and volume are very important in packaging. For aircraft
cargo the package needs to be light but strong, for sea cargo containers are often the best
form.
The customer may also decide the best form of packaging. In horticultural produce, the
developed countries often demand blister packs for mangetouts, beans, strawberries and
so on, whilst for products like pineapples a sea container may suffice. Costs of packaging
have always to be weighed against the advantage gained by it.
Increasingly, environmental aspects are coming into play. Packaging which is non-
degradable plastic, for example is less in demanded. Biodegradable, recyclable, reusable
packaging is now the order of the day. This can be both expensive and demanding for many
developing countries.
Labelling:
Labelling not only serves to express the contents of the product, but may be promotional
(symbols for example Cashel Valley Zimbabwe; HJ Heinz, Africafe, Tanzania). The EU is now
putting very stringent regulations in force on labelling, even to the degree that the
pesticides and insecticides used on horticultural produce have to be listed.
This could be very demanding for producers, especially small scale, ones where production
techniques may not be standardised. Government labelling regulations vary from country to
country. Bar codes are not widespread in Africa, but do assist in stock control.
Labels may have to be multilingual, especially if the product is a world brand. Translation
could be a problem with many words being translated with difficulty. Again labelling is
expensive, and in promotion terms nonstandard labels are more expensive than standard
ones. Requirements for crate labelling, etc. for international transportation will be dealt
with later under documentation.
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Product Design
The definition of product design describes the process of imagining, creating, and iterating
products that solve users’ problems or address specific needs in a given market.
The key to successful product design is understanding the end-user customer, the person
for whom the product is being created. Product designers attempt to solve real problems
for real people by using empathy and knowledge of their prospective customers’ habits,
behaviors, frustrations, needs, and wants.
Ideally, product design’s execution is so flawless that no one notices; users can intuitively
use the product as needed because product design understood their needs and anticipated
their usage.
Good product design practices thread themselves throughout the entire product lifecycle.
Product design is essential in creating the initial user experience and product offering, from
pre-ideation user research to concept development to prototyping and usability testing.
But it doesn’t end there, as product design plays an ongoing role in refining the customer
experience and ensuring supplemental functionality and capabilities get added in a
seamless, discoverable, and non-disruptive manner. Brand consistency and evolution
remain an essential product design responsibility until the end of a product’s lifespan.
And it’s much more than just what users see on their screens. System design and process
design are critical behind-the-scenes components that eventually drive users to see and
interact with the interface design.
What is the History of Product Design?
Product design is an outgrowth of a very similar discipline called industrial design.
According to the Industrial Designers Society of America:
“Industrial design is the professional practice of designing products used by millions of
people worldwide every day. Industrial designers not only focus on the appearance of a
product but also on how it functions, is manufactured and ultimately the value and
experience it provides for users.”
Before the mass-production era of manufacturing, craftspeople built products primarily by
hand. This meant there were fewer products available for sale and that they cost more.
Then, the industrialization of manufacturing allowed businesses to mass-produce products
inexpensively.
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To help sell their products to the millions of people who could now afford them,
manufacturers enlisted the help of industrial designers to create products that were not
only functional but also aesthetically pleasing.
Over time, a subset of industrial design has evolved into its own category: product design.
This is because industrial design today connotes physical products such as furniture and
household appliances. In contrast, product design can refer to any product—even digital,
virtual products such as software apps.
Factors encouraging standardization are:
(i) Economies of scale in production and marketing
(ii) Consumer mobility – The more consumer’s travel the more is the demand
(iii) Technology
(iv) Image, for example “Japanese”, “made in”.
The latter can be a factor both to aid or to hinder global marketing development.
Nagashima (1977) found the “made in USA” image has lost ground to the “made in Japan”
image. In some cases “foreign made” gives advantage over domestic products. In Zimbabwe
one sees many advertisements for “imported”, which gives the product advertised a
perceived advantage over domestic products.
Often a price premium is charged to reinforce the “imported means quality” image. If the
foreign source is negative in effect, attempts are made to disguise or hide the fact through,
say, packaging or labelling. Mexicans are loathe to take products from Brazil. By putting a
“made in elsewhere” label on the product this can be overcome, provided the products are
manufactured elsewhere even though its company maybe Brazilian.
Factors encouraging adaptation are:
(i) Differing Usage Conditions:
These may be due to climate, skills, level of literacy, culture or physical conditions. Maize,
for example, would never sell in Europe rolled and milled as in Africa. It is only eaten whole,
on or off the cob. In Zimbabwe, kapenta fish can be used as a relish, but wilt always be
eaten as a “starter” to a meal in the developed countries.
(ii) General Market Factors:
Incomes, tastes etc. Canned asparagus may be very affordable in the developed world, but
may not sell well in the developing world.
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(iii) Government:
Taxation, import quotas, non-tariff barriers, labelling, health requirements. Non-tariff
barriers are an attempt, despite their supposed impartiality, at restricting or eliminating
competition. A good example of this is the Florida tomato growers, who successfully got the
US Department of Agriculture to issue regulations establishing a minimum size of tomatoes
marketed in the United States.
The effect of this was to eliminate the Mexican tomato industry which grew a tomato that
fell under the minimum size specified. Some non-tariff barriers may be legitimate attempts
to protect the consumer, for example the ever stricter restrictions on horticultural produce
insecticides and pesticides use may cause African growers a headache, but they are deemed
to be for the public good.
(iv) History:
Sometimes, as a result of colonialism, production facilities have been established overseas.
Eastern and Southern Africa is littered with examples. In Kenya, the tea industry is a colonial
legacy, as is the sugar industry of Zimbabwe and the coffee industry of Malawi. These
facilities have long been adapted to local conditions.
(v) Financial Considerations:
In order to maximise sales or profits the organization may have no choice but to adapt its
products to local conditions.
(vi) Pressure:
Sometimes, as in the case of the EU, suppliers are forced to adapt to the rules and
regulations imposed on them if they wish to enter into the market.
Types of Product Design Jobs Available
What different companies think of today as product design jobs might include several roles
under different names. For example:
UX designer
User-experience and interaction designers focus on refining a product based on how their
research into user behavior suggests people will get the most satisfaction from using the
product. UX designers aim to increase users’ happiness.
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Graphic designer
The most artistic job within product design is creating the graphics, icons, logos, and other
visual elements of the product experience. Their purview is as broad as selecting a color
scheme to as narrow as tweaking individual pixels.
Motion/animation designer
If the product experience involves elements “moving”—be it slick transitions or a user-
controlled avatar—these specialists work on this extremely complicated part of the design.
They don’t create the art, but they bring it to life.
User research
In a large enough product design organization, they are solely focused on understanding
customers. Interviewing, running usability studies, presenting prototypes and mockups for
feedback, and building out demographics and personas that fall under their purview.
Data analyst
These designers focus on user research and other data to identify ways to improve a
product’s layout, feature set, and visual aesthetic. In other words, their primary role is a
scientific one, but they are also designers.
Prototyper
Prototypers are the product team members who bring the team’s ideas to a tangible state
to help the company quickly validate with users the product’s features and other
characteristics. In a company that makes physical products, prototypers will hand-craft
mock-ups. For digital companies, the prototyping team will develop wireframes or other
virtual mock-ups.
Product designer
Of course, in many cases, a company will hire a person to handle several of the roles above
and others under a product designer job. Other companies will handle some of the bigger
picture, strategic elements of developing new product ideas. There, other professionals in
the organization take responsibility for things like—user research, UX design, information
architecture, etc.
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The Product Mix

The product mix is a combination of products manufactured or sold by the same
organization. Generally companies offer an assortment of related or unrelated products to
the markets instead of focusing on a single product to strengthen their presence in the
market and increase profitability.
Smaller or medium firms usually offer products that are related to each other while bigger
ones go for large scale diversification.
For example- Ayur Herbals, a comparatively smaller enterprise basically deals with
cosmetics and beauty products while giants like Reliance group and Tata industries have
their presence in varied fields like telecom, processed food, consumer goods, etc. Dealing
with multiple products enables a firm to expand its customer base and spread risk among
its various offerings. The product mix includes both product lines and product items.
(i) Product Line:
Product line is a group of products that are closely related either because they satisfy a class
of need, or used together, are sold to the same customer group, are marketed through the
same types of outlets, or fall within given price ranges or that are considered a unit because
of marketing, technical, or end-use considerations. For example, The Sunsilk range of
shampoos and conditioners constitute a product line.
Product Line Strategies
1. Product line length
Product line length denotes all the products of the same line. Product line length should be
long to expand and increase the market segment. Product length should be short for the
increase in profit. However, profit can also be increased by increasing the length of product
line according to the context. Decisions can be taken for adopting two strategies to increase
or decrease the length of the product line. Two strategies are mentioned as follows:
a) Line expansion
The task of adding any other related new products to product line is called line expansion.
This includes two strategies. They are filling the line and expanding the line. If nay textile
industry produces three types of jackets pricing Rs. 1000 to 2500, it can be expanded to
produce fourth type jackets. In this way, same products can be produced to fill the gap and
widening the product length. The same task is called line filling. The task of adding new
more products of the same line going beyond the current prices is called product stretching.
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Three types of strategies can be adopted to stretch the products. They are mentioned as
follows:

i. Stretching up: The task of adding new goods of more prices to the existing same product
line is called stretching up. This is made clearer by the given figure.

ii. Stretching down: The task of adding new products of low prices to the existing same
product line is called stretching down. This is made clearer by the given figure:
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iii. Stretching both ways: Many types of products can be included in any product line. In
this way, the task of adding new products of both more price and low price is called
stretching both ways. This is made clearer by the following figure:

b) Line Contraction
Some products of same line cannot influence target market segments. Such products which
cannot influence market and cannot meet market demand should be abandoned or given
up. The task of decreasing products or removing them from market is called line
contraction. The products which are demanded in market should be encouraged and
supplied by removing unnecessary dump of the unsold products. This can help to face
market competition and the product can control markets.
2. Product line modification
Any firm or organization should meet market competition and customers’ wants in any way.
Besides, improved technology also should be gradually adjusted. This means, product line
should be regularly modified and modernized. Such activities are called product line
modification. The task of product line modification is compulsory for any firm or business
organization. So, the product line manager should take proper decision by researching,
studying and analyzing market.
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3. Product line featuring

Attention of various groups and classes of customers should be attracted towards products.
For this, both low price and high price products should be included in product line. Low
priced products attract price sensitive group of customers and the high priced products
attract class sensitive customers. That means, low priced products attract the customers
having low purchasing capacity and high priced products attract the customers having high
purchasing capacity. This can meet the goal of the company or firm.
(ii) Product Item:
It is a distinct unit within the product line that is separate from others on basis of colour,
size, price or other attributes. For example, Sunsilk Thick and Long shampoo is a product
unit distinguishable from other items in the product range.
Structure/ Dimensions of Product Mix:
1.Width:
Width of the product mix means the number of different product lines found within the
company. Thus, breadth is measured by the number of product lines carried. For example,
Bajaj group has a number of subsidiaries under it producing bulbs, fluorescent lights, mixers
and grinders, toasters, motorcycles, pressure cookers and a host of other products.
2. Depth:
Depth of the product mix refers to the average number of items offered by the company
within each product line. It is measured by assortment of sizes, colours, models, prices and
quality offered within each product line. For instance, Hindustan Unilever offers a number
of variants like Lux Fresh Splash, Strawberry and cream, Peach and cream, Sandal and
cream, etc. within the product line Lux soaps.
3. Consistency:
The consistency of product mix points out how closely related the various product lines are
in terms of consumer behaviour, production requirements, distribution channels or in some
other way. For example, the products produced by the General Electric Company have an
overall consistency in that most products involve electricity in one way or the other.
According to Kotler, all three dimensions of product mix have a market rationale. By
increasing the width of the product mix the company hopes to capitalise on its good
reputation and skills in present markets.
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By increasing the depth of its product mix, the company hopes to entice the patronage of
buyers of widely differing tastes and needs. By increasing the consistency of its product mix,
the company hopes to acquire an unparalleled reputation in a particular area of endeavour.

Factors Affecting Product Mix

1. Profitability:
Every business unit tries to maximize its profits. It makes certain changes in its product mix
in a way to realize positive impact on profitability. Company prefers to introduce more
product lines or product items in existing product lines to improve its profitability. Product
mix is constantly adjusted to realize more profits.
2. Objectives and Policy of Company:
Company frames its product mix to achieve its objective. Product mix is prepared, modified,
or changed in light of objectives. Therefore, addition, subtraction, or replacement of
product lines or product items is based on what a company wants to achieve. Product mix is
prepared and modified according to a company’s policy.
3. Production Capacity:
Marketing mix decisions, to a greater extent, depend on plant or production capacity of
company. Company will design its product mix in a way that optimum production capacity
can be utilized.
4. Demand:
Product mix decisions are taken with reference to demand. Marketer should study
consumer behaviour to find the popularity of products. Changes in consumers’ preference,
fashion, interest, habits, etc., must be reflected in product mix of company. Company,
naturally, priories those products which have more demand. In case of falling demand,
company must drop poor products gradually. Thus, product mix is constantly adjusted to
meet consumer needs and wants.
5. Production Costs:
Product mix is widened or narrowed depending upon production costs. Company will prefer
those products, which can be produced within budgeted limit. Sometimes, for any reason,
the manufacturing costs for existing products rise, the company decides to drop such
products to reduce their production costs. It tries to balance selling price, profit margin, and
production costs.
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6. Government Rules and Restriction:

Every company produces such products, which are not restricted or banned by the
governments. Even, sometimes, company has to stop certain products or varieties when it
is declared as illegal. In same way, social and religious protests also play a vital role in this
regard. Contemporary legal framework has direct impact on size and composition of
product mix.
7. Demand Fluctuation:
Apart from consumer behaviour, demand is also fluctuated due to many reasons. Especially,
demand is affected due to seasonal effect, non-availability of substitutes, increase in
population, war, draught, flood, or any other reason. In order to meet with the changed
demand of certain products, the company has to adjust its product mix.
8. Competition:
It is one of the powerful factors affecting product mix. A company formulates its product
mix in such a way that competitors can be strongly responded. Product mix strategy
adopted by the close competitors has direct impact on company’s product mix.
9. Impact of Other Elements of Marketing Mix:
Over and above these factors, other elements of marketing mix such as price, promotion,
and distribution are also equally important in designing product mix. Company tries to
maintain consistency among these all elements to carry out marketing activities effectively
and efficiently.
10. Overall Business Condition or Condition of Economy:
Domestic as well as global economic conditions are also important considerations. Because
of liberalization and globalization, no business can dare underestimate macro picture of the
world economy. A company should keep in mind health of domestic economy with
reference to the world economy. This is more relevant when a company is involved in
international trade.
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Product Life Cycle

Product life cycle *PLC+ can be understood as “the period of time over which an item is
developed, brought to market and eventually removed from the market. First, the idea for a
product undergoes research and development. If the idea is determined to be feasible and
potentially profitable, the product will be produced, marketed and rolled out. Assuming the
product becomes successful and its production will grow until the product becomes widely
available. Eventually, demand for the product will decline and it will become obsolete.”
Every product passes through almost similar type of phases, which are known as the
product life cycle. Though all products have a different life cycle and several products do
not pass through all phases.
In today’s highly competitive and rapidly changing scenario it is getting increasingly difficult
to predict any changes that may affect the very survival of the company. Given the
importance of predicting the business environment accurately, it is advisable to have a
robust technique which will help in anticipating the pattern of industry changes which one
can anticipate. One of the most reliable techniques for predicting the probable course of
events in the future is the product life cycle [PLC].
Just as human beings pass through defined phases of life, such as
1. Birth
2. Adolescence
3. Youth
4. Old age
5. Death
Similarly, an industry passes through a number of phases beginning with introduction,
followed by growth, maturity and then finally decline phase.
The PLC theory believes that the industry growth follows an ‘S shaped curve’ because of the
process of innovation and diffusion of a new product.
Typically, it passes through four stages as listed below:
1. Introduction: The product is introduced in the market.
2. Growth:The product is getting rapid acceptance and sales rise at the increasing rate.
3. Maturity (including Saturation):Sales rise, but at the decreasing rate. Saturation is marked
with stable sales.
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4. Decline:It is the stage when sales start falling.

Assumptions:
“S” shape cure is an ideal state, and is hardly possible.
Such diagram – stages, sales curve, and profit curve- is possible only if following
assumptions are fulfilled:
1. Product completes its entire life cycle. It passes through all four stages of its life.
2. Duration of each of the stages is equal or fixed.
3. There is no reintroduction of product.
4. Product passes through stages in chronological order, that is, one, two, three and
likewise. There is no bypassing or overlapping of any of the stages.
Stages of Product Life Cycle:
Product life cycle comprises of four steps/stages. Each stage of product life cycle can be
characterized in terms of at least four aspects – sales volume, amount of profits, level of
promotional efforts and expenses, and degree of competition. Each stage demands the
unique marketing strategy. Let us briefly describe each of the stages of the PLC.
Introduction Stage:
Introduction stage starts when a new product is, for the very first time, made available for
purchase. Consumers are not aware of product, or they may not have general opinion and
experience regarding product. Moreover, a new product has to face the existing products.
So, the sales remain limited.
In the very initial stage, there is loss or negligible profit. During this period, the direct
competition is almost absent. Company has not mastered production and selling problems.
Price is normally high to recover/offset costs of development, production, and marketing
with minimum sales. So, sales rise at gradually.
Characteristics of introduction stage include:
(i) Huge selling and promotional costs are required to increase awareness of customers.
(ii) Price is kept high to recover high development, production, and marketing costs.
(iii) Marketer has to tackle technical and production problems.
(iv) Sale is low and increasing at a lower rate.
(v) There is loss or negligible profit.
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Growth Stage:
This is the stage of a rapid market acceptance. Due to increased awareness, the product
gets positive repose from market. This stage is marked by a rapid climb in sales. Sales rise at
the increasing rate. Profits follow the sales. Seller shifts his promotional attempts from “try-
my-brand” to “buy-my-brand.”
Company tries to develop effective distribution network. Here, the most of production and
marketing problems are mastered. Due to rise in profits, competitors are attracted. At a
right time, price may be reduced to attract the price-sensitive buyers.
Company continues, even increases, its selling and promotional efforts to educate and
convince the market and meet competition. At the end of growth stage, sales start
increasing at decelerated rate, consequently, profits starts to decline.
Characteristics of growth stage include:
(i) Sales increase rapidly (or at increasing rate) as a result of consumer acceptance of the
products.
(ii) Company can earn maximum profits.
(iii) Competitors enter the market due to attractive profits.
(iv) Price is reduced to attract more consumers.
(v) Distribution network is widened and improved.
(vi) Necessary primary changes are made in product to remove defects.
(vii) Company enters the new segments and new channels are selected.
Maturity Stage:
This stage is marked with slow down of sales growth. Sales continue to rise but at
decreasing rate. Competitors have entered the market and existing products face severe
competition. Sales curve is pushed downward. It is just like an inverse “U.” During this
stage, for certain period of time, sales remain stable. This level is called the Saturation.
Profits also decline. Normally, this stage lasts longer and marketers face formidable
challenges.
The stages may be divided into three phases:
i. Growth Maturity:Sales-growth rate starts to decline.
ii. Stable Maturity:Sales remain stable (i.e., saturation stage).
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iii. Decline Maturity:Sales now start to decline.

Marginal producers are forced to drop out the products. Those who operate formulate
various strategies to extend the stage. Market, products, and marketing programme are to
be modified to sustain the stage.
Characteristics of maturity stage include:
i. Sales increase at decreasing rate.
ii. Profits start to decline.
iii. Marginal competitors leave the market.
iv. Customer retention is given more emphasis.
v. Product, market, and marketing mix modifications are undertaken.
Decline Stage:
This is the last stage of product life cycle. Here, sales stat declining rapidly. Profits also start
erasing. There is a minimum profit or even a little loss. Advertising and selling expenses are
reduced to realize some profits. This stage is faced by only those who survived in maturity
stage.
Most products obsolete as new products enter the market. All products have to face the
stage earlier or later. New products start their own life cycle and replace old ones. A
number of competitors withdraw from the market. Those who remain in the market prefer
to drop smaller segments, make minor changes in products, and continue selling the
products in profitable segments and channels.
Here, logic has its own role. Management continues with the same product with
expectation that sales improve when economy improves; marketing strategy is revised
expecting that competitors will leave the market; or product is improved to attract new
market segments.
However, unless a strong reason exists, it is costly and risky to continue with the same
products. Later on it is difficult of manage selling and promotional efforts. Marketer must
check every possibility before dropping the product completely.
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Characteristics of decline stage include:

i. Sales fall rapidly.
ii. Profits fall more rapidly than sales.
iii. Product modification is adopted.
iv. Gradually, the company prefers to shift resources to new products.
v. Most of sellers withdraw from the market.
vi. Promotional expenses are reduced to realize a little profit.

Product Life Cycle – Strategies:

1.Strategies during Introduction Stage:
i. Persuade people to try the products.
ii. Stress should be on advertising to inform the customer about the product
iii. Give introductory offers by providing some attractive gifts to entice the customers.
iv. Give a valid reason to the customers to buy the product
v. Dealers should be given good discounts
vi. There should be selective distribution to focus on target customers
vii. Skimming pricing should be followed to earn higher profits in the initial stages
viii. Removing the product deficiencies must be focused on
2. Strategies during Growth Stage:
a. Aggressive advertising is required to stimulate the sales of the product
b. Availability of the product should be ensured to a large number of customers
c. Modifications or new versions of the product are required to be introduced to fulfill the
requirement of different customer classes. Strengthening of the distribution channels are
required so that the product is easily available wherever required.
d. Focus should be on developing the brand image through promotional activities
e. Competitive prices must be maintained to grab the market.
f. Activities should be customer oriented, an emphasis should be given on customer services
to satisfy them to a maximum level.
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3. Strategies during Maturity Stage:

i. More and more emphasis is required on the brand image in order to differentiate the
product from products of the competitors.
ii. More benefits may be provided to the customers e.g. extending the warranty period,
guarantee period etc.
iii. Change in packaging may be introduced (Reusable packaging).
iv. Packaging may be used as a silent salesman by making it more attractive.
v. Requirement to explore the new markets for the product.
vi. New uses of the product may be developed.
vii. New users of the product may be developed.
viii. New Technology can be adopted to enhance the quality of the product.
ix. New features can be added to enhance the value of the product.
4.Strategies during Decline Stage:
i. More emphasis on the promotional schemes
ii. Distribution cost should be reduced and the benefit should be transferred to the
customers
iii. More value addition to the product can be done.
iv. Packaging will play a very important role at this stage also, so it should be focused on.
v. Cost of production should also be reduced.
vi. Economy packs of the products should be introduced.
vii. Try to increase the life of the stage
viii. Emphasis is on sales volume with minimum profit margins.
If after all these efforts company fails to restore its position in the market, than the best
thing for the company is to take out their existing product from the market and come up
with a new product comprising of unique features that can hit the market.
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Product Life Cycle – 6 Important Factors Affecting PLC:

1. Rate of Technical Changes:
Life-cycle of a product depends upon the rate of technical changes taking place in the
country. If technical changes take place in the country at a very high rate, the life-cycle of
the products in that country will be very limited because new and improved products take
place of the old products.
On the other hand, if the rate of technical changes in a country is not so high, the life-cycle
of the products in that country may be longer. For example, rate of technical changes in
India is lower when compared with that of the other developed countries. As a result of it,
the life-cycle of products in our country is higher than that of the developed countries.
2. Rate of Market Acceptance:
The length of life-cycle of products in a country depends upon the rate of market
acceptance in the country also. If the customer of a country accepts a new product very
fast, the life-cycle of products in such country will be very limited because the customers,
who have accepted a product so fast, can accept another product on next day and the
product may stand out of the market.
On the other hand, if the customers of a country accept a product gradually, the life-cycle of
products in such country may be quite long. For example, the rate of market acceptance in
our country is very low and therefore, the life-cycle of most of the products in our country is
quite long.
3. Ease of Competitive Entry:
The success or failure of a product in the market depends to a large extent upon the
situation of competition in the market. If the competitors can enter into a market very
easily, the life-cycle of the product will be very short because the competitors can make the
products out. On the contrary, if the competitors cannot enter into a market so easily, the
life-cycle of products in such market can be fairly long.
4. Risk Bearing Capacity:
The enterprises having more risk bearing capacity can keep their products standing in the
market for a long period because they can face all the challenges of market effectively. On
the other hand, the enterprises having less risk bearing capacity are unable in facing the
challenges of the market, life-cycle of their products is curtailed to short.
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5. Economic and Managerial Forces:

Economic and managerial forces of an enterprise also determine the success of the
enterprise in the market to a great extent. If an enterprise enjoys sound economic and
managerial forces, the life-cycle of the product of such enterprise can be longer than that of
the products of an enterprise suffering from weak economic and managerial forces.
6. Protection by Patent:
If the patent of a product is getting registered, the life-cycle of the product can be fairly
long, and if the patent of a product is not getting registered, the life-cycle of the product is
cut short.

Product Life Cycle – Marketing Techniques Used to Improve Sales:

1. Advertising:
It is a good technique to try to gain a new audience or remind the current audience. Tata
Nano was revived through heavy advertising. Even Cadbury adopted the new positioning
technique by highlighting the fact that it made a good gift and a chocolate is good on happy
occasions with a nice catchy phrase “kuch meetha ho jaye”.
2. Price Reduction:
This technique is always more attractive to customers. Airtel significantly lowered the price
to remain in competition.
3. Adding Value:
The company, under this approach adds new features to the current product, such as video
messaging on mobile phones. An I-Phone performing the features of a Laptop. AN LCD
being made Pen Drive compatible.
4. Explore New Markets:
When there is no scope to sell further in the domestic market, it is better for the company
to try selling abroad. All the hand set manufactures for mobile phones are exploring the
villages and small towns for their cheaper versions of which the stocks are lying with them,
but there is no demand in the Metros and the big cities.
5. New Packaging:
When the old packaging has lost its attractiveness, then brightening up old packaging, or
subtle changes such as putting crisps in foil packets be done by the company. All cosmetics
companies have repackaged the lipsticks differently for the teenagers and for the older
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women. Even the vermilion which has been mostly popularised by the TV serials is coming
in the stick form and not powder form, so that it does not smudge.

Advantages and Disadvantages of Product Life Cycle

Advantages of Product Life Cycles:
1. It helps in Understanding Marketing and Development of product. From a marketing and
business development perspective, this is one of the strongest advantages of product life
cycles
2. For consumers, the product life cycle has generally positive implications by driving
innovation, which leads to products that are more effective
3. It helps the marketing division to know the time when innovations are required in the
product
4. PLC leads to capture of market in the maturity stage
5. It lets the management know when to discard the product
Limitations of Product Life Cycle:
1. All products follow PLC, But PLC varies a lot, unfortunately, it is applied without any
distinction, although is different for different types of products
2. It appears that life comes to an end with decline, but there are examples when after
decline the product may have found new popularity and rejuvenation
3. Nothing helps to identify when a product moves from one stage to another. It makes the
task of forecasting difficult
4. The model worked well when the environment was relatively stable, not subject to
uncertainty as it is today
5. Streetwise marketers point out those unusual circumstances that might interfere with
expected life cycle behaviour. It may result in different shape of PLC
6. The life cycle of a product is dependent on sales to consumers. All consumers do not buy
in the introductory stage. Some people buy early, others buy after their friends have
bought. For any product to be successful it must be bought by early adopters
7. PLC is a metaphor. Products are not organic, and as such do not have to die
8. It attempts to describe only the pattern of evolution
9. There is no scientific basis
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10. The pattern may not be the same to all industries

11. All products do not pass through all the stages of PLC

New Product Development

“By new product we mean original products, product improvements, product modification
and new brands that the firm develops through its own research and development efforts”.
In the light of above definition, a new product will be considered anything which is
perceived as such by the consumer or with which the firm has no previous experience. It
means that a consumer views a product as new if any new thing is experienced or any
additional variants are provided with the existing product.
He must feel that such a new thing in the product had not come to his use earlier to the
current one. Then from the view point of a firm, a product is new to it when existing
products are improvised, capacity or life is enlarged or more want satisfying ingredients are
added to the earlier products. A firm in order to deliver a new shaped product faces the
problems as that of releasing totally new product to the market.
It is quite difficult to give the concept of a new product. A product may be new to company
but not new to customers or the product may be new to customers but not new to the
company.
Booz, Allen and Hamilton have identified six categories of new product in the terms of their
newness to the company and to the market place.
i. New to the world – New products that create an entirely new product.
ii. New product lines – New Product that allows a company to enter an established market
for the first time.
iii. Additions to the existing product lines – New products that supplement a company’s
established product line.
iv. Improvements in revision to existing product – New products that provide improved
performance or greater perceived value and replace existing product.
v. Repositioning – Existing products that are targeted to new markets or market
segmentation.
vi. Costs reductions – New product that provides similar performance at lower costs.
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Concept of New Product Development:

A new product is a product that is new to the company introducing it even though it may
have been made in same form by others. In the area of toilet soaps, different brands
introduced by each company are that way, new products as it is new to the company. New
products are those whose degree of change for customers is sufficient to require the design
or re-design of marketing strategies.
Product development is the next step to product planning. Product development is the
process of finding out the possibility of producing a product. It includes the decision as to
whether it would be feasible or not to produce the product and whether it would be
profitable or not for the enterprise to do so.

Need of New Product Development

The need for new product development on various counts described below:
a. Putting All Eggs in One Basket:
If an organization depends on only one product to get all the business and profits, it faces
the danger of losing everything in one stroke. E.g. Automobile Products of India (API) selling
Lambretta scooters lost its business to Bajaj Auto and it had no option but to close down.
Similarly, Amrutanjan, India’s number one pain balm, a single product company, and Vazir
Sultan Tobacco Company, manufacturer of the largest selling cigarette, Charminar, again a
single product company, closed when they lost business to rival products.
b. Creating New Avenues for Growth:
The market is always evolving itself and newer consumer needs and demands are created.
To take care of such situations, organizations must come out with new products that will
create new avenues for the growth of organizations. Organizations that are slow in creating
new avenues fall behind others in business.
E.g. Godrej, the only organization manufacturing refrigerators in India (GEC, the other brand
used to be imported), did not come out with smaller refrigerators to take care of the middle
class willing to buy them and lost business first to Kelvinator/Leonard/Gem (all
manufactured by Kelvinator but marketed by self/Blue Star/Voltas) and then to Hyderabad
Alwyn and now Whirlpool/LG etc.
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c. Giving Choice to Consumers for Selection:

The consumer needs and demands keep changing and upgrading/downgrading and
organizations should create products in both upward and downward changes.
E.g. Maruti launched its 800 and van initially and then went on to introduce Zen, Esteem,
1000, Swift, Swift Dezire, WagonR, Ecco, SX4 etc., to give the consumers various choices and
keep them tied to its own products.
d. Multiple Attacks on Competition:
When competition is the market leader, organizations introduce multiple products to
corner small portions of the competitor’s market share and collectively win a larger market
share. E.g. Vadilal ice-cream introduced as many as 24 flavours to beat Quality Ice-cream
and become the market leader (Quality sold out to Walls to become Quality Walls, a HUL
company).
e. Cater to New Tastes of Consumers:
Consumers keep changing their expectations and the organization needs to give them
newer products to take care of new needs. E.g. Introduction of dish washers and food
processors in India by most of the electronics companies.
f. Taking Advantage of Market Fads/Fashion:
There are many fads and fashions that rule a particular time and organizations need to take
care of them by introducing products for such fads/fashions. E.g. KeMnator had introduced
refrigerators with various scenes like the Taj Mahal on Its door. It became an instant success
and was followed by all the other companies.

New Product Development – Classification:

i. New to the World:
These products represent innovative novel creations that did not exist before. A large
number of products that are now taken for granted and considered old were once new to
the world. Consider products such as microprocessor, nylon, post-it notes, transistor,
television, and airplane were new products when they were created for the first time. Sony
introduced to the world a device called Walkman that allowed people to listen to music on
the go.
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ii. New to the Company:

As the name of this category suggests, these products are not new to the world but are new
for the company. Companies expand their offering to grow like ITC added readymade
apparels and food products to its portfolio. Addition of new product lines fall into this
category.
Micromax started its operations as a mobile handset marketer and added television line
later. Sony added digital camera line to its existing portfolio in 1996.
iii. Additions to Product Line:
Firms add new items to their existing product line in order to meet evolving consumer and
competitive conditions. For instance, Pepsi added Pepsi Blue to cash in on a particular
cricketing season. Nokia added Asha to its mobile phone line. Sony introduced a new model
to its mobile phone line, Sony Xperia Z2, which they promoted as the ‘best phone ever’.
iv. Product Improvement:
Improved products are considered new because of their newness. These are linear
improvements to a product. For instance, Maruti launched its cars with new K Series
engines that delivered superior fuel efficiency.
Blue Star improved its air conditioners by improving its compressor to inverter technology.
Sony listened to customer feedback and it was the first to improve its camera by making
their devices dustproof and waterproof.

Steps in Product Development Process:

Development of new products is not a luxury but a necessity. Firms need a perpetual supply
of new products to make up for the ones that decline and fade out. The failure to launch
new products and improve the existing ones makes a firm vulnerable to decline. It for this
reason, firms establish a department dedicated to developing new products.
New products do not fall from heavens. They are systematically developed in which the
new product idea moves through a series of steps to becoming a tangible reality.
The following steps are involved in new product development process:
Step # 1. Idea Generation:
Every product is aimed to solve consumer problems. Product embodies tangible form of an
intangible idea. Idea is the basis of product development. For instance, the idea of safety
guides the Volvo brand of cars and Hero Honda created its CD 100 motorcycle with an idea
to give customers a fuel efficient bike.
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New product ideas can come from several sources including customers, competitors,
employees, Internet web pages, sales personnel, and complaint websites. One of the keys
to ensure constant supply of ideas is to build a culture of openness. Firms that keep their
sensors shut and do not allow flow of information from various sources are unlikely to
exploit potential new product development ideas.
Power to observe subtle and explicit trends in the macro and micro business environment
can provide clues about possible product and service introduction opportunities. For
instance, Ratan Tata’s observation of a family of four dangerously perched on a two
wheeler gave him an idea to create a car priced at just Rs.1 lakh.
Idea sources can be classified into two groups, namely internal sources and external
sources. Ideas to generate new products can come from people who work inside the
company in different departments. For instance, people working on the assembly lines are
encouraged to give their suggestions in improving quality in companies such as Toyota and
Suzuki.
Employees who come in contact with customers or suppliers get innovative ideas for
improving products and creating new products. A firm can also get product innovation ideas
from external sources such as suppliers, customers, competitors, and professional
consultants.
With the advent of interactive communication technologies, customers are invited by firms
to ‘co-create’ solutions for themselves. For instance, companies like Philips invite their
customers to suggest ideas for new products and product improvements. Good companies
listen to customer feedback and complaints that are posted on specialized websites like
MouthShut(dot)com.
Step # 2. Idea Screening:
Ideas can flow from all directions and end up creating a large pool. The next concern in the
new product development process is to separate good ideas from the bad ones. Bad ideas
must be dropped. This is not an easy process because poorly executed idea screening can
cause a good idea to get filtered and at the same time allow a poor idea to move on.
Screening out a good idea implies potential loss of sales, market share, and competitive
advantage opportunity. However, when a bad idea is pushed forward, the firm may end up
spending precious resources in pursuing a bad product. An idea must be worth pursuing.
Idea screening calls for the conduct of multidimensional analyses. First, an idea must be
evaluated from the customer’s perspective. It should make sense to potential buyers. It
must embody utility valued by customers, that is, that idea must make ‘customer sense’.
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Second, an idea is worth pursuing if it can lead to the creation of a competitively superior
product.
A product should be relatively advantageous compared to competitive offerings. This filter
can be labelled as that idea must be make ‘competitive sense’. Finally, an idea is not worth
pursuing if it does not go well with overall company objectives and goals. An intent and
capability incompatibility implies that the idea is to be screened notwithstanding its
inherent appeal.
Step # 3. Concept Development and Testing:
Products are based on ideas, but they themselves are not ideas. Idea serves as the basic
foundation that can be conceptualized in different products. Therefore, an idea needs to be
evolved into a detailed statement expressed in consumer terms. Idea is an initial thought;
when finished with details an idea becomes a concept.
For instance, mobile phones embody a basic idea of connectivity on the go. How this basic
idea is interpreted and converted into several product concepts can be seen in the range of
mobile phones marketed under various brands. All mobile phone brands are physical
manifestations of the same core idea of mobile connectivity but they differ in their
concepts.
i. Concept Development:
An idea when detailed in terms of consumer needs, technology, user, and use situation
takes the form of product concept. The mobile communication idea can take shape of
different product concepts.
These may include the following:
1. Concept 1—Basic communication device for entry level consumers
2. Concept 2—Communications device that allows busy executives to do office work while
on the go
3. Concept 3—Fashion accessory with communication ability for socially conscious people
4. Concept 4—Communication device coupled with music capability
5. Concept 5—Phone complete with social media applications for socially networked people
These concepts are derived from the basic idea given to solving peoples’ need to stay in
touch with other. These concepts provide alternate routes to product development. For
instance, brands such as Lava, Fly, and iBall are based on the first concept, while concept
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two is visible in brands such as Blackberry and Lumia. Sony’s Walkman phones were
designed in accordance to concept four.
ii. Concept Testing:
Concepts are expanded ideas. The concepts developed are tested with consumers to find
out whether the idea is worth taking forward. A number of concerns arise at this stage
regarding concept’s appeal, understanding, and relative superiority over other options in
terms of preference, believability, and willingness to try and buy.
For testing purposes, the concepts may be verbally described, expressed through pictures,
or developed into a physical form. These are then shown to a select group of consumers
who are probed by asking questions meant to check their understanding of the concept,
concept believability, and perceived superiority over existing options in relation to its
reasonable pricing, and probability of purchase. Typically, the types of questions that can be
asked when a concept is being tested.
Step # 4. Marketing Strategy Development:
After the scrutiny of alternative concepts, the next task is to conceptualize its marketing
strategy. The idea here is to achieve clarity on certain questions related to
marketing. Marketing is about segmentation, targeting, and positioning and arriving at an
appropriate marketing mix.
Following are some important aspects related to marketing strategy:
i. Target Market:
Targeting is only possible when target consumers are described in terms of their identifiable
descriptors such as age, income, and location. For instance, in our case the target market
can be described as ‘people in the age group of 15—25 years located in urban areas with
affordability to spend around Rs.10,000 who listen to music about 3—4 hours a day’. The
statement of target market must be able to meet the criteria of effective targeting.
ii. Marketing Mix:
It represents the aspects related to strategy execution. Marketing is about being able to
meet consumer needs profitably. For these decisions would have to be taken in the area of
labelling, packaging, pricing, discounts, promotions, advertising, and channels and logistics.
For instance, continuing with the case of music phone the marketing mix elements can be
elaborated upon as a brand that would be called ‘music express’ and would be made
available in three variants. Each of the variants would be manufactured in three colours
that will be indicative of their storage capacity and audio quality.
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It would be made available through an established chain of electronic stores. The store
would be given 2 percent of the market price for display and an additional 8 percent would
be their commission per piece. The brand would be promoted primarily through social
media and advertising with an estimated budget of Rs.1 crore in the first year.
iii. Objectives:
It is said that what cannot be quantified cannot be managed. Therefore, targets have to be
established in various areas related to marketing strategy. To begin with, a clear statement
has to be made about marketing goals and objectives that the product in question must
achieve in a given period of time.
Distinction has to be made between objectives and goals. Abstract statement like the
product should achieve decent sales, share, and profit is meaningless. The question is what
is meant by ‘decent’. Therefore, goals need to be spelled out in quantitative terms. For
instance, the objective may be stated as that the product is expected to achieve a sales
target of Rs.10 crore in the first year that should yield an estimated 5 percent net profit.

5 Stages of Consumer Adoption Process

Consumers go through 5 stages in the process of adopting a new product.
1. Product Awareness.
2. Product Interest.
3. Product Evaluation.
4. Product Trial.
5. Product Adoption.
These stages imply that the new-product marketer should consider how to help consumers
move through these stages. A manufacturer of large-screen televisions may discover that
many consumers in the interest stage do not move to the trial stage because of uncertainty
and the large investment.
If these same consumers would be willing to use a large-screen television on a trial basis for
a small fee, the manufacturer should consider offering a trial-use plan with the option to
buy.
For adopting a new product, at first, the consumer becomes aware of the new product but
does not have information about it. The consumer shows interest and searches for
information about the new product. In the third stage, the consumer evaluates whether
trying the new product is worthwhile. After that, the consumer tries the new product on a
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limited scale to improve its value assessment. At the last stage, the consumer decides to
make full and regular use of the new product.
Let’s understand them in details;
1. Product Awareness
The consumer becomes aware of the new product but lacks information about it. Initially,
the consumer must become aware of the new product. Awareness leads to interest, and
the customer seeks information about the new product.
Whether an innovation is continuous or not, people are either little aware or aware of it
initially.
Innovator, therefore, has to inform the adopters about the innovation. In the awareness
stage, individuals become aware that the product exists, but they have little information
about it and are not concerned about getting more.
Adopters may be informed through advertising, publicity, or any other effort of the
marketer.
2. Product Interest
The consumer seeks information about the new product. Once the information has been
gathered, the consumer enters the evaluation stage and considers buying the new product.
By this time, the innovation is introduced. It is now the time for the decision-makers to
determine whether the innovation relates to their needs.
They enter the interest stage when they are motivated to get information about its
features, uses, advantages, disadvantages, price, or location.
Interest may or may not sparked, depending on whether the decision-makers perceive the
innovation as a relevant, feasible alternative to existing items.
3. Product Evaluation
Next, in the trial stage, the consumer tries the product on a small scale to improve its value
estimate. The consumer considers whether trying the new product makes sense.
Adopters of the innovations have to establish some evaluation measures to compare the
new product with existing ones.
During the evaluation stage, individuals consider whether the product will satisfy certain
critical criteria for meeting their specific needs. The potential adopters consider the
innovation’s benefits and determine whether to try it.
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4. Product Trial
The consumer tries the new product on a small scale to improve their estimate of its value.
If the consumer is satisfied with the product, they enter the adoption stage, deciding to use
the new product thoroughly and regularly.
At this stage, the potential adopters examine, test, or try the innovative product to
determine its usefulness.
In this stage, they use or experience the product for the first time, possibly by purchasing a
small quantity, taking advantage of a free sample or demonstration, or borrowing the
product from someone.
During this stage, potential adopters determine the product’s usefulness under the specific
conditions they need.
The trial stage for innovations is complex. Successful introduction depends greatly on the
new product’s characteristics, benefits, and perceived risks. Effective communication is the
key to achieving trial by consumers.
5. Product Adoption
The consumer decides to make full and regular use of the new product. The new product is
a good, service, or idea perceived by some potential customers as new.
Individuals move into the adoption stage when choosing that specific product when they
need a product of that general type. Here the buyers purchase the new product and can be
expected to use it to solve problems.
So, this final stage of the process is indicated most directly by sales, but the innovation’s
visibility is also a success measure.
However, please do not assume that they will eventually adopt the new product because a
person enters the adoption process. Rejection may occur after any stage, including the
adoption stage.
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UNIT-3
Pricing decisions
Pricing decisions are the choices businesses make when setting prices for their products or
services.
Pricing is considered part of a company’s marketing strategy because it influences its
relationship with customers: When prices are fair and competitive, customers come back,
increasing the profitability of the business.
Pricing decisions can be simple or complex.
Simple pricing involves charging what competitors charge for similar goods and services.
This strategy is often used by retailers and wholesalers selling commodities. Companies that
make simple pricing decisions often try to increase sales by making small, competitive
adjustments such as purchase discounts, volume discounts and purchase allowances.
Complex pricing is based on the originality of a product or service and what customers are
willing to pay for it. This type of pricing is determined through negotiation with the
customer and is common for custom furniture, artworks and consulting services

Factor Influencing Pricing Decisions

An enormous number of factors affect pricing decisions. A marketing manager should
identify and study the relevant factors affecting the pricing. Some factors are internal to
organisation and, hence, controllable while other factors are external or environmental and
are uncontrollable.
Factors are also classified in terms of competition-related factors, market-related factors,
product- related factors, and so forth. However, we will consider internal and external
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factors affecting pricing decisions. Due to these factors, price is set high or low, fixed or
variable, and equal or discriminative. Figure 2 shows a list of internal and external factors.
Let us analyze some of the main factors influencing pricing decisions.
(A) Internal Factors:
Internal factors are internal to organisation and, hence, are controllable. These factors play
vital role in pricing decisions. They are also known as organisational factors. Manager, who
is responsible to set price and formulae pricing policies and strategies, is required to know
adequately about these factors.
Important internal factors have been discussed here:
1. Top Level Management:
Top-level management has a full authority over the issues related to pricing. Marketing
manager’s role is administrative. The philosophy of top-level management is reflected in
forms of pricing also. How does top management perceive the price?
How far is pricing considered as a tool for earning profits, and what is importance of price
for overall performance? In short, overall management philosophy and practice have a
direct impact on pricing decision. Price of the product may be high or low; may be fixed or
variable; or may be equal or discriminative depends on top-level management.
2. Elements of Marketing Mix:
Price is one of the important elements of marketing mix. Therefore, it must be integrated to
other elements (promotion, product, and distribution) of marketing mix. So, pricing
decisions must be linked with these elements so as to consider the effect of price on
promotion, product and distribution, and effect of these three elements on price.
For example, high quality product should be sold at a high price. When a company spends
heavily on advertising, sales promotion, personal selling and publicity, the selling costs will
go up, and consequently, price of the product will be high. In the same way, high
distribution costs are also reflected in forms of high selling price.
3. Degree of Product Differentiation:
Product differentiation is an important guideline in pricing decisions. Product differentiation
can be defined as the degree to which company’s product is perceived different as against
the products offered by the close competitors, or to what extent the product is superior to
that of competitors’ in terms of competitive advantages. The theory is, the higher the
product differentiation, the more will be freedom to set the price, and the higher the price
will be.
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4. Costs:
Costs and profits are two dominant factors having direct impact on selling price. Here, costs
include product development costs, production costs, and marketing costs. It is very simple
that costs and price have direct positive correlation. However, production and marketing
costs are more important in determining price.
5. Objectives of Company:
Company’s objectives affect price of the product. Price is set in accordance with general and
marketing objectives. Pricing policies must the company’s objectives. There are many
objectives, and price is set to achieve them.
6. Stages of Product Life Cycle:
Each stage of product life cycle needs different marketing strategies, including pricing
strategies. Pricing depends upon the stage in which company’s product is passing through.
Price is kept high or low, allowances or discounts are allowed or not, etc., depend on the
stage of product life cycle.
7. Product Quality:
Quality affects price level. Mostly, a high-quality-product is sold at a high price and vice
versa. Customers are also ready to pay high price for a quality product.
8. Brand Image and Reputation in Market:
Price doesn’t include only costs and profits. Brand image and reputation of the company are
also added in the value of product. Generally, the company with reputed and established
brand charges high price for its products.
9. Category of Product:
Over and above costs, profits, brand image, objectives and other variables, the product
category must be considered. Product may be imitative, luxury, novel, perishable,
fashionable, consumable, durable, etc. Similarly, product may be reflective of status,
position, and prestige. Buyers pay price not only for the basic contents, but also for
psychological and social implications.
10. Market Share:
Market share is the desired proportion of sales a company wants to achieve from the total
sales in an industry. Market share may be absolute or relative. Relative market share can be
calculated with reference to close competitors. If company is not satisfied with the current
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market share, price may be reduced, discounts may be offered, or credit facility may be
provided to attract more buyers.
(B) External Factors:
External factors are also known as environmental or uncontrollable factors. Compared to
internal factors, they are more powerful.
Pricing decisions should be taken after analyzing following external factors:
1. Demand for the Product:
Demand is the single most important factor affecting price of product and pricing policies.
Demand creation or demand management is the prime task of marketing management. So,
price is set at a level at which there is the desired impact on the product demand. Company
must set price according to purchase capacity of its buyers.
Here, there is reciprocal effect between demand and price, i.e., price affects demand and
demand affects price level. However, demand is more powerful than price. So, marketer
takes decision as per demand. Price is kept high when demand is high, and price is kept low
when demand of the product is low. Price is constantly adjusted to create and/or maintain
the expected level of demand.
2. Competition:
A marketer has to work in a competitive situation. To face competitors, defeat them, or
prevent their entry by effective marketing strategies is one of the basic objective
organisation. Therefore, pricing decision is taken accordingly.
A marketer formulates pricing policies and strategies to respond competitors, or,
sometimes, to misguide competitors. When all the marketing decisions are taken with
reference to competition, how can price be an exception?
Sometimes, a company follows a strong competitor’s pricing policies assuming that the
leader is right. Price level, allowances, discount, credit facility, and other related decisions
are largely imitated.
3. Price of Raw Materials and other Inputs:
The price of raw materials and other inputs affect pricing decisions. Change in price of
needed inputs has direct positive effect on the price of finished product. For example, if
price of raw materials increases, company has to raise its selling price to offset increased
costs.
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4. Buyers Behaviour:
It is essential to consider buyer behaviour while taking pricing decision. Marketer should
analyze consumer behaviour to set effective pricing policies. Consumer behaviour includes
the study of social, cultural, personal, and economic factors related to consumers. The key
characteristics of consumers provide a clue to set an appropriate price for the product.
5. Government Rules and Restrictions:
A company cannot set its pricing policies against rules and regulations prescribed by the
governments. Governments have formulated at least 30 Acts to protect the interest of
customers. Out of them, certain Acts are directly related to pricing aspects. Marketing
manager must set pricing within limit of the legal framework to avoid unnecessary
interference from the outside. Adequate knowledge of these legal provisions is considered
to be very important for the manager.
6. Ethical Consideration or Codes of Conduct:
Ethics play a vital role in price determination. Ethics may be said as moral values or ethical
code that govern managerial actions. If a company wants to fulfill its social obligations and
when it believes to work within limits of the ethics prescribed, it always charges reasonable
price for its products. Moral values restrict managerial behaviour.
7. Seasonal Effect:
Certain products have seasonal demand. In peak season, demand is high; while in slack
season, demand reduces considerably. To balance the demand or to minimize the seasonal-
demand fluctuations, the company changes its price level and pricing policies. For example,
during a peak season, price may be kept high and vice versa. Discount, credit sales, and
price allowances are important issues related to seasonal factor.
8. Economic Condition:
This is an important factor affecting pricing decisions. Inflationary or deflationary condition,
depression, recovery or prosperity condition influences the demand to a great extent. The
overall health of economy has tremendous impact on price level and degree of variation in
price of the product. For example, price is kept high during inflationary conditions. A
manager should keep in mind the macro picture of economy while setting price for the
product.
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Pricing Policies
A pricing policy is a company's approach to determining the price at which it offers a good
or service to the market. Pricing policies help companies make sure they remain profitable
and give them the flexibility to price separate products differently. Your company might
value having a well-defined pricing policy so it can make price adjustments quickly and take
advantage of products' strengths in one or more markets.

Objectives of Pricing Policy:

The pricing policy of the firm may vary from firm to firm depending on its objective. In
practice, we find many prices for a product of a firm such as wholesale price, retail price,
published price, quoted price, actual price and so on.
Special discounts, special offers, methods of payment, amounts bought and transportation
charges, trade-in values, etc., are some sources of variations in the price of the product. For
pricing decision, one has to define the price of the product very carefully.
Pricing decision of a firm in general will have considerable repercussions on its marketing
strategies. This implies that when the firm makes a decision about the price, it has to
consider its entire marketing efforts. Pricing decisions are usually considered a part of the
general strategy for achieving a broadly defined goal.
(i) Price-Profit Satisfaction:
The firms are interested in keeping their prices stable within certain period of time
irrespective of changes in demand and costs, so that they may get the expected profit.
(ii) Sales Maximisation and Growth:
A firm has to set a price which assures maximum sales of the product. Firms set a price
which would enhance the sale of the entire product line. It is only then, it can achieve
growth.
(iii) Making Money:
Some firms want to use their special position in the industry by selling product at a
premium and make quick profit as much as possible.
(iv) Preventing Competition:
Unrestricted competition and lack of planning can result in wasteful duplication of
resources. The price system in a competitive economy might not reflect society’s real
needs. By adopting a suitable price policy the firm can restrict the entry of rivals.
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(v) Market Share:

The firm wants to secure a large share in the market by following a suitable price policy. It
wants to acquire a dominating leadership position in the market. Many managers believe
that revenue maximisation will lead to long run profit maximisation and market share
growth.
(vi) Survival:
In these days of severe competition and business uncertainties, the firm must set a price
which would safeguard the welfare of the firm. A firm is always in its survival stage. For the
sake of its continued existence, it must tolerate all kinds of obstacles and challenges from
the rivals.
(vii) Market Penetration:
Some companies want to maximise unit sales. They believe that a higher sales volume will
lead to lower unit costs and higher long run profit. They set the lowest price, assuming the
market is price sensitive. This is called market penetration pricing.
(viii) Marketing Skimming:
Many companies favour setting high prices to ‘skim’ the market. Dupont is a prime
practitioner of market skimming pricing. With each innovation, it estimates the highest
price it can charge given the comparative benefits of its new product versus the available
substitutes.
(ix) Early Cash Recovery:
Some firms set a price which will create a mad rush for the product and recover cash early.
They may also set a low price as a caution against uncertainty of the future.
(x) Satisfactory Rate of Return:
Many companies try to set the price that will maximise current profits. To estimate the
demand and costs associated with alternative prices, they choose the price that produces
maximum current profit, cash flow or rate of return on investment.
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Methods/ Types of Pricing Policies

1) Cost-Oriented Pricing Policy:
Cost of production of a product is the most important variable and most important
determinant of its price. There may be many types of costs such as – fixed cost, variable
cost, total cost, average cost and marginal cost etc. An analytical study of these costs must
be made for determining the price of a product. Methods of determining price on the basis
of cost are as under:
i) Full Cost or Mark-up Pricing or Cost plus Pricing Method:
In this method, the marketer estimates the total cost of producing or manufacturing the
product and then adds it a mark up or the margin that the firm wants. This is indeed the
most elementary pricing method and many of services and projects are priced accordingly.
To arrive at the mark up price, one can use the following formula:
Mark up price = α / (1-r)
Where, alpha = Unit cost (fixed cost + variable cost)
r = Expected return on sales expressed as a percent
For example, if fixed costs for making 10,000 shirts is Rs 1, 50,000 and the variable cost per
shirt is Rs 30, then cost per shirt is Rs 45, Now the firm expects 30 percent return on sales.
Keeping this figure in mind, the mark up price will be Mark up price = 45/ (1 – 0.3) = 45/0.7
or Rs 64.28 p.
This method assumes that no product is sold at a loss. This method is used when there is no
competition in the market or when the cost of production of a product of all the
manufacturers is almost equal and the margin of profit of all the manufacturers is also
equal. This method is used by retail traders also. This method of pricing is based on a simple
arithmetic of adding a fixed percentage of profit to the unit cost. Thus, retail price of a
product can be the cost of manufacturer plus the margin of profit of wholesaler plus the
margin of profit of retailer. Therefore, this method is also known as ‘The Sum of Margin
Method’.
ii) Marginal Cost or Incremental Cost Pricing Method:
Here, the company may work on the premise of recovering its marginal cost and getting a
contribution towards its overheads. This method works well in a market already dominated
by giant firms or characterized by intense competition and the objective of the firm is to get
a foothold in the market.
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Marginal cost pricing is always used by the international marketing firms in relation to
profits they can earn from the international marketing activity, in addition to the domestic
sales volumes. It is discussed here that for some firms international marketing activity
pertains to only taking care of the surplus production after they have met the domestic
demand. These firms believe that:
a) Sales from the international markets are additional sales and, as such, the price earning
from these sales should not be over-laden with the overhead costs, for which they can
always turn to domestic markets.
b) There is generally a view that these firms will not be able to compete with the superior
products on offers from developed countries, whose perceptions will always be higher than
that of the products from developing countries. These firms believe that price is the only
factor that can manipulate market demand in their favour.
c) These firms also believe that a separate segment of the market in the underdeveloped
and low national income countries exists for the products from the developing countries.
And, in such low income segments, price could be the only decisive factor.
For such international firms, earning additional profits can also be the outcome of the
Marginal Revenue (MR) these firms earn for each additional unit sold in international
markets. This MR will depict the change in the Total Revenue (TR) of the firm every time it
sells an additional unit of production to the export market.
Similarly, for producing an additional unit of product for the export market, the firm will be
incurring Marginal Cost (MC), in addition to the earlier total cost being incurred.
The firm can determine if the additional unit produced for international markets is
contributing to the profits by looking at the MR earned from that unit as against the MC
incurred. In case MR is greater than MC, the firm will make profits. However, where the
profits decline over a period of time, the firm will have to continue producing till the point
where MR = MC, as beyond that point the MR per unit may decline and the contributions
from additional unit produced will become negative.
iii) Rate of Return or Target Pricing Method:
Under this method of price determination, first of all, a rate of return desired by the
enterprise on the amount of capital invested by it is determined. The amount of profit
desired by the enterprise is calculated on the basis of this rate of return. This amount of
profit is added to the cost of production of the product and thus, the price per unit of the
product is determined. This method of price determination can be used by an enterprise to
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get a certain return on invested capital. The use of this method is possible only when there
is no competition in the market.
2) Customer Demand-Oriented Pricing:
The basic feature of all these demand-based method is that profits can be expected
independent of the costs involved, but are dependent on the demand. This pricing method
differs from Cost-driven pricing in that it starts by asking at what price the market will be
prepared to pay for the product and works back to the level of profit and costs, which that
price will afford to the organisation.
i) ‘What the Traffic Can Bear’ Pricing:
Pricing based on ‘what the traffic can bear’, is not a sophisticated method. It is used by
retail traders as well as by some manufacturing firms. This method brings high profits in the
short term. But ‘what the traffic can bear’ is not a safe concept. Chances of errors in
judgement are very high. Also, it involves trial and error. It can be used where
monopoly/oligopoly conditions exist and demand is relatively inelastic to price. Buyer
opposition or consumerism is bound to set in course of time when a firm sets its prices on
the basis of what the traffic can bear.
ii) Skimming Pricing:
One of the most commonly discussed Pricing method is the skimming pricing. This Pricing
method to the firm’s desire to skim the market, by selling at a premium price.
iii) Penetration Pricing:
As opposed to the skimming pricing, the objective of penetration pricing is to gain a
foothold in a highly competitive market. The objective of this Pricing method is market
share or market penetration. Here, the firm prices its product lower than the others do in
competition.
3) Competition-Oriented Pricing Policy:
Most companies fix the prices of their products after a careful consideration of the
competitors’ price structure. Deliberate policy may be formulated to sell its products in the
competitive market. Three policy alternatives are available to the firm under this pricing
method:
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i) Parity Pricing or Going Rate Pricing:

Under this method, the price of a product is determined on the basis of the price of
competitor’s products. This method is used when the firm is new in the market or when the
existing firm introduces a new product in the market. This method is used when there is a
tough competition in the market. The method is based on the assumption that a new
product will create demand only when its price is competitive. In such a case. The firm
follows the market leader.
ii) Pricing below Competitive Level or Discount Pricing:
Discount pricing means when the firm determines the price of its products below the
competitive level i.e., below the price of the same products of the competitors. This policy
pays where customers are price; the method is used by new firms entering the market.
iii) Pricing above Competitive Level or Premium Pricing:
Premium pricing means where the firm determines the price of its product above the price
of the same products of the competitors. Price of the firm’s product remains higher
showing that its quality is better. The price policy is adopted by the firms of high repute only
because they have created the image of quality producer in the minds of the public. They
became the market leader.
4) Other Pricing Policies:
i) Price Bundling:
One such technique for accomplishing this is called “bundling”. A company bundles
customer benefits together to increase the value. Bundling occurred when Japanese
Automobile manufacturers included options such as tinted windows and white-wall tires as
standard equipment instead of charging additional amounts.
The cost of this added value is much less than one would expect. The objective of bundling,
therefore, is to add value while keeping cost increments small, and thus not to increase
prices for the added value. One could, of course, also add value by additional service, higher
quality, more convenience because of store location, and so forth.
ii) Sealed Bid Pricing:
Another form of competition oriented pricing is the sealed bid pricing. In a large number of
projects, industrial marketing and marketing to the government, suppliers are asked to
submit their quotations, as a part of tender. The price quoted reflects the firm’s cost and its
understanding of competition.
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If the firm was to price its offer only at its cost level, it may be the lowest bidder and may
even get the contract but may not make any profit out of the deal. So, it is important that
the firm uses expected profit at different price levels to arrive at the most profitable price.
This can be arrived at by considering the profits and profitability of getting a contract at
different prices. This method obviously assumes that the firm has complete knowledge or
information about the competition and the customer.
iii) Break Even Point or B.E.P. Pricing Method:
Breakeven point is the volume of sales at which the total sales revenue of the product is
equal to its total cost. In other words, it can also be said that break even point is the volume
of sales at which there is no profit and no loss. Therefore, this method is also known as ‘No
Profit No Loss Pricing Method’.
For the purpose of determining price under this method, total cost of production of a
product is divided into two parts – Fixed Costs and Variable Costs. The price is determined
equal to the total cost of production of the product. It is based on the fact that in short-run
the enterprise will not make any profit but in long-run, it will start to earn profit and higher
be the scale of production, more will be the amount of profit to the enterprise because all
fixed costs remain constant at all the levels of production and as the fixed costs are
recovered in the beginning, the enterprise starts to get profit with the increase in sales
above break even point. This method of pricing is very useful for determining the price of a
competitive product. Under this method B.E.P. can be calculated as under:
B.E.P. (In Units) = Fixed Costs/Selling Price per unit – Variable Costs per unit
B.E.P. (In Rs) = Fixed Costs× Total Sales/Total Sales – Total Variable Costs
iv) Value Based Pricing:
Good pricing begins with a complete understanding of the value that a product or service
creates for customers. Value-based pricing uses buyer’s perceptions of value, not he seller’s
cost, as the key to pricing. Value-based pricing means that the marketer cannot design a
product and marketing program and then set the price. Price is considered along with the
other marketing mix variables before the marketing program is set.
Value pricing rests on the premise that the purpose of pricing is not to recover costs, but to
capture the value of the product perceived by the customer.
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Analysis will readily show that the following scenarios are possible with the cost-value price
chain:
a) Value > Price > Costs:
The marketer recovers his costs through price, but fails to recover the value of his product
and thus misses out the profit opportunity.
b) Price > Value > Costs:
The recovers his costs as well as the value, but errs on the excess side by giving less value to
the customer than what is due as per the price. He will lose the loyalty of the customer and
the equity of his brand.
c) Price > Costs > Value:
The value that he passes on to the customer is still lesser and it is doubtful if he will
adequately sell his product at all. Here, his cost itself is higher than the value of the product
and by maintaining his price above his costs; he makes his value delivery to the customer all
the more negative.
d) Price = Value > Costs:
The matches the value and price, and wins customer loyalty; and since the value created is
larger than his costs, he ensures his profits. It is obvious that scenario 4) has the maximum
merit. It guarantees sustained sales and profits to the marketer. It is to be noted that in all
the four scenarios, his price covers his costs alright and thus ensures his profitability, but
only scenario 4) is helpful to him in the true sense.
v) Affordability-based Pricing:
This method is relevant in respect of essential commodities, which meet the basic needs of
all sections of people. The idea here is to set prices in such a way that all sections of the
population are in a position to try and consume the products to the required extent. The
price is set independent of the costs involved, often an element of state subsidy is involved
and the items are.
vi) Prestige Pricing:
As a purchasing motivation, ‘prestige’ is rarely openly admitted. Many buyers do not realize
that this might be their prime motivation for wanting to possess a particular item. At best,
they might see the motive, as the desire to possess something that is exclusive and such
exclusivity is often associated with a high price. This is associated with what we term
‘psychological pricing’.
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8 Steps Involved in Price Determination Process

(i) Market Segmentation:
In market segments, marketers will have firm decisions on:
(a) The type of products to be produced or sold.
(b) The kind of service to be rendered.
(c) The costs of operations to be estimated.
(d) The types of customers or market segments sought.
(ii) Estimate Demand:
Marketers will estimate total demand for the product based on sales forecast, channel
opinions and degree of competition in the market. Prices of comparable rival products can
guide us in pricing our products. We can determine market potential by trying different
prices in different markets.
(iii) The Market Share:
Marketers will choose a brand image and the desired market share on the basis of
competitive reaction. Market planners must know exactly what his rivals are charging. Level
of competitive pricing enables the firm to price above, below or at par and such a decision is
easier in many cases.
Higher initial price may be preferred, in case of smaller market share is anticipated,
whereas, in the expectation of a much larger market share for the brand, marketer will have
to prefer relatively lower price. Proper pricing strategy is evolved to reach the expected
market share either through skimming price or through penetration price or through a
compromise, i.e., fair trading or fair price- to cover cost of goods, operating expenses and
normal profit margin.
(iv) The Marketing Mix:
The overall marketing strategy is based on an integrated approach to all the elements of
marketing mix.
It covers:
(a) Product-market strategy
(b) Promotion strategy
(c) Pricing Strategy
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(d) Distribution Strategy

Marketers will have to assign an appropriate role to price as an element of marketing- mix.
Promotional strategy will affect pricing decisions.
The design of marketing mix can indicate the role to be played by pricing in relation to
promotion and distribution policies. Price is critical strategic element of the marketing mix
as it influences the quality perception and enables product or brand positioning. Price is
also a good tactical variable. Changes in price can be made much faster than in any other
variable of marketing mix. Hence, price has a good tactical value.
(v) Estimate of Costs:
Straight, cost-plus pricing is not desirable always as it is not sensitive to demand. Marketing
must take into account all relevant costs as well as price elasticity of demand.
(vi) Pricing Policies:
Pricing policies are guidelines to carry out pricing strategy. Pricing policy may be fixed or
flexible. Pricing policies must change and adopt themselves with the changing objectives
and changing environment.
(vii) Pricing Strategies:
Strategy is a plan of action to adjust with changing condition of the– market place. New and
unanticipated developments such as price cut by rivals, government regulations, economic
recession, changes in consumer demand etc. may take place, and then changes all for
special attention and relevant adjustments in the pricing policies and producers.
(viii) The Price Structure:
Developing the price structure on the basis of pricing policies and strategies is the final step
in price determination prices. The price structure will now define the selling prices for all
products and permissible discounts and allowances to be given to distributor’s co-dealers as
well as various types of buyers.

Pricing Strategies
Definition: Price is the value that is put to a product or service and is the result of a complex
set of calculations, research and understanding and risk taking ability. A pricing strategy
takes into account segments, ability to pay, market conditions, competitor actions, trade
margins and input costs, amongst others. It is targeted at the defined customers and against
competitors.
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Various Types/ Alternatives of Pricing Strategies

1.Price Skimming
Price skimming is a product pricing strategy by which a firm charges the highest initial price
that customers will pay and then lowers it over time. As the demand of the first customers
is satisfied and competition enters the market, the firm lowers the price to attract another,
more price-sensitive segment of the population. The skimming strategy gets its name from
"skimming" successive layers of cream, or customer segments, as prices are lowered over
time.
Advantages of Price Skimming
 Perceived quality: Price skimming helps build a high-quality image and perception of
the product.
 Cost recuperation: It helps a firm quickly recover its costs of development.
 High profitability: It generates a high profit margin for the company.
 Vertical supply chain benefits: It helps distributors earn a higher percentage. The
markup on a $500 product is far more substantial than on a $5 item.
Disadvantages
 Deterrence: If the firm is unable to justify its high price, then consumers may not be
willing to purchase the product.
 Limitation of sales volume: A firm may not be able to utilize economies of scaleif a
skim price generates too few sales.
 Inefficient long-term strategy: Price skimming is not a viable long-term pricing
strategy, as competitors will eventually enter the market with rival products and
exert downward pricing pressure.
 Consumer loyalty: If a product that costs $1,000 at launch has a follow-on price of
$200 in a couple of months, innovators and early adopters may feel ripped off.
Therefore, if the firm has a history of price skimming, consumers may wait a couple
of months before purchasing the product.
2.Penetration Pricing
Penetration pricing is a marketing strategy used by businesses to attract customers to a
new product or service by offering a lower price during its initial offering. The lower
price helps a new product or service penetrate the market and attract customers away from
competitors. Market penetration pricing relies on the strategy of using low prices initially to
make a wide number of customers aware of a new product.
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The goal of a price penetration strategy is to entice customers to try a new product and
build market share with the hope of keeping the new customers once prices rise back to
normal levels. Penetration pricing examples include an online news website offering one
month free for a subscription-based service or a bank offering a free checking account for
six months.
Penetration Pricing vs. Skimming
With pricing penetration, companies advertise new products at low prices, with modest or
nonexistent margins. Conversely, a skimming strategy involves companies marketing
products at high prices with relatively high margins. A skimming strategy works well for
innovative or luxury products where early adopters have low price sensitivity and are willing
to pay higher prices. Effectively, producers are skimming the market to maximize
profits. Over time, prices will reduce to levels comparable to market prices in order to
capture the rest of the market.
Small businesses or those in niche markets can benefit from price skimming when their
products or services are differentiated from competitors' and when synonymous with
quality and a positive brand image.
How does a penetration pricing strategy work?
A penetration pricing strategy prioritizes market share over profits for a given time period.
The goal is to generate demand, rapidly build a customer base, and maximize brand loyalty
in a short time.
Penetration pricing is when businesses introduce a low price for their new product or
service. The initial price undercuts competitors, forcing them to match the offer or quickly
apply other strategies. Competitors' customers may switch over to the cheaper offer, and
new customers buy in too. After a period of growth, the business typically raises prices to
increase profits and reflect the product’s rising value.
If it’s an innovative product, this theory works the same way. Price is removed as a barrier
to get people to try the new product or service. The company sets a price that’s a bargain
for its unique value, while still being cheaper than the familiar options. Competitors have
less time to respond before the company amasses market share and becomes the new
standard of choice.
Penetration pricing is generally used when demand for a new product or service is
projected to be high. The hope is that the sales volume will make up for the below-average
cost.
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Price elasticity also plays a role. Businesses selling price-elastic products—meaning their
customers' buying habits shift based on price—also use the penetration strategy. High
prices could hurt sales and limit growth during the crucial launch period. A low price is the
foot in the door for many new businesses.
Penetration pricing examples
Companies utilize the penetration pricing strategy in different ways. In addition to setting a
low price for their main product, some companies also use discounts, promotions, and
other giveaways to attract customers. Here are a few examples.
Internet and cable providers: It’s common to see cable companies offer free streaming
services or extra channels to draw in new subscribers. Although there’s usually a time limit
attached, perks like these are still effective. These incentives and bonuses help companies
stand out in a saturated market.
Food and beverage companies: Snack and drink manufacturers sometimes introduce new
products and flavors at low prices so customers will give them a try. Take the newly popular
hard-seltzer market as an example. A new business could make a splash by offering their
lime flavor for $1.50 cheaper than standard options.
Cell phone carriers and smartphones: Some carriers offer customers inexpensive or free
smartphones in return for a long-term contract. Technology companies creating the phones
employ this strategy too. Android phones are often priced low so customers build brand
loyalty and Android achieves greater market penetration. Apple, on the other hand,
practices price skimming. They charge as high a price as customers will pay and slowly lower
it. The initial high cost builds their luxury brand reputation, and they “skim” price-sensitive
customers from competitors over time as the price of the product slowly drops.
Advantages of the penetration pricing strategy
Penetration pricing is an effective way to enter the market for some companies. Let’s go
over a few of the strategic advantages.
 Fast adoption: A low price tag can help speed up how fast customers will test and
accept a product or service. Customers may view the purchase as less risky and be
more likely to try it.
 Economies of scale: Switching over as many customers as possible is one of the
central goals of a penetration pricing strategy. This is especially true for a product
designed for a mass market. Penetration pricing can increase the volume of sales to
offset the risks of a low price. In addition, suppliers may offer bulk discounts if a
product is moving quickly.
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 Goodwill: Customers value a good deal. By starting with an inexpensive initial price,
new companies can build goodwill with a large number of prospects and customers.
Price-sensitive customers are more likely to switch, and potentially promote the
product through word-of-mouth marketing.
 Less competition: A new market entrant with a low price point sometimes catches
competitors unaware. (This is more likely with a stealth launch.) In the early launch
period, your business could face less competition and opposition marketing.
 Cost control: By nature, penetration pricing requires diligent budgeting and
forecasting. With this strategy, your company may discover areas to improve cost
efficiency, lower marginal costs, and control business expenses.
Disadvantages of penetration pricing
There are also drawbacks to using a penetration pricing strategy in the short-term and long-
term. Let’s go over a few of the disadvantages.
 Less customer loyalty: Penetration pricing includes the risk of dealing with frequent
customer turnover and growing a core customer base of “switchers.” These are
customers that switch for bargains and leave once prices increase. Businesses need to
announce and implement price raises carefully to avoid this outcome.
 Low brand reputation: Alternatively, consumers may perceive very low prices and
generous introductory offers as suspicious. Companies using the penetration pricing
strategy may have to protect their brand image from negative assumptions about the
quality or utility of their products.
 Narrow margins: Pricing low puts pressure on sales. Businesses selling products also
have to keep a close eye on inventory levels and avoid oversupplying. Otherwise, a
business can incur losses through excessive stock. In addition, business owners have
to follow through on planned price increases if they're going to become profitable
with this strategy.
 Aggressive competition: While penetration pricing may catch other market players
off guard, it could also cause them to simply lower their prices. Competing with
established businesses for market share in a "price war" could be challenging for a
new venture.
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3.Pricing Strategy Across A Product Life Cycle

A product life cycle encompasses the time it takes to develop and introduce the product to
the market until it’s no longer produced and sold to consumers. Primarily, it is divided into 4
stages – the introduction stage, growth stage, maturity stage, and decline stage.
As much as the life cycle concept is mainly used for a product category, it may also apply to
a brand. For example, the duration could last for only a couple of months for fad items like
fashion apparel, fresh foods, and electronic devices. In other scenarios, it might last a
century or even more, like in the case of gasoline vehicles and the Coca-Cola drink.
Knowing where a product is on the life cycle stage can help businesses make better pricing
decisions, predict profitability, manage sales and compete effectively against rivals.
Moreover, better pricing decisions and strategies help entice buyers to choose a product or
brand over all others in the market time and time again.
Pricing Strategies for the Different Product Life Cycle Stages
Pricing variation for the introduction stage
The introduction stage is when consumers are just learning about your product or service. If
your offering is unique with no close alternative in the market, you might be able to fix your
prices high. However, this should be done after conducting the necessary market analysis
and by pricing experts who have adequate knowledge of your niche.
The reason for this is because when your premium pricing is not commensurate with the
value or uniqueness of your product, it might cause low sales. Customers would think
you’re overpriced and wouldn’t even try out your product.
On the flip side, if there are other well-established brands in your product category, you
might want to start with lower-than-average pricing. Again, the idea is to attract consumers
to give your product a try so they could see how it made their life so much better than what
your rivals are offering.
However, in a bid to draw in more customers, if your prices are set too low, that may be a
huge turn-off to customers. To some customers, low prices may indicate poor quality.
Therefore, when setting prices at this stage, you need to have a good understanding of the
current market situation, your targeted customers as well as your niche.
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Pricing variation for the growth stage

At the growth phase, you’re no longer a newcomer in the market. Customers now have a
good understanding of what value your product will offer them, and there is high demand
and lots of sales.
It is at this stage that businesses aim to generate enough revenue to recoup their initial
investments and costly marketing expenses of the early days. So, products are priced
higher.
While the growth phase might be profitable, it is also that phase where competitors start
showing up and offering similar products in the market. To put a further dent in your
customer base, rival companies might even provide the same value as you and at a much
more lower price.
The strategy some companies employ to at this point is to either lower their prices or
increase their product’s value. By adding more features to their product and doubling
marketing efforts, some businesses have successfully maintained their value-based pricing.
Also, to increase revenue at this stage despite the presence of aggressive competitors,
some companies extend their niche and market to new customers.
Pricing variation for the maturity stage
Unlike other stages, the competition at this level is extremely fierce and generating
impressive revenue becomes triple hard. Besides, customers are already used to your
product and may want to try something new. So the trick some organizations who want to
sustain a value-based price use during this saturation level is to carry out market research
to identify new pain points of customers.
Guided by the research findings, they can make relevant additions to their product or
service, thus increasing the product value in customers’ perception. That way, and through
aggressive marketing that emphasizes their product uniqueness, some companies have
been able to retain and attract new customers.
In addition, to increase their customer base, companies run sales, issue special discounts,
and offer exclusive membership deals on a periodical basis. Finally, for businesses that are
unable to exceed the value provided by rivals, the survival tactic involves cutting prices to
pull in customers.
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Pricing variation for the decline stage

The pricing strategy used in the declining phase is majorly low pricing. Furthermore, to
protect revenue, companies try to cut production costs to sustain their low prices. Another
strategy used is to offer discounts and bundling deals.
With bundling, the declining product is included with other in-demand products. Thus, the
high demand for those other products move the sale of the declining good or service.
Surprisingly, during decline, some companies have been able to recycle a product back into
the maturity stage by adding newer features and increased targeted marketing.
How to Determine Your Product Life Cycle Stage
All products – be it tangible or intangible – pass through the four product life cycle stages.
As we mentioned earlier, each of these stages may last for either a couple of weeks or
several years.
However, at all times, it is vital for companies to know what stage of the product life cycle
whatever they are selling is. The knowledge is essential when deciding on where to allocate
resources and when setting performance goals like sales/profit growth targets.
That said, there are characteristics peculiar to each product life cycle stage that can help
business owners pinpoint what phase their product or service is currently at.
Introduction
The introduction stage, which is also the development stage, comprises unique elements
such as brainstorming, preliminary or detailed design, prototyping, and production.
Additionally, most products at this stage experience meager sales resulting in possible
losses.
Depending on the nature of the product, the introduction stage could go on for weeks or
months in the case of food products. In other instances, it might extend into years in the
case of drug products waiting for approval.
Growth
You can determine whether you’re in the growth phase by analyzing your sales and profit
figures. During this stage, sales figures usually slope upward due to a combination of
targeted marketing and higher product quality. As a result, the sales volume at this level is
generally high.
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Maturity
The sales and profit for mature products are usually flat due to more competing alternatives
and intense market saturation. At this stage, companies tend to lower prices and increase
advertising in order to gain market share. However, these tactics sometimes lead to
reduced profit margins if the volume of sales remains stagnant.
Decline
During decline, the sales and profit figures of a product reduce drastically due to evolving
technologies and changing consumer preferences. Other factors that drastically reduce
sales at this level include regulatory changes, aggressive competition, and quality control
issues.

Discount Pricing/Policy
Discount pricing is a type of promotional pricing strategy where the original price for a
product or service is reduced with the aim of increasing traffic, moving inventory, and
driving sales.
People are drawn to lower prices because consumers love feeling as if they are scoring a
good deal. Discounting strategies also create a sense of urgency that might drive more
customers to convert.
It has various forms:
1.Discount
2.Rebate
3.premium
1.DISCOUNTS
As you know, manufacturers often prepare the list prices for their products for quoting to
the buyers and also display it on the product labels. List price is further adjusted to suit the
requirements of the dealers and buyers. Such adjustments may be in the form of various
reductions from the list price such as discounts, rebates, commissions and allowances. Let
us study about discounts in detail.
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Types of Discount
Quantity Discount
Selling and distribution costs are directly related to the quantity sold to a single buyer. If the
buyer buys large quantities, the seller saves in selling and distribution costs. In order to
provide incentive to buyers to buy in large quantities, the seller often allows a reduction in
the price charged for the product. The reduction is referred to as the quantity discount.
These discounts are based on the size of purchase, either in units of product or the value of
the purchase. For example, if you buy one banana, the price may be Re.0.50, but if you buy
a dozen, the price may be Rs.5.00 per dozen. If you buy I Kg. of rice, the price may be Rs.6,
but if you purchase one quintal (100 kg.) the price may be Rs.550. In the first case, you are
getting a quantity discount of Re. 1.00 on a quantity of 12 bananas or on Rs.6.00. In the
second case, you are being given a quantity discount of R.s.50 (6.00 for 1.000 kilogram
minus the actual amount charged Ks.5.50).
There are two types of quantity discounts : I) cumulative discounts and 2) non-cumulative
discounts.
 Non-cumulative Quantity Discounts : When the quantity discount is allowed on each
single purchase of one product or several products from the same seller, it is called
non-cumulative discount.
Non-cumulative discounts provide inducement to the buyer to place large orders. The
large orders result in reduction of various costs to the seller which vary with the size
of the order. These costs include the selling costs, order processing costs; packing and
transportation costs, delivery and collection costs. Large orders may also reduce
production costs to the extent that they facilitate production of the goods on more
economical scale.
 Cumulative Quantity Discounts : This type of discount is the reduction in price of
product or a group of products based on the total amount of purchases made by a
particular buyer from the seller during a specified time period, generally a year. It is
also called a 'deferred or patronage discount' since it represents a reward to the
buyer for patronising the seller for a relatively longer period. Moreover, he gets the
discount at the end of a specific period. The more he buys during the period, the
more amount of discount he gets since the discount is often in slabs based on the
sales volume.
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Trade Discount
The trade discount, also called functional discount, IS a reduction in price allowed to the
distributing middlemen (wholesalers and retailers) for performing specific functions such as
storing, selling, information gathering, complaint handling, customer serving. etc. Different
types of middlemen may be allowed different rates of discounts depending upon the
functions and services provided by them to the manufacturer. However, the middlemen at
the same horizontal level (e.g. all wholesalers) must be given the same rate of trade
discount. Otherwise, the practice will amount to discriminatory dealing which may generate
ill-will among the dealers and may also be objectionable under the law.
Trade discount may also reflect the buyer's keenness of doing business. since this is an
important consideration if the seller needs the volume from a certain class of buyers.
Advantages of Trade Discounts
Following are the advantages of trade discount:
 More Revenue
Trade discount acts as an incentive to order more quantities. Thus customers are
encouraged to order more, which helps increase revenue and production.
 Improves Goodwill
A business that gives higher trade discounts is more popular among the resellers. Such
businesses also earn the loyalty of the resellers. And this, in turn, improves the goodwill of
the business.
 Price Differentiation
A trade discount allows wholesalers to maintain one catalog for all resellers and even for
consumers. Despite having one catalog, the wholesalers or distributors are able to
differentiate on price by offering trade discounts separately to each party.
 Maintains Secrecy
The trade discount negotiations take place secretly. This ensures that customers do not
know the discount that others are getting. Such a practice is positive for a business and
helps to increase profitability as well.
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Disadvantages of Trade Discount

1)Costly Creditworthiness assessment of Customers-to be sure of progress in extending
trade discounts, the suppliers need to carry out some customer screening to know their
credit position and this is costly for financial and time resources are needed to achieve that.
2)Close Monitoring and evaluation of Accounts Receivable -additional responsibility arises
on the side of the suppliers for in case they sell on credit to the buyers they need to ensure
that the accounts are in good standing and this means a new role that may deny another
section some services so as to monitor the customers.
3)Negative Effect on Cash Flow-the mismatch between sell on credit and purchasing of
goods on cash may create a loophole of cash shortages especially on the side of the
supplier. This can happen on extreme cases especially when the credit terms are very
lenient. Therefore cash can be in shortage.
4)Financial losses through bad debts written off-the extension of trade credit will lead to
some buyers defaulting their debt obligation which may translate in to cash lost through
bad debts written off.
Cash Discount
Any reduction from the amount of the bill to encourage the buyer to pay the bill promptly is
known as cash discount. This is often done when the sales are made on credit. The cash
discount is calculated on the amount after deducting the trade and quantity discounts from
the list price. A typical example is 2/10, n/30 which means that the payment is due within
30 days, but if the buyer pays the bill within 10 days he can deduct two per cent of the
amount.
You can use this cash discount strategy to : I) collect the bills more quickly, 2) reduce credit
risk (i.e., bad debts). 3) improve liquidity position. 4) reduce the cost of borrowing to
finance the credit, and 5) reduce the cost of account keeping and collection staff. From the
buyer's point of view also it is advantageous to earn 2% discount by paying the invoice just
20 days earlier than the day on which it has to be paid any way. If we 9 calculate it on
annual* basis, it amounts to 36% per year, which is a big amount. A very high cash discount
may not be justified on the basis of encouraging prompt payment. On the other hand, a
very low cash discount may not be able to motivate the buyer to. make prompt payment,
The rate of cash discount should be decided after taking into account both the above
aspects. In many cases. the cash discount is given only because it is expected and has
become a custom in the trade. In order to avoid discrimination among the buyers, the cash
discount must be offered to all buyers at the uniform rate.
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Advantages of a Cash Discount

Motivates Customers to Pay
Many customers wait to pay their monthly bills until the last minute, or even a day or two
after the deadline. Offering a cash discount for customers to entice them to pay before the
deadline makes good business sense for you.
Increases Cash Flow
Even if you don't need a quick cash fix, having access to more cash each month will help you
pay your bills more easily. Setting an earlier deadline for cash payments could bring in more
money in during the first half of the month, rather than toward the end of the month.
Provides Lower Card Processing Fees
Credit and debit card processing fees can be hefty, and can take their toll on small business
owners. Roughly, that fee can amount to anywhere from 2 to 2.5 percent. Depending on
your customer flow and the amount of each transaction, those dollars and cents can add up
quickly. When customers pay with cash, that money is yours.
Attracts New Customers
Offering a cash discount can be an effective marketing tool to attract new customers who
have cash or who prefer to use cash. All customers appreciate a discount, and some may be
more likely to return to your establishment or use your services if you offer an attractive
discount.
Helps Get the Sale and Spread the News
Offering cash discounts on big-ticket items such as a new tablet could motivate your
customer to go to the ATM and back just to make that purchase. This is also another way to
distinguish your independent business from the big box stores, and it brings that customer
right to your door. And, of course, a satisfied customer is likely to spread the news of his
good fortune to a friend, who might tell another friend -- who, in turn, might tell yet
another friend.
Seasonal Discount
Sometimes, a discount is allowed from the list price during off-season. This is done to
encourage the buyer to buy the product in the face of lack of demand in off9 season. This
discount is known as the seasonal discount. As you are aware, for example, manufacturers
of refrigerators offer discount during the winter season when there is less demand for
refrigerators. Similarly. manufacturers of fans also offer discount during winter season. The
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seasonal discount motivates the buyer to buy the product in off-season and stock the
product much before its actual demand. Thus, the manufacturer can sell the products in off-
season and the inventory costs can be substantially reduced by allowing seasonal discount.
This discount also helps the seller in smoothening the uneven production and sales pattern
of the product. I1 the seasonal discounts offered by the manufacturer to the middlemen are
substantial, the middlemen can pass on the whole or the part thereof to the customers.
2.Rebates
Rebate is a sales promotion technique in which certain part of the purchase amount is
returned to the buyer by the seller. It is usually given on the purchase of a certain quantity
or value, product and for a limited period of time.
It should not be confused with discounts that is deducted from your purchase amount in
advance of payment whereas rebates are given only after the payment of full purchase
invoice amount.
Rebate is basically a sales promotion method that marketers use to drive sales in the
growth phase of the product when there is a competition between various brands to
acquire large market share. It is also used to drive the sales of relatively less successful
models of a particular product.
It also provides marketers with the customer’s information that can be used for marketing
purpose, data mining, or studying the consumer behaviour.
It can also be seen as a tool to keep the price of the products constant, for example during
festive period offer, marketers can drive sales by providing rebate rather that reducing the
price of product. Because of this the price of the product remained constant before and
after festive period and thus saved the firm from negative backlash.
Example
On the occasion of its 80th anniversary Tangs a women’s apparel company is providing 12%
rebate offer on its product purchase of worth 5000 or above. So if you are buying an exotic
Gown worth 10000 rupees. After buying that gown, you will be entitled to get a cashback,
check etc. of 1200 rupees.
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Types Of Rebates
 Discount Rebate: It is a guarantee of a reduction in the value of the goods. These are
used while calculating the expected costs.
 Target Rebate: It is a type in which there is no actual guarantee of a reduction in the
goods’ value. These rebates are not used while calculating the expected costs. The
seller only gives such types to a buyer when the seller believes that the buyer is
eligible.
 Instant Rebate: It is given to the customer immediately without further delay at the
time of purchase.
 Standard Rebate: In this type, the customer has to mail the coupon with the proof of
payment or cash receipt which the store workers after that check, and if the sale
proves to be legit, the customer is provided with a cashback.

Benefits
 Increased Purchasing Power: It helps the customers earn a profit against the goods
they have purchased by providing them with cash back or refund, which increases
their purchasing power.
 Increase in the Sale: Due to the availability of cashback or refund on the purchase,
rebates attract the customers, increasing the sale for the retailer.
 Free Advertisement: It encourages customers to purchase by giving them a fair deal.
When a customer gets a fair deal, they don’t keep it to themselves but encourage
others to try, which helps the retailer advertise without cost.
3.Premiums
Companies use a premium pricing strategy when they want to charge higher prices than
their competitors for their products. The goal is to create the perception that the products
must have a higher value than competing products because the prices are higher. The
company is betting that the consumer will not investigate to find out if the product is truly a
higher-quality item. Marketing managers want consumers to believe that the brand name
by itself is enough to assure them that the product is better than the competition's product.
A premium pricing strategy has the advantages of producing higher profit margins, creating
tougher barriers to entry for competitors, and increasing the brand's value for all the
company's products.
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Premium pricing pros

Premium pricing benefits are largely self-explanatory—done right, the strategy can lead to
higher profit margins and improved public perceptions of your company.
Higher profit margins
Premium pricing will naturally result in higher profit margins for your company, if
successful. It’s basic math—a higher price-per-unit leads to higher profit-per-unit sold.
Improves brand perception & value
Premium pricing also improves brand value and the perception of your company. Not only
does a premium-priced product accrue its own high-quality reputation, but it also improves
the perception of the rest of your product portfolio.
Build a moat around your brand
If a premium pricing strategy is successful, it can raise barriers to entry in your industry.
Other companies won’t be able to compete with your product without boasting equivalent
product quality and price points. You can rapidly entrench a market advantage with a well-
executed premium pricing strategy.
Premium pricing cons
Making a success out of premium pricing generally depends on controlling the context
around your product. A delicate matrix of factors needs to be in alignment, and this can be
seen as the method’s main drawback. And the same things that bring about the benefits of
premium pricing can also prove restrictive for your company.
Dependence on price inelasticity
Premium pricing really does depend on price-inelastic consumer demand—without an
impregnable USP (unique selling point), you can’t justify the higher price tag for your
product. That means your product development costs are likely to be much higher if you’re
selling at a premium.
Limits market opportunity
Premium pricing limits your ability to sell your product to a mass market. While this is less
of a concern for SaaS companies than it would be for, say, fashion brands, you’re still
voluntarily pricing out some of your market share.
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Reduces price competitiveness

Pricing at a premium leaves you vulnerable to undercutting tactics from competitors,
particularly if your field is crowded. Your premium price can work against you if a
competitor comes along that sells an equivalent product/service more cheaply.
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UNIT-4
Promotion Mix – Introduction
Communication is a must in marketing process. The manufacturer (communicator or
source) transmits the message to the target consumer through mass communication
methods —advertising, personal selling, sales promotion and publicity—in order to create
the demand for the product. This is invariably called promotion.
Promotion influences demand by communicating pro-product and pro-company messages
to the market. A promotion strategy involves the coordination of ail communication efforts
aimed at specific audiences—consumers, dealers, the government shareholders and so on.
The most critical promotional question facing the marketing manager concerns the proper
mix of communication methods—advertising, personal selling, sales promotion and
publicity.

Promotional Mix – Meaning

Promotion is an important part of the marketing mix of a business enterprise. It is the spark
plug of the marketing mix. It is a process of communication involving information,
persuasion, and influence. It includes all types of personal or impersonal communication
with customers as well as middlemen in distribution.
The purpose of promotion is to inform, persuade and influence the prospective customers.
Personal selling, advertising publicity and sales promotion are widely used to inform the
people about the availability of products and create among them the desire to buy the
products.
Non business enterprise can market its products unless it undertakes promotional activities
effectively. The prospective customers have to be informed about the product its features,
utility and availability. The need for promotional activities has increased because of stiff
competition, widening of market and rapid changes in technology and tastes of the
customers.
The term ‘promotional mix’ is used to refer to the combination of different kinds of
promotional tools used by a firm to advertise and sell its products. The main promotional
tools or activities which make up promotion mix are personal selling, advertising, publicity
and sales promotion. These are also known as elements of promotion mix.
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Promotion Mix – Definition

Gary Armstrong defines promotion mix as, “A company’s promotional mix includes
advertising, personal selling, sales promotion, public relations, direct marketing. It also
includes product design, shape, package, colour, label etc., as all these communicate
something to buyer.”
Philip Kotler opines, “A company’s total marketing communication mix also called
promotion mix consists of specific blends of advertising, personal selling, sales promotion,
public relations and direct marketing tools that the company use to pursue its advertising
and marketing objectives.”

Promotion Mix – Scope/ Element/ Methods of Promotion Mix

Promotion basically deals with outer world and therefore comprise of more and more
communication strategies and tools for attracting customers.
Scope of promotion mix can be stressed with the help of following key points:
1. Advertising:
Advertising involves turning attention of third parties towards product for the sole purpose
of sale.
Hence it can be stated that anything and everything that turns the attention to an article or
service or an idea might be called as an advertisement.
American marketing association defines advertising as, “any paid form of non-personal
presentation of ideas, goods or services by an identified sponsor. Advertising is a prime part
of promotion mix.
Characteristics / Natures/ Features of Advertising:
Above stated definitions reveal following features:
1. Tool for Market Promotion:
There are various tools used for market communication, such as advertising, sales
promotion, personal selling, and publicity. Advertising is a powerful, expensive, and popular
element of promotion mix.
2. Non-personal:
Advertising is a type of non-personal or mass communication with the target audience. A
large number of people are addressed at time. It is called as non-personal salesmanship.
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3. Paid Form:
Advertising is not free of costs. Advertiser, called as sponsor, has to spend money for
preparing message, buying media, and monitoring advertising efforts. It is the costliest
option of market promotion. Company has to prepare its advertising budget to appropriate
advertising costs.
4. Wide Applicability:
Advertising is a popular and widely used means for communicating with the target market.
It is not used only for business and profession, but is widely used by museums, charitable
trusts, government agencies, educational institutions, and others to inform and attract
various target publics.
5. Varied Objectives:
Advertising is aimed at achieving various objectives. It is targeted to increase sales, create
and improve brand image, face competition, build relations with publics, or to educate
people.
6. Forms of Advertising:
Advertising message can be expressed in written, oral, audible, or visual forms. Mostly,
message is expressed in a joint form, such as oral-visual, audio-visual, etc.
7. Use of Media:
Advertiser can use any of the several advertising media to convey the message. Widely used
media are print media (newspapers, magazines, pamphlets, booklets, letters, etc.), outdoor
media (hoardings, sign boards, wall-printing, vehicle, banners, etc.), audio-visual media
(radio, television, film, Internet, etc.), or any other to address the target audience.
8. Advertising as an Art:
Today’s advertising task is much complicated. Message creation and presentation require a
good deal of knowledge, creativity, skills, and experience. So, advertising can be said as an
art. It is an artful activity.
9. Element of Truth:
It is difficult to say that advertising message always reveals the truth. In many cases,
exaggerated facts are advertised. However, due to certain legal provisions, the element of
truth can be fairly assured. But, there is no guarantee that the claim made in advertisement
is completely true. Most advertisements are erotic, materialistic, misleading, and producer-
cantered.
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10. One-way Communication:

Advertising involves the one-way communication. Message moves from company to
customers, from sponsor to audience. Message from consumers to marketer is not possible.
Marketer cannot know how far the advertisement has influenced the audience.

Advertising Objectives:
1. To Inform Buyers:
This objective includes informing customers regarding product’s availability, price, features,
qualities, services, and performance. Besides, it also includes informing them about changes
made in the existing product and introduction of new products. Company also highlights its
location, achievements, policies, and performance through advertising.
2. To Persuade or Convince Buyers:
Company uses advertisement to persuade or convince the buyers about superior
advantages offered by its product. Company communicates competitive advantages the
product offers to induce customers buy it. Comparative advertising is used to prove the
additional benefits of product at a given price.
3. To Remind Buyers:
Marketer uses advertising to remind the buyers regarding existence of company, products,
maintenance of quality, superior services, and chasing customer-orientation. Mostly, the
existing firms aim their advertising for this objective.
Here, the purpose is to inform that the company is still in existence and serving customers
in a better way. Due to huge information bombarded by a number of companies, customers
are more likely to forget name of company and/or products and services it offers.
4. To Face Competition:
Advertising is treated as the most powerful weapon to fight with competitors effectively.
Advertising enables the firm to respond the competitors strongly. It helps the firm to
distinguish its total offerings from competitors.
In brief, the firm can face competition, can prevent the entry of competitors, or can remove
competitors away from the market. In competitive marketing environment, the firm cannot
survive without an effective advertisement.
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5. To Achieve Sales Targets:

Increase sales volume is one of the major advertising objectives. A company can advertise
its products in various media to attract customers situated in different parts of the world.
National and international marketing is the result of advertising. Even, non-users can be
converted into users and usage rate can be increased. Thus, company can achieve its sales
objectives by advertisement.
6. To Build and Improve Brand Image:
Advertising is used for brand recognition and acceptance. A company can distinguish its
brand by magnifying major benefits the product offers. Advertisement attracts customers
toward the brand; they try it and accept it over time. In the same way, bad image related to
brand can be changed by systematic presentation of facts and scientific evidences, and
removing misunderstanding.
7. To Help or Educate People:
Advertising is not always used only for company’s benefits. It is meant for helping
customers to make the right choice of product. It educates people about availability of new
products, its features and qualities, price, services, and other related aspects. Such
information is instrumental for purchasing suitable products. Thus, it guides customers to
choose the most appropriate product.
8. To Build Company Image and Reputation:
A company opts for advertisement to build prestige and reputation in the market. Most of
the companies, though they are satisfied with the volume of sales, go for advertising to
acquire fame in the market. Many companies advertise its policies, activities, and
achievements to make a permanent place in the mind of people.
9. To Assist Sales Force and Middlemen:
Advertising is an aid to middlemen and salesmen. Advertising also popularizes the name of
dealers. Likewise, advertising provides necessary information to the buyers. Middlemen and
salesmen are not required to do the same. It eases the task of sellers. In the same way,
advertising encourages sales force.
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10. Other Objectives:

There are certain minor objectives of advertising, such as:
i. To promote new products.
ii. To build long-term relations.
iii. To remove misunderstanding.
iv. To expand of market.
v. To gain confidence of buyers.
vi. To request customers to compromise with unavoidable circumstances.
vii. To seek apology of the buyers for any undesirable events, etc.

Advantages of Advertising:
(1) Introduces a New Product in the Market:
Advertising plays significant role in the introduction of a new product in the market. It
stimulates the people to purchase the product.
(2) Expansion of the Market:
It enables the manufacturer to expand his market. It helps in exploring new markets for the
product and retaining the existing markets. It plays a sheet anchor role in widening the
marketing for the manufacturer’s products even by conveying the customers living at the
far flung and remote areas.
(3) Increased Sales:
Advertisement facilitates mass production to goods and increases the volume of sales. In
other words, sales can be increased with additional expenditure on advertising with every
increase in sale, selling expenses will decrease.
(4) Fights Competition:
Advertising is greatly helpful in meeting the forces of competition prevalent in the market.
Continuous advertising is very essential in order to save the product from the clutches of
the competitors.
(5) Enhances Good-Will:
Advertising is instrumental in increasing goodwill of the concern. It introduces the
manufacturer and his product to the people. Repeated advertising and better quality of
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products brings more reputation for the manufacturer and enhances goodwill for the
concern.
(6) Educates The Consumers:
Advertising is educational and dynamic in nature. It familiarises the customers with the new
products and their diverse uses and also educates them about the new uses of existing
products.

(7) Elimination of Middlemen:

It aims at establishing a direct link between the manufacturer and the consumer, thereby
eliminating the marketing intermediaries. This increases the profits of the manufacturer
and the consumer gets the products at lower prices.
(8) Better Quality Products:
Different goods are advertised under different brand names. A branded product assures a
standard quality to the consumers. The manufacturer provides quality goods to the
consumers and tries to win their confidence in his product.
(9) Supports The Salesmanship:
Advertising greatly facilitates the work of a salesman. The customers are already familiar
with the product which the salesman sells. The selling efforts of a salesman are greatly
supplemented by advertising. It has been rightly pointed out that “selling and advertising
are cup and saucer, hook and eye, or key and lock wards.”
(10) More Employment Opportunities:
Advertising provides and creates more employment opportunities for many talented people
like painters, photographers, singers, cartoonists, musicians, models and people working in
different advertising agencies.
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Important Disadvantages of Advertising

(1) Adds to Costs:
An organisation has to spend large amount on advertising. It increases the cost of the
products. To meet this expenditure, price of the product is raised. No manufacturer pays for
the advertising expenses out of his pocket. Advertising, therefore, leads to unnecessary rise
in prices. In this reference it is said that advertising costs are passed on to the consumers in
the form of high prices.
(2) Undermines Social Values:
Advertisement is a sort of day-dreaming for the people. These days it is taking the people
away from reality and into the realm of artificiality. Through its medium people get
information about new products.
Only very few products are of any use for them. The brilliance of new products really gets
on their nerves. They want to buy them but have no resources at their command.
Consequently, they start feeling upset with their present status. Taking it as a social evil, it
can be said that advertisement undermines social values.
(3) Confuses the Buyers:
Many a time distorted version of reality is shown in the advertising. Believing in advertising,
consumers buy the product. On its use, they feel cheated.
They come to realise later that the information given in the advertisement was something
else whereas the actual product was quite different from it. Thus, people lose confidence in
advertising because of wrong presentation. In this reference it is said that advertising
confuses rather than helps.
(4) Encourages Sale of Inferior Products:
Every manufacturer projects his product as superior one in the advertisement. Therefore,
the buyer is unable to decide as to which product is really good.
Consequently, it is difficult to get good quality product even after paying a handsome price
for it. If a seller gets good price for some inferior product, it becomes a habit with him. It
affects other sellers also. Therefore, it is said that advertisement encourages the sale of
inferior products.
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(5) Some Advertisement is in Bad Taste:

Many times, foul language and objectionable pictures are used in advertising in order to
attract a particular class. They may be insulting to a particular class. It causes decay of social
values.
Such kinds of advertising are generally opposed by the people as it hurts their feelings. In
this reference it is said that some advertisements are in bad tastes.
2. Personal Selling:
Art of personal selling is defined by D.D.Couch as, “science of creating in the mind of your
prospect a desire that only possession of your product will satisfy”.
It is evident that salesmanship is both science and art. As a part of art requires patience,
practice and use of correct methods, devices and skills.
As a scientific process it requires mastery over certain fundamentals that pre requisites for
success in selling.
Objective Of Personal Selling
 Build brand and product awareness by educating customers on the company’s
offerings and their benefits.
 Increase sales by identifying and persuading the prospects to buy a business’s
offering.
 Building close long-term relationships with the customers by enforcing person-to-
person two-way communication.
 Supporting the customers of complex, technical, or high-priced items by providing
detailed technical information.
 Stimulating the offering’s demand by helping the customers throughout their
decision-making process and guiding them towards the business’s offering.
 Reinforcing the brand by building long term relationships with the customers over
time by meeting them and helping them in their decision-making process.
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Types Of Personal Selling

Generally, personal selling can be categorised into three types based on the sales activity
and salesperson involved. These are:
 Order Takers: Order takers receive requests and queries from the customers. In
simple terms, the customer approaches these salespersons. They usually hold
positions like retail sales assistant or telemarketer and focus mainly on determining
customer needs and pointing to inventory that meets such needs.
 Order Getters: Order getters reach out to new prospects and persuade them to make
a direct purchase. These are in-field salespersons who bring in new clients to the
business.
 Order Creators: Order creators don’t close the deal, but persuade the customers to
promote the business’s offering, leading to sales eventually. For example, a
pharmaceutical company reaching out to a doctor to persuade him to prescribe the
company’s medicine.
Personal Selling Advantages And Disadvantages
Advantages
 Conveys more information: Personal selling helps the business convey more
information than any other form of promotion. It is all about understanding the
customers’ needs, finding an opportunity in it, and capitalising on it by developing a
relationship with them while convincing them to try the company’s product.
 Creates more impact: It’s more impactful as the salesperson assist the customer
throughout the buying process, answering questions, and solving doubts.
 Supports two-way communication: Unlike other promotional tools
like advertising or public relations, personal selling allows the customers to
communicate with the business and clear their doubts before making the purchase.
 Boosts relationship with the customer: Personal sales last long, include interpersonal
relationships, and capitalises on trust between the salesperson and the customer.
Disadvantages
 Expensive: Since personal selling person-to-person contact, it is substantially more
expensive than other forms of sales tools as a human can approach only a few
prospects in a specified time period.
 Labour extensive: Personal sales require a lot of effort from the salespersons’ side,
and it may take considerable time and resources to convert a prospect to a final
customer.
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 Limited reach: Since personal sales is a one-to-one promotional tool, its reach is
limited compared to other tools like advertising or public relations.
3. Sales Promotion:
American marketing association defines sales promotion as, “Those marketing activities
other than personal selling, advertising and publicity that stimulate consumer purchasing
and dealer effectiveness such as display shows and exhibitions, demonstrations and various
non-recurrent selling efforts not in the ordinary routine.”
Types of sales promotion
There are 12 main types of sales promotions. Not all of them are suited for every business,
product, or service, but each one offers unique ways of boosting sales and connecting with
customers through different methods of sales psychology. Each is also an interesting take
on spin selling and offers a look into sales methodology comparison.
1. Competitions and challenges: Competitions or challenges usually take place on social
media, and serve to increase customer engagement as fans try to win a discounted or free
product. They usually also result in a large amount of free publicity if the competition or
challenge involves sharing the brand on a customer’s personal social media account.
2. Product bundles: Product bundles offer a collection of products for an overall discounted
rate, as opposed to buying the products individually. Product bundles give customers a
reason to buy a larger variety of products, which makes it more likely they will find a
product they like and want to buy again.
3. Flash sales: Flash sales are extremely short sales that offer extreme discounts for a
limited amount of time. These sales work through creating a sense of urgency and need
around your sale.
4. Free trials: Free trials or demos are one of the most common sales promotions and one
of the most promising strategies to grow a customer base. Businesses can offer either a
limited time with the product or a limited quantity of the product to a first-time buyer at no
charge to see if they like it.
5. Free shipping and/or transfers: Free shipping promotions attempt to curb the 70% of
customers who abandon their carts when they see the shipping costs. The small loss in
shipping fees is usually made up for in happy customer purchases.
6. Free products: Free product promotions work by offering a small free product with the
purchase of a larger, mainstream product. This boosts mainstream sales without costing the
company too much inventory or revenue.
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7. Early-bird or first-purchaser specials: These specials offer discounts to first-time

purchasers as a way of welcoming them as customers. Customers are more likely to buy at a
discount and because the discount only works once, the company doesn’t lose a great deal
of revenue.
8. BOGO specials: BOGO, or “buy one, get one free” promotions are primarily used to
spread product awareness. Customers can give their extra product to a friend or family
member and build a customer base through word of mouth.
9. Coupons and vouchers: Coupons and vouchers reward current customers for their brand
loyalty and encourage future purchases. This is especially effective in companies who use
punch cards which incentivize customers to make multiple purchases to earn a free
product.
10. Upsell specials: Upsell promotions are not as common as the others, but they can still
be extremely effective. Upsells give first-time customers a less expensive version of a
product to try, and then over time, the sales department works to convince them to
purchase the more expensive and more effective option.
11. Subscriptions: Subscriptions are not always considered sales promotion, since they tend
to be long-term purchases, but having different amounts of a product available at a
different price point is a sales promotion tactic. With a subscription, a customer pays a
larger fee upfront for a large amount of product that eventually comes out to less than
what they would pay for buying smaller amounts of product individually.
12. Donations: Donations are an excellent way for a company to build credibility and
goodwill within the customer base. Most donations work when the company contributes a
portion of each sale during a given period to a charitable cause.
Pros of sales promotions
There are many benefits to running a sales promotion in the short term:
 Creating new leads: Sales promotions increase customer acquisition by offering them
discounts, free products, free trials, and more. Many potential buyers are willing to
try something for a lesser price, and if they like the product they become part of your
company’s loyal base.
 Introducing a new product: Even extremely successful companies need a little help
launching a new product. New customers may need incentives to buy, and long-term
customers may be committed to their usual products. Providing a discount or
promotion on a new product is a great way to create product awareness without
doing a sales presentation.
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 Selling out overstock: No one wants to be in this position, but overstocking happens.
When it does, a sales promotion can be a useful tool to get rid of inventory while
attracting new customers who may not have the overstocked product yet. It’s worth
noting that there is a line in terms of selling overstock and it’s easy to step over
into unethical selling.
 Rewarding current customers: Sales success doesn’t stop at the first purchase.
Nurturing customers over time is essential to keeping brand credibility and loyalty
high. Sales promotions are an easy way to provide loyal customers with a discount,
voucher, or free product that will continue to keep them engaged with your brand.
 Increasing last-minute revenue: Many companies use sales promotions towards the
end of a month or quarter to meet revenue or inventory goals. While not a bad
strategy, it’s best to use this one sparingly so that customers don’t get into the habit
of waiting for an expected sale.
Cons of sales promotions
While most sales promotions do successfully increase sales, many also come with a cost.
When considering using a sales promotion, it’s important to remember the two main risks
of the “sales promotion trap”:
 Sales promotions can devalue your brand: While it may not be the case for your
company, there is a general assumption in the consumer market that if a brand goes
on sale, it’s because they are having trouble selling that product—it’s why we all wait
for the day after Valentine’s Day to buy discounted chocolate. While promoting a
single product in your line might not make a lasting impression, a sales promotion
that covers your entire brand might lead customers to think your business is on its
last legs.
 Sales promotions can make it complicated to sell your product back at its original
price point:Depending on how long your promotion runs, you may attract customers
who never paid full price for your product. These customers may then be turned off
when you return to full price at the end of a promotion.
4. Public Relations and Publicity:
“Public relations is a deliberate and continuous effort to establish and maintain favorable
relations between the organization and its public .Customers, employees, stockholders,
government and society.” Public relations must be healthy for future prospect of any
organization. Costs involved in publications and media management is comparatively lower
than advertisement and other promotional elements.
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5. Other Selling Tools:

Other selling tools includes any other selling and promotions activity other than advertising,
personal salesmanship, sales promotion. It mainly includes mouth publicity etc. Many
corporate giants have taken keen interest in viral marketing via internet which is similar to
Mouth Publicity. Thus word of mouth has been facilitated by the internet. One more form
not directly connected to any other form is sponsorship to events, other brands, organized
activities, sporting tournaments etc.
Indian Premier League was officially sponsored by DLF. Individual teams participating in IPL
were sponsored or co-sponsored by different companies by participating in the Bidding
process.
Every event now is either sponsored or co-sponsored and properly advertised for popularity
of that sponsoring company.

Promotion Mix – 5 Possible Objectives

Promotion can be used for number of reasons for ex: Promotional activity can increase
sales, raise awareness or concerns about particular issues develop a brand image or alter
public opinion.
Objective # 1. Build Awareness:
New products and new companies are often unknown to a market, which means initial
promotional efforts must focus on establishing an identity. In this situation the marketer
must focus promotion to effectively reach customer and tell the market who they are and
what they have to offer.
Objective # 2. Create Interest:
Moving a customer from awareness of a product to making a purchase can present a
significant challenge. Consumer buying behaviour depends on the type of customer so the
customer must first recognize they have a need before they actively start to consider a
purchase.
The focus on creating messages that convince customers that a need exists has been the
hallmark of marketing for a long time with promotional appeals targeted at basic human
characteristics such as emotions, fears, humor, sex etc.
Objective # 3. Provide Information:
Some promotions are designed to assist customers in the search stage of the purchasing
process. In some cases, such as when a product is so novel it creates a new category of
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product and has few competitors the information is simply intended to explain what the
product is and may not mention any competitors.
In other situations where the product competes in an existing market, informational
promotion may be used to help with a product positing strategy.
Objective # 4. Stimulate Demand:
The right promotion can drive customers to make a purchase. In the case of products that a
customer has not previously purchased or has not purchased in a long time, the
promotional efforts may be directed at getting the customer to try the product.
This is often seen on the internet where software companies allow for free demonstrations
or even free downloadable trials of their products. For customer base products, promotion
can encourage customers to increase their purchasing by providing a reason to purchase
products sooner or purchase in greater quantities than they normally do.
Objective # 5. Reinforce the Brand:
Once a purchase is made a marketer can use promotion to build a strong relationship that
can lead to the purchaser becoming a loyal customer. For instance, many retail stores now
ask for a customer’s email address so that follow-up emails containing additional product
information or even an incentive to purchase other products from the retailer can be sent in
order to strengthen the customer marketer relationship.

Promotion Mix – Strengths and Weaknesses of Promotional Mix

The strengths and weaknesses of major promotional mix are discussed as follows:
Strengths:
1. Publicity/Public Relations – Has high credibility; can create goodwill; is low in cost;
reaches many audiences, especially difficult-to-reach audiences.
2. Personal Selling – Flexible, Highly targeted, interactive and bidirectional, message and
presentation can be customised and personalised, measurable, offers immediate feedback,
takes the consumer closer to sales, effective in building relationships, suitable for certain
product types and niche audiences.
3. Online Marketing – Is direct, low in cost, interactive and two-directional, personalised,
up-to-date, targeted, less intrusive, and less commercial.
4. Advertising – Informs, persuades, reminds, and reinforces mass audiences about a
product; builds brand identify.
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5. Direct Marketing – Highly targeted, measurable, customisation and personalisation

possible, suitable for certain product types, possibility for two-way communication and
building long-term relationships.
6. Sales Promotion – Is relatively less expensive than advertising, leads to immediate
results, has a direct impact on sales and is measurable, helps to clear excess inventory,
helps to nullify competitive promotions, generates excitement, gets trade and salesforce
support.
Weaknesses:
1. Publicity/Public Relations – Organisation has little control over what gets publicised,
often has hidden costs, results are difficult to measure, does not have a direct impact on
sales.
2. Personal Selling – Expensive, unsuitable for large audiences.
3. Online Marketing – Smaller audiences, unsuitable for non-savvy audiences, some forms
like spam e-mails or pop-ups can be quite intrusive.
4. Advertising – Expensive, within a cluttered media with high noise level.
5. Direct Marketing – Expensive, not suitable for reaching large audiences.
6. Sales Promotion – Is gradually getting cluttered and expensive, has short-term results,
makes consumers deal-prone, can erode brand equity and loyalty.

Promotion Mix – 6 Major Factors that Helps Marketing Manager in Deciding

the Promotional Mix
There are various factors which are usually considered by the marketing manager in arriving
at the promotional mix:
1. Stage of a Product Life Cycle:
The stage in the life cycle of the product is one of the determinants in deciding the
promotional mix. The various stages in the product life cycle are- (i) innovation, (ii) growth,
(iii) maturity, (iv) saturation, (v) decline and (vi) obsolescence. Every product passes through
these stages. The marketing manager has to adopt different promotional mix in different
stages.
At the first stage, all types of promotional efforts— advertising, publicity, sales promotion
and public relations are necessary because these efforts are aimed at informing the target
consumers of the presence of the product in the market. Substantial expenditures on
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advertising are vital to inform the public on the other hand, personal selling programme is
also undertaken that aids in generating product acceptance among retailers, wholesalers,
industrial and institutional buyers.
Sales promotion efforts are made during growth period in order to check the entry of
competitors. During the maturity stage, heavy expenditure on advertising and personal
selling are required to fight competitive situation and to maintain their share of market.
During saturation and declining stages, the promotion expenditures are reduced to a great
extent.
Only a minority of organisations attempt to prop up lagging product with high promotional
advertising. Some use aggressive personal selling programme to further penetrate the
specific market segments where demands or the product exist. In obsolescence stage, all
promotional efforts are stopped and it is thought better to withdraw the product from the
market or substitute the product with the new product.
(2) Type of Product:
The characteristics of a product may also dictate its natural audience. A non-differentiated
product (detergents or soaps) may be promoted with psychological advertising. A product
with hidden emotional qualities of suitings, clothing, etc., may be given a careful and subtle
mass media promotion. The product is generally classified as consumer product or
industrial product. The classification of product or service is an indicator of the most
appropriate type of promotion mix that may be required.
(a) Consumer Goods:
Ordinarily, there are three types of consumer goods — convenience, shopping and
speciality. Each one requires a separate type promotion. Convenience goods are those
goods that are frequently purchased, are low in cost and are bought at most accessible
retail outlet as soon as the need for the product is felt. This type of goods calls for emphasis
on advertising and sales promotion efforts.
Such items have a large and geographically dispersed market, advertisement is the most
suitable form of mass communication for people to react at large at the lowest cost per
contact. Such convenience items which are sold on self-service basis, sales promotion
techniques are the best promotional devices.
(b) Industrial Goods:
Industrial goods are generally classified in five categories — raw materials, fabricating
materials and parts, operating supplies, installations and accessory equipment. In general,
all types of industrial goods require more emphasis than consumer goods on personal
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selling because these goods are purchased and sold in bulk and moreover, salesman offer
advice and assistance at the time of supplying such goods and in the post- sales period.
A computer supplier, unhesitatingly, allow his salesmen to spend many hours with an
account after the sale has been completed just to ensure that the equipment is operating
properly and the account is using it in a proper manner.
Advertising and sales promotion are important elements of the promotion mix for some.
Advertising is helpful for salesmen in convincing the prospect about the product and the
organisation and its product line. Once the prospect has achieved familiarity about the
product and product line of the organisation through advertisement, the salesperson finds
it easy to get an appointment.
Some industrial seller use advertising to generate prestige. As far as sales promotion
devices are concerned, the sellers of industrial goods use these devices not as extensively as
the marketers of consumer goods. Some marketers of industrial goods rely heavily on
displays in trade fairs, exhibitions and conventions. Some use price deals such as ‘Rupees
off or ‘two for one’ or “buy two get five free” or ‘gifts’ offer to generate sales. Still others
allow premiums and trading stamps to the buyers.
(3) Target of Promotion:
The use of promotion mix is also affected by the type of person, to which it is directed.
Promotion may be directed at four different groups — wholesalers, retailers, industrial
consumers and final consumers. The right choice of promotion blend for each group is
different.
(a) Promotion to Wholesalers:
As wholesalers are less in number and more conscious to demand and cost, they respond to
economic arguments. Any type of promotion which the producer intends to direct at
retailers and final consumers will be sufficient promotion for wholesalers but they are more
conscious about the personal selling representatives who cements the relationship between
producer and wholesalers.
(b) Promotion to Retailers:
If number of retailers are less, the personal selling may be feasible to manufacturers and
wholesalers.
In case the number of retailers are numerous the advertisings in trade magazine and
newspapers are valuable. Sales promotion activities such as discount on sales or gifts on
bulk purchases, etc., also play valuable roles in marketing the goods. If the product is
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consumer item of high value, the bulk of promotion efforts is to serve the retailers through
sales personnel.
Personal selling will also be valuable where the product requires after-sales service or
possesses some technical characteristics, because the salesperson may have to answer the
retailer’s questions about the technical characteristics the promotion that will be directed
towards final consumer, the retailer’s own part in selling the product, and important details
concerning price, the marketers and promotional assistance.
In other words, promotion to retailer is mainly informative in nature which he passes on to
consumers. The promotion to retailers must also be persuasive so that his interest in selling
the product may not be lost. In most cases, personal selling is the main promotion efforts to
retailers because marketing mixes may have to be adjusted drastically from one geographic
territory to another to meet competitive situations and moreover it creates and maintains
good channel relationship.
(c) Promotion to Industrial Consumers:
Industrial customers, being less numerous than final consumers have a justification for a
promotion blend emphasising personal selling because the personal sales representatives
may be more flexible in adjusting their company’s appeal to suit each customer. They
supply the necessary information as desired by the customer. Although personal selling
dominate the scene in industrial marketing, advertising is also used widely, mainly for
economic reasons.
(d) Promotion to Final Consumers:
The large number of ultimate consumers practically force retailers, wholesalers and
manufacturers to use the mass selling techniques in their promotion blends. So, advertising
is preferred in most cases because it establishes brand preference to such an extent that
little personal selling may be required. Sales promotion techniques are also used
extensively. Self-service, discount, gift and novelties attest to this. Advertising may even be
the way to supply the necessary information to those who are interested in seeking them.
(4) Size of Budget:
The amount allocated for the promotional efforts is an obvious limitation on the choice of
promotional channels. If the budget is small, a firm cannot spend more on promotional
activities because it cannot buy enough mass media advertising worth the count. If
accounts are limited, the organisation can safely rely on personal selling and publicity, and
can manage within its resources. But, on the other hand, if accounts are numerous the
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organisation will prefer advertising in local or regional newspapers, or it may use local radio
or TV.
On the other hand, if size of budget is big enough, the organisation may use national
newspapers, or TV and radio. It will be economical per contact but it will require lump sum
amount which a small firm cannot afford. Some smaller manufacturers, out of necessity
rather than choice, use personal selling as their major promotion method.
(5) Push and Pull Strategy:
In deciding on ideal promotional mix, the key variable is the direction of influence in the
distribution marketing channel. In some case, direction of influence is towards the
middlemen whereas in some other cases, it is an end-user.

Distribution Channel – Meaning

In the field of marketing, channels of distribution indicate routes or pathways through
which goods and services flow, or move from producers to consumers.
We can define formally the distribution channel as the set of interdependent marketing
institutions participating in the marketing activities involved in the movement or the flow of
goods or services from the primary producer to the ultimate consumer.
The prime of object of production is its consumption. The movement of product from
producer to consumer is an important function of marketing. It is the obligation of the
producer to make goods available at right place, at right time right price and in right
quantity. The process of making goods available to the consumer needs effective channel of
distribution. Therefore, the path taken by the goods in its movement is termed as channel
of distribution.
Distribution channels are the network of organizations, including manufacturers,
wholesalers, and retailers, that distributes goods or services to consumers. A distribution
channel is the network of individuals and organizations involved in getting a product or
service from the producer to the customer. Distribution channels are also known as
marketing channels or marketing distribution channels.
An entrepreneur has a number of alternative channels available to him for distributing his
products. These channels vary in the number and types of middlemen involved. Some
channels are short as they directly link producers with customers. Whereas other channels
are long and indirectly link the two through one or several middlemen.
In short, the distribution channel can be defined as ‘the path through which goods and
services or payment for those goods or services travel from the vendor to the consumers’.
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Distribution channel can be as short as a direct transaction from the vendor to the
consumer, or may include several interconnected intermediaries along the way such as the
followings –
1. Wholesalers
2. Distributors
3. Agents and
4. Retailers
The above mentioned are the channels of distribution. A channel of distribution or trade
channel is defined as the path or route along which goods move from producers or
manufacturers to ultimate consumers or industrial users. In other words, it is a distribution
network through which producer puts his products in the market and passes it to the actual
users.
This channel consists of:
1. Producers
2. Consumers or end users and
3. Various middlemen like wholesalers, selling agents and retailers, dealers etc., intervene
between the producers and consumers.
Therefore, the channel serves to bridge the gap between the point of production and the
point of consumption thereby creating time, place and possession of utilities.
Each intermediary receives the item at one pricing point and moves it to the next higher
pricing point until it reaches the final buyer. For example Tea, Coffee or dry fruits do not
reach the consumer before going first, through a channel involving the farmer, exporter,
importer, distributor, and the retailer.
Product distribution or place is one of the four elements of the marketing mix. The other
three parts of the marketing mix are product, pricing, and promotion. Distribution is the
process of making a product or service available for use or consumption by a consumer or
business user, using direct means, or using indirect means with intermediaries. Distribution
of products takes place by means of channels.
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Functions Of Distribution Channel

 Assembling, storing, bulk breaking, and sorting of products
 Moving goods from warehouses to customers
 Managing payment flow pre-sales or post-purchases
 Providing market information to producers
 Promoting the brand and its benefits to end-customers
 Maintaining price stability by absorbing any price increase
 Sharing the market risk with manufacturers
 Getting a chance to promote themselves through the distribution of products

Important Objectives
Objective # 1. Receiving Fast and Accurate Feedback of Information:
In order to maintain and provide an efficient distribution system and service, a good and
regular. How of relevant information is necessary, which includes inventory levels, sales
trends, damage reports, service levels, cost monitoring etc.
Objective # 2. Making the Product Readily Available to the Market Consumers:
To ensuring the product is represented in the right type of outlet or retail store is an
important objectives of channels of distribution. Having identified the correct marketplace
for the goods, the company must make certain that the appropriate physical distribution
channel is selected to achieve this objective.
Objective # 3. Achieving a given Level of Service:
Once again, from both the supplier’s and the customer’s viewpoints, a specified level of
service should be established, measured, and maintained. The customer normally sees this
as crucial and relative performance in achieving service level requirements is often used to
compare suppliers and may be the basis for subsequent buying decisions.
Objective # 4. Enhancing the Prospect of Sales being Made:
The most appropriate factors for each product or type of retail store will be reflected in the
choice of channel. The general aims are to get good positions and displays in the store; and
to gain the active support of the retail salesperson, if required. The product should be
“visible, accessible, and attractively displayed’.
Channel choice is affected by this objective in a number of ways:
(i) Does the deliverer arrange the merchandise in the shop?
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(ii) Are special displays being utilised?

(iii) Does the product required to be installed, demonstrated or explained?
(iv) Is there a special promotion of the product is required?
Objective # 5. Minimising Logistics and Total Costs:
Costs are very crucially significant as they are reflected in the final price of the product. The
selected channel will reflect a certain cost and this cost must be assessed in relation to the
type of product offered and the level of service required.
Objective # 6. Achieving Co-Operation with Regard to any Relevant Distribution Factors:
These factors can either be from the supplier’s or the receiver’s point of view and include
minimum order sizes, unit load types, product handling characteristics, materials handling
aids, delivery access (e.g., vehicle size), and delivery time constraints, etc.

Need for Selecting an Appropriate Channel of Distribution

It is a fact that the distribution channels are greatly required by the manufacturers. The
need for selecting an appropriate channel can be understood on the basis of the
parameters considered, which highlight the fact why distribution channels must be
selected?
1. Attention – Little attention of companies to their distribution channels may damage
results such as profit, brand, number of customers etc.
2. Imaginative distribution systems – Companies can use imaginative distribution systems
to take competitive advantage. For example Dell, Flipkart.com etc. Dell is the best example
of revolution in Distribution channel. Dell is selling its products directly to the consumer
rather than through retailer.
3. Difficult to Replace – Companies can change their products, advertising and Pricing easily
but not their distribution channels. It is not an easy task to change distribution channel,
franchisees, dealers and retailers.
4. Value Addition – Distribution Channel Members can provide greater efficiency in making
availability of goods to the target markets through their Contacts, Specialization,
experience, and scale of operation. This can add value to the product or service at each
level of distribution.
5. Reduced number of Channel Transactions – Marketing intermediaries or channel
members help to reduce the number of channel transactions.
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6. Information – Gathering and distributing information is very helpful.

7. Promotion – Communication to the consumer regarding product information and offers
through advertising and promotion.
8. Financial support – Offering financial support for example Purchase on credit, exchange
options, purchase using payment plans
9. Other – Financing, Physical Distribution and Risk Taking are other parameters that
influence a channel selection decision Reduces Distribution cost and time.

Distribution Channel – 5 Main Types:

The types of marketing channels are nothing but the route taken by the products to go from
the manufacturer to the final consumer. There are certain channels where the products go
directly from the manufacturer to the final consumer, but in other channels some
intermediaries come in between the manufacturer and the final consumer.
The following are the different channels available:
1. Manufacturer to Consumer (Zero Level/Direct Channel):
The products in this channel go from the manufacturer directly to the final consumer. There
is no intervention by any other intermediary. Under this channel, the final consumer must
be large enough to buy products in a large quantity directly from the manufacturer or the
manufacturer should have the capacity to distribute the goods directly to all the final
consumers. Example-An industry purchasing the raw materials directly from the source.
2. Manufacturer to Retailer to Consumer (One Level Channel):
The retailer plays his role in between the manufacturer and the consumer. The retailer buys
directly from the manufacturers and sells the goods to the consumers in the required
quantities. Such a retailer should be strong enough because on the one hand he has to
purchase in a large quantity from the manufacturer and on the other hand sell the products
to a large number of consumers in small quantities.
This channel suits organized retailing well because the retailers under this system are not
only financially strong but also of a large size such as departmental stores, malls, super
bazaars, chain stores etc.
3. Manufacturer to Wholesaler to Retailer to Consumer (Two Level Channel):
We find that in this channel there are two intermediaries in between the manufacturer and
the consumer-the wholesaler and the retailer. The wholesaler buys the goods from the
manufacturer in very large quantities and in-turn sells the goods in relatively smaller
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quantities to the retailer, but there is no direct relationship between the manufacturer and
the consumer.
The retailer buys the goods from the wholesaler in sufficiently large quantities and sells
them in very small quantities to the consumers. The retailer has no direct contact with the
manufacturer.
4. Manufacturer to Wholesaler to Consumer (One Level Channel):
The retailer is by-passed in such a channel. The wholesaler buys the goods from the
manufacturer in large quantities and sells them directly to the consumers. This arrangement
is possible only when the final consumer is able to buy the goods in sufficiently large
quantities directly from the wholesaler. This is found in institutional consumers such as
hospitals, government departments, educational institutions etc.
5. Manufacturer to Agent to Wholesaler to Retailer to Consumer (Three Level Channel):
Under this channel we find that there is an agent who acts in between the manufacturer
and the wholesaler. The agent generally does not buy the goods, he only arranges for the
sale of goods from the manufacturer to the wholesalers. From this point onwards the
wholesalers sells the goods to the retailer and the retailer in-turn sells the goods to the final
consumer. This arrangement is found in cases where the manufacturer operates on a very
large scale over a very wide area and has a very wide product range.
It is not necessary that a company has to use only one type of channel for all its products
through its market. It may use the direct or one level channel to reach its customers in the
local area and longer channels to reach its customers at far off places. There is no rigidity
regarding the use of channels.
If a company uses only one type of channel for all its marketing requirements, it is called a
mono-channel or a single-channel policy. If a company uses different types of channels to
reach different customers at different places, it is called a dual or a multi-channel policy.
Integrated Channels of Distribution:
The new model of distribution that has emerged is the integrated distribution. Vendors and
the channel are moving away front a two-tier distribution model to a single supply chain
that leverages various elements of the channel for most distribution logistics. There is also a
possibility under this system for a vendor to maintain a direct relationship with the
customer and allows for the rise of comprehensive services delivered by either the vendor
or the channel.
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Middlemen in Distribution
There are two types of middlemen in distribution:
1. Merchant middlemen buy and sell goods on their own account and at their own risk of
loss, e.g., wholesaler and retailer.
2. Agent middlemen who do not take ownership title to goods but actively negotiate the
transfer of ownership right from the seller to the buyer, e.g., selling commission agent or
broker.
In the channel management, a manufacturer has to make three decisions:
1. Selection of general channel of distribution to be adopted.
2. Number of middlemen at each level and in each market.
3. Selection of a particular middleman for selling ‘goods’ with or without any exclusive
rights of distribution.
In all commodity markets, whether primary or central, we have a host of middlemen acting
as essential functionaries.
a. Brokers:
Broker is an agent who does not have direct physical possession of goods in which he deals
but he represents either the buyer or the seller in negotiating purchases or sales for his
principals. They may be organised as individuals, partnership or even companies. They act
as agents for their clients — producers, dealers, manufacturers, etc.
The produce brokers offer services of expert middlemen between sellers and buyers.
Brokers are experts in grades, qualities, trade terms and contract terms as well as in
warehousing and transport problems. They buy and sell specific quantities of specific grades
of a commodity on behalf of their masters or employers who undertake all market, credit,
transport, and other risks.
In the primary markets, they do business on account of their customers not only in spot
goods, ready for immediate delivery, but they also make sales at negotiated prices for
forward delivery of specific grades and of definite quantities.
b. Commission Agents:
In each primary and central market, individuals, firms or even companies are organised to
buy or sell commodities, acting as buying or selling agents of producers, dealers or
manufacturers who convert the commodities into consumer goods. They may buy or sell on
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their own account and at their own risk of loss. In that case, they are called commission
merchants or factors.
They may receive goods for sale on consignment acting as consignees of their employers.
They are important in agricultural markets. The consignment method is used by
manufacturers who wish to maintain resale prices of their goods. They may also act as sole
agents of their employers. Resident buyers or buying agents are important in central
markets for purchases on behalf of distant buyers.
Selling agents sell the entire output of their principals or all of given lines of goods; they also
often have full authority to finalise prices, terms and other conditions of sale. We have also
manufacturer’s agents to sell goods of a number of a non-competing producers or
manufacturers.
They are appointed on a continuing agency basis; they often sell within an exclusive area.
But they possess limited authority with regard to prices and terms of sale. All commission
agents work for a fee or commission, e.g., 3% to 5% on sales or purchase.
Manufacturer’s agents are very helpful, in the three circumstances:
i. For a small manufacturer with a few products and having no sales force,
ii. For entering into a new market to be fully developed,
iii. For sale of a new line of product which the present sales force is unable to manage or
the new market is not within their territory.
c. Dealers:
In all primary and central commodity markets, we invariably have merchant dealers. They
are great risk-bearers in the physical or spot markets. They are the backbone of our
markets. These dealers act as principals, buying and selling commodities on their own
account and at their own risk merely for a chance of profit. By selling to them, all producers
can be free from risk of loss.
They also act as warehouse keepers of the market and to that extent manufacturers are
also free from risk of loss to a certain extent. The development of the dealer — the risk-
bearing middle man between the producer and the manufacturer, and between the
manufacturer and the ultimate consumers — permitted the producers and converters to
transfer some of their market risks to the dealer. The commodity dealer voluntarily absorbs
both market and credit risks in the expectation of making profits. There is no assurance of
profits.
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Some Advantages of Distribution Channels

1. Results in Customer Convenience – Channel distribution provides accumulating and
assorting services, which means they purchase from many suppliers the various goods that
a customer, may demand. Secondly, channel distribution is time saving as the customers
can find all that they need in on$ retail store and the retailer.
2. Customers can buy in small quantities – The phenomenon of breaking bulk quantities
and selling them in smaller quantities is known as bulk breaking. The customers have the
benefit of buying in smaller quantities and they also get a share of the profit the retailer
makes when he buys in bulk from the supplier.
3. Customers receive financial support – Resellers offer financial programs to their
customers which make payment easier for the customer. Customers can buy on credit and
using a payment plan etc.
4. It is Cost Saving – Distribution channel partners are specialists in what they do therefore,
they perform at much lower costs than companies trying to run the entire distribution
channel all by itself.
5. It is Time Saving – Time of delivery is reduced due to efficiency and experience of the
channel members. For example, the grocery store receives deliveries from the wholesaler in
amounts required and at a suitable time and often in a single truck. In this way cost as well
as time is saved.
6. Channel members also help in boosting sales – Resellers often use persuasive
techniques to persuade customers into buying a product thereby increasing sales for that
product. They often make use of various promotional offers and special product displays to
entice customers into buying certain products.
7. Channel members provide valuable information – Manufacturers s rely on the
intermediaries to provide information which will help in improving the product or in
increasing its sale. High- level channel members often provide sales data. On all other
occasions the manufacturer can always rely on the reseller to provide him with customer
feedback.
8. Bigger Reach – A channel of distribution makes it possible to deal with customers that
the company could not economically reach with own sales force or store. A network of
distributors or retailers provides ready-made coverage of other regions or the whole
country without the company having to invest.
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9. Increased Market Knowledge – Distributors provide company with local market

knowledge, enabling it to enter new markets quickly and effectively without the cost of
market research or marketing programs
10. Increased Core Competency – A small business needs to focus its resources on product
development and generate revenue. Using channel distribution allows a small business to
focus on those core competencies without having to hire new personnel
11. Results in increased Efficiency – the intermediaries help to develop a single line of
contact for each customer. That line of contact would include order placement, defective
product returns, payment collections, product questions and product returns. All this helps
in increasing the efficiency of the manufacturer.
12. Results in Growth – An international channel distributor can help a small business reach
markets all over the world

Distribution Channel – Disadvantages:

1. Loss of Product Importance due to delay – In case of transportation delays, the product
loses its importance in the channel and the sales suffer.
2. More importance to competitor’s product – Similarly a competitor’s product may enjoy
greater importance as the channel members might be getting a higher promotional
incentive.
3. Lack of Communication Control – Manufacturer loses control over what message is being
conveyed to the final customers. The reseller may engage in personal selling in order to
increase the product sale and communicate about the product to his customers. He might
exaggerate about the benefits of the product this may lead to miscommunication problems
with end users.
4. Revenue loss – The manufacturer sells his product to the intermediaries at costs lower
than the price at which these middlemen sell to the final customers. Therefore the
manufacturer goes for a loss in revenue.

Channel Management Decisions: Top 5 Steps

The success of any marketing channel lies in the foundation of right channel design
decision. But channel design is just the planning part; it needs right implementation to be
successful. The implementation can be taken care of, with the help of channel management
decisions, it includes right from, selecting a channel member to training them to motivating
them and to evaluating them on their performance. In case, the performance is not as
expected, the modifications are done by the company in the channel arrangements.
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Step # 1. Selecting Channel Members:

The first priority for any company is choosing the right channel members. As the business is
dependent upon the marketing channel partners, it becomes crucial for the success of any
company to select the best channel partner. All the companies whether it’s a product
manufacturing company like Colgate or Onida or a service company like IMS or Career
Launcher, needs a good channel partner to succeed.
Generally all the companies advertise through newspapers and trade magazines to look out
for channel partners. If the company is known and successful, it becomes quite easy for the
company to find them. But in the case of a new company launching a new product, then
finding a channel partner can be tough. In both the cases, the parameters for choosing a
channel partner should be very clear for the company as well as the channel partner.
In some businesses, like opening a McDonald’s franchisee, the location becomes more
important than in any other business. As the business is dependent on the footfalls it can
get. The company can evaluate any channel partner on the basis of business experience,
financial capabilities, locational advantages, growth and profit record, experience of the
promoters. In the case of exclusive distribution, these parameters become more important
for the company.
Step # 2. Training Channel Partners:
Once the channel partner is selected, they need to be trained as they are the face of the
company. All the companies have intensive training programmes for its dealers to tell them
about their sales and service capabilities, product knowledge, expected service quality and
operational procedures to follow. For example, LG Electronics India regularly trains its sub-
dealers, direct dealers and service franchisees.
The training tries to facilitate performance, improve knowledge, skills and attitude of its
dealers and sales staff. The training is given both through online and offline methods, which
covers functional, technical and behavioural aspects. Similarly Kirloskar Brothers Limited
(KBL) makes the customers and dealers aware of the fundaments and working principles of
Centrifugal Pumps, enabling them to operate and maintain the equipment more efficiently.
The training program is designed by KBL to offer best possible theoretical as well as
practical knowledge to their valued customers and dealers.
Step # 3. Motivating Channel Members:
As the channel members are as important as your customers, a company needs to make
them happy. Just like anybody, channel members are also needs to be motivated. On the
one hand, the company tries to train them for their better performance and on the other
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hand, the company provides them incentives, higher margins, premiums, display
allowances, advertising allowances and special deals.
While managing the relationship with the channel members, a company can use coercive
power or it can use reward power or legitimate power. A company can also use expert
power or referent power. In the case of coercive and legitimate power, the relationship can
turn sour and it may not be productive in the long run. But the widely used reward power
works the best to get the cooperation from the channel members. In the case of expert
power, the channel member looks forward to the company for its expertise and becomes
dependent, if the expertise is ever changing.
When a company is highly respected like Sony, LG, Apple, Maruti Suzuki, then they have
referent power. The channel members feel proud to be associated with it. In turn, it makes
the channel partners cooperate with the company. This is the highest authority a company
can possess.
The most advanced supply distributor agreement is distribution programming, which can be
defined as building a planned, professionally managed vertical marketing system that meets
the needs of both manufacturers and distributors. The manufacturer establishes a
department within the company called distributor relations planning. Its job is to identify
distributor needs and build up merchandising programmes to help each distributor operate
as efficiently as possible.
Step # 4. Evaluating Channel Members:
Channel members are evaluated on the basis of their sales, inventory level, service support,
delivery time performance, complaint redressal, promotional program implementation and
training performance.
If the performance of the channel member is satisfactory, then it is rewarded for its efforts
and if the performance falls below mark, it is advised to make necessary changes in the
processes. In case of channel members, where the problems are beyond rectification, they
are removed and the company appoints a new channel member.
Step # 5. Modifying Channel Arrangements:
With the changing times, the company needs to modify its channel arrangements. The
product line can expand, the consumers buying pattern can change, the new competition
can come up, a new distribution channel can emerge or the demand of the product can
change by getting into the later stages of product life cycle. All these factors can lead the
company to change its channel arrangement.
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When Intex started their operations in 1996, they had just one product – Ethernet card.
Now the product has expanded to 26 product groups with more than 300 stock keeping
units. Now their marketing channel consist of 2 mother warehouses, 2 regional offices, 28
branches, 57 service centres, 183 service franchises and more than 2000 channel partners.
Similarly with the growing usage of Internet, all the retailers are trying to follow a brick and
click model, where they sell their merchandise in their stores and they sell it online also.
Kishore Biyani’s Future group is a good example of the same.
They target their customers through a brick model with Big Bazaar, Pantaloons, E-Zone,
Home Town etc. and follow the customers online through their click model i.e.
www(dot)futurebazaar(dot)com and www(dot)ezoneonline(dot)com . From time to time, a
company needs to track the changes in the market and on this basis; they need to modify
their channel members.

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