MAM-054

Marketing Management
Indira Gandhi National Open University for Agribusiness
School of Agriculture

Block

3
Marketing Strategy
Unit 8
Product Strategy 164
Unit 9
Pricing Strategy 187
Unit 10
Channel and Distribution Strategy 206
Unit 11
Promotion Strategy 230
Unit 12
Logistic Services 231
PROGRAMME DESIGN COMMITTEE
Prof. R. P. Das, PVC, IGNOU Dr. Anjali Ramtake, Associate Professor,
SOMS, IGNOU
Prof. S.K. Yadav, Director, SoA,
IGNOU Dr. Leena Singh, Assistant Professor,
SOMS, IGNOU
Dr. B.K. Sikka, Former Dean, College
of Agribusiness Management, GBPUAT Prof. Sunil Gupta, SOMS, IGNOU
Dr. V.C. Mathur, Former Professor and Dr. V. Vijayakumar, Associate Professor,
Head, Div. of Agri. Econ. IARI SoA
Dr. Pramod Kumar, Principal Scientist Dr. Mita Sinhamahapatra, Associate
(Agri. Econ.) IARI Professor, SoA
Prof. M. K. Salooja, School of Dr. Mukesh Kumar, Assistant Professor,
Agriculture, IGNOU SoA
Dr. P. K. Jain, Associate Professor and
Programme Coordinator, SoA

Programme Coordinator: Dr. Praveen Kumar Jain

Block Preparation Team

Unit Writers Editors
Units 8 to 11 Dr. Sapana A. Narula,
Dr.Neeru Kapoor, Associate Professor, Professor and Dean,
Delhi College of Arts and Commerce, Delhi School of Management Studies,
University Nalanda University, Rajgir, Bihar
Unit 12
Prof. S.K. Singh, New Delhi Dr. Praveen Kumar Jain, SoA, IGNOU

Course Coordinator: Dr. Praveen Kumar Jain

Print Production
Mr. Tilak Raj
Assistant Registrar
MPDD, IGNOU, New Delhi

April, 2022
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BLOCK 3 MARKETING STRATEGY
The marketing strategy concept focuses on the creation of Customer
Value. In this Block, emphasis is given on market analysis, target customer
identification, and the development of marketing-mix strategies structured to
deliver superior customer value proposition and organizational performance.
The objective of this Block is to provide the skills and knowledge needed
by students who take up the role in a marketing capacity. In this Block, the
focus is primarily on the concepts of marketing segmentation, targeting and
positioning to a product or service, developing product strategies, pricing
strategies, streamlining the distribution channels, promotion of products
and services and logistics.
Unit 8: Product Strategy: Product strategy offers varied concepts of the
product life cycle. This unit includes the topics on the classification of
products; product life cycle; new product development; product line and
product mix; packaging and labelling.
Unit 9: Pricing Strategy: Pricing is considered as one of the vital but poorly
understood marketing decisions. This Unit enables students how to analyse
a firm’s effort to generate customer value and attain profits, in the incomes
they earn. The topics included in this unit include Factors affecting prices;
Pricing Policies and Strategies; Pricing Methods.
Unit 10: Channel and Distribution Strategy: This is one of the important
aspects of agricultural marketing, having a proper channel and distribution
system help in reducing food wastages and losses and thereby increasing
revenues of the companies. In this unit, topics that are covered include
types of distribution channels; functions of channel members; channel
management decisions.
Unit 11: Promotion Strategy: In this unit, the topics that are discussed in detail
include Promotion Mix; Introduction to Advertising, Personal Selling, Sales
Promotion, Publicity and Public Relations and Direct marketing, managing
integrated marketing promotion, Customer Relationship Management.
Unit 12: Logistics Services: In agricultural marketing logistics services
play an important role. The perishable and non-perishable commodities
require separate operations, if a firm can plan, strategies and implement its
logistics plan properly then the revenues and values of the firm will increase
and also there will be very less agricultural commodity losses. In this unit,
various topics that are important in logistics are discussed, it includes types
of logistic services, Implications and challenges, Management of storage
and transportation services for agri-commodities in the supply chain.
The material provided in this block is supplemented with various examples
and activities to make the learning process simple and interesting. We have
also provided check your progress questions for self-test at a few places of
these units which invariably lead to possible answers to the questions set in
those exercises. What perhaps you ought to do, is to go through units and
jot down important points as you read, in the space provided in the margin.
This will help you in assimilating the content. A list of reference books has
been provided at the end of each unit for further detailed reading.
 UNIT 8 PRODUCT STRATEGY
Structure
8.0 Objectives
8.1 Introduction
8.2 Concept of a Product
8.3 Composition of a Product
8.4 Product Classification
8.4.1 Consumer goods classification
8.5 New Product Development Process
8.6 Product Life Cycle
8.7 Product Mix and Product Line
8.8 Packaging
8.9 Branding
8.10 Labeling
8.11 Let Us Sum Up
8.12 Keywords
8.13 Suggested Readings / References
8.14 Answers to Check Your Progress

8.0 OBJECTIVES
After studying this unit, you should be able to:
• discuss the concept of product, its composition, and classification;
• define the stages in the new product development process;
• explain the marketing strategies for various stages of the product’s
life cycle;
• elaborate the concept of product mix & product line; and
• discuss the significance of packaging, branding, and labeling in the
success of a product.

8.1 INTRODUCTION
Till now you have studied a lot about the basic marketing concepts and one
thing must be clear to all of you that marketing is an indispensable activity
for every business to succeed in today’s competitive environment. But for
marketers to succeed and to enter the market it is very important to have a
product, service, or idea. In this unit, we are going to study the concept of
the product.

8.2 CONCEPT OF A PRODUCT

In a very narrow sense, a product is a set of tangible physical attributes
assembled in an identifiable form. However, in marketing the concept of
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a product is much wider. A product can be more than a physical thing- Product Strategy
it may be a service, a feeling, a pleasure, a reputation, or an experience.
In reality, the consumer obtains a bundle of satisfaction as a result of
buying a product. So the organizations have to consider the product from
the customer’s perspective. Like, for example, cosmetic companies are
combining chemicals to make lipsticks, vitamin manufacturers produce
little pills, watchmakers produce mechanical devices that keep time- but for
the customer, a lipstick become a hope to look young and beautiful, vitamins
become a hope for a healthier life and watches become status symbols.
According to Philip Kotler (1999) in his book “Marketing Management”,
“A product is anything that can be offered to a market for attention,
acquisition, use, or consumption that might satisfy a need or want. It
includes physical objects, services, persons, place, organizations or ideas.”
According to William J. Stanton (1994), in his book “Fundamentals of
Marketing”,
“A product is a set of tangible and intangible attributes, including
packaging, colour, price, manufacturer’s prestige, retailer’s prestige, and
manufacturer’s and retailer’s services, which the buyer may accept as
offering want-satisfaction.”
So by now, it should be clear to you that a product is not only a bundle
of physical and chemical attributes, but it also includes various intangible
attributes that have the potential to satisfy present and potential customer’s
needs and wants and is received in exchange for money or money’s worth.
In addition to the physical good itself, other elements include the packaging,
branding, labeling, Manufacturer’s prestige, wholesalers and retailers’
prestige, guarantee, warranty, installation, after-sales services, etc. For
example, a customer buying an air conditioner with a maintenance contract
from Samsung is buying a different product than another who buys some
unbranded air conditioner without the maintenance agreement.

8.3 COMPOSITION OF A PRODUCT

The first thing for us to understand is the composition of the product.
Generally speaking, a product is compared to an onion, like an onion it has
various layers. As we peel the top layer, the next layer comes out. The same
way a product has five layers. Each layer or level adds more customer value,
and all five levels constitute a customer value hierarchy. We have tried to
list out the various product levels in Figure 8.1.
1) Core product
The first and the most fundamental level is the core product which
provides core benefit: the fundamental service or benefit that the
customer is really buying. It is the genuine reason for which the product
is purchased or in other words the basic satisfaction a consumer is
looking for in the purchase of that product. For example, a woman
buying lipstick is not buying simply lip colour or the physical and
chemical attributes but is buying the hope or feeling of looking pretty.
In other words, a product in its pure raw or natural form is called the
core product, as in the case of tea leaves, which are freshly plucked
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Marketing Strategy from the tea gardens and after processing get converted into the core
product.
2) Basic product
At the second level, the marketer has to turn the core product into a
basic product. The core product is generally in a very raw form, so
marketers have to add a certain quality level, some more features,
design the product’s packaging, give it a label and a brand name to
covert it to the basic level. For example, tea leaves plucked from the
tea garden and processed simply in raw form is the core product, but
when these leaves are graded, packed, labeled, and are given a brand
name, they get converted into the basic product.

POTENTIAL

AUGMENTED

EXPECTED

BASIC

CORE

Figure 8.1: Composition of a Product

3) Expected product
At the third level, the marketer prepares an expected product, where
another set of attributes and conditions are added to the product to
make it more valuable to the customer, for example, the convenience
of product purchase and economical prices. Like as explained in the
previous level, varieties of tea leaves are made available in the market
with different levels of pricing keeping the quality levels, and the cost
of packaging into account.
4) Augmented product
At the fourth level, the marketer prepares an augmented product that
exceeds customer expectations. At this level new improved features
are added to the product, which is not being offered by any other
competitor. The tea producers launch the various flavours of tea in the
market, such as ginger tea, green tea, honey lemon tea, premium tea,
etc. So, in today’s scenario competition essentially takes place at the
product augmentation level because at this stage different features are
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 added by marketers in their products to give their product a distinct Product Strategy
identity than that of their competitors.
According to Theodore Levitt (1969) in his book The Marketing
Mode:
“The new competition is not between what companies produce in
factories, but between what they add to their factory output in the
form of packaging, services, advertising, customer advice, financing,
delivery arrangements, warehousing, and other things that people
value”.
5) Potential product
At the fifth level stands the potential product, where it undergoes
all the possible augmentations and transformations required for the
future. This is where companies search for new, innovative, and
creative ways to satisfy customers and distinguish their offers from
that of the competitors. Successful companies add benefits to their
offering that not only satisfies customers but also surprise them and
delight them. Delighting is a matter of exceeding expectations. So, we
could see that a product can have all these levels, as it is introduced in
the market.
Activity 8.1
Visit the nearby market and gather information regarding the various
products available in the market and classify them in various categories
based on their level of composition.
……………………………………………………………………………
……………………………………………………………………………
……………………………………………………………………………
……………………………………………………………………………

Check Your Progress 8.1

Note: a) Use the spaces given below for your answers.
b) Check your answer with those given at the end of the unit.
1) Why is it said that the competition takes place at the augmentation
stage?
………………………………………………………………………
………………………………………………………………………
2) Why is it important to convert a product into a potential product?
………………………………………………………………………
………………………………………………………………………

8.4 PRODUCT CLASSIFICATION

Product classification can be done from a variety of perspectives. Based on
the tangibility and durability, the product can be classified into three main
groups as depicted in figure 8.2.
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Marketing Strategy
TYPES OF PRODUCTS ON
THE BASIS OF
TANGIBILITY &
DURABILITY

NON DURABLE DURABLE SERVICES

Figure 8.2: Types of Product based on Tangibility & Durability

1. Non-durable goods
Nondurable goods are tangible goods that are normally consumed
in one or few uses. In general terms, the goods consumed within
one year are called nondurable. Examples are bread, butter, soap,
beverages, snacks, sugar, and salt. Because these goods are consumed
quickly and purchased frequently, the appropriate strategy is to make
them available in many locations, charge only a small markup, and
advertise heavily to induce trial and build preference.
2. Durable goods
Durable goods are tangible goods that normally survive many usages,
and the economic era for normal use is generally one year or more.
Examples include television sets, refrigerators, cars, computers, and
clothing. In general, these types of goods require more personal
selling and services, offer greater benefits, command a higher margin,
and require more quality control, guarantee/warranty, etc.
3. Services
Services are intangible, inseparable, variable, and perishable products.
They are delivered by the service provider directly to the recipient.
As a result, they normally require more quality control, supplier
credibility, and adaptability. Examples include the services of beauty
salons, hotels, schools, banks, and others.
8.4.1 Consumer Goods Classification
The products can also be classified based on by whom and for what purpose
are they being consumed into two categories: consumer goods and industrial
goods.
A. Consumer goods
Consumer goods are consumed by final consumers for their own interests
(individuals and households), and not for commercial purposes. The vast
array of consumer goods can be classified based on the shopping habits
of consumers into four types: namely convenience goods, shopping goods,
specialty goods, and unsought goods.
1. Convenience goods
Convenience goods are those products that customer usually purchases
frequently, immediately, and with a minimum of effort in comparison and
buying. Examples include soaps, toothpaste, batteries, candies, newspapers, etc.
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2. Shopping goods Product Strategy

These are goods that the customer will purchase only after a thorough
comparison based on suitability, quality, price, and style. The
consumer will not mind going to a few shops and spending his time
and effort in making such a comparison. Examples include furniture,
clothing, shoes, accessories, and major electronic appliances.
3. Specialty goods
These are goods with unique characteristics or brand identification for
which a sufficient number of buyers are habitually willing to make
special purchasing efforts. They are highly brand loyal to them. They
won’t mind traveling a long distance for them, waiting a long period
for them, or being willing to pay a premium price for them. Examples
include luxury cars, photographic equipment, designer clothes, etc.
4. Unsought goods
Unsought goods are goods that the consumer does not know about or
knows about but does not normally think of buying. These goods can
also be of two kinds:
a. Unsought regular products are goods that exist in the market
and are known to consumers, but are not purchased by them
in the normal course of time, such as medicines, life insurance
policies, etc.
b. Unsought new products are products that are new to the
market and consumers do not know much about them or have
some misconceptions about them, so they won’t be purchasing
them unless they get full information about them. For example,
smoke detectors, automatic dishwashers, etc.
B. Industrial goods classification
Industrial goods are those goods that facilitate the production of other goods.
They might become a part of the finished good completely or help in the
manufacturing and maintaining of the product. According to Philip Kotler,
the various types of industrial goods can be classified into three categories,
such as materials and parts, capital items, supplies, and business services.
1. Materials and parts
These are goods that enter the manufacturer’s product completely.
They fall into two categories: raw materials and fabricated materials
and parts.
a. Raw materials are those goods that are taken from nature in
raw forms, like wheat, cotton, livestock, fruits, and vegetables.
These are supplied by farmers and other suppliers to the
manufacturers who process them further, add value to them and
these goods finally become part of the finished goods.
b. Fabricated material and parts are manufactured products of
one production unit such as iron, yarn, cement, wires, etc., and
are required by another production unit to be processed further
and finally become part of their finished goods.

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Marketing Strategy 2. Capital items
These are basic goods that are required for conducting the
manufacturing process smoothly and producing finished products.
They can be of two types: installations and equipment.
a. Installations consist of the building (factories, offices), and
heavy equipment (generator, elevators, mainframe computers).
b. Equipment factory equipment and tools (hand tools, lift trucks)
and office equipment (personal computers, desks, tables).
These types of products do not become part of the finished product
but are very important to produce finished goods.
3. Supplies and business services
Supplies and business services are those goods and services which are
required to facilitate the production process or in other words help in
developing or managing the finished product.
a. Supplies are of two kinds: operating supplies (lubricants, coal,
writing paper, pens, etc.) and maintenance and repair items
(tools, fixtures, paints, etc.).
b. Business services include maintenance and repair services
(telecom services, computer maintenance, etc.) and business
advisory services (legal, management consulting, advertising
services, etc).
Check Your Progress 8.2
Note: a) Use the spaces given below for your answers.
b) Check your answer with those given at the end of the unit.
1) What are consumer goods?
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
2) Define convenience goods.
………………………………………………………………………
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8.5 NEW PRODUCT DEVELOPMENT

PROCESS
It has been rightly said that nothing happens unless somebody sells
something. So it is very important to first have something to sell a product, a
service, or an idea, and that “something” must be developed carefully. There
are certain stages through which every company has to go before arriving
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at the final product. The following diagram nicely depicts the stages to be Product Strategy
followed:
IDEA GENERATION STAGE

IDEA SCREENING STAGE

CONCEPT DEVELOPMENT & TESTING STAGE

BUSINESS ANALYSIS STAGE

PRODUCT & MARKETING MIX DEVELOPMENT STAGE

MARKET TESTING STAGE

COMMERCIALISATION STAGE

Figure 8.3 New Product Development Process

As depicted in the diagram above, the development of a new product can

proceed through a series of seven stages that are listed below. During each
stage, management must decide carefully whether to move on to the next
stage, abandon the product, or seek additional information. While all the
companies don’t need to follow the step-by-step approach, but still it is
always recommended as it helps them in minimizing the risk of product
failure at a later stage.
1) Idea generation stage
The first stage in the new product development process is to generate
various ideas which can be later evaluated as potential product
options. At this stage, the focus is on inviting as many ideas as
possible from various sources within or outside the organization,
so that the manufacturer should not repent at a later stage that some
ideas were not explored. Customers’ needs and wants are the starting
point in the search for new product ideas. The ideas can be generated
by organizing focus group interviews with consumers, middlemen,
feedback from sales personnel, consumer feedback and suggestions,
and acquiring knowledge about competitors’ product strategies
through various sources.
2) Idea screening stage
At this stage, the ideas generated at stage one are critically evaluated
by the senior management to select the most attractive option.
While selecting the ideas, the opinion of people at various levels is
sought so that the chances of committing an error can be reduced
to the minimum. At the screening stage, the company must avoid
two types of errors—a drop error, which occurs when the company
dismisses an otherwise good idea, or a go—error, which occurs when
the company permits a poor idea to move into the development and
commercialization stage. The purpose of screening is to analyze the
ideas carefully and avoid committing both types of errors.
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Marketing Strategy 3) Concept development and testing stage
At this stage, a few selected ideas are discussed at length with
customers, distributors, and the company employees by showing them
a detailed concept note or a storyboard displaying drawings of product
ideas, so that their suggestions can be incorporated while designing
an excellent product. During discussions with everyone, an effort is
made to elicit their response in terms of their likes and dislikes of the
concept, the various features to be included in the product, their level
of interest in purchasing the product, and the likely price they would
like to pay for the product.
4) Business analysis stage
At this stage, when marketers are left with one or two options, lots
of efforts are made by them to check out the commercial viability
of those product ideas because no organization would like to move
to the next stage with a loss-making proposition. Even though the
idea remains on paper, an effort is made by marketers to estimate the
tentative market size or the expected market demand of the product,
calculations are made regarding the estimated cost of manufacturing
the product and the resultant sales and profit figures are calculated.
5) Product and marketing mix development stage
Ideas passing through business analysis enter into the product and
marketing mix development stage. At this stage, with the help of the
research and development department of the organization, the basic
design of the product is prepared and certain prototypes of the idea are
developed. Lots of functional tests are performed on these prototypes
under laboratory and field conditions to check their performance
levels and safety standards. Decisions regarding the other three Ps,
namely, Price, Place, and Promotion are also taken at this stage. Once
the prototype is ready, a representative group of customers are invited
to the company premises and are shown the real product. They are also
encouraged to discuss the pricing strategy and give their comments on
the sample advertisements. Customer’s suggestions at this stage help
the company to arrive at appropriate marketing-mix decisions and the
product is finally ready to be launched in the market.
6) Market testing stage
All the products which reach up to this stage are ready to be tested as
real products in the market. At times when the marketers are confident
about the success of the product after the concept testing stage, they
can skip this stage but generally, when their stake is large they go
for market testing before finally going for commercialization of their
product. At this stage, the product is finally packed, priced, promoted,
and introduced in a small geographical area. The response of the
consumers is sought from the test marketing area and the required
adjustments are made in the various marketing-mix elements. Once
finally approved by the larger segment of target customers, the product
is ready to move to the seventh stage i.e. commercialization.

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7) Commercialization stage Product Strategy

This is a stage where the product is ready to be launched in the wider

market. Some firms introduce the product in phases to different parts
of the market. This allows the company to plan the production in a
more controlled way and to fine-tune the marketing mix as the product
is distributed to new areas. But before the product is distributed to
new areas certain important decisions are taken such as:
1. When to introduce the product (timing)
Marketers have to decide about the right time to introduce the
product in the market at a large scale keeping the time factor into
accounts such as the seasonal nature of the products, festivities,
and the flow of disposable income with consumers.
2. Where to introduce the product (geographical distribution)
Whether to launch the new product in a single locality, a
specific region, several regions, the national market, or at the
international market?
3. To whom to target the product (target market prospects)
Within the rollout markets, the company must target its
distribution and promotion policy to the best prospect group of
customers.
4. How to introduce the product in the market (introductory
marketing strategy)
Companies must develop a plan for introducing the new product
in the market. Various marketing mix decisions are taken care of
to introduce the product in a big way in the markets. Sometimes
attractive introductory offers are made to attract the present and
potential customers towards the new product.
So finally to conclude it can be said that it is very important for marketers
to follow all these stages carefully if they want to avoid costly mistakes at
a future date.
Check Your Progress 8.3
Note: a) Use the spaces given below for your answers.
b) Check your answer with those given at the end of the unit.
1) Why is it important for producers to go through all the stages carefully
for developing a new product idea?
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
2) Why is it that despite taking all the precautions, some of the new
products meet with failure in the markets?
………………………………………………………………………
………………………………………………………………………
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Marketing Strategy ………………………………………………………………………
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8.6 PRODUCT LIFE CYCLE

The moment the product is commercialized it enters into its life-cycle.
A product is like a human being. It is born, grows up fast, matures, and
then finally passes away. The Product life cycle discusses the stages that a
product has to go through from the day of its birth to the day it is taken away
from the market. A new product progresses through a sequence of stages
from introduction to growth, maturity, and decline. This sequence is known
as the product life cycle and is associated with changes in the marketing
situation, thus impacting the marketing strategy and the marketing mix.

INTRODUC
TION
STAGE

DECLINE PRODUCT GROWTH

STAGE LIFE CYCLE STAGE

MATURITY
STAGE

Figure 8.4 (a) Product Life Cycle

The product life cycle stages

The product revenue and profits can be plotted as a function of the life-cycle
stages as shown in the graph below:
Product Sales

Introduction Growth Maturity Decline

Figure 8.4 (b): Product Life Cycle

The product life cycle deals with four basic stages.

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A. Stage one: Introduction stage Product Strategy

Stage 1 is where the product is launched. A product launch is always

risky. You never know how the market will receive the product. There
have been numerous failures in the past to make marketers nervous
during the launch of the product. The length of the introduction stage
varies according to the product.
Characteristics of introduction stage:
• Product branding and the quality level are established and intellectual
property protection such as patents and trademarks are obtained.
• The company introduces the basic versions of the product in the
market as the market is not ready for product refinements.
• Huge investments are made in production, distribution, and promotion
resulting in no or low profits.
• Costs are high due to relatively low output rates.
• Pricing may be low: penetration pricing to build market share rapidly,
or high: skimming pricing to recover development costs fast.
• The slow growth of sales is because of a lack of awareness among the
consumers.
• Distribution is selective until consumers show acceptance of the
product.
• Huge efforts are made to attract dealers and fill the pipelines.
• Aggressive promotional efforts are made aimed at innovators and
early adopters. Marketing communications seek to build product
awareness and to educate potential consumers about the product.
• There are only a few competitors.
Marketers adopt any one of the following strategies:
1. Rapid skimming strategy- Launching the new product at a high
price with a high promotional level. This strategy is adopted when
people are unaware of the product, the company wants to build the
image of a prestigious product, and they are confident of the fact that
consumers can pay the high price for that product.
2. Slow skimming strategy-Launching the new product at a high price
with low promotion. It is used when the market is limited in size,
people know about the product, buyers are willing to pay a high price
and potential competition is not imminent.
3. Slow skimming strategy- Launching the product at a low price
and spending heavily on promotion. This strategy works when the
market is large, unaware of the product, buyers are price sensitive,
strong potential competition and unit manufacturing costs fall with
increasing turnover.
4. Slow penetration strategy- Launching the new product at a low
price and low level of promotion. Marketers use this strategy when
the market is large, highly aware of the product, is price sensitive, and
there is some potential competition exists.
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Marketing Strategy B. Stage 2: Growth stage
The growth stage is marked by a rapid climb in sales and profits of the
company. Early adopters like the product and middle majority consumers
start following their leads. The firm seeks to build brand preference and
increase market share. There is better demand in the market and slowly the
product starts showing profits. This is a stage where competition may step
into squash the product before it has completely launched. Thus special care
is needed to ensure that it does not affect the growth stage of the product.
Characteristics of growth stage:
• Rapid climb in sales, early adaptors, and a middle majority can follow
the leader.
• New competitors enter the market attracted by large-scale production
and profit.
• Pricing is maintained as the firm enjoys increasing demand with more
and more customers coming forward and buying their products.
• Profits increase during this stage as promotion costs are spread over a
larger volume and unit manufacturing cost falls faster.
• Promotion is aimed at a broader audience.
• Company’s maintained their promotional expenses at the same level
or slightly raised level to meet competition and continue educating
the market.
• Sales rise much faster, causing a decline in the promotion-sales ratio.
Marketers use the following strategies at this stage:
1. Product quality is maintained and additional features and support
services may be added.
2. New improved models of the product may be introduced.
3. Companies tend to enter new market segments and increase their
distributional network as demand increases and customers accept the
product.
4. The nature of the advertising shifts from product awareness to bringing
about products conviction and purchase.
5. The company may lower prices at the right time to attract the next
layer of price-sensitive consumers.
C. Stage 3: Maturity stage
At the maturity stage the rate of sales growth will slow down and the
product will enter a stage of relative maturity. This stage poses formidable
challenges to marketing management.
The maturity stage can be divided into three phases.
In the first phase, growth-maturity, the sales-growth rate starts to decline
because of distribution saturation. There are no new distribution channels to
fill, although some laggard buyers still enter the market.
In the second phase, stable maturity, sales become level on a per capita
basis because of market saturation. Most potential consumers have tried the
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product and future sales are governed by population growth and replacement Product Strategy
demand.
In the third phase, decaying maturity the absolute level of sales now
starts to decline and customers start moving towards other products and
substitutes.
Characteristics of maturity stage:
• The slowdown in the rate of sales growth creates overcapacity in the
industry and this overcapacity leads to intensified competition.
• The industry eventually consists of well-entrenched competitors
whose basic drive is to gain a competitive advantage.
• Profits start to decline.
Marketers have to resort to the following strategies:
1. In order to sustain the sales at a constant level, the company might
have to add new improved product features to differentiate their
product from that of the competitors.
2. They will have to convert nonusers into users-for example try to
encourage non-coffee drinkers to drink coffee.
3. They can suggest more frequent uses of their products- for example,
the shampoo company tries to introduce more frequent use of shampoo
to have nice, silky, and glowing hair.
4. Even more usage per occasion can be recommended- for example,
Milkmaid distributing Milkmaid recipe books free to the customers to
suggest frequent and more usage of their product in various recipes.
5. Company will have to try hard to win over the competitors’ customers.
6. Prices might have to be reduced to attract the price-sensitive consumer
from the competitor.
7. Distribution becomes more intensive and incentives may be offered to
encourage preference over competing products.
8. Promotion emphasizes product differentiation.
9. Various sales promotion incentives are introduced for the consumers
as well as dealers to maintain their interest in the product.
D. Stage 4: Decline stage
At this stage, the market is saturated. Sales and profits eventually decline.
The decline may be slow or rapid.
Characteristics of the decline stage:
• Sales may plunge to zero or they may petrify at a low level and
continue for many years.
• Sales decline for several reasons, including technological advances,
consumers’ shifts in tastes and increased domestic and foreign
competition, overcapacity, increased price-cutting, and profit erosion.
• Profits start declining and at times become negative.
As sales and profits decline, the firm can resort to the following marketing
strategies:
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Marketing Strategy • The product can be maintained in the market for some more time by
adding certain new features and finding new uses.
• The company can continue to offer the product to its loyal customers
at a reduced price.
• They can even discontinue the product.
• The product can be used as a replacement product for launching
another new product successfully in the market.
• The various marketing decisions in the decline phase will depend on
the fact, whether it is being rejuvenated, given a new lease of life, or
left unchanged if it is being liquidated.
• The price may be maintained or reduced drastically if liquidated.
Check Your Progress 8.4
Note: a) Use the spaces given below for your answers.
b) Check your answer with those given at the end of the unit.
1) Explain the difference in the marketing strategies followed by
marketers in the introduction stage and growth stage.
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
2) Why the maturity stage is considered the longest stage in the life of a
product?
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………

8.7 PRODUCT MIX AND PRODUCT LINE

The product mix is the sum total of all the products manufactured or traded
by some business house to reinforce their presence in the market, increase
market share and increase the turnover for more profitability. For example,
if we take the case of Hindustan Unilever, their product mix consists of
fabric wash segment, haircare, skincare, oral care, household cleaning, and
other product lines. Product mix and product line are two expressions used
in connection with the range and variety of the products of a firm.
Product mix- is the larger entity. It denotes the complete set of all products
offered for sale by a company. The product mix of a company is composed
of all the product lines, it carries.
Product line- is a group of closely related products that are considered to
be a unit because of marketing, technical, or end-use considerations. For
example, all the toilet soaps of Hindustan Unilever like Dove, Pears, Lux,
Liril, Rexona, Hamam, Lifebuoy, and Breeze form a product line under the
personal wash category.
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Width of product mix- denotes the number of product lines it carries. It Product Strategy
can also be termed as a line extension, which means introducing a new
product line, just like Mercedes was manufacturing cars, when it started to
manufacture its bikes, it was a line extension. Line extension can be upward
or downward, in the case of Mercedes, it was downwards.
Length of product line- is decided by the number of items in a product
mix.
Depth of a product line- denotes the total number of items under each
brand in the line, in terms of variants, shades, models, pack sizes, etc.

PRODUCT LINE 1 PRODUCT LINE 2 PRODUCT LINE 3

•BATHING SOAPS •FABRIC WASH •BEVERAGES

•DOVE •SURF EXCEL •BRU
•LIRIL •RIN •BROOK BOND
•LE SANCY •WHEEL •RED LABEL
•PEARS •SUNLIGHT •LIPTON GREEN
•RESOXNA •ALA •TAAZA
•LIFEBBUOY •501 •TAJ MAHAL
•HAMAM •SUPER DUST A1
•BREEZE
•JAI

Figure 8.5: HUL Product Mix & Product Line

Constant appraisal of each product/brand in the line

A growing business needs to undertake a constant appraisal of its existing
product lines. The appraisal is required to check the validity of the products
in light of the changes in the business environment and the competitive
forces. With time, some of the products lose their relevance and at times
the entire product line might become outdated. Companies try to measure
the market acceptance of their products as it changes due to changes in the
tastes and preferences of the consumers. Some of the products are required
to be withdrawn from the market due to functional obsolescence which
can occur because of the changing fashions or the upcoming of the new/
improved substitute products due to new and improved technologies. So
there should be a constant appraisal of each product in the product line and
each member/brand in the line.
The decisions may include withdrawal of the product in one case, stricter
quality control in respect of another, giving an independent brand name to a
product, improving the utility of a product by adding a few features to it or
introducing a new product altogether, in yet another case.

8.8 PACKAGING
Packaging is considered a very essential part of the product. It is becoming
such an indispensable part that it is referred to as the 5th “P” of the marketing
mix. Before we go into the reasons as to why packaging is becoming so
important, it is essential to first understand the concept of packaging and
differentiate it from the term packing. In simple terms, packing refers to
the protection of goods from breakage, spoilage, leakage, or pilferage when
transported and stored, while packaging is a broader term, and is concerned
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Marketing Strategy with designing and producing appropriate packages for a product. While
packaging goods, use of various types of materials can be made such as
paper, fiberboard, jute, plastic, glass, steel, aluminum, cork, ceramics or
wood, etc.
Packaging is often referred to as a silent salesman due to its ability to
influence consumers at the point of purchase. It also acts as a form of brand
communication, imparting personality, positioning, values, and benefits to
the brand. Some of the important functions performed by packaging are
listed below:
• Packaging makes goods catchy, colourful, informative and facilitates
the sale of the product.
• It also protects the goods from breakage, pilferage, spoilage, or
contamination.
• It also retains the moisture of the goods and keeps them fresh for a
long.
• Packaging can also add functional utility to the product as it becomes
easy to handle and store.
• Rising consumer affluence means consumers are willing to pay a little
more for the convenience, appearance, dependability, and prestige of
better packages.
• It helps in preventing the adulteration of the goods.
• With increasing competition in the marketplace, attractive packaging
helps in catching the attention of the target audience.
• It is of immense importance in big departmental stores where there is
a widespread use of self-service and all the brands lie parallel on the
same counter.
• Aesthetic factors are essential to make a brand stand out, entice new
shoppers and ensure existing users can find it.
• Packaging increases the utility of branding a product. The brand name
and mark can be printed on the packages and they may be used for
advertising the product.
• The package advertising copy lasts for as long as the product is being
used in its packaged form. The user is every time exposed to the
message on the label whenever he uses the product.
• Finally, Packaging gives individuality or identification to a product.
Developing effective packaging may involve huge monetary investment and
take several months to complete. Companies may pay attention to growing
environmental and safety concerns about packaging. The concept of going
green and resorting to eco-friendly, recyclable packaging materials is being
followed by most companies these days. Low-volume, low-priced packages
are also being designed for rural and urban areas. Rs. 1, 2, 5 satches of
detergents and shampoos are being introduced in the markets. Coke
introduced its small bottle at Rs. 5 in rural markets. Most of the FMCGs
are also resorting to such small, economical packaging of their goods and
180
positioning them accordingly. All these facts clearly highlight the growing Product Strategy
importance of packaging in today’s market scenario.

COLOU PROTE SUITAB

RFUL CTIVE LE

ECO-
CONVE DURAB
FRIEND
NIENT LE
LY

COST- UTILITA
ATTRA
EFFECT
CTIVE
IVE TIVE

Figure 8.6: Requisites of a Good Package

Check Your Progress 8.5

Note: a) Use the spaces given below for your answers.
b) Check your answer with those given at the end of the unit.
1) Why a package is considered a silent salesman?
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
2) Can you list out the various initiatives being taken by companies to
promote green marketing efforts?
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………

8.9 BRANDING
Branding is a key concept in marketing circles. A well-defined brand drives
sales, build customer loyalty, create brand value, and most of all, it can be
the catalyst for business growth, as consumers will be motivated to buy
that product. The most distinctive skill of professional marketers is their
ability to create, maintain, protect and enhance brands. Marketers say that
“branding is the art and cornerstone of marketing”. The term branding has
been defined by American Marketing Association (1995) as:

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Marketing Strategy “A name, term, symbol, or design or a combination of them which is
intended to identify the goods or services of one seller or group of sellers
and to differentiate them from those of competitors.”
A brand name consists of words, letters, and/or numbers that may be
vocalized, while a brand mark is the part of the brand which appears in
the form of a symbol, design, or distinctive colouring or lettering. It is
recognized by sight but cannot be expressed by pronouncing. A trademark
is a legal term and refers to a brand that is registered under the Trade and
Merchandise Marks Act, 1958.
A brand is essentially a seller’s promise to deliver a specific set of features,
benefits, and services consistently to the buyers. It can convey up to six
levels of meanings:
• Attributes- a brand brings to mind certain attributes. For example,
Mercedes suggests expensive, well-built, well-engineered, durable,
high-prestige automobiles.
• Benefits- attributes must be translated into functional and emotional
benefits. Quality, durability, comfort, prestige, etc.
• Values- something about the producer’s values. Mercedes stands for
high performance, safety, and prestige.
• Culture- brand may represent a certain culture. Mercedes represents
German culture: organized, efficient, high quality.
• Personality- can project certain personality. Mercedes may suggest a
no-nonsense boss (person), or lion (animal), a power symbol.
• User- the brand suggests the kind of consumer who buys or uses the
product. One can expect to see a 55 year old executive behind the
wheel of a Mercedes, not a 20 year old secretary.
So the branding challenge is to develop a set of positive associations for the brand.
Characteristics of a good brand
• short & simple
• easy to spell and read
• easy to recognize and remember
• easy to pronounce
• can be pronounced in only one way
• can be pronounced in all languages
• suggestive of product benefits
• adaptable to packaging and labeling
• always timely
• legally available for use
Functions of branding
• Product differentiation- branding helps in differentiating a brand
from its competitors and gives the product a distinctive identity.
• Advertising- a brand name is used to advertise the product and
establish an image in the minds of the prospective consumers.
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• Better qualities of goods- standardized brands ensure a better Product Strategy
quality of goods and genuineness of the product to the consumers.
• Competitive advantage- consumers are always willing to buy
products they know and trust. A strong, well-defined brand, gives a
competitive advantage to the product in the market. It might allow
companies to charge more for their product, knowing that consumers
will remain loyal, and buy it at a higher cost.
• Consumer protection –prices of a branded product are fixed by
manufacturers and are printed on the cover itself. This protects the
consumers because middlemen cannot charge more than the printed
price.
• Adds to the prestige or the goodwill of the firm- once established,
the brand prestige remains for years and results in a high degree of
brand loyalty amongst consumers.
• Brand loyalty- strategic branding leads to strong brand equity, which
means the added value brought to your company’s products or services
that allows them to charge more for their brand than what identical,
unbranded products command.

8.10 LABELING
A label is a part of the product that provides information to the customers
which describe the product, its content, the manufacturer date, and time
of manufacture, when to use it, how to use it and where to keep it, etc.
Labeling can be done on the package itself or it can be done by attaching
an extra sheet inside the product. The label is used to communicate a brand,
grade, and other information about the product. Various agricultural and
food products are graded labeled as A, B, C depending on various quality
parameters. Labeling has promotional and informational uses for customers.
It might promote the product through its attractive graphics.
Check Your Progress 8.6
Note: a) Tick on the appropriate answers.
b) Check your answer with those given at the end of the unit.
1) Branding becomes very much important because of the following
reasons:
a) branding helps in differentiating a brand from its competitors
b) standardized brands ensure a better quality of goods and
genuineness of the product
c) a strong well-defined brand gives a competitive advantage to
the product
d) all the above
2) A product can be successfully branded, provided
a) it leads to economies of scale
b) the potential demand is going to be small
c) products can be easily identifiable afterward
d) product quality will be inconsistent
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Marketing Strategy
8.11 LET US SUM UP
●● A product can be more than a physical thing-it may be a service,
a feeling, a pleasure, a reputation, or an experience. In reality, the
consumer obtains a bundle of satisfaction as a result of buying a
product.
●● A product is a set of tangible and intangible attributes, including
packaging, colour, price, manufacturer’s prestige, retailer’s prestige,
and manufacturer’s and retailer’s services, which the buyer may
accept as offering want-satisfaction.
●● A product is compared to an onion, like an onion it has various layers.
As we peel the top layer, the next layer comes out. The same way
a product has five layers – Core, basic, expected, augmented, and
potential.
●● Based on tangibility and durability, the product can be classified into
three main groups: non-durable, durable, and services.
●● The vast array of consumer goods can be classified based on the
shopping habits of consumers into four types: namely convenience
goods, shopping goods, specialty goods, and unsought goods.
●● Industrial goods fall into two categories: raw materials and fabricated
materials and parts.
●● The development of a new product can proceed through a series
of seven stages, such as idea generation, idea screening, concept
development, and testing, business analysis, product and marketing
mix development, market testing, and commercialization. During
each stage, management must decide carefully whether to move on to
the next stage, abandon the product, or seek additional information.
●● A new product progresses through a sequence of stages from
introduction to growth, maturity, and decline. Each stage is associated
with changes in the marketing situation, thus impacting the marketing
strategy and the marketing mix.
●● Product mix and product line are two expressions used in connection
with the range and variety of the products of a firm.
●● Packaging is often referred to as a silent salesman due to its ability to
influence consumers at the point of purchase.
●● A brand is essentially a seller’s promise to deliver a specific set of
features, benefits, and services consistently to the buyers.
●● A label is a part of the product that provides information to the
customers which describe the product, its content, the manufacturer
date, and time of manufacture, when to use it, how to use it and where
to keep it, etc.

8.12 KEYWORDS
Consumer product: A product that is intended for purchase and use by
household consumers for non-business purposes.
184
Green marketing: Any marketing activity of a firm that is intended to Product Strategy
create a positive impact or lessen the negative impact of a product on the
environment to capitalize on consumers’ concerns about environmental issues.
Innovators: A group of venturesome consumers that are the first to adopt
an innovation.
Intangibility: A characteristic of service indicating that it has no physical
attributes and, as a result, is impossible for consumers to taste, feel, see,
hear, or smell before they buy it.
Product abandonment: A decision and subsequent action by a firm to draw
a product that has insufficient or declining sales and lacks profits.
Product adaptation: Modifying a product that sells successfully in one
market to suit the unique needs or requirements of other markets.
Product mix: The set of all products offered for sale by a company.

8.13 SUGGESTED READINGS / REFERENCES

Philip Kotler, Marketing Management XIIIth Ed. (Prentice Hall of India
Pvt. Ltd., New Delhi, 1999).
Stanton, William J., Michael J. Etzel & Bruce J. Walker, “Fundamentals of
Marketing” (McGraw-Hill, Inc. New York, 1994).
Theodore Levitt, The Marketing Mode (New York: McGraw-Hill, 1969).
Bennett, Peter D. ed., “Dictionary of Marketing Terms” (Chicago: American
Marketing Association, 1995).
http://www.marketing91.com/what-is-a-product
http://www.preservearticles.com/201101012174/chemical-reactions-
classified.html
http://www.ddegjust.ac.in/studymaterial/mba/mm-408.pdf
http://www.marketing91.com/product-life-cycle
http://quizlet.com/15687106/marketing-management-chapter-12-flash-
cards

8.14 ANSWERS TO CHECK YOUR PROGRESS

Check Your Progress 8.1
1) Only at the augmentation stage, certain unique features are added to
the product, and the product is given a distinct identity, an identity
that is different than that of its competitors.
2) Because of massive competition which is prevailing in the markets.
Moreover, consumers are becoming very demanding and are expecting
a lot of extra perks and facilities along with the products. In case the
manufacturer will not provide those sets of extra services required,
the competitor will do the needful and will be able to take the market
share away from the company.
Check Your Progress 8.2
1) The goods purchased by individuals or groups for personal
consumption or household usage.
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Marketing Strategy 2) Convenience goods are those products that customer usually purchases
frequently, immediately, and with a minimum of effort in comparison
and buying. Examples include soaps, toothpaste, batteries, candies,
newspapers, etc.
Check Your Progress 8.3
1) One mistake can result in a big blunder in terms of money, effort,
time, and energy. It is very important for marketers to carefully weigh
every opportunity so that they should not regret at a later stage that an
otherwise profitable idea has not been paid attention to.
2) It might be because certain aspects were not paid attention to while
going through various stages of the new product development
process. Some of the companies failed to conduct the market testing
properly, so they were not able to realize the fact that the consumers’
preferences were different.
Check Your Progress 8.4
1. The strategies followed by marketers in the introduction stage are
generally different than the growth stage. In the introduction stage,
the major focus of the marketers lies on finding and filling up the
pipelines, looking for dealers and distributors, advertising heavily and
promoting the products to the masses, and the price of the product
appropriately to attract the customers. While at the growth stage the
sales start picking up, the marketers focus shifts at increasing the
sales further by bringing in the new improved versions of the product,
reducing the price slightly to attract the next layer of the price-sensitive
consumers, looking for more distribution channels, and using certain
preventive strategies to ensure that the competitor should not be able
to enter the marketplace. The specific strategies followed during both
stages are listed nicely in the chapter.
2. Maturity is considered as the longest stage in the life of a product
because after maturity the next stage is a decline, and none of the
companies wants its products to enter into the decline stage. So
companies use various marketing strategies in order to ensure that the
sales can be increased further but if it is not possible efforts are made
to ensure that sales should be sustained at a constant level so that the
decline could be postponed as far as possible. Various strategies used
by companies are discussed at length on page 20.
Check Your Progress 8.5
1. An effective, colourful, attractive, and utilitative package generally
plays a very important role in catching the attention of the prospective
buyer and making them select that specific brand.
2. To promote green marketing efforts, companies have started using
eco-friendly and recyclable packaging materials. The use of polythene
is being replaced by jute and other environmentally friendly materials.
Reusable containers are being used for packaging.
Check Your Progress 8.6
1. d) 2.  
c)
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UNIT 9 PRICING STRATEGY
Structure
9.0 Objectives
9.1 Introduction
9.2 Factors Affecting the Price
9.2.1 Selecting the pricing objectives
9.2.2 Determining the demand of goods
9.2.3 Estimating the costs of the product
9.2.4 Analyzing competitors costs, prices, and offers
9.2.5 Other environmental factors
9.3 Selecting a Pricing Method
9.3.1 Cost-based pricing methods
9.3.2 Market-based pricing method
9.4 Selecting the Final Pricing Method
9.5 Developing a Pricing Structure
9.6 Geographical Pricing Policies
9.7 Price Discounts and Allowances
9.8 Price vs. Non-Price Competition
9.9 Let Us Sum Up
9.10 Keywords
9.11 Suggested Readings and References
9.12 Answers to Check Your Progress

9.0 OBJECTIVES
After studying this unit, you should be able to:
●● explain the concept of pricing and pricing objectives:
●● discuss the significance of the concept of costs and demand in setting
the price;
●● elaborate various cost-based and market-based pricing methods;
●● explain the various geographical pricing methods; and
●● identify the price discounts and allowances.

9.1 INTRODUCTION
Price is one of the most important factors in the marketing mix as it is
directly related to the willingness to pay by customers. Indian consumers
are considered as highly price-sensitive consumers so pricing decisions
become rather very important decisions for any organization if they want to
achieve success in the market.
187
Marketing Strategy In this unit, we discuss the concept of pricing and its relevance from the
marketers’ perspective. In simple terms, price is defined as a numerical
statement of what a customer must pay for an item. One of the leading
causes of new product failures is- either under or overpricing. People are not
going to buy the product in both circumstances. If a product is overpriced,
it is considered too expensive, beyond the pocket of so many people and
they are not going to buy it. If it is underpriced it is directly assumed that
the company must have compromised on the quality of the product so it is
treated as an inferior product and again in that case people are not willing
to purchase it. So the marketers need to price the product ideally at a level
where it is neither overpriced nor underpriced.
The underlying reason for much of today’s ineffective pricing is a pre-
occupation amongst most of the marketers that they set the price with the
need to cover the cost of running their business. The fundamental principle
in pricing especially in India is to recognize that price is a statement of cost,
not value. Cost coverage, not customer value, is the single most emphasized
factor in the pricing policies of most companies. Customer considerations
and especially value to the user are virtually ignored. While in a real sense
if a business has to be successful in today’s competitive scenario, the
concept of value should always be taken into consideration while arriving
at important pricing decisions.
The concept of value can be explained as a buyer’s overall evaluation of a
product or service based on his or her perceptions of the benefits received
compared to what must be given up. It includes not only the monetary price
but also the time and effort that are involved in the purchase of the product.
Superior value results from either offering lower prices to customers or
providing them with better product benefits. So we would like to conclude
our general introduction about pricing that the time has come when the
Indian marketers should change their pricing decisions from cost-driven to
value-driven. Pricing should be done in such a manner that the customer
should be able to get the value for money and justify their purchase.

9.2 FACTORS AFFECTING THE PRICE

A firm must set a price for the first time when it develops a new product,
or when it introduces its regular product into a new distribution channel or
geographical area. While setting up a price, there are a lot of factors that
are to be taken into consideration; some of the important ones are listed as
under:
1. Selecting the pricing objectives
2. Determining the demand for the goods
3. Estimating costs
4. Analyzing competitors costs, prices, and offers
5. Other environmental factors
6. Selecting a pricing method
7. Selecting the final price

188
 Pricing Strategy
• SELECTING THE PRICING OBJECTIVES

• DETERMINING THE DEMAND OF THE GOODS

• ESTIMATING COSTS

• ANALYSING COMPETITORS COSTS, PRICES & OFFERS

• OTHER ENVIRONMENTAL FACTORS

• SELECTING A PRICING METHOD

• SELECTING THE FINAL PRICE

Figure 9.1: Factors affecting the Price

9.2.1 Selecting the Pricing Objectives

The price policy of a company gets strongly affected by its marketing and
other objectives. The clearer a firm’s objectives are, the easier it will be to
set the price. There can be various pricing objectives followed by different
companies at different timings, such as:
Survival: Some companies pursue survival as their main objective when
they are plagued with overcapacity, intense competition, or changing
consumer wants. At that time making profits is less important than ensuring
the survival of the business, so as long as prices cover the variable cost and
some part of the fixed cost, the company stays in business and would like
to set the price somewhere at that level. But this is a short-term objective
because, in the long run, every company needs to make profits.
Maximizing current profits: Marketers estimate the demand and costs
associated with alternative prices and choose the price that produces
maximum current profits, cash flow, or rate of return on investment.
Thinking only in terms of current financial performance results in a short-
term vision as the organization is ignoring the effects of all other variables
on prices, such as competitors’ pricing, middleman’s considerations, legal
restrictions, changing consumer preferences, etc.
Maximizing market share: For some organizations, maximizing market
share is their sole objective. They believe that higher sales volume will lead
to lower unit costs, increased market share, and higher long-term profit. To
increase their market share and make the goods available to each consumer,
they willingly keep the price low. But this strategy can work only in such
markets which are highly-priced sensitive where the low prices can stimulate
demand and result in increased market share. Organizations following
this pricing objective believe in ensuring profitability in the long run by
enjoying the benefits of ‘Economies of Scale’ due to mass production and
distribution. Such organizations are also called cost leaders in the industry.
Jio by Reliance is an example of this strategy.
Market skimming pricing: Some companies set high prices to skim the
market. They believe that there are a sufficient number of buyers and there
is a high current demand for the product. The unit costs of producing a
small volume are not so high, the high initial price does not attract more
189
Marketing Strategy competitors to the market, and the high price communicates the image of a
superior product. We can cite the example of Apple mobile phones in this
case. Apple mobile phones are priced very high as they claim to deliver
unique and superior products.
Price quality leadership:Some of the companies boost on the quality front
and price their products at a higher level than that of the competitors to
convey an image of high-quality product to the consumers.
Achieve a target level of return on investment: Some companies aim at
achieving a minimum target level of return on investment and hence price
their products accordingly
Be a price leader-For some of the companies being a price leader in the
market is the most important objective so they set the price at a level where
all the new entrants will follow them blindly.
Discourage entry by new competitors: For some of the companies,
especially in the short run, their main objective is to keep the competitors
out of that market area. For that purpose, they set the price at such a low
level that it is not feasible for the new entrants to survive.
Using the price of one product to sell other products in the line: At
times, companies set the price of one product at a low level to push the sale
of an otherwise slow moving product or a new product for which there is
low demand. This is also called loss leader pricing.
Check Your Progress 9.1
Note: a) Use the spaces given below for your answers.
b) Check your answer with those given at the end of the unit.
1) “Pricing should be value-driven, not cost-driven”, do you agree with
the statement.
………………………………………………………………………
………………………………………………………………………
2) Whether the price will be set at a high level or lower level in the
following situations:
(i) When the company is aiming to maximize their current profits
………………………
(ii) When survival becomes the main focus ………………………
…………………..
(iii) In order to increase the market share of the product ……
……………………………
(iv) In a highly competitive market …………………………………
…………………….
(v) When the firm is introducing a new luxurious product……
…… …………………
(vi) When a company is marketing a perishable product…………
……………………
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9.2.2 Determining the Demand of Goods Pricing Strategy

It is a very important factor in setting the price of a product. In a normal

course, the relationship between the price and the demand is an inverse
relationship-the higher the price, the lower the demand. But in the case of
certain luxury products or prestigious products, the demand curve sometimes
slopes upward. A perfume company might raise its prices and be able to sell
more perfumes rather than at low prices.
So it becomes very important for any marketer to first estimate the demand
for their products. Various statistical tools can be used to make projections
about future demand. One such method is analyzing the demand and price
of the product during the past few years. Another factor to estimate their
relationship is by asking buyers to state how many units they would buy
at different proposed prices, or by conducting market research, keeping
provision for competitors’ price policy, or changes in the other elements of
the marketing mix or changes in other environmental variables.
It is not only important to estimate the demand, but it is more important
to estimate the price elasticity of demand to know how to adjust the price
with the changing demand. How responsive or elastic the demand would be
to a change in the price is a very important factor determining the change,
for example, if demand is hardly going to change with a small change in
price we say that demand is inelastic, and there is no point in bringing such
change in the price. While if demand changes considerably with a price
change, we say that demand is elastic and it is worth bringing in that change
in the price. It is quite evident from Figure 9.2, that by increasing the price
of the product from P1 to P2, the quantity demanded increases from Q1
to Q2, so the demand is considered elastic and it is worth bringing in that
change in the price.
Increase in Demand

S
PRICE
P2 NEW EQUILIBRIUM
P1

D2
D1

Q1 Q2 QUANTITY
Figure 9.2: Diagram Representing the Elasticity of Demand

Demand is likely to be less elastic in cases:

• There are few or no substitutes or competitors in the market.
• Buyers do not readily notice the higher price.
• Buyers are slow to change their buying habits and search for lower
prices.
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Marketing Strategy • Buyers think that the higher prices are justified by quality, prestige, or
exclusiveness.
• Buyers are less price-sensitive when they cannot store the product.
If demand is elastic, the seller will consider lowering the price because a low
price will produce more total revenue. This makes sense as long as the cost
of producing and selling more units does not increase disproportionately.
9.2.3 Estimating the Costs of the Product
Another very important factor determining the price is the recovery of the
total cost incurred on business. As we have already explained that in India
most of the pricing decisions are highly cost-driven, it can be said that the
demand sets a ceiling on the price the company can charge for its products,
the costs set the floor. The company wants to charge a price that covers its
cost of producing, distributing, selling the product including a fair amount
of return for its effort and risk.
Types of costs
Fixed Costs- These are costs that do not vary with the level of production
or sales volume rather these are the overheads that are incurred in order
to bring the business into existence, such as the cost of land, machinery,
building, infrastructure, etc.
Variable/marginal costs- it varies directly with the level of production, in
other words, it is defined as the cost of producing one unit of product.
Total cost = FC+ VC, for any given level of production.
Average cost- is the cost per unit at that level of production. It is equal to
TC/total number of units produced.
Given the choice, the companies would like to charge a price that will cover
the total cost (TC) at the earliest. But at times, when the company is facing
stiff competition in the market and their demand is reducing, they have no
choice but to price their goods at a level where at least the variable cost
(VC) or the marginal cost (MC) is recovered and they can survive for a short
period.
Figure 9.3 clearly depicts p
the setting up of price.
If given the choice, the
firm would like to set the
price at Pm but this is p MC
m ATC
possible only when they
are expecting high demand p2
in the market. The firm
p1
might like to set the price
at P2 because at this point D
they will be able to recover q
their average total cost, but Figure 9.3: Diagram Representing
in case the firm is facing Cost-based Pricing
stiff competition and are
not able to recover the total cost they might have to set the price at P1 where
at least the marginal cost is recovered.
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9.2.4 Analyzing Competitors Costs, Prices, and Offers Pricing Strategy

Within the range of possible prices determined by market demand and

companies’ costs, the firm must take the competitors’ costs, prices, and
possible price reactions into account. If the firm’s offer is similar to a major
competitor’s offer, then the firm will have to price close to the competitor or
they will lose their sales. If the firm’s offer is superior, the firm can charge
more and if the offer is inferior, the firm will not be able to charge more than
the competitor.
Check Your Progress 9.2
Note: a) Use the spaces given below for your answers.
b) Check your answer with those given at the end of the unit.
1) How is price related to demand?
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
2) “Pricing is strongly guided by cost,” do you agree.
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
3) How do competitors’ pricing affect an organization’s pricing strategy?
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
9.2.5 Other Environmental Factors
Economic conditions, resellers’ needs, government actions, and social
concerns do play an important role in price fixation. Whether the economy is
going through inflation or recession is another important factor determining
the price of the product. During recessionary conditions, the price level
drops, to maintain the same level of turnover.
Resellers’ needs are also important in price determination. If you remember,
petrol pump dealers went on strike several times, and finally, the oil
marketing companies had to agree on the margin for the resellers. This
has naturally reflected in the final price to be charged to the consumers. In
the case of dairy products, the retailers have to manage facilities like deep
freezers which involve both capital cost as well as operating cost, so the
manufacturers have to provide a larger margin to them to compensate for
the cost incurred by them.
The government’s concerns about pricing are reflected in laws and
regulations. Government regulations include price controls, import duties,
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Marketing Strategy quotas, and taxes. The recent decline of rupee value vis-a-vis the dollar
also affects the prices of imported products or products using imported
parts. The volatility in international markets also affects the prices at home.
The increase in the oil prices internationally had left no alternatives to oil
companies but to increase the price of petrol in India.

9.3 SELECTING A PRICING METHOD

Given the three C’s, the customers’ demand schedule, the cost function,
and the competitors’ prices, the company is now ready to select a pricing
method out of the various methods available to them. The various pricing
methods available can be broadly classified into two major categories: cost-
based methods and market-based methods:

• COST BASED PRICING

METHODS

• MARKET BASED
PRICING METHODS

Figure 9.4: Pricing Methods

9.3.1 Cost-based Pricing Methods

These are the pricing methods where the focus of the manufacturer is to
recover their costs as soon as possible and make some profit.
1. Mark-up-Pricing
It is the most elementary pricing method, in which a standard markup
is added to the cost of the product. The markup is frequently either a
percentage of sales or costs.
Suppose a manufacturer has the following costs and sales expectations:
Variable costs per unit = Rs. 10
Fixed cost = Rs.3, 00,000
Expected unit sales = 50,000
In this case the manufacturing unit cost is calculated with the help of
a formula called:
Unit cost = Variable cost + Fixed cost/Expected unit sales
Unit cost = 10 + 3, 00,000/50,000
= 10 + 6 = Rs.16
Now if the manufacturer wants to earn a 20% markup on sales, the
markup price is calculated by:
Markup price = Unit cost/ (1-desired return on sales)
= 16/ (1-0.20)
= 16/0.80 = Rs.20
The manufacturer would charge dealers Rs. 20 per product and make
a profit of Rs. 4 per unit. The dealers in turn will mark up the product.
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 If the dealers want to earn 50 percent on their selling price, they will Pricing Strategy
mark up the product to Rs. 40. This is equivalent to a cost mark-up of
100 percent.
The mark-up pricing method is generally used by organizations that
are selling seasonal goods, specialty items, or slow-moving goods, to
cover the risk of not selling during the off-season. This method cannot
be considered as a highly logical method because it completely ignores
the current demand, perceived value to the consumer, the competitive
forces prevailing in the market, and the impact of other environmental
variables on pricing.
2. Target-return Pricing
In target-return pricing, the firm determines the price that would yield
its target rate of return on investment. This pricing method is used by
public utilities, which need to make a rate of return on their investment.
In this method, variable and fixed cost per unit is estimated. A rate of
return is then taken, which are certain times the amount of capital
invested in the product, and the result is divided by estimated sales.
The resulting return per unit is added to the unit cost to arrive at a
price.
Suppose the same product manufacturer has invested Rs. 10, 00,000 in
business and wants to set a price to earn a 20 percent ROI, specifically
Rs.2, 00,000. The target-return price is given by the following formula:
Unit cost + Desired return × Capital invested
Target return price =
Unit sales
10,00,000
= 16 + 0.20 ×
50,000
= 16 + 4 = Rs.20
The manufacturer will realize this 20 percent ROI provided its costs and
estimated sales turn out to be accurate.
9.3.2 Market-based Pricing Method
In this case, the pricing methods are governed by the market forces: the
demand and supply situations in the market, the competitive pressures,
legal constraints, and environmental factors. Various market-based pricing
methods are discussed as under:
1. Floor pricing
This calls for charging a price that just covers cost usually to maintain
a presence in the market in a highly competitive environment. This
pricing policy is usually followed to ensure the survival of the business
in tough conditions.
2. Competitors’ parity method or parity pricing or going rate pricing
This is charging a price that is roughly equivalent to the average
price charged by the major competitors. This pricing policy has
the advantage that this minimizes the cutthroat competition in the
market and ensures overall price stability. In this case, a company
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Marketing Strategy will set the price somewhere near the competitor and will manage
an equal market share. Their profits and revenues are also likely to
be somewhat similar keeping their costs into account. This pricing
policy aims at the live and let us live philosophy. It has been nicely
depicted in Figure 9.5 given below.
Feedback Relationships in Pricing
Competitor’s
Our
Revenue
Revenue

Market Competitor’s Competitor’s

Our Profits Our Price Share Price Profits

Our Cost Competitor’s

Costs
Figure 9.5: Competitors’ Parity Method

3. Price leadership pricing

This usually involves a leading firm in the industry making fairly
conservative moves that are subsequently followed by other firms
in the industry. This also limits price wars and leads to fairly stable
market shares.
4. Stay-out-pricing
In this pricing method, the leading firm purposively charges a price
that is lower than what the demand conditions require to discourage
market entry by new competitors. The moment the competitor is out
of the market arena the firm might revert back to high pricing.
5. Differential pricing
In this case, the prices are set for different market segments based on
the value each segment receives from the product or service. Value
pricing says that the price should represent a high-value offer to
customers.
6. Perceived value pricing
The practice of pricing the product in accordance with what customers
perceive the product to be worth is known as ‘perceived value
pricing.’ It is a customer-centric pricing approach that gives priority
to customer’s product valuation above cost, competition, and other
considerations. Customers will remain loyal to such firms because
they think that they are getting value for money.
7. Sealed-bid pricing
In this case, the firm bases its price on expectations of how competitors
will quote the price rather than the firm’s costs or demand to win
a contract. The final contract is won by the firm which quotes the
minimum price (Lowest Bid). The basic objective in this pricing
strategy is to win the contract by quoting lesser than the competitor,
while an effort is made to recover the cost.
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8. Psychological pricing Pricing Strategy

Generally, high-priced products are perceived as high quality in India.

Buyers carry in their mind a reference price formed by noticing current
prices, past prices, or the buying context. Sellers offer to manipulate
these reference prices and play with the psyche of consumers by
resorting to psychological pricing. They believe that the price should
end in an odd number, such as Bata Shoe Company pricing their shoes
at Rs.699 rather than Rs.700 or Rs.999 rather than Rs.1, 000.
9. Bundle pricing
In this case, a set of products or services are combined and a lower
single price is charged for the bundle than would be the case if each
item were sold separately. This pricing strategy is generally used to
give a push to the sale of otherwise slow-moving products. E.g Razor
and blade
10. Cross benefit pricing
Here prices are set at or below cost for one product in a product line,
but relatively high for another item in the line that serves as a direct
compliment, for example, certain brands of cameras and films. The
price of computer printers is kept low but paper prices are kept high.
In the case of clothing, the accessories are sold at additional costs for
e.g, shoe polishes, brushers, shirt cuffs, etc.
11. Penetration pricing
Charging a price that is low relative to the average price of major
competitors and what customers are accustomed to paying is called
penetration pricing. This pricing strategy is followed generally in case
of launching a new product and where the firm is initially targeting
a larger market share. They intend to make profits by huge turnover.
This pricing strategy works best in case of the convenience goods or
other goods which are of day-to-day consumption and meant for the
masses. It succeeds in taking the rivals completely by surprise, giving
them no time to recover from the onslaught. This strategy should be
followed under the following situations:
• when the product is meant for masses
• a large market exists for the product
• customers highly price sensitive
• product highly prices elastic i.e., a small decrease in a product
is capable of attracting a huge crowd
• there is intense competition in the market
• the company intends to make a profit in the long run by huge
turnover
• long product life cycles
This kind of pricing works best with products that are in demand,
but not with luxury products, high-end mobile phones, sedan cars, or
limited-edition products. One of the challenges for this pricing policy
is that once a lower price is initiated, it is generally very difficult for
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Marketing Strategy the companies to hike the price, even when the cost has gone up. But
despite this fact, this strategy is being successfully followed by most
of the companies, especially in the case of the consumer packaged
goods market.
12. Premium pricing or skimming pricing or skim-the-cream pricing
In this case, the price charged is intended to be high relative to
the average price of major competitors and what customers are
accustomed to paying. By following this strategy, the marketer wants
to project their product as a premium product or a quality product to
the consumer. This strategy works best for luxurious goods where the
consumer is ready to pay a high price for better quality. The higher
initial price also gives the company the leverage of reducing the
price at a later stage and involving the next layer of price-sensitive
consumers.

Skimming Pricing
Price

Initial Sell at high price

skimming before reducing
price to next price level
and repeat
Second
price

Final
price

Quantity

Figure 9.6: Skimming Pricing

“Skim the cream” pricing involves selling at a high price to those who
are willing to pay before aiming at more price-sensitive consumers. This
expression comes from the farming practice of milking cows - the cream
rises to the top and you skim it off.
The advantage of using a Skimming price policy is that you can theoretically
get the maximum profit from each level of customer. It is suitable for
products that have short life cycles or which will face competition at some
point in the future, such as play stations, jewellery, digital technology, new
DVDs, etc. Skimming strategy is generally used in the following situations:
• when there is a high barrier to entry
• product is luxurious in nature
• the company has designed an exclusive product for the targeted
audience
• people don’t mind paying a premium price for better quality
• short product life cycles
• demand is highly priced inelastic

198
Check Your Progress 9.3 Pricing Strategy

Note: a) Use the spaces given below for your answers.

b) Check your answer with those given at the end of the unit.
1) Name the pricing method used:
(i) The practice of pricing the product in accordance with
what customers perceive the product to be worth is called
………………………………………………………
(ii) Charging a price that just covers cost usually in order to maintain
a presence in the market in a highly competitive environment is
………………………………………
(iii) Charging a price that is roughly equivalent to the average price
charged by the major competitors ………………………………
………………………………………….………………………
(iv) The prices are set for different market segments based on
the value each segment receives from the product or service
…………… ………………………………….
(v) The firm determines the price that would yield its target rate
of return on investment…………………………………………
……………………………….…………………………………
(vi) Charging a price that is low relative to the average price of major
competitors and what customers are accustomed to paying
………………………………………….………………………
(vii) Pricing method, in which a standard markup is added to the cost
of the products ………………………………………………
………………………………………….………………………
(viii) A set of products or services are combined and a lower single price
is charged for the bundle ………………………………………
………………………………………………………………….

9.4 SELECTING THE FINAL PRICING

METHOD
After going through the various pricing methods available to them the
manufacturers have to finally choose an appropriate pricing method.
Generally, the cost-based methods are very popular because they are easy to
implement and manage but unfortunately they often lead to prices that fail
to take advantage of the market opportunities confronting the firm. These
days markets are full of competition and marketers at times have no choice
but to go by any of the market-based pricing strategies if they want to stand
that intensified competition. In that case, the choice of a pricing method
depends on the other marketing mix variables, the stage of their product life
cycle, and various other market forces.

9.5 DEVELOPING A PRICING STRUCTURE

The pricing structure is concerned with many factors such as what aspects
of each product or service will be priced, how prices will vary for different
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Marketing Strategy customers and products/services, and the time and conditions of payment.
Manufacturers have to clearly decide whether a standard list price will be
charged for the product or service throughout the year or should they be
introducing certain discounts for the buyers at different times. Generally,
companies set different price levels which require frequent modifications
in prices in response to changes in production costs, competitors’ tactics,
evolving market conditions, increasing cost of raw material, or the
competitors lowering their product prices.

9.6 GEOGRAPHICAL PRICING POLICIES

Geographical pricing involves the company in deciding how to price its
products to different customers in different locations and countries. When
products are to be dispatched by ship, train, or truck the management has to
decide who is to pay the freight charges. This may either be paid by the seller,
or by the buyer or both may share it. Geographic price policies significantly
affect the manufacturer’s spatial penetration and location of product and
warehousing facilities. Other things such as price, quality, and terms of sale
being the same, a customer will prefer to buy from a manufacturer who is
either closest to him or absorbs the whole or part of the freight cost himself.
Some of the geographical pricing policies are displayed as under in Figure
9.7.

F.O.B

Freight Home
Absoption Delivered

Geographical
Pricing
Policies

Base Point Zone

Uniform
Delivered

Figure 9.7: Geographical Pricing Policies

1. F.O.B Pricing: Free on-board pricing implies that the entire freight
cost will be borne by the buyer. The cost of handling and loading is
borne by the seller. Hence it is called free on board. F.O.B. Calcutta
price is higher than the F.O.B. factory price as the former includes
freight charges to the place of destination. The term F.O.B. Calcutta
means that the price quoted includes shipment to Calcutta. The seller
is responsible for shipping charges to Kolkatta.
2. Home delivered pricing: The delivery charges are built into the price
paid by the customer e.g. home deliveries by Amazon, Flipkart
3. Zone pricing: This denotes some amount of equality of prices in the
same zone. A product may be sold at different prices in different zones
200
 because of differences in transportation costs, local taxes, etc. but in a Pricing Strategy
particular zone, it is sold at the same price irrespective of differences
in distance between two places inside the zone. E.g. the prices of
pharmaceuticals are different in developed and developing countries.
In developed countries, these are heavily priced.
4. Uniform delivered pricing: A company that views the entire country
as its delivery zone and charges the same price, its pricing policy
is called uniform delivered pricing. The same price is quoted to all
buyers regardless of their location. This strategy is also used by many
retailers who believe “free” delivery is an additional service that
strengthens their market position.
5. Base-point pricing: This involves the selection of one or more
locations to serve as basis points. Customers are charged prices and
delivery expenses as if their orders were executed from these points.
6. Freight absorption pricing: A manufacturer will quote to the
customer a delivered price equal to its factory price plus the freight
costs that would be charged by a competitive seller located near that
customer. This is adopted to offset the competitive disadvantages of
FOB factory pricing, as a nearby supplier has an advantage over a
more distant supplier, at least with respect to freight costs. Freight
absorption policy will facilitate a supplier to compete in distant
markets.
Check Your Progress 9.4
Note: a) Use the spaces given below for your answers.
b) Check your answer with those given at the end of the unit.
1) How do you define geographical pricing? Is it possible for a company
to charge the same price all over the country?
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………

9.7 PRICE DISCOUNTS AND ALLOWANCES

Most companies will adjust their list price and give discounts and allowances
for early payments, volume purchases, and off-season buying. Companies
must do this carefully or find that their profits are much less than planned.
Some of the commonly offered discounts and allowances are listed below
in Figure 9.8.

TRADE QUANTITY CASH

DISCOUNTS DISCOUNTS DISCOUNT

SEASONAL
ALLOWANCES
DISCOUNT

Figure 9.8: List of Discounts and Allowances

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Marketing Strategy Trade discount- It is given to the buyers buying for resale, for example,
wholesalers or retailers, in payment for marketing functions which these
traders are expected to perform. It is stated as a certain percentage of the
quoted price and is deducted from the quoted price in the invoice. The
advantage of allowing trade discounts is that catalogues need not be printed
afresh every time prices fluctuate, for the fluctuations can be taken into
account by varying the rate of trade discounts.
Quantity discounts- It is a deduction offered from the list price by a seller
in order to stimulate the customer to buy in larger quantities. For instance,
discount maybe 10% if the order is up to 10 units and an additional 5%
discount may be offered if the order exceeds 10 units.
Cash discount- When payment is made on or before a particular date, cash
discounts are allowed. It is in addition to the trade discount and not in place
of it.
Seasonal discount- A seasonal discount is a price reduction to buyers who
buy merchandise or services out of season. Air conditioners manufacturers
will offer seasonal discounts to customers in the winter season to encourage
early ordering.
Allowances- These are extra payments designed to gain reseller
participation in special programs. The manufacturer may offer allowances
to distributors for promotional activities, advertising allowances, window
display allowance, free samples, etc. it amounts to a price reduction of an
amount spent by the distributor in performing promotional services.
Activity 9.1
Visit a nearby market and gather information regarding the products
offering, various types of discounts and allowances.
……………………………………………………………………………
……………………………………………………………………………
……………………………………………………………………………
……………………………………………………………………………

9.8 PRICE VS NON-PRICE COMPETITION

In developing a marketing program, management has to decide whether
to compete in the long run based on price or the non-price elements of
the marketing mix. This choice affects other parts of the firm’s marketing
program as well.
A firm engages in price competition by regularly offering products priced as
low as possible and accompanied by a minimum of services. They can also
use price to compete by changing their prices and reacting to price changes
made by the competitors. While in non-Price competition, sellers maintain
stable prices and attempt to improve their market positions by emphasizing
other aspects of their marketing programs. In price competition, sellers
attempt to move up or down their individual demand curves by changing
prices and in non-price competition, sellers attempt to shift their demand
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curves to the right using product differentiation, promotional activities, or Pricing Strategy
some other techniques.
With price competition, many consumers will buy a brand only as long as
it has the lowest price. There is little consumer loyalty when the price is
the only feature differentiating products from each other. While the non-
price competition can help in building strong brand equity for the firms’
products by developing distinctive, hopefully unique products, creating
appealing promotional programs, and providing variety and quality of the
supplementary services.

9.9 LET US SUM UP

• Price is one of the most significant factors in achieving marketing
success. It is the amount of money and/or other items with utility
needed to acquire a product.
• Before setting up a product’s base price, management should identify
its pricing goals, such as earning a target return on investment,
maximizing profits, increasing sales, increasing market share,
stabilizing prices, and meeting competition.
• Other key factors influencing the price-setting are demand for the
product, competitors’ reactions, marketing-mix strategies, cost of the
product, and other environmental variables.
• The various pricing methods are divided mainly into two categories
cost-based and market-based pricing methods.
• In the cost-based pricing method, a producer usually sets the price to
cover the total cost. In some cases, however, the best policy may be to
set a price that covers marginal cost only.
• In actual business situations, price setting is influenced by market
conditions. The demand and supply situations and the competitive
forces play an important role in price setting.
• When a form is launching a new product, it must choose a market
skimming or a market penetration pricing strategy. Market skimming
uses a relatively high initial price, market penetration is a low one.
• Strategies also must be devised for discounts and allowances-
deductions from the list price.
• Freight costs must be considered in pricing. A producer can require
the buyer to pay all freight costs (FOB factory pricing), or a producer
can absorb all freight costs (uniform delivered pricing).
• Another basic decision facing management is whether to engage
primarily in price or non-price competition.

9.10 KEYWORDS
Expected price: The price at which customers consciously or unconsciously
value the product.
Price competition: A strategy in which a firm regularly offers products
priced as low as possible, usually accompanied by a minimum of services.
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Marketing Strategy Price discrimination: A situation in which different customers pay different
prices for the same product.
Price elasticity of demand: The responsiveness of quantity demanded to
price changes.
Price war: A form of price competition that begins when one firm decreases
its price to increase its sales volume and the other firm retaliates by reducing
prices on competing products.
Stabilize prices: A status quo-oriented pricing goal in which a firm seeks
to maintain its current situation by pricing its products in such a way as to
avoid price competition.
Value pricing: A form of price competition in which a firm seeks to improve
the ratio of products benefits to its price and related costs.

9.11 SUGGESTED READINGS /REFERENCES

Bennett, Peter D. ed., “Dictionary of Marketing Terms” (Chicago: American
Marketing Association, 1995).
Philip Kotler, Marketing Management XIIIth Ed. (Prentice Hall of India
Pvt. Ltd., New Delhi, 1999).
Stanton, William J., Michael J. Etzel & Bruce J. Walker, “Fundamentals of
Marketing” (McGraw-Hill, Inc. New York, 1994).
http://gunagbrass.wordpress.com/2012/09/11/importance-of-marketing-
part-ii/
http://www.weforwin.com/2011/08/importance-of-marketing-part-ii_26.
html
http://www.managementparadise.com/forums/marketing-management-rm-
im/22854-understanding-pricing.html

9.12 ANSWERS TO CHECK YOUR PROGRESS

Check Your Progress 9.1
1. The marketers should be guided by the amount of benefits a product
is capable of rendering to the consumer while deciding about the price
of the product. The earlier concept of cost-based pricing is now being
gradually replaced by value-driven pricing.
2. (i) high, (ii) Low, (iii) Low, (iv) Low (v) High (vi) Low
Check Your Progress 9.2
1. Price is generally directly proportional to the demand of the product.
It increases when demand increases and decreases with a decrease in
the demand. Price also gets influenced by the elasticity of demand
because any price change is introduced only after measuring the
elasticity. It is no point in decreasing the price of the product if the
demand is not elastic and is not likely to increase with that fall.
2. Recovering cost is one of the most important objectives for fixing the
price of a product for a majority of organizations. Given the choice,
companies would like to recover their total cost at the earliest but due
204
 to stiff competition in the short term, they are not able to recover their Pricing Strategy
entire cost. The focus lies on recovering at least the marginal cost of
the product.
3. If the product is superior to that of the competitor’s they can afford
to price it at a higher level but if their product is similar to that of the
competitor’s they have no choice but to price the product somewhere
around the competitors’ price only.
Check Your Progress 9.3
(i) Perceived value pricing
(ii) Floor pricing
(iii) Parity pricing or going rate pricing
(iv) Differential pricing
(v) Target return pricing
(vi) Penetration pricing
(vii) Markup pricing
(viii) Bundle pricing
Check Your Progress 9.4
1) Geographical pricing involves the company in deciding how to
price its products to different customers in different locations and
countries. When products are to be dispatched by ship, train, or truck
the management has to decide who is to pay the freight charges. This
may either be paid by the seller, or by the buyer or both may share it.
But in the case of uniform delivered pricing, the company treats the
entire country as its delivery zone and charges the same price to all
buyers regardless of their location.

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 UNIT 10 C HANNEL AND
DISTRIBUTION STRATEGy
Structure
10.0 Objectives
10.1 Introduction
10.2 Channel Levels
10.3 Importance of Middlemen
10.4 Functions of Channel of Distribution
10.5 Factors Affecting the Choice of Distribution Channels
10.5.1 Market considerations
10.5.2 Product considerations
10.5.3 Middlemen considerations
10.5.4 Company considerations
10.6 Intensity of Market Coverage
10.7 Channel Management Decisions
10.8 Types of Middlemen
10.8.1 Agent middleman
10.8.2 Merchant middlemen
10.9 Channel Dynamics
10.10 Market Logistics
10.10.1 Market logistics objectives
10.10.2 Market logistics decisions
10.11 Let Us Sum Up
10.12 Keywords
10.13 Suggested Readings / References
10.14 Answers to Check Your Progress

10.0 OBJECTIVES
After studying this unit, you should be able to:
●● define the concept of distribution channels;
●● explain the importance and functions of middlemen;
●● identify the factors affecting the choice of channels; and
●● describe the various channel management decisions.

10.1 INTRODUCTION
After producing a good product and pricing it appropriately, marketers
need to decide as to how to make the goods available to consumers at
their doorstep. Most producers do not sell their goods directly to the final
users. There stands a set of intermediaries performing a variety of functions
206
between the producer and consumer. These intermediaries constitute a Channel and Distribution
marketing channel also called the trade channel or the distribution channel. Strategy
In today’s context, channel-level decisions are hugely impacted by online
marketing channels such as Amazon. They have caused a huge revolution
in space as well as a huge disruption in the physical distribution channels.
According to American Marketing Association (1995), “Distribution
channels are the set of firms and individuals that take title or assist in
transferring title of the particular goods or services as it moves from the
producer to consumer. A channel always includes both the producer and the
final customer for the product, as well as all middlemen involved in the title
transfer.”
Some intermediaries, such as wholesalers and retailers are called merchants
because they buy goods, take title to them and resell the merchandise to the
consumers at a profit. While others, such as dealers, brokers, and distributors
are called agents. Their job is to simply search for customers and negotiate
on the producer’s behalf, but they do not take title to the goods and bear the
risk. Still, there are others, such as transportation companies, independent
warehouses, banks, and advertising agencies whose job is to assist in the
distribution process, but they neither take title to goods nor negotiate
purchases or sales; they are simply called facilitators.
Generally, companies employ middlemen to take advantage of their
contacts, experience, specialization, and scale of operations.
Activity 10.1
Visit a nearby market and gather information regarding the various types
of middlemen around.
……………………………………………………………………………
……………………………………………………………………………
……………………………………………………………………………
……………………………………………………………………………

10.2 CHANNEL LEVELS

The producers and the final customers are part of every channel. The
numbers of intermediaries decide the length of the channel.
A zero-level channel-:Also called a direct marketing channel. It consists
of manufacturers selling directly to the final customers. The major
examples are door-to-door sales, mail-order selling, telemarketing, Internet
selling, and manufacturer-owned stores. Amway is an example of direct
marketing, Tupperware representatives sell kitchen goods through home
parties, Reader’s Digest is selling through direct marketing, and some
manufacturers are selling their products through Teleshopping, such as
home shopping, with the help of hour-long commercials in other words
called “infomercials”. These days number of companies selling through the
Internet is also growing rapidly thereby adding to the success of zero-level
channels.

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Marketing Strategy
PRODUCER CONSUMER

Figure 10.1 Zero-Level Channels

A one-level channel: It contains one selling intermediary, such as a
wholesaler/retailer.

WHOLESALER/
PRODUCER CONSUMER
RETAILER

Figure 10.2 One-Level Channels

A two-level channel: it contains two intermediaries, generally, in consumer
markets, these are typically a wholesaler and a retailer.

PRODUCER WHOLESALER RETAILER CONSUMER

Figure 10.3 Two-Level Channels

A three-level or multilevel channel: it contains three or more intermediaries.
In some industries, wholesalers sell to jobbers, who sell to small retailers,
who finally sell it to consumers.

PRODUCER WHOLESALER JOBBER RETAILER CONSUMER

Figure 10.4: Multi-Level Channels

So a channel can have various levels depending on various factors which

will be discussed later in the Unit.

10.3 IMPORTANCE OF MIDDLEMEN

Middlemen are a very important link between the manufacturer and the
consumer. It is important to both as it performs several services for them.
There is an old saying in marketing that, “you can eliminate the middleman,
but you cannot eliminate their functions (activities)” someone has to perform
those activities. It is because of its importance that over the years, the
number of intermediaries has been increasing rather than decreasing. Some
of the reasons as to why middleman is important to both the consumers and
the producers are listed in Table 10.1 as under:
Table 10.1: Importance of Middlemen to Consumers and Producers
For Consumers For Producers
Anticipate the needs and Disseminates the information
wants of consumers and feeds regarding the products and services
the information back to the to the consumers and acts as a sales
producers specialist for producers
Does bulk-breaking i.e. dividing Acts as a buffer by keeping stock of
large shipments into smaller the goods and sometimes does bulk-
quantities breaking by breaking the bulk into small
lots and selling it to the consumers in
small lots
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 Channel and Distribution
Perform storage and warehousing Maintains the warehouses on behalf
Strategy
to ensure a smooth supply of of the producers and bears the storage
goods all the year costs
Transports goods from the place Transports goods from the place of
of production to the place of production to the warehouses
consumption
Provides credit facility to Provides funds in advance to producers
consumers
Gives guarantee and warranty Bears the risk of selling the goods
on the products and renders all the after-sales service
functions
Provide free installation and Performs the research and development
repair facility services on behalf of producers

10.4 FUNCTIONS OF CHANNEL OF

DISTRIBUTION
A distribution channel performs the work of moving goods from producers
to consumers. It overcomes the time, place, and possession gaps that
separate goods and services from those who have them, to those who want
them. Members of the marketing channel perform several key functions as
depicted in Figure 10.5:
• RISK TAKING • DISTRIBUTION

RESEARCH PROMOTION

NEGOTIATION FINANCING

• CREDIT • MATCHING
FACILITY

Figure 10.5: Functions of Channel of Distribution

• Research- Intermediaries gather information about the current

and the potential customers, competitors, and other forces in the
marketing environment as they can observe them closely and feed
all the information back to the organization to help them in designing
their product and marketing strategy.
• Promotion-They develops and disseminates persuasive
communications to stimulate purchasing.
• Negotiation- They make agreements on price and other terms so that
transfer of ownership or possession can be pursued

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Marketing Strategy • Contact- They place orders with the manufacturers.
• Financing- They make the funds available to finance inventories at
different levels in the marketing channels.
• Risk-Taking- They assume risks connected with carrying out channel
work.
• Transportation- They provide for the successive storage and the
movement of physical products from their place of production to the
place of consumption.
• Credit-facility- They provide for buyers’ payment of their bills
through banks and other financial institutions.
• Matching-They oversees the actual transfer of ownership from one
organization or person to another.
• Warehousing-Middlemen at times maintain warehouses and keep the
buffer to ensure a smooth supply of goods to the market at all times.
Check Your Progress 10.1
Note: a) Use the spaces given below for your answers.
b) Check your answer with those given at the end of the unit.
1) State whether the following statements are True or False about
middlemen:
(i) A middleman designs the product for the consumers and
produces them accordingly. (………….)
(ii) They anticipate the needs and wants of consumers and feed the
information back to the producers. (………….)
(iii) They perform aggressive promotional activities on behalf of the
producer.(………….)
(iv) They provide for buyers’ payment of their bills through banks
and other financial institutions. (………….)
(v) The middleman does not bear any risk regarding the sale of the
product.(…………)
(vi) Performs the research and development services on behalf of
producers.(………….)
(vii) Acts as a buffer by keeping stock of the goods and sometimes
does bulk-breaking. (………….)
(viii) Provide free installation and repair facilities to the consumers.
(………….)

10.5 FACTORS AFFECTING THE CHOICE OF

DISTRIBUTION CHANNELS
A company should follow the criteria of the three C’s namely channel
control, market coverage, and cost that are consistent with the desired level
of customer service. While following these three criteria, a company has
to take into consideration various factors. Some of the important ones are
listed as under:
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10.5.1 Market Considerations Channel and Distribution
Strategy
The first thing to be observed is whether the product is for consumer or
industrial markets. In the case of industrial goods, the channel used is short
as they are purchased by some of the buyers in bulk so these orders are to
be handled personally and directly by the producer himself.
In the case of consumer goods, the channel is generally long because the
number of consumers is large and is generally widely distributed so they
can be served by the middleman.
Geographic concentration of the market
The geographic dispersal of the consumer determines the length of the
channel; the wider the distribution, the longer is going to be the channel and
vice-versa.
Order size of the consumer
In case the consumer prefers to buy in bulk and places large orders, they
need to be attended to personally by the manufacturer. So the channel will
be short as against this the consumer who buys frequently and in small lots
are generally entertained by the middlemen and the channel, in that case,
will be longer.
Buying habits of the consumer
In case the consumer is very specific about the purchases, takes very little
time, and makes the entire payment in one go; the channel is going to be
short because the manufacturer can personally attend them as against this if
the consumer wants credit, seeks variety, asks for lots of details, it consumes
a lot of time of the manufacturer so the channel is going to be longer because
the manufacturer will not be able to attend them personally and will seek the
services of the middleman who can perform all these functions very well.
10.5.2 Product Considerations
The basic nature of the product determines the length of the channel and the
type of middlemen brought into the picture. Various factors determining the
nature of the product are listed as under:
Unit value of the product
Whether the product is cheap or luxurious, if the unit value of the product is
less, it is going to be purchased more frequently by a larger number of the
consumer so the channel would be longer. While if the unit value is large
and it is a luxurious commodity, the channel is going to be short because the
consumer will seek the personal attention of the manufacturer and would
like to seek lots of clarifications before they finally decide to purchase the
product.
Perishability of the product
If the product is perishable in nature, the channel will be short otherwise
the quality of the product will deteriorate if it passes through various hands
and vice versa.
Technical nature of the product
If the product is highly technical in nature, its various features and
composition need to be explained personally by the company’s trained sales
211
Marketing Strategy force or the middlemen. Moreover, in such cases, a consumer will seek lots
of after-sales services, guarantees, and warranties, which can be delivered
personally by their sales staff only. So in the case of more technical goods,
there will be a shorter channel and vice versa.
Size and weight of the product
If the size of the product is bigger, its shape is large and it is a heavy
product then the channel will be short because it is difficult to transport and
move such goods through various middlemen while if the product is small,
compact, and light-weighted, it can be easily transported and transferred
from one middleman to another and the channel could be very long.
Standardization and grading of the product
The goods which are standardized in nature, their labeling, packaging, and
grading take place in the factory itself, in such cases the channel can be
longer because it is convenient to transport such goods to far off places and
promote them aggressively through national or international media while,
as against this if the goods are loose and unpacked, they cannot be easily
transported and promoted to far off places so the channel will be short in
that case.
10.5.3 Middlemen Considerations
The choice of a particular channel and the types of middlemen involved
depends to a large extent on the availability of the right kind of middlemen
and the right set of services being provided by them. Some of the factors
taken into consideration are listed below:
Services provided by middlemen
If the product is technical in nature or is something that requires lots of
services to be performed by the middlemen, in that case, the willingness and
the capability of the middlemen to provide such services will determine the
length of the channel. If more services are provided channel will be short
or vice versa.
Availability of the desired middlemen
Availability of the middleman is determined by first identifying that they
are willing to deal in the manufacturer’s goods and secondly ensuring that
they are not dealing in any competitor’s product or may not be willing to
add another product line.
Attitude of the middlemen towards the manufacturer’s policies
Whether the middleman is willing to agree to the manufacturer’s policies
and provide them with all the services asked for.
Financial capability of the middlemen
The middlemen should be financially sound so that they should be in a
position to pay back all the money to the producers in time and if the need
arises they might be in a position to give advance money to the producers.
Legal constraints
In certain cases, certain legal requirements need to be fulfilled before
someone can be appointed as the middleman. For example, medicines can
212
be sold only through pharmaceutical shops being handled by persons who Channel and Distribution
are qualified pharmacists. Strategy

10.5.4 Company Considerations

Finally, the decision about the length of the channel and the number of
intermediaries involved is taken by the manufacturer keeping into account
the following factors:
Financial capability of the company
Managing channels of distribution personally involves a huge monetary
investment. If an organization is financially sound and can afford to
maintain and manage a large network of shops, they might opt for direct
marketing. While as against this, if an organization is running short of funds
they might hand over the responsibility of marketing and selling activities
to their middlemen.
Ability of the top management
If the top management has marketing and selling skills they might like to
handle their marketing and distribution activities themselves and the channel
will be short in that case or otherwise they might take the services of a large
number of middlemen and the channel will be longer.
Desire for the channel control
If the management wants to retain strong control over the channel members
and wants to personally supervise their each and every activity the channel
will be short, or vice versa.
Services provided by the seller
If the manufacturer is ready to provide more and more services such as
packaging, grading, labeling, promotion, etc. to the middleman, the channel
can be long or vice versa.
So to conclude, it can be said that all the factors listed above can determine
the length of the channel.
Check Your Progress 10.2
Note: a) Use the spaces given below for your answers.
b) Check your answer with those given at the end of the unit.
1) Define the three C’s criteria for the selection of channels.
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
2) “The choice of the channel gets affected by the availability and
willingness of middlemen”. Do you agree?
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
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Marketing Strategy
10.6 INTENSITY OF MARKET COVERAGE
After deciding about the length of the channel, manufacturers have to decide
about the number of intermediaries they are going to use at each channel
level. Three strategies, as explained by Philip Kotler (1999), are available
as depicted in figure 10.6: exclusive distribution, selective distribution, and
intensive distribution.

INTENSITY OF
MARKET
COVERAGE

EXCLUSIVE SELECTIVE INTENSIVE

Figure 10.6: Intensity of Market Coverage

1. Exclusive distribution
It means limiting the number of intermediaries to a bare minimum. It
is used when the producer wants to maintain control over the service
level and service outputs offered by the resellers. It often involves
an arrangement in which the resellers agree not to carry competing
brands. By granting Exclusive Distribution, the producer hopes to
obtain more dedicated and committed service from the intermediaries.
This channel arrangement is generally found in the case of the
distribution of new automobiles, some major appliances, and some
women’s apparel brands.
2. Selective distribution
It involves the use of more than a few but less than all of the
intermediaries who are willing to carry a particular product. It is used
by established companies, and by new companies seeking distributors.
The company does not have to put its efforts into too many outlets;
it enables the producers to gain adequate market coverage with
more control and less cost than Intensive Distribution. Nike, the
world’s largest athletic shoemaker, is a good example of Selective
Distribution. Consumer shopping, specialty goods, and industrial
accessory equipment are included in this category.
3. Intensive distribution
It means selling the products through every outlet where the final
consumer will reasonably look for them. It involves the process of
the manufacturer placing the goods or services in as many outlets as
possible. This strategy is generally used for consumer convenience
goods where the consumer demands immediate satisfaction and
prefers buying products that are conveniently available to them right
next door.
Finally, whether the company would like to go in for exclusive,
selective, or intensive distribution depends to a large extent on their
214
 economic viability, control criteria, and the adaptability of the channel Channel and Distribution
to the product. So designing a channel system calls for analyzing Strategy
customer needs, establishing channel objectives, and identifying and
evaluating the major channel alternatives.
Activity 10.2
Visit a nearby market and make a list of products that are distributed
intensively, selectively, and exclusively.
……………………………………………………………………………
……………………………………………………………………………
……………………………………………………………………………
……………………………………………………………………………

10.7 CHANNEL MANAGEMENT DECISIONS

Once the decisions about the type of middleman involved are made, it is
important to integrate them into the supply chain and provide opportunities
to make profits. There are certainly important elements which are to be
taken into consideration, such as:
Distributors’ territorial rights: It is very important to define the distributors’
territories and the terms under which the producer will enfranchise other
distributors so that there should not exist any confusion between them.
Conditions of sales: There should be clear with regards to the payment
terms and the producer guarantee. Most producers grant cash discounts
to distributors for early payment, they might also guarantee distributors
against defective merchandise or price declines or take the goods back if
they are not sold.
Price policy: This calls for the producer to establish a price list and schedule
of discounts and allowances that the middleman can see as equitable and
sufficient.
Mutual services and responsibilities: These are conditions that must be
carefully spelled out, especially in franchised and exclusive agency channels.
Terms and conditions should be clearly laid out regarding the physical
facility being provided by the producer, promotional policies, furnishing
requested information and buyback supplies from specified vendors.
1) Selecting the channel members
Selection of the channel members is done very carefully by the
producer. Before selecting any middlemen the producer would want
to evaluate the number of years he has been in business, other product
lines dealt with, growth and profit record, solvency, cooperativeness,
and their reputation.
If the middlemen are sales agents, producers will want to evaluate
the number and nature of other product lines carried out by them.
If the intermediaries are departmental stores that want exclusive
distribution, the producer will want to evaluate their location, future
growth potential, and the type of clientele.
215
Marketing Strategy 2) Motivating channel members
The company needs to determine intermediaries’ needs and arrive
at an arrangement where they can deliver superior value to them. It
is very important to keep the channel members highly motivated to
ensure their best performance and commitment to the organization.
The task of motivating channel members starts with understanding
their basic needs and wants and trying to provide them with some
incentive to work efficiently with the producer.
The producer can make use of various types of powers to elicit
cooperation, as depicted in Figure 10.8

COERCIVE

REFERENT REWARD

EXPERT LEGITIMATE

Figure 10.8: Sources of Power for Middlemen

Coercive power- Occurs when the use of force is made by the

manufacturer to threaten the intermediaries that they will withdraw
the contract or terminate the relationship if intermediaries fail to
cooperate or agree to their terms and conditions.
Reward power- This is a positive approach in which the manufacturer
offers intermediaries an extra benefit for performing certain specific
acts or functions. They are rewarded for rendering better services to
the manufacturer’s customers in various forms of financial and non-
financial incentives.
Legitimate power- In this case use of legal power is made. A formal
contract is entered into between the manufacturer and the intermediary
and the intermediary has to strictly follow all the terms and conditions
otherwise the manufacturer can take them to the court of law.
Expert power- Can be applied when the manufacturer has some
special or technical knowledge that the intermediary values. This
expert knowledge needs to be shared with the intermediaries to equip
them to perform their job effectively. So the fear of losing that expert
knowledge can serve as a strong motivator for the intermediaries.
Referent power- Occurs when the manufacturer is so highly respected
that intermediaries feel proud to be associated with them. Companies like
McDonald’s, Sony, IBM, Mercedes, and BMW have high referent power.
3) Evaluating and modifying channel arrangements
Producers must periodically evaluate intermediaries’ performance
against standards such as sales quota attainment, average inventory
216
 levels, customer delivery time, treatment of damaged and lost goods, Channel and Distribution
and cooperation in promotional and training programmes. They might Strategy
have to modify channel arrangements if the middleman’s performance
is not found satisfactory or up to the mark.

10.8 TYPES OF MIDDLEMEN

After discussing the need for middlemen, let’s now discuss the various types
of middlemen available. The various types of middlemen can be broadly
divided into two categories: agent middleman and merchant middleman.
10.8.1 Agent Middleman
Agent middleman is also known as a functional middleman and mercantile
agent. These are those marketing institutions that assist in the transfer of the
title of goods without taking any title to them, act as an agent of the owner of
goods, and take his remuneration in the form of brokerage or commission.
They serve the interests of both the buyers and the sellers.

COMMISSION
AGENTS

AUCTIONEER AGENT BROKERS

MIDDLEMAN

FORWARDING
& CLEARING
AGENT

Figure 10.9: Types of Agent Middleman

Commission Agent- Commission agents work on a commission basis and

try to sell goods on behalf of the producer to the consumer without taking
any title to goods. Their job is simply to bring the buyers and sellers together
on a common platform and initiate discussions amongst them and finalize of
transaction. Example property dealers.
Broker- Brokers generally deal in buying and selling of shares, bonds, or
debentures on behalf of buyers or sellers. They charge a brokerage for their
services. For example, share brokers, etc.
Forwarding and clearing Agents- Forwarding agents are those who help
in the export of goods by picking up the goods from the place of production,
carrying them to the nearest port, fulfilling all the customs requirements,
and finally ensuring the shipment of goods on behalf of the producer. The
Clearing agent on the other hand receives the consignment coming from
abroad at the port, performs all the customs formalities, and ensures that
goods are made to reach their destination. For the services performed, these
brokers/agents charge the commission.
217
Marketing Strategy Auctioneer- Auctioneer agent is the one who helps in the sales of property
or any other goods by conducting the auction and selling the goods to the
highest bidder.
10.8.2 Merchant Middlemen
According to American Marketing Association (1995), “merchant
middlemen are those intermediaries who take the title to goods, bear the
risks, perform various marketing functions and hope to gain by making
profits on transactions.”

WHOLESALER

RETAILER

MERCHANT
MIDDLEMAN

Figure 10.10: Types of Merchant Middleman

1. Wholesaler: According to American Marketing Association (1995),

“a wholesaler is a business unit which buys and resells merchandise
to retailers and other industrial users and/or commercial users but
doesn’t sell a significant amount of goods to the ultimate consumer.”
2. Retailer: According to American Marketing Association (1995), “a
retailer is a merchant or occasionally an agent or a business unit whose
main business is selling the goods directly to the ultimate consumer
for non-business use.”
Table 10.2: Difference between retailers and wholesalers
Wholesalers Retailers
• Buys in bulk • Buys in small lots
• Do not sell goods to the • Sell the goods to the ultimate
ultimate consumers consumers
• Might sell in bulk for business • Get goods from a wholesaler and
use sells for personal consumption
• Promote the product • Never promote, just pass the
information through word of Mouth
218
 Channel and Distribution
• Concentrated at small places • Widely distributed
Strategy
• Provide goods on credit to the • They generally do not sell goods on
retailers credit
Table 10.3: Functions performed by merchant middleman
Wholesalers Retailers
Bulk buying from manufacturers Assembling from various sources
and keeping a wide assortment of
goods under one roof
Bulk breaking for customers Grading and packing for customers
Selling to other channel members Selling to ultimate consumers
Promoting products Undertakes sales promotion
activities through window displays
and point-of-purchase display
materials
Warehousing and storage function Keeps buffer-sells in convenient
to ensure the smooth supply of lots at convenient places and time
goods all the year-round intervals to consumers
Risk-taking Risk bearing
Transportation Maintains personal contact with the
customers
Financing producers Giving credit facilities to customers
Disseminating marketing Giving consumer feedback to the
information producer or wholesalers
Check Your Progress 10.3
Note: a) Use the spaces given below for your answers.
b) Check your answer with those given at the end of the unit.
1) Differentiate between agent middleman & merchant middleman.
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
2) Define wholesalers.
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………

10.9 CHANNEL DYNAMICS

Distribution channels do not standstill. New wholesaling and retailing
institutions emerge and new channel systems develop. We will look at the
recent growth of vertical, horizontal, and multichannel marketing systems
and how these systems cooperate, conflict, and Compete. Figure 10.11
depicts the three types of distribution systems as under:
219
Marketing Strategy

VERTICAL MARKETING SYSTEM

HORIZONTAL MARKETING
SYSTEM

MULTI CHANNEL MARKETING

SYSTEM

Figure 10.11: Types of Distribution Systems

1) Vertical Marketing System (VMS)

A conventional marketing channel comprises an independent
producer, wholesaler(s), and retailer(s). Each is a separate business
seeking to maximize its profits, even if this goal reduces profit for the
system as a whole. No channel member has complete or substantial
control over other members.
A vertical marketing system, by contrast, comprises the producer,
wholesaler(s), and retailer(s) acting as a unified system out of which
one of them emerges to be the channel caption and others agree to
follow him. Vertical marketing system arose as a result of strong
channel member’s attempt to control channel behavior and eliminate
the conflict that results when individual channel members pursue their
objectives. They achieve economies through size, bargaining power,
and elimination of duplicated services, for example, manufacturers
of a dominant brand can secure strong trade cooperation and support
from resellers. Procter and Gamble can command high levels of
cooperation from their resellers in connection with displays, shelf
space, promotions, and price policies.
2) Horizontal Marketing System (HMS)
In this channel development, two or more unrelated companies put
together resources or programs to exploit an emerging marketing
opportunity. Each company lacks the capital, know-how, production,
and marketing resources to venture alone, or it is afraid of the risk.
The companies might work with each other on a temporary or
permanent basis or create a joint venture company, for example, the
car companies enter into a contract with various banks and provide
zero percent financing on easy terms and conditions to customers to
facilitate the purchase of the cars. This brings business both to car
companies as well as to banks.
3) Multichannel Marketing System (MMS)
This occurs when a single firm uses two or more marketing channels
to reach one or more customer segments. It gives three benefits to the
company: first, increased market coverage-as companies can add
more and more channels to reach consumers segments currently not
reachable. Secondly, lower channel cost- companies may add a new
220
 channel to lower the cost of selling to an existing customer group, Channel and Distribution
for example, selling by phone rather than personally visiting small Strategy
customers. Third, more customized selling- companies may add
channels whose selling features fit customers’ requirements better,
for example adding a technical sales force to sell more complex
equipment.
But these gains come at a price, new channels introduce conflict and
control problems, may end up competing between themselves for the
same set of consumers, or may make coordination and cooperation
more difficult.

10.10 MARKET LOGISTICS

Physical distribution starts at the factory level. This is where the managers
decide about the location of warehouses (stocking points) and the
transportation system which delivers the goods to the final destinations in
the desired time or at the lowest total cost. Physical distribution has now
been expanded into the broader concept of Supply Chain Management
(SCM). Supply Chain Management starts before the products have been
produced—it involves procuring the right inputs (raw materials, components,
and capital equipment), converting them efficiently into finished products,
and dispatching them to the final destinations. The supply chain perspective
can help a company identify efficient and sincere suppliers and distributors
who always deliver the raw materials in time and at the right price so that
the manufacturer can have timely production and delivery of goods at low
costs.
Market logistics involves planning the infrastructure to meet the demand
effectively and profitably. In other words, it is implementing and controlling
the physical flow of materials and final goods from point of origin to points
of use, to meet customer requirements at a profit.
The market Logistics task calls for an integrated logistics system (ILS),
involving materials management, materials flow systems, and physical
distribution abetted by information technology (IT).
Market logistics planning has four steps:
1. To decide about the best way to deliver quality products to consumers
at a low cost.
2. To decide about the best channel options available for reaching the
customers.
3. To develop an efficient system for conducting sales forecasts and
handling, warehouses, transportation, and material management.
4. To implement the solutions with the help of various information
systems, equipment, policies, and procedures to ensure efficiency and
an effective timeline.
Market Logistics involves a process of ensuring a smooth assembly line
production, efficient upkeep of goods in warehouses, and an excellent
transportation system to ensure smooth and timely delivery of goods to the
consumers throughout the year. The first step is sales forecasting, with the
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Marketing Strategy help of various forecasting techniques, the organization would like to project
the likely demand for the next year or so, and based on the forecast they can
schedule production, distribution, and inventory levels. Production plans
indicate the raw materials to be purchased by the purchasing department
to ensure smooth production. These materials arrive through inbound
transportation, enter the receiving area, and are stored in a raw material
inventory. Raw materials are converted into finished goods. Finished goods
are kept in warehouses as inventory to ensure the smooth supply of goods
in the market with the help of efficient transportation systems.
10.10.1 Market Logistics Objectives
Many companies state their Market Logistics objectives as getting the right
goods to the right place at the right time for the least cost. However, it is
difficult for the organizations to ensure everything and maintain low cost
because if they want to deliver quality goods to their customers with the best
of services throughout the year, they do have to spend a huge amount on
keeping multiple warehouses, efficient packaging and quick transportation
system, all of which raises the Market Logistics cost.
Given the Market Logistics objectives, the company must design a system
that should help them to achieve those objectives efficiently and with
minimum cost and loss of customers. According to Philip Kotler (1999), an
efficient Market Logistics system will have the following cost:
M = T + FW + VW + S
Where
M= total market logistics cost of the proposed system
T = total freight cost of the proposed system
FW = total fixed warehouse cost of the proposed system
VW = total variable warehousing cost (including inventory) of the
proposed system
S = total cost of lost sales due to average delivery delay under the
proposed system
Choosing a market logistics system calls for examining the total cost (M)
associated with different proposed systems and selecting the system that
minimizes it. It is hard to measure S (lost sales), so the company should aim
to minimize T + FW + VW for a target level of customer service.
10.10.2 Market Logistics Decisions
According to Philip Kotler (1999), four major decisions must be made
concerning market logistics as depicted in Figure 10.12:
1) How should orders be handled? (order processing)
2) Where should stocks be located? (warehousing)
3) How much stock should be held? (inventory)
4) How should goods be shipped? (transportation)

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 Channel and Distribution
Strategy

ORDER
PROCESSING

MARKET
TRANSPORTATION LOGISTICS WAREHOUSING
DECISIONS

INVENTORY

Figure 10.12: Market Logistics Decisions

Order Processing: Most of the companies today are trying to shorten

the order-to-payment cycle, that is, the time between an order’s receipt,
delivery, and payment. This cycle involves many steps, including receiving
the order from customers, making an entry, scheduling the production
accordingly, arranging for transportation and delivery, and collecting the
payment. Therefore, the organization should make an effort to ensure a
smooth process and give the customers maximum satisfaction and increase
the company’s profitability.
Warehousing: Every company has to maintain warehouses so that they are
able to store finished goods and ensure a balance between production and
consumption. Another important decision regarding warehousing is to decide
about the number and location of the warehouse, i.e. whether it should be
located near the market or the production plant. Maintaining more stocking
locations and that too near the market can mean that goods can be delivered
to customers more quickly, but it will also result in higher warehousing and
inventory costs. Thus, it becomes essential for the organization to carefully
decide about the inventory levels which are to be kept at or near the plant,
and those to be located in warehouses in other locations. The company
might own private warehouses and also rent space in the public warehouses.
Inventory: Inventory levels represent a major cost. Salespeople would
like their company to carry enough stock to handle all customer orders
immediately. However, this is not cost-effective as maintaining higher
levels of inventory will add to blocked investment. Maintaining the quality
of goods in the warehouses with the help of refrigeration and other means
will further add to the cost. Therefore, the management needs to know
how much their sales and profits would increase as a result of carrying
larger inventories and promising faster deliveries to their customers, and
accordingly make a decision. Inventory decision-making further involves
knowing about the order-reorder cycle of the consumers. If they are in the
habit of placing larger orders, the frequency of orders placed will be less
223
Marketing Strategy and the organization will be able to manage with low inventory levels. The
company needs to balance order-processing costs and inventory carrying
costs. If the suppliers are dependable, then the manufacturer can carry
much lower levels of inventory and still meet customers’ expectations by
delivering orders in time. The basic idea is to arrange for well-timed flows,
not stocks.
Transportation: Transportation decision plays a very important role in
Market Logistics because the efficiency with which goods are delivered on
time and the quality depends on them. In shipping goods to its warehouses,
dealers, and customers, the company can choose among five transportation
modes— rail, air, truck, waterway, and pipeline. While transporting the
goods, marketers have to consider various criteria, such as speed, frequency,
dependability, capability, availability, traceability, and cost. For speed,
air and truck are the prime contenders. If the goal is low cost, then it is
waterways and pipelines. In deciding on its transportation modes, marketers
can choose from the private, contract, and common carriers. They can
decide to send their goods through airlines, the Indian railways, waterways,
or various road transport organizations.
• Piggyback describes the use of rail and truck
• Fishy pack describes the use of water and truck
• Train ship describes the use of water and rail
• Air truck describes the use of air and truck
Producers of physical products and services must decide on the market
logistics-the best way to store and move their goods and services to the
market destination. The logistics task is to coordinate the activities of
suppliers, purchasing agents, manufacturers, marketers, channel members,
and customers. Major gains in logistical efficiency have come from
advances in information technology. Although the cost of market logistics
can be high, a well-planned market-logistics program can be a potent tool
in competitive marketing. The ultimate goal of market logistics is to meet
customers’ requirements efficiently and profitably.
Online Marketing Channels
Online marketing in the agricultural sector:
Traditional agricultural value chains involve multiple intermediaries between
farmers and consumers. Typically, farmers sell their produce at the farm
gates to middlemen. Produce then passes through multiple intermediaries
before reaching the end customer. As a result, farmers receive only a small
proportion of the price paid by the end consumer as each intermediary in
the value chain earns a margin. Agri e-commerce provides an opportunity
to streamline the agricultural value chain and reduce inefficiencies in the
distribution of farm produce. It represents a new way for farmers to sell
their products to an array of buyers, including agribusinesses, retailers,
restaurants, and consumers. Agri e-commerce also increases farmers’ access
to new markets and adds transparency to the value chain. It enables farmers
to bypass several intermediaries, resulting in higher income for the farmers,
reduced wastage, and the potential to deliver fresher produce to customers.
Such benefits are especially significant in developing regions, where more
224
than 97% of people employed in agriculture live and where the sector’s Channel and Distribution
contribution to GDP is in double digits. Strategy

Fig 10.13: e-Commerce for Agriculture

Source: http://space4ict.com/es/viewSer.aspx?s=AgriEA
Case study: A Case study for Agricultural Mobile Commerce Application
Using Oauth Based Real-time Information Sharing Technique.
This study explains an agricultural mobile commerce case using Oauth
Based Real-Time Information Sharing Technique according to the growth
of the agricultural e-commerce market. Considering the characteristics
of the agricultural market, it can confirm differential values with the
existing agricultural mobile commerce market according to the functions
and characteristics of its technique. We compare variables for introducing
agricultural mobile commerce with the existing mobile commerce. Trust
through information sharing with real-time farming diaries, suitability, and
perceived ease of use variables are positively influenced, but the influence
on completeness and authority of information variables are relatively
insufficient. Through this, we explained the differential values of agricultural
mobile commerce and suggested an applicable business model.
Source: Do, J. R., Jang, I. H., Kim, J. H., & Choe, Y. C. (2015). A Case
study for Agricultural Mobile Commerce Application Using Oauth Based
Real-time Information Sharing Technique. Agribusiness and Information
Management, 7(1), 37-44.
Check Your Progress 10.4
Note: a) Use the spaces given below for your answers.
b) Check your answer with those given at the end of the unit.
1) Explain the concept of market logistics.
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
225
Marketing Strategy (2) List out the important decisions made in market logistics.
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………

10.11 LET US SUM UP
• Most producers do not sell their goods directly to the final users.
Channels of distribution are used to distribute goods from the place of
production to the place of consumption.
• A distribution channel overcomes the time, place, and possession gaps
that separate goods and services from those who make them to those
who need or want them. Members of the marketing channel perform
several key functions: research, promotion, contact, negotiation,
financing, risk-taking, matching, Credit-facility, transportation, and
warehousing.
• In the case of industrial goods, the channel used is generally short as
these goods are purchased by some of the buyers in bulk so the orders
are to be handled personally and directly by the producer himself.
• In the case of consumer goods, the channel is generally long because
the number of consumers is large and is generally widely spread so
they can be served better by the middleman.
• The choice of a particular channel and the types of middlemen
involved depends to a large extent on the availability of the right kind
of middlemen and the right set of services being provided by them.
• Manufacturers also have to decide about the number and intensity of
intermediaries they are going to use at each channel level. For this
three strategies are available to them: exclusive distribution, selective
distribution, and intensive distribution.
• Before selecting any middlemen the producer would want to evaluate
the number of years he has been in business, other product lines dealt
with, growth and profit record, solvency, cooperativeness, and their
reputation.
• The various types of middlemen can be broadly divided into two
categories: agent middleman and merchant middleman.
• Agent middleman is also known as a functional middleman and
mercantile agent. These are those marketing institutions that assist in
the transfer of the title of goods without taking any title to them, act as
an agent of the owner of goods, and take his remuneration in the form
of brokerage or commission.
• Merchant middlemen are those intermediaries who take the title to
goods, bear the risks, perform various marketing functions, and hope
to gain by making profits on transactions.
• A wholesaler is a business unit that buys and resells merchandise
to retailers and other industrial users and/or commercial users but
doesn’t sell a significant amount of goods to the ultimate consumer.
226
• A retailer is a merchant or occasionally an agent or a business unit Channel and Distribution
Strategy
whose main business is to sell the goods directly to the ultimate
consumer for non-business use.
• Distribution channels do not standstill. New wholesaling and retailing
institutions emerge and new channel systems develop, such as vertical
marketing systems, horizontal marketing systems, and multiple
marketing systems.
• Market logistics involves planning the infrastructure to meet the
demand effectively and profitably. In other words, it is implementing
and controlling the physical flow of materials and final goods from
point of origin to points of use, to meet customer requirements at a
profit.
• There are four major market logistics decisions taken by marketers,
such as, how should orders be handled? Where should stocks be
located? How much stock should be held? How should goods be
shipped?
• The ultimate goal of market logistics is to meet customers’ requirements
efficiently and profitably.

10.12 KEYWORDS
Agri-business- Farms, food-processing firms, and other large-scale
farming-related enterprises.
Channel conflict- A situation in which one channel member perceives
another channel member to be acting in a way that prevents the first member
from achieving its distribution objectives.
Channel control- The actions of a firm to regulate the behaviour of other
companies in its distribution channel.
Channel power- The ability of a firm to influence or determine the behaviour
of another channel member.
Contractual vertical market system- An arrangement under which
independent firms-producers, wholesalers, and retailers-operate under
contracts specifying how they will operate to improve their distribution and
efficiency, and effectiveness.
Direct marketing- A form of non-store retailing that uses advertising to
contact consumers who, in turn, purchase products without visiting a retail
store.
Exclusive distribution- A strategy in which a supplier agrees to sell its
products only to a single wholesaling middleman or retailer in a given
market.
Physical distribution management- The development and operation of
the process resulting in the effective and efficient physical flow of products.
Wholesaling middlemen- A firm engaged primarily in sale and all activities
directly related to the sale of goods and services to businesses and other
organizations for resale, used in producing other goods and services, or
operating an organization.
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Marketing Strategy
10.13 SUGGESTED READINGS / REFERENCES
Bennett, Peter D. ed., “Dictionary of Marketing Terms” (Chicago: American
Marketing Association, 1995).
Philip Kotler, 1999. Marketing Management XIIIth Ed. Prentice Hall of
India Pvt. Ltd., New Delhi.
Stanton, William J., Michael J. Etzel & Bruce J. Walker, “Fundamentals of
Marketing” (McGraw-Hill, Inc. New York, 1994).
http://lib.znate.ru/docs/index-106622.html?page=243
http://www.scribd.com/doc/35644849/Study-of-Society
http://www.ebc.nthu.edu.tw/StudentProject/NTUTProject/Projects/
Marketing Management/Kotler 12E/InstructorManual/kotler15_im.doc
http://quizlet.com/30840790/marketing-management-chapter-13-flash-
cards
http://www.yourarticlelibrary.com/marketing/marketing-functions/market-
logistics-objectives-and-decisions/29789
http://lib.znate.ru/docs/index-106622.html?page=244

10.14 ANSWERS TO CHECK YOUR PROGRESS

Check Your Progress 10.1
1) True/False
(i) False (ii) True (iii) False (iv) True (v) False (vi) True (vii) True
(viii) True
Check Your Progress 10.2
1) Channel control, coverage, and cost
2) It is not the only decision to decide whether to bring in the middleman
but rather more important is to search for the right kind of middleman,
who should be able to provide the set of services required by the
manufacturer and should be willing to deal in the company’s products.
The attitude and the financial capability of the middleman play an
equally important role in their choice.
Check Your Progress 10.3
1) Agent middlemen are those marketing institutions that assist in the
transfer of the title of goods without taking any title to them, act as an
agent of the owner of goods, and take his remuneration in the form
of brokerage or commission. While merchant middlemen are those
intermediaries who take the title to goods, bear the risks, perform
various marketing functions, and hope to gain by making profits on
transactions.
2) A wholesaler is a business unit that buys and resells merchandise
to retailers and other industrial users and/or commercial users but
doesn’t sell a significant amount of goods to the ultimate consumer.

228
Check Your Progress 10.4 Channel and Distribution
Strategy
1) Market logistics involves planning the infrastructure to meet the
demand effectively and profitably. In other words, it is implementing
and controlling the physical flow of materials and final goods from
point of origin to points of use, to meet customer requirements at a
profit.
2) Four major decisions must be made regarding market logistics:
• How should orders be handled? (order processing);
• Where should stocks be located? (Warehousing);
• How much stock should be held? (inventory); and
• How should goods be shipped? (transportation)

229
 UNIT 11 PROMOTION STRATEGY
Structure
11.0 Objectives
11.1 Introduction
11.2 Need/Function/Importance of Promotion
11.3 Promotional Tools
11.3.1 Advertising
11.3.2 Personal selling
11.3.3 Sales promotion
11.3.4 Public relations and publicity
11.3.5 Direct marketing
11.4 Determining the Promotional Mix
11.5 Factors Affecting Promotional Mix
11.5.1 Market considerations
11.5.2 Product considerations
11.5.3 Availability of funds
11.5.4 Buyer-readiness stage
11.5.5 Push vs. pull strategy
11.5.6 Product life cycle stage
11.6 Integrated Marketing Promotion
11.7 Reasons for Growing Importance of Integrated Marketing Promotion
11.8 Customer Relationship Marketing
11.8.1 Characteristics of relationship marketing
11.8.2 Steps towards relationship marketing
11.9 Let Us Sum Up
11.10 Keywords
11.11 Suggested Readings / References
11.12 Answers to Check Your Progress

11.0 OBJECTIVES
After studying this unit, you should be able to:
●● explain the concept of promotion, and its functions and importance;
●● identify the various promotional tools and their unique features ;
●● discuss the factors affecting the promotional mix; and
●● describe the integrated promotion management.

11.1 INTRODUCTION
Promotion, the fourth “P” in the marketing mix plays a very important
role in the marketing programme of any organization. Till now we have
discussed the first three “P’s” i.e. the product offering, pricing, and physical
230
distribution. In all these three P’s the firm was interacting and taking Promotion Strategy
decisions within the organization with their employees, suppliers, or the
intermediaries. But now at this stage, the firm has to communicate with
their target audience i.e. their present and potential customers. Because
nothing will sell unless and until the company will beat the drum and inform
the masses about the availability of the product and its unique features.
So by now, this thing is very clear that the company might have produced
the best product, priced it very appropriately, and with the help of physical
distribution, decisions might have taken the pain of ensuring that goods are
made available to the consumers right next door, despite all this, there is no
guarantee that the product will sell. The most important thing required at
this stage is to inform the people about the product because people are not
going to dream of that product.
Ruth Kassinger (2002) was found quoting in his book, Build a Better
Mousetrap that Emerson once said, “you make the best mousetrap, and
the world will beat a path to your door”. But in today’s scenario, this has
resulted in a mousetrap fallacy because even if you make the best mousetrap
nobody will ever come to your door unless and until you go and inform
people about your mousetrap and you’ll have to impress upon them how it
is best and why it is better than that of the others. So informing people is the
most important activity which a marketer has to perform very seriously in
today’s environment to ensure their survival and success, and this is nothing
but in simple words called promotion. So a marketer has to perform the
various promotional activities with utmost care and precaution. Before we
go into the details of discussing the various promotional tools and their
significance we need to understand at this stage as to what is basically the
concept of promotion and why is it becoming an indispensable activity for
the business today.
According to Philip Kotler (1999) in his book, Marketing Management,
“Promotion may be defined as the coordination of all seller initiated efforts
to set up channels of information and persuasion to facilitate the sale of
the product or service or the acceptance of an idea.”
In the words of William J Stanton (1994) in his book, Fundamentals of
Marketing he has defined promotion as,
“Promotion is the element in an organization’s marketing mix that
serves to inform, persuade, and remind the market of a product and/or
the organization selling it, in hopes of influencing the recipients’ feelings,
beliefs, or behavior”.
So after going through the perceptions of both the authors it is very much
clear that the job of promotion is basically to inform the people about the
availability of products, change their attitudes and beliefs about the product,
and persuade them to try or buy that new product by impressing upon them
about the unique features of the product.

11.2 NEED/FUNCTION/IMPORTANCE OF
PROMOTION
Promotion serves three essential roles- it informs, persuades, and reminds
prospective customers about a company and its products. The most useful
231
Marketing Strategy product or brand will be a failure if no one knows it is available! So it
becomes very important to rely on various promotional tools, but the relative
importance of these tools varies according to the circumstances faced by a
firm. Before we go on to the discussion of the various promotional tools
which are available to the marketers it is very important for us to understand
first of all the reasons as to why promotion is becoming such an indispensable
activity in today’s marketing scenario. Some of the reasons emphasizing the
need, function, or the importance of promotion are listed as under:
1. Increasing distance between the place of production and place of
consumption- These days firms are able to distribute their products
to far-off places with the help of various channels of distribution
available as discussed in the next unit. Because distribution channels
are often too long, a product may pass through various levels before it
finally reaches the consumers. Therefore, a producer must inform all
their middlemen, as well as the ultimate consumers or business users
about the product using various promotional tools.
2. Promotion affects the demand and demand elasticity of the
product- a firm hopes that promotion will help to increase the demand
for the products and affect their demand elasticity. The intent is to
make the demand more inelastic, i.e. management wants a promotion
to increase the attractiveness of a product so the quantity demanded
will decline very little if the price goes up (inelastic demand), and sales
will increase considerably if the price goes down (elastic demand).
3. Persuasion function- the intense competition among different
industries, as well as among firms within the industry, puts
tremendous pressure on the promotional programme of sellers. The
need for promotion is felt strongly as more and more variety is being
provided to the consumer these days. Marketers have to constantly
make efforts to impress upon their present and potential customers
about the exclusiveness of their products over that of the competitors.
Reminder function- through various tools of promotion, marketers
constantly remind consumers about the availability and utility of their
products. They need to carry out the reminder function effectively
otherwise their consumers might forget their product and switch over
to the competitors’ product.
4. During the period of product shortages as well- promotion is an
activity that is carried out successfully even at the time of product
scarcity or shortages to hold on to the interest of the consumers. It
is used to reduce the demand temporarily or permanently with the
aim of not destroying the demand but simply to reduce it, shift it, or
postpone it.
5. Improve the overall standard of living of people- various
promotional tools have resulted in an increase in the overall standard
of living of people by making them purchase various goods or services.
6. To overcome the problem of economic recession-promotion as a
tool has helped a lot in fighting out the overall recession which is
prevailing in the economy. To come out of the recession, one of the
most important decisions is to increase the demand for goods. At
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 the time when the economy is in deep recession, the demand can be Promotion Strategy
increased only by cutting down the price and advertising heavily, and
informing the consumer about the reduced prices. So the promotional
tools of persuasive advertising, convincing personal selling, lucrative
sales promotion incentives, and positive publicity can help an economy
increase the demand for the goods and come out of the recession.
Check Your Progress 11.1
Note: a) Use the spaces given below for your answers.
b) Check your answer with those given at the end of the unit.
1) What is the “better mousetrap fallacy”? Explain with examples.
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………

11.3 PROMOTIONAL TOOLS

Traditionally there were four basic tools of promotion: advertising, personal
selling, sales promotion, and publicity and public relations. However, in
this text, we view direct marketing and interactive media or the Internet
as the other major promotional tools that modern-day marketers use to
communicate with their target markets. Each has distinct features that
determine in what situations it will be most effective. We are going to
explain the various promotional tools along with their unique features in the
next paragraphs.

ADVERTISING

DIRECT PERSONAL
MARKETING SELLING

TOOLS OF
PROMOTION

PUBLICITY&
SALES
PUBLIC
PROMOTION
RELATIONS

Figure 11.1 Tools of Promotion

11.3.1 Advertising
According to American Marketing Association (1995), “advertising is
any paid form of non-personal presentation & promotion of ideas, goods or
services by an identified sponsor.”
Unique features of advertising:
• Paid form of promotion: advertising is a paid form of promotion,
anything which is not paid for cannot be called advertising. For
233
Marketing Strategy example, when heroes and heroines come and perform on various
reality shows before the release of their movies that can be only called
a publicity event and cannot be called advertising because they are
not being paid for their performances.
• Non-personnel presentation: messages through advertisements
are made available to the target audience with the help of various
mediums. It results in a monologue and not a dialogue with the target
audience. Here the sponsor is not in front of the audience to answer
their doubts or queries. So the audience does not feel obligated to pay
attention or respond to advertisements.
• Public presentation: advertising is a mode of public presentation
where at one time the message can get transmitted to millions of
people.
• Persuasiveness: advertisements generally prove to be very persuasive
with the artful use of colour, sound, and celebrities as discussed in the
previous feature.
• Pervasiveness: advertising is the only tool with the help of which
a message can be repeated many times without irritating the target
audience. The more is the frequency of the message, the better are the
chances of the message being retained.
• Amplified expressiveness: it is the only tool where the companies can
resort to dramatizing the situation and their products with the help of
colour and sound. Lots of glamour can be added in the advertisements
by bringing in popular celebrities from cinema, sports, or television.
• Constant reminder and reassurance: advertisements can constantly
remind customers about the availability and utility of the product and
reassure them about their purchase.
• Strengthens other promotional mix elements: advertising is the
basic promotional tool as it strengthens the application of other
promotional tools to a large extent. Personal selling can never be a
success without first introducing the products through advertisements
in general mediums and at the same time there is no point introducing
the various sales promotion incentives unless and until the incentives
are brought to the notice of the consumers with the help of the
advertisements.
• Unconvincing at times: this is one of the major limitations of
advertising that advertisements at times can prove to be unconvincing
and cannot force the customer to purchase the goods at once. As most
of the advertisements are viewed and noticed by customers at their own
will, the chances of their getting unnoticed and unconvincing are many.
Activity 11.1
Recall any five advertisements of bathing soaps and explain the ad which
you consider is the best and why?
……………………………………………………………………………
……………………………………………………………………………

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11.3.2 Personal Selling Promotion Strategy

According to American Marketing Association (1995), “personal selling

is a face-to-face interaction with one or more prospective purchasers for the
purpose of making presentations, answering questions & procuring orders.”
Unique features of personal selling:
• Face-to-face interaction: this is one of the most important features
of personal selling as it ensures face-to-face interaction between the
salesperson and the customers. It results in a dialogue between them
and customers can get all their doubts cleared by the salesperson and
can finally get convinced about the quality of the product.
• Highly convincing: if a salesperson is smart and persuasive, he can
convince his customers into buying the product by making excellent
presentations. Generally, the chances of a sale being materialized
in personal selling are more in comparison to simply showing
advertisements.
• Response generation: as the salesperson is right in front and can take
good care of the customer, the customer generally feels obligated to
buy the product from him.
• Cultivation of formal and as well as informal relationships: most
of the time the relationship between the salesperson and the customer
turns out to be very strong and healthy because of the cultivation of
formal as well as the informal relationship between them.
• Immediate feedback: as the salesperson is right across the customer,
he is in a position to get immediate feedback. He can make note of
the comments being given by the customer, and at the same time is
in a position to judge even the inherent feelings and emotions of the
customers by noticing their body language. So the salesperson is in a
position to understand the obvious as well as non-obvious reasons for
the purchase or the non-purchase of the goods.
• Lack of dramatization and glamorization: sales presentations are
generally kept simple, by making use of short simple sentences. The
use of flowery expressions and exaggerated claims is not advisable
for the salespeople. So there are not many opportunities available
to the salespeople to add glamour into their presentations and create
hype for the product.
• No repetition: Salespeople do not get an opportunity to repeat the
message again and again, so it is expected of them to put forward their
point of view assertively and impressively in one shot. It is generally
the first few minutes of their presentation which can make or mar their
conversation with the customers.
11.3.3 Sales Promotion
According to American Marketing Association (1995), “Sales Promotion
is defined as a variety of short term incentives used to encourage a trial
or purchase of a product or service which is designed to supplement &
coordinate personal selling and advertisement.”

235
Marketing Strategy Unique features of sales promotion:
• Attention catching device: sales promotion incentives are introduced
to catch the attention of the target audience and communicate
with them the idea of buying the product immediately by offering
something catchy and attractive along with the product.
• Additional incentive: the sales promotion incentives introduced
should genuinely be attractive and worthy enough so that the customer
should feel like buying the product immediately because of them.
• Short-term effect: the incentives should always be introduced for a
short period and should finally be withdrawn after the expiry of the
time. The incentives will lose their charm if they are made to continue
for long because then the customer will start taking them also for
granted and will not rush to purchase the product.
• Legitimacy: the incentives offered should always be legitimate and if
the company is offering something free with the product, in that case,
it should genuinely be free and its cost should not be added to the
price of the product.
11.3.4 Public Relations and Publicity
Both of these are a variety of programs designed to promote or protect
a company’s image or its individual products. According to American
Marketing Association (1995), “Publicity is a non-personnel stimulation
of demand for a product, service or business unit by planting commercially
significant news about it in the published medium or obtaining a favorable
presentation of it on radio, television, or stage that is not paid for by the
sponsor.”
It usually comes in the form of a news story, editorial, or announcement
about an organization or its products and services. Like advertising,
publicity involves non-personal communication to a mass audience, but
unlike advertising, publicity is not directly paid for by the company. The
company or organization attempts to get the media to cover or run a favorite
story on a product, service, cause, or event to affect awareness, knowledge,
opinions, and/or behavior. It is important to recognize the distinction
between publicity and public relations.
Moore and Canfield (1973) in their book, Public Relations: Principles,
Cases, and Problems have defined Public relations as, “the management
function which evaluates public attitudes, identifies the policies and
procedures of an individual or organization with the public interest, and
executes a program of action to earn public understanding and acceptance,”
Public relations uses publicity and a variety of other tools including special
publications, participation in community activities, fundraising, special
sponsorship of special events, and various public affair activities- to enhance
an organization’s image.
Unique features of publicity and public relations:
• Non-personal presentation: Publicity is always done by third parties
who have no personal interest in the organization with the help of
certain media. Public relations on the other hand are handled by the
236
 employee of the organization whose job is to ensure coordination Promotion Strategy
between the company and its customers, suppliers, government, and
the general public.
• Non-paid: Publicity is a non-paid presentation of information about a
product, service, idea, or business unit by a third party. It is generally
considered an honest submission by an independent person.
• High credibility and legitimacy: As it is being done by an independent
person who has no personal interest in the organization publicity is
always considered more credible and legitimate than advertisements
that are purposely designed by the sponsor.
• Ability to catch people off guard: Both publicity and public relations
can catch people off guard and pass on the information regarding
the product or service to them easily. In this case, people who are
otherwise not very comfortable with the idea of advertisements and
generally tend to ignore ads are able to get the information about the
product through publicity and public relations campaigns.
• Dramatization: These days even publicity is planned to a certain
extent by planting commercially significant news about a product or
service in various mediums. The launch of a new product is purposely
done in a big way by inviting various celebrities and organizing big
shows.
• It can be both positive as well as negative: as publicity is an honest
submission by a third party it can be both positive as well as negative.
It can go in favor of the company or it can go against the image of the
company, so the companies have to take care of publicity with utmost
care.
11.3.5 Direct Marketing
According to American Marketing Association (1995), “direct marketing
involves the use of mail, telephone, fax, e-mail, or Internet to communicate
directly with or solicit a direct response from specific customers and
prospects.”
In Direct Marketing, organizations communicate directly with the target
customers to generate a response or a transaction. It involves using a variety
of mediums through which selling takes place, such as mail, telemarketing,
direct response advertisements, the Internet, and various broadband and
print media. One of the major tools for Direct Marketing is direct response
advertising, wherein a product is promoted through an advertisement that
encourages the customer to purchase directly from the manufacturer. The
availability of Credit Cards and toll-free phone numbers has also facilitated
the purchase of products from direct response advertisements. Very recently,
the rapid growth of the Internet is fuelling the growth of Direct Marketing;
Tele-marketing is also being used for the purpose. Some of the examples
of successful Direct Marketing are Reader’s Digest magazine, Amway,
Tupperware, etc.
Unique features of direct marketing:
• Personal messages: generally the direct mail messages which are
designed for a specific audience are addressed personally to the person
237
Marketing Strategy concerned and have a bit of personnel touch to them as compared to
all other promotional tools where a general expression is used.
• Customized: as explained earlier most of the direct marketing
messages are customized keeping the target audience into account.
They are delivered directly to the concerned person and direct
response is sought from them.
• Up-to-date-direct: marketing messages are designed frequently
and are sent at short intervals, so as and when there is a change in
the product or a new feature has been added, or a new scheme is
introduced it is brought to the notice of the target audience with
revised messages.
• Interactive and instant feedback: direct marketing turns out to be a
highly interactive medium, especially in telemarketing with the help
of the toll-free number and Internet where customers log on to the
websites, they can call or ask for additional information besides the one
being delivered directly from the manufacturer instantly. Customers
can also provide their feedback immediately to the company.
• Secrecy is maintained: direct marketing tools provide the
manufacturers an exclusive advantage of keeping their advertising
campaign secret from the competitors as they address their messages
directly and personally to the target audience. In most cases, the
competitors do not get to know about the promises being made by
the manufacturer to the customers which give the manufacturer a
competitive advantage.
• Economical pricing: direct marketing also provides the advantage of
economical pricing to the customers as the manufacturer in this case
can do away with the middleman so the middleman’s commission is
saved and the cost saving is passed on to the customers in the form of
reduced prices.
• Sales promotion incentives: in addition to advertising on the web,
marketers offer sales promotion incentives such as coupons, contests,
and sweepstakes online and they use the Internet to conduct direct
marketing activities more effectively and efficiently.
Check Your Progress 11.2
Note: a) Check your answer with those given at the end of the unit.
b) Select the most appropriate option to the following statements:
1) The cost per person comes out to be the minimum in case of:
(a) Personal selling (b) Trade promotion
(c) Advertising (d) Consumer promotion
2) If the company’s focus is short-term, it will concentrate on:
(a) Advertising (b) Sales promotion
(c) Personal selling (d) Publicity

238
3) Posters and leaflets received along with your morning newspaper Promotion Strategy
relate to:
(a) Sales promotion (b) Public relations
(c) Personal selling (d) Advertising
4) Which of the following can give positive as well as negative
information about the product:
(a) Advertising (b) Personal selling
(c) Publicity (d) Sales promotion

11.4 DETERMINING THE PROMOTIONAL MIX

Till now we have discussed the various promotional tools at length and we
can say this with a guarantee that none of the promotional tools is complete
in itself. Every promotional tool enjoys several strengths but at the same
time, they suffer from certain limitations as well. No company can rely
completely on any one single promotional tool so they have no choice but
to work out a promotional mix. To arrive at the best promotional campaign,
the company needs to combine all the promotional mix elements balancing
their strengths and weaknesses effectively.
According to William J Stanton (1994) in their book Fundamentals of
Marketing, “an organization’s combination of personal selling, advertising,
sales promotion, public relations, and publicity to help in achieving its
marketing objectives is its promotional mix.”
Deciding about the promotional mix is a very difficult marketing decision
because there is no tailor-made formula for working out an appropriate
promotional mix. To add to the problems there is another important feature
which makes this decision very difficult, that is, the cross substitutability
of all the promotional tools. All these tools are quite capable of performing
similar functions of creating awareness, arousing interest, cultivating desire,
and taking the consumer to purchase action. So when it comes to deciding
about the allocation of money on each promotional tool the company has to
be very careful and take into consideration several factors.

11.5 FACTORS AFFECTING PROMOTIONAL

MIX
Some of the important factors are being discussed as under and are nicely
depicted in Figure 11.2.

Figure 11.2: Factors affecting Promotion-Mix

11.5.1 Market Considerations

1) Type of product market
Promotional allocations depend on the fact that whether the product
is consumer or industrial in nature. In the case of consumer goods,
239
Marketing Strategy as the number of consumers is large, companies prefer spending
heavily on advertising, sales promotion, personal selling, and public
relations, in that order. While in industrial or business markets, there
are few consumers and the order placed by them is generally in bulk,
they need to be addressed and taken care of personally, so companies
spend heavily on personal selling, sales promotion, advertising, and
public relations, in that order.
2) Geographic scope of the market
Personal selling may be adequate in a small local market, but as the
market broadens geographically, greater emphasis must be placed on
advertising because it is only with the help of advertisements that a
message can be spread to millions of people spread across various
geographical territories in one go.
3) Concentration of the market
The total number of prospective buyers is another consideration. If
the potential buyers are few, personal selling will be more effective
than advertising and vice versa. For example, a firm selling vacuum
cleaners would definitely like to approach all their prospective
customers personally and explain the various product features to
them and try to sell the product to them. As against this a firm selling
toothpaste would like to advertise it heavily through various mediums
possible and will sell it to a large number of people.
4) Level of competition in the market
If there is intensified competition in the market, the marketers will
resort to heavy advertising and aggressive sales promotion incentives
in order to carve a place for themselves. The advertising will be
comparative in nature where the focus will be more on proving the
superiority of the advertised brand over that of the competitors. Sales
promotion will be able to provide extra incentives to the consumers to
prefer their product.
11.5.2 Product Considerations
Several products attributes influence promotional strategy. The most
important are:
1) The unit value of the product
A product with low unit value is usually relatively uncomplicated,
involves little risk for the buyer, and must appeal to a mass market to
survive. As a result, advertising would be the primary promotional tool.
2) Degree of customization
If a product must be adapted to the individual customer needs, personal
selling is a necessity. However, the benefits of most standardized
products can be effectively communicated in advertising.
3) Pre-sale and post-sales services
Products that are technical in nature and require frequent servicing to
keep them in good working order, lend themselves to personal selling.
Typical examples are personal computers, microwave ovens, etc.
240
11.5.3 Availability of Funds Promotion Strategy

Regardless of what may be the most desirable promotional mix, the amount
of money available for promotion is the ultimate determinant of the mix.
A business with ample funds can make more effective use of advertising
than a firm with limited financial resources. Small or financially weak
companies are likely to rely on personal selling, dealer displays, or joint
manufacturer-retailer promotions. Lack of money may limit the options a
firm has for its promotional effort. For example, television advertising can
carry a particular promotional message to far more people and at a lower
cost per person than can most other media. Yet a firm may have to rely on
less expensive media, such as point-of-purchase displays because it lacks
the funds to take advantage of television’s efficiency.
11.5.4 Buyer-Readiness Stage
Promotional tools vary in effectiveness at different stages of buyer
readiness. Advertising along with publicity plays the most important role
in the awareness stage more than what is played by “cold calls” from sales
representatives. Customer comprehension and knowledge are primarily
affected by education with advertising and personal selling playing a
secondary role. Liking refers to how the market feels about the product or
brand. Persuasive advertising and personal selling can be used to move a
knowledgeable audience from being indifferent to liking a brand. Creating
preference involves distinguishing among brands such that the market
prefers the advertised brand. At this stage also the focus is more on using
advertising and personal selling but advertisements are now comparative in
nature where the focus is on comparing the product with the competitors’
product and proving the superiority of the brand over them. The salesforce
also makes an effort to meet the customers and convince them as to why
their brand should be purchased as it is better than the competitors.
Conviction entails the actual decision or commitment to purchase. Customer
conviction is influenced by personal selling followed closely by advertising,
where both the tools try to finally convince the consumers about the utility
of the product and arouse a strong desire to purchase it. Purchase can be
delayed or postponed indefinitely, even for customers who are convinced
that they should buy a product. So action may be triggered with the help
of various sales promotion incentives such as price discounts or offering
additional incentives. Closing the sales is influenced mostly by personal
selling and sales promotion.

Figure 11.5 Buyer Readiness Stage

241
Marketing Strategy 11.5.5 Push vs. Pull Strategy
The promotional mix is heavily influenced by whether the company chooses
a push or pulls strategy to create sales. As we’ve seen already, producers
aim their promotional mix at both middlemen and end-users. A promotional
programme aimed primarily at middlemen is called a push strategy, and
a promotional programme directed primarily at end-users is called a pull
strategy.
Push strategy involves the manufacturer using personal selling and trade
promotion measures to induce intermediaries to carry, promote, and sell the
product to end-users. So when a manufacturer uses a push strategy, the main
focus for promoting the goods relies on the middleman and it’s through
them that the goods are brought to the notice of the consumers and the sales
are generated. Defined in other terms the product is “pushed” through the
channel. The producer will promote heavily to wholesalers, which then also
use a push strategy to retailers. In turn, the retailers promote to consumers. A
push strategy usually involves a lot of personal selling and sales promotion,
including contests for salespeople and displays at trade shows. Push strategy
is especially appropriate where the brand loyalty of the product is low and
consumers don’t mind buying any of the brands available in the store. It is
basically the charm of the middleman who works on their buying a specific
product.

MANUFACTURER

WHOLESAILER

RETAILER

CONSUMER

Figure 11.6: Push Strategy

With a pull strategy, promotion is directed

at end users-usually ultimate consumers. MANUFACTURER
The intention is to motivate them to ask
retailers for the product. The retailers,
WHOLESAILER
in turn, will request the product from
wholesalers, and wholesalers will order it
from the producer. In effect, promotion to RETAILER
consumers is designed to “pull” the product
through the channel. This strategy relies
on heavy advertising and various forms CONSUMER
of sales promotion such as premiums,
samples, or in-store demonstrations. Figure 11.7: Pull
Strategy
242
Companies in the same industry may differ in their emphasis on push or Promotion Strategy
pull. For example, Hindustan Uni Lever relies more on push while Procter
& Gamble more on pull strategy.
11.5.6 Product Life Cycle Stage
The choice of the promotional tools also varies according to the life cycle
stage of a product. Different combinations of promotional tools are used
during the four stages of a product’s life cycle.
In the introduction stage, as the product is new and people do not know
about it, lots of emphases is placed on advertising the product heavily and
creating positive publicity. Advertising and publicity have the highest cost-
effectiveness at this stage, followed by personal selling to gain distribution
coverage and sales promotion to induce trial.
In the growth stage, when the sales start picking up and people are in a
mood to buy the product, lots of emphasis is placed on personal selling
where the salesperson takes care of the last-minute doubts and queries of
the customers and realizes the sales. At this stage companies employ a
huge sales force to increase their sales turnover followed by advertising
which continues to build up the demand for the product. Very little reliance
is placed on the sales promotion incentives because demand has its own
momentum through word of mouth.
In the maturity stage, where sales practically become stagnant and remain
at one level, the company needs to sustain sales at that level. For that
reason, various sales promotion incentives are introduced at this stage to
retain loyal customers followed by advertising which serves as constant
reminders to customers that the product is still the best. Third, in importance
comes personal selling as salesmen try to retain their contacts with their
loyal customers and continue generating sales from them.
In the decline stage, where the sales start declining at a rapid pace, sales
promotion incentives are continued to be used to lure the customers,
advertising and publicity are reduced and salespeople give the product only
minimal attention.
After discussing the various factors which are to be taken into consideration
for arriving at the best promotional mix we can conclude that to survive in
today’s environment all the companies need to arrive at a balance between
the various promotional tools in such a manner so that they can realize their
marketing goals successfully.
Check Your Progress 11.3
Note: a) Use the spaces given below for your answers.
b) Check your answer with those given at the end of the unit.
Fill in the blanks:
1) An organization’s combination of personal selling, advertising, sales
promotion, public relations, and publicity to help in achieving its
marketing objectives is called ………………………………………
2) Personal selling may be adequate in a small local market, but as the
market broadens geographically, greater emphasis must be placed on
…………………………………..……………………………………
243
Marketing Strategy 3) Products that are technical in nature and require frequent servicing to
keep them in good working order rely more on …………………………
………………………………………………………………………
4) In order to ensure the purchase of the product, companies use ……
………………….……………………………………………………
5) The manufacturer using sales force and trade promotion to induce
intermediaries to carry, promote, and sell the product to end-users call
for ………………………….strategy.
6) …………………………is the longest stage in the life of a product.
7) Sales promotion incentives are used aggressively at ……………
………. stage of the PLC.

11.6 INTEGRATED MARKETING

PROMOTION
Most of the companies have responded to the call for synergy among the
promotional tools and have realized the need for strategic integration of
their promotional tools. They are trying to integrate their advertising efforts
with a variety of other communication techniques such as websites on the
Internet, direct marketing, sales promotion, publicity and public relations,
and event sponsorships. All this has led to an evaluation of the concept
called integrated marketing communications (IMC).
George E. Belch & Michael A. Belch (2003) in their book, Advertising and
Promotion have been found quoting the definition of integrated marketing
communications given by the American Association of Advertising
Agencies (the 4 “As”):
“The concept of marketing communications planning that recognizes the
added value of a comprehensive plan that evaluates the strategic roles of a
variety of communication disciplines-for example, general advertising, direct
response, sales promotion, and public relations-and combines these disciplines
to provide clarity, consistency, and maximum communications impact.”
The 4As’ definition focuses on the process of using all forms of promotion
to achieve maximum communication impact as consumers’ perceptions of a
company or its various brands are a synthesis of the bundle of messages they
receive from media advertisements, price, package design, direct-marketing
efforts, publicity, sales promotions, websites, point-of-purchase displays,
and even the type of store where a product or service is sold. The integrated
marketing communications approach seeks to integrate all the marketing
and promotional activities and project a consistent and coordinated image
to the consumer. It requires that all the promotional tools should work in
close harmony with each other and convey a common message to the target
audience. Each tool should support the facts promoted by the other tools.

11.7 REASONS FOR GROWING

IMPORTANCE OF INTEGRATED
MARKETING PROMOTION
The concept of integrated marketing promotion has been one of the most
significant developments in the field of marketing that occurred during
244
the 1990s. This approach has become popular amongst all types of firms Promotion Strategy
whether they are large or small, or whether they are into consumer products
or services or business-to-business marketing. There are several reasons
why marketers are adopting this approach. Some of the important ones are
listed as under:
1. Synergetic effect- A fundamental reason as to why companies are
strategically integrating the various promotional tools rather than
having them operate autonomously is that by coordinating their
marketing communications efforts, companies can avoid duplication,
take advantage of synergy among promotional tools, and develop
more efficient and effective marketing communications program.
2. Environmental adaptation- As major changes have occurred
amongst consumers with respect to demographics, lifestyles, media
usage, and buying and shopping patterns in the last decade, the
move to integrated marketing promotions reflects an adaptation by
marketers to this changing environment, particularly with respect to
consumers, technology, and media.
3. Emergence of new media options- As marketers are experimenting
with new media options they need to ensure coordination amongst all
of them.
4. Growing importance of various sales promotion incentives-these
days marketers is shifting their focus towards introducing more
and more sales promotion incentives to the consumers. But simply
introducing the sales promotion incentives will not be effective unless
and until consumers are informed about them through advertisements.
So coordination between advertising and sales promotion becomes a
must.
5. The rapid growth of the Internet-the Internet revolution is well
underway, and the Internet audience is growing rapidly. It is changing
the very nature of how companies do business and the ways they
communicate and interact with consumers. It is because of the
Internet now that the companies can ensure integration amongst all
their promotional tools.
Because of all the reasons listed above, it has been possible for the
marketers these days to ensure the integration or in other words the
coordination between all the promotional tools used by them. Promotion
is an expensive affair so if companies want to realize the worth of the
money spent on promotion they need to ensure that the messages which get
passed on through all the mediums should be properly coordinated and the
consumer gets a consolidated and cohesive picture. Ensuring integration
is also becoming important because of an emerging development in the
field of marketing i.e. the concept of relationship marketing or customer
relationship management. The focus of the marketer is more on keeping
the customers besides creating more and more new customers because one
loyal customer results in bringing more customers in for the company by
spreading a positive word of mouth message. The growing significance of
the concept of customer relationship management is being discussed in the
paragraphs below.
245
Marketing Strategy
11.8 CUSTOMER RELATIONSHIP
MARKETING
Today, most marketers are seeking more than just a one-time exchange
or transaction with customers. The focus of market-driven companies is
on developing and sustaining relationships with their customers. This has
led to a new emphasis on relationship marketing, which involves creating,
maintaining, and enhancing long-term relationships with individual
customers as well as other stakeholders for mutual benefit.
According to American Marketing Association (1995)
“Relationship marketing is marketing which consciously aims to develop and
manage long term and/or trusting relationship with customers, distributors,
suppliers or other parties in the marketing environment.”
In relationship marketing, customer profile, buying patterns, and history
of contacts are maintained in a sales database, and a marketing executive
is assigned to one or more customers’ to fulfill the needs of the customers
and maintain the relationship. In simple words, it can be said that
relationship marketing involves creating, maintaining, and enhancing a
strong relationship with customers. Relationship marketing is also called
customer relationship marketing (CRM). Practitioners and consultants use
the same term as customer relationship management (CRM), which refers
to a technology-enabled process for customer interaction and relationship
building.
11.8.1 Characteristics of Relationship Marketing
The characteristics of relationship marketing areas under:
• Customer concern: Relationship marketing concerns for the welfare
of their customer. Through relationship marketing, marketers want to
meet customer expectations and produce satisfaction.
• Customer services: Relationship marketing is a means to provide
excellent services to the customers in order to retain them in the
longer run.
• Customer trust: Trust is a key to a relationship, and companies can
retain the trust of the customers by providing them with efficiency,
productivity, and effectiveness in delivering the services.
• Customer satisfaction: Customer satisfaction is ensured by providing
customers value for money or in other words a product that gives
them more benefits at a lesser cost.
• Customer retention: It is more important for the companies to retain
the old customers as it has been mentioned above that it is more cost-
effective to retain customers than to acquire new ones.
11.8.2 Steps towards Relationship Marketing
Certain basic steps are to be carried out to ensure customer relationship
management. Figure 11.8 depicts these steps very nicely.
246
 Promotion Strategy

STEP 1 :KNOW YOUR CUSTOMERS

STEP 2: DESIGN THE PRODUCT

ACCORDINGLY

STEP 3: DELIVER VALUE FOR

MONEY

STEP 4: MAINTAIN AFTER SALE

SERVICE NETWORK

STEP 5: SEEK CONSTANT

APPRAISAL FROM CUSTOMER

Figure 11.8: Steps towards Relationship Marketing

Step one: Know your customer: It is very important for marketers to first
understand who their customers are. The demographic, geographic, and
psychographic profile of the customers must be clearly understood by the
marketers so that the goods are designed according to their needs, wants,
and preferences.
Step two: Design the product accordingly: After understanding the
customer expectations, with the help of improved technological setup the
companies need to design the products as per the aspirations of the customers
and ensure that goods are made available to the customers at the right place
with the right price.
Step three: Deliver value for money: To retain customers for the long
term marketers must deliver value for money to the customers. They should
be satisfied with the quality of the product as well as the price at which it is
being sold.
Step four: Maintain after-sales service network: In today’s competitive
world if marketers want to retain their customers it is very important
that their sales are backed up by an excellent after-sales service network.
Guarantee, warranty, repair, and maintenance should be provided efficiently
to the customers to hold their interest in the company’s product.
Step five: Seek a constant appraisal from customers: Seeking constant
appraisal from customers through feedback and taking corrective actions is
important for the companies to keep them satisfied and contended.
To conclude, it can be said that customer relationship management calls for
a 360° approach, where all the departments of the company should work in
a coordinated manner and work collectively towards the goal of ensuring a
satisfied, committed, and loyal customer.

11.9 LET US SUM UP

• Promotion may be defined as the coordination of all seller-initiated
efforts to set up channels of information and persuasion to facilitate
the sale of the product or service or the acceptance of an idea.
247
Marketing Strategy • Promotion serves three essential roles- it informs, persuades, and
reminds prospective customers about a company and its products.
• Traditionally there were four basic tools of promotion: advertising,
personal selling, sales promotion, and publicity & public relations.
However direct marketing, and marketing through the Internet are
the other major promotional tools that modern-day marketers use to
communicate with their target markets.
• Advertising is any paid form of non-personal presentation & promotion
of ideas, goods, or services by an identified sponsor.
• Personal selling is face-to-face interaction with one or more prospective
purchasers to make presentations answer questions & procure orders.
• Sales Promotion is defined as a variety of short-term incentives used to
encourage a trial or purchase of a product or service which is designed
to supplement & coordinate personal selling and advertisement.
• In publicity, the company attempts to get the media to cover or run
a favourite story on a product, service, cause, or event to affect
awareness, knowledge, opinions, or behaviour.
• Direct marketing is a promotional tool in which organisations
communicate directly with target customers to generate a purchase
response.
• In order to arrive at the best promotional campaign, it is very important
for the company to combine all the promotional mix elements
balancing their strengths and weaknesses effectively.
• The promotional mix is heavily influenced by whether the company
chooses a push or pulls strategy to create sales. A promotional
programme aimed primarily at middlemen is called a push strategy,
and a promotional programme directed primarily at end-users is called
a pull strategy.
• Different combinations of promotional tools are used during the four
stages of a product’s life cycle.
• Most of the companies have responded to the call for synergy
among the promotional tools and have realized the need for strategic
integration of their promotional tools.
• Relationship marketing involves creating, maintaining, and enhancing
a strong relationship with customers. It is also called customer
relationship marketing (CRM).

11.10 KEYWORDS
Advertising- All activities involved in presenting to an audience a
nonpersonal, sponsor-identified, paid-for message about a product or an
organization.
AIDA- A sequence of steps in various forms of promotion, notably personal
selling and advertising, consisting of attracting attention, holding interest,
arousing desire, and generating buyer action.
248
Communication- The verbal or non-verbal transmission of information Promotion Strategy
between someone wanting to express an idea and someone else expecting
or expecting to get that idea. The four elements are message, a source of the
message, a communication channel, and a receiver.
Direct mail- One form of direct marketing, in which the firm mail to
consumers: letters, brochures, and even product samples, and ask them to
purchase by mail or telephone.
Sales promotion- Demand stimulating devices designed to supplement
advertising and facilitate personal selling.
Telemarketing- A form of non-store retailing in which a salesperson
initiates contacts with a shopper and also closes the sale over the telephone.

11.11 SUGGESTED READINGS / REFERENCES

• Belch George E. & Michael A. Belch, “Advertising and Promotion”
(Tata McGraw-Hill: New Delhi, 2003)
• Bennett, Peter D. ed., “Dictionary of Marketing Terms” (Chicago:
American Marketing Association, 1995).
• Kassinger, Ruth., “Build a Better Mousetrap” (Hoboken, NJ: John
Waley & Sons.)
• Leonard L. Berry, “Relationship Marketing of Services-Growing
Interest, emerging Perspectives” Journal of the Academy of Marketing
Sciences, Vol. 23, no.4, 1995.
• Moore H.Frazier and Bertrand R. Canfield, “Public Relations:
Principles, Cases, and Problems” (7th ed. Burr Ridge, IL: Irwin,
1977).
• Philip Kotler, “Marketing Management” (XIIIth ed.Prentice Hall of
India Pvt. Ltd., New Delhi, 1999).
• Stanton, William J., Michael J. Etzel & Bruce J. Walker, “Fundamentals
of Marketing” (McGraw-Hill, Inc. New York, 1994).

11.12 ANSWERS TO CHECK YOUR PROGRESS

Check Your Progress 11.1
Emerson once gave the statement that you make the better mousetrap and
the world will beat a path to your door. But this statement in today’s scenario
does not hold true and has resulted in a problem called better mousetrap
fallacy. Simply by making a better product it is not possible for the producers
to sell it on its own because unless and until the consumers are informed
about the product’s unique features they are not going to dream about it on
their own. So despite making a better product if marketers will not resort
to promotional measures they will not be able to attract consumers so the
statement is called a fallacy today.
Check Your Progress 11.2
1) c 2) b
3) d 4) c

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Marketing Strategy Check Your Progress 11.3
1) Promotional mix
2) Advertising
3) Personal selling
4) Sales promotion incentives
5) Push
6) Maturity
7) Maturity

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Unit 12 LOGISTIC Services
Structure
12.0 Objectives
12.1 Introduction
12.2 Concept of Agricultural Production Logistics
12.2.1 Features of agricultural product logistics
12.3 Supply Chain Management (SCM)
12.3.1 Concept of agriculture supply chain
12.3.2 Lack of adequate SCM in India
12.3.3 Food supply chain in India
12.4 Agricultural Marketing
12.4.1 Processes of agricultural marketing
12.4.2 Objective of agricultural marketing
12.4.3 Facilities needed for agricultural marketing
12.5 Markets and Marketing Institutions
12.6 Expanding Uses of Agricultural Commodities / Food Processing
Industry
12.7 Development of Agricultural Marketing Infrastructure
12.8 Transport and Storage
12.8.1 Storage
12.8.2 Cold chain
12.8.3 Recent logistics and infrastructure development schemes
12.9 Government Policies
12.10 Let Us Sum Up
12.11 Keywords
12.12 Suggested Further Readings/References
12.13 Answers to Check Your Progress

12.0 OBJECTIVES
After going through this unit, you should be able to:
●● describe the concept and features of agricultural products logistics;
●● explain meaning and components of supply chain management;
●● highlight the need for developing agricultural marketing infrastructure;
and
●● examine the role of government policies in agriculture.

12.1 INTRODUCTION
India is all set to become the food supplier of the world. It has cultivable
land, all the seasons for production of all varieties of fruits and vegetables,
well-developed agribusiness system that works in its own way. The supply
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Marketing Strategy chain sector is very weak with no process owner and this can spell disaster.
The food supply chain needs the attention of academics, the industry, and
the Government. The level of the agricultural product logistics development
has become one of the key aspects which decide the level of the whole
development of the country’s agricultural economy. Speeding up the
development of the agricultural product logistics is important to solve the
“agriculture, countryside, peasantry” question and advance the agriculture
industrial structure adjustment and promote the development of the rural
economy. It is well known that the small farmers do not have the economic
strength to retain the produce with them till the market prices are favorable.
There has been a felt need in the country to provide the farming community
with facilities for scientific storage so that wastage and produce deterioration
are avoided and also to enable it to meet its credit requirement without being
compelled to sell the produce at a time when the prices are low. A network
of rural godowns will enable small farmers to enhance their holding capacity
to sell their produce at remunerative prices and avoid distressed sales.

12.2 CONCEPT OF Agricultural

Production Logistics
Agricultural production is different from the industry and service. In the
production process, it is easily influenced by natural conditions and crops’
individual life. At the same time, the fresh agricultural product also is
people’s daily necessity, the demand elasticity is small, has the characteristic
of the expense universality and dispersive. As a result of the agricultural
product characteristics, this has caused the agricultural product logistics to
be different from the industrial product logistics.
Agricultural product logistics is the process of physical distribution of the
agricultural product from the supply place to the receiving place. According
to actual need, basic functions including agricultural product transporting,
storing, loading and unloading, packing, allocation, circulation processing,
information processing are integrated to realize the agricultural product
to keep and increase its value in the process. The expansion of the global
marketplace puts the concept of global logistics into the limelight. Logistics
experts must now manage all activities within a worldwide arena spanning
a multitude of countries, languages, cultures, governments, and regulations.
Along with this expansion of the marketplace comes the need for global
channel intermediaries.
12.2.1 Features of Agricultural Product Logistics
The characteristic of agricultural product logistics are:
(i) The strong seasonal characteristic of agricultural product logistics:
Because there are different natural conditions such as climate, water,
and soil, different agricultural and subsidiary products varieties are
suitable to plant in different regions. Agricultural production has a
strong seasonal characteristic. On the one hand, the production and
material purchase of the farmers have seasonal characteristics; on
the other hand, the output season of the different agricultural and
subsidiary products is also different. This has caused the agricultural
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 supply logistics and production logistics to have strong seasonal Logistic Services
characteristics.
(ii) The great difficulty and the strict request of agricultural product
logistics: Most agricultural and subsidiary products have the
characteristic of the easy putrescence and the high request to a fresh
degree, and need taking certain technical measures to implement
management including preventing insects, moisture-proofing,
antisepticising and drying in order to guarantee quality. This needs
necessary logistics equipment facility, including special warehouses,
special-purpose carrier vehicles, special-purpose loading, unloading
and processing equipment, and so on. The agricultural logistics
emphasizes safety and no pollution and requests realizing “the green
logistics”.
(iii) Many varieties and big scale of agricultural product logistics:
Agricultural products are rich in variety that includes the grain crop,
the cash crop, the livestock product, the aquatic product, and so on,
and the circulation is extremely big. The vegetables and fruits steadily
developed in the foundation of the optimized variety. Moreover,
the purchasing quantity of agricultural production material is also
extremely big, including the seed, the fertilizer, the agricultural
chemicals, the mulching plastic, the agricultural tools and machinery,
other raw materials, and the fuel that the agricultural production
needs. The two most obvious aspects of logistics are Warehousing
and Transport.

12.3 Supply Chain Management (SCM)

Although supply chains have existed for ages until recently most companies
have paid only scant attention to them. Supply chain management (SCM)
is a marketing concept. Today, this concept is very popular and useful in the
field of national and international marketing. Because of the significance of
the term, it would be worthwhile to understand its connotation. Supply chain
management means the streamlining of a business’s supply-side activities
to maximize customer value and to gain a competitive advantage in the
marketplace. It covers an effort by suppliers to develop and implement
supply chains that are as efficient and economical as possible. It represents
everything from production, to product development, to the information
systems needed to direct these operations. The changing lifestyle and open
economy have forced manufacturers/suppliers to produce/supply quality
products. Following factors are driving an emphasis on supply chain
management:
(i) Upstream or downstream flows of products, services, finances, and
information from a source to a customer;
(ii) Involves proactively managing the two-way movement and co-
ordination of goods, services, information, and funds (i.e. the various
flows) from raw material through to end-user;
(iii) The level of competition in both domestic and international markets
requires organizations to be fast, agile, and flexible;

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Marketing Strategy (iv) Warehousing/distribution is particularly important for companies that
produce according to a forecast in anticipation of future sales; and
(v) Customer expectations and requirements are becoming much more
stringent.
In short, SCM attempts to centrally control or link the production, shipment,
and distribution of a product. By managing the supply chain, companies can
cut excess fat and provide products faster. This is done by keeping tighter
control of internal inventories, internal production, distribution, sales, and
the inventories of the company’s product purchasers. Typically, the SCM
system should operate with the two main objectives of timeliness and
quality.
The Supply Chain Umbrella: A large set of activities besides purchasing
is part of supply chain management. Each of these seemingly diverse
activities is part of a network that will define how efficiently and effectively
goods and information flow across a supply chain. The activities include:(i)
Purchasing; (ii) Quality control; (iii) Demand and supply planning; (iv)
Material or inventory control; (v) Order processing; (vi) Production
planning, scheduling and control; (vii) Warehousing / distribution; (viii)
Customer service;
12.3.1 Concept of Agriculture Supply Chain
The concept of Agriculture supply chain refers to the activities of procurement,
order fulfillment, product design and development, distribution, delivery,
and customer service executed by two or more separate organizations
in the agribusiness industry, to fulfill customer orders. There are several
players involved in fulfilling the needs of the consumer in the supply chain
management of vegetables like farmers, traders, transporters, processors,
retailers, etc. linked with material, information, and financial flows. The
agriculture supply chain consists of small and medium enterprises, such
as farmers and raw material producers, suppliers of agricultural inputs,
processors of agricultural outputs, farmers co-operatives, brokers,
suppliers, distributors, wholesalers, and retailers, that either tend to operate
independently or in co-operation, mainly in the last stages of the supply
chain.
12.3.2 Lack of Adequate SCM in India
As India’s supply chain is still predominantly unorganized, there are several
inefficiencies in the way it functions. There have been several attempts to
fix this – from government, private agencies, and research institutions alike.
Though there has been some success in these attempts, these have not scaled
fast enough to stem the crisis. Given the vast diversity in India, coupled
with problems of illiteracy and poor infrastructure, such complex problems
often need innovative, quick, and practical solutions
Due to the lack of a uniform supply chain in commodities, farmers are
getting exposed to price fluctuations; lack of supply chain is also making
the sector too risky for farmers to invest in otherwise profitable activity.
Volatility in commodity prices has always been a major concern for
producers, processors, traders, and consumers. The major reason for this
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is that the trade is supply-driven. The green revolution has benefited only a Logistic Services
section of farmers and the others were left out. A concerted effort is needed
to bring them to the mainstream. Currently, the growing areas were facing
storage deficiency.
There is a colossal waste during the post-harvest storage and handling
due to improper bagging without crating, lack of temperature-controlled
vehicles, no cold chain facilities for preserving the produce, coupled with
significant processing of the agricultural produce resulting in enormous
losses to the nation. Given the characteristics of fruits and vegetables such
as perishability, seasonality, bulkiness, and delicate nature of the products
coupled with inadequate storage and transport facilities the supply chain
can make efficient by reducing the length of the chain improving cold chain
facilities. Procurement costs must decrease, the introduction of uniform tax
rates, modernization of farm production technologies and usage of IT in
agribusiness needs to be enhanced.
Risk and uncertainty are ubiquitous and various within agricultural and
agricultural supply chains. This stems from a range of factors including the
vagaries of weather, the unpredictable nature of biological processes, the
pronounced seasonality of production and market cycles, the geographical
separation of production and end-users, and the unique and uncertain
political economy of food and agriculture sectors, both domestic and
international. Frequently, attention focuses on addressing one type of risk
faced by particular stakeholders (e.g. weather risk facing farmers; price risk
facing traders), even though supply chain actors are typically interdependent
and need to manage several different types of risk.
12.3.3 Food Supply Chain in India
The supply chain management in vegetables has to be improved in all
the stages of the supply by adopting global best practices in storage,
packaging, handling, transportation, value-added service, etc. And also by
disintermediation and participation of organized players i.e., modern supply
chain to benefit both farmers as well as ultimate consumers. India has a
huge opportunity to become a leading global food supplier if only it has the
right marketing strategies and of course agile, adaptive, and efficient supply
chain. India has diversity in terms of its population with several religious
groups with different food habits and cultures. This diversity should be used
to advantage to become the “Halal Food Hub”, the “Organic food hub”, the
“Vegetarian food hub” the “Seafood hub” among others. The food supply
chain is very complex in India because of the following factors:
(i) Perishable goods;
(ii) Numerous small stakeholders;
(iii) Infrastructure connecting partners is very weak;
(iv) Each stakeholder: farmers, wholesalers, food manufacturers, retailers
all work in silos.
(v) Demand forecasting is absent; and
(vi) As a result, the farmers try to push what they produce into the market.
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Marketing Strategy The best supply chain practices should find their way into the food supply
chains since they are very well practiced in high technology industries with
immense benefits. These are:
(i) Data integration;
(ii) Financial flow management;
(iii) Supply-demand matching;
(iv) Collaborative forecasting;
(v) Information sharing; and
(vi) Goods movement synchronization through efficient transport
scheduling.
The food supply chain can be subdivided into several sectors. Agriculture,
horticulture, fisheries, and aquaculture are the primary producers, the
manufacturers who process the food for ready to eat or cook format together
with the packaging companies are in the intermediate stage, and the retailers,
wholesalers, and caterers are in the last stage of the supply chain. At each
stage value is added by the new owners such as processors, distributors,
packers, etc. and the cost and profits are part of the business. The food items
can go to the final consumer from any of the three stages: from farmers in
the form of fresh produce to the caterers directly from the manufacturer,
and finally from the retailer (small or big) to the consumer. The movement
of goods from one stakeholder to another is facilitated by the in-house or
third-party logistics service provider. The information management is done
by all the stakeholders and their information systems are all interconnected
seamlessly.
Economic efficiency in a system refers to technical efficiency and allocative
efficacy. In marketing the produce, the technical efficiency is said to have
increased when the operational cost is reduced for performing a function
for each unit of output. This can be achieved by reducing physical losses
and improvement in the technology to carry out particular functions viz.
storage, transportation, handling, and processing. A change in the technique
can result in the reduction of per-unit cost. Allocative efficiency of farm
products either over time or across the space among the traders, processors,
and consumers protects the economic interests of the producers and
consumers. Some of the alternative methods employed in agriculture in
achieving the efficiencies in the system are:
i. Contract farming;
ii. Direct, subcontracted purchases from farmers;
iii. Purchases from wholesalers, who either work directly with farmers or
through the wholesale market;
iv. Purchases through government-sponsored centers;
v. Purchases through informal groups, farmers associations, or
cooperatives; and
vi. Multiple channels.
The supply is the part of retail operations that ensures that the right product
is in the right place, at the right time, and the right cost.
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Check Your Progress 12.1 Logistic Services

Note: a) Use the spaces given below for your answers.

b) Check your answer with those given at the end of the unit.
1) Explain the concept of agricultural product logistics.
………………………………………………………………………
………………………………………………………………………
2) What do you mean by supply chain management?
………………………………………………………………………
………………………………………………………………………
3) Point out features of the supply chain for agriculture produce.
………………………………………………………………………
………………………………………………………………………
4) Highlight the inadequacies of supply chain management.
………………………………………………………………………
………………………………………………………………………
5) What is a food supply chain?
………………………………………………………………………
………………………………………………………………………

12.4 Agricultural Marketing

The agriculture industry in India has always been a low growth, low
attention sector. There are several myths and misconceptions. There are
two terms -agriculture and marketing. In its broadest sense, ‘agriculture’
connotes activities aimed at the use of natural resources for a human being.
Whereas ‘marketing’ highlights a series of activities involved in moving
the goods from the point of production to the point of consumption. As
such, the term ‘agricultural marketing’ includes marketing functions,
agencies, channels, efficiency and cost, price spread and market integration,
producers surplus, etc. The agricultural marketing system is understood as
a link between the farm and the non-farm sectors. Agricultural marketing
requires warehousing and cold storage facilities along with means of
transport. With time, agriculture has become commercial. The farmer tries
to get maximum return on his investment and he grows those crops that
fetch a better price in the market. This makes marketing an integral part of
agriculture since an agriculturist is encouraged to make more investments
and increase production. Thus, there is an increasing awareness that it
is not enough to produce a crop or animal product; it must be marketed
as well. The National Commission on Agriculture defined agricultural
marketing as a process that starts with a decision to produce a saleable
farm commodity and it involves all aspects of the market structure of the
system, both functional and institutional, based on technical and economic
considerations and includes pre and post-harvest operations, assembling,
grading, storage, transportation, and distribution.
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Marketing Strategy 12.4.1 Processes of Agricultural Marketing
The Indian Council of Agricultural Research defined involvement of three
important functions, namely (a) assembling (concentration), (b) preparation
for consumption (processing), and (c) distribution. Concentrations pertain
to the operations concerned with the assembly and transport from the field
to a common assembly field or market. The produce may be taken directly
to the market or it may be stored on the farm or in the village for a varying
period before its transport. It may be sold in the same form as obtained from
the field or maybe cleaned, graded, processed, and packed either by the
farmer or trader before it is taken to the market. At the market, the produce
may be sold by the farmer direct to the consumer or more usually through a
commission agent or a trader. The transactions may be carried out by direct
negotiation or through middlemen. Distribution involves the operations of
wholesaling and retailing at various points. By a series of indispensable
adjustments, it is the task of the distribution system to match the available
supplies with the existing demands at any point in time.
12.4.2 Objective of Agricultural Marketing
Marketing is based on thinking about the business in terms of customer
needs and satisfaction. Agricultural marketing is mainly the buying and
selling of agricultural products. Today’s agricultural marketing has to
undergo a series of exchanges or transfers from one person to another before
it reaches the consumer. There are three marketing functions involved in this,
i.e., assembling, preparation for consumption, and distribution. Products are
sold in various ways. For example, it might be sold at a weekly village
market in the farmer’s village or a neighboring village. If these outlets are
not available, then produce might be sold at irregularly held markets in a
nearby village or town, or in the mandi. Today, value-added services and
food processing are not only revenue-generating areas but also can provide
employment. As we have a tradition of agricultural production, marketing,
and allied commercial activities, now it is time for us to understand the aims
and the objectives of agricultural marketing.
The objectives of an efficient agricultural marketing system may be
highlighted as follows: (i) to enable the primary producers to get the best
possible returns, (ii) to provide facilities for lifting all produce, the farmers
are willing, to sell at an incentive price, (iii) to reduce the price difference
between the primary producer and ultimate consumer, and (iv) to make
available all products of farm origin to consumers at reasonable price
without impairing on the quality of the produce.
12.4.3 Facilities Needed for Agricultural Marketing
In order to have the best advantage in the marketing of his agricultural
produce the farmer should enjoy certain basic facilities:
(i) proper facilities for warehousing and storage;
(ii) Should have holding capacity, which means the farmer should be
able to wait for times when he could get better prices for his produce
and not dispose of his stocks immediately after the harvest when the
prices are very low;

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(iii) Adequate and cheap transport facilities which could enable him to Logistic Services
take his surplus produce to the mandi and able to fetch better price;
(iv) Proper information regarding the market conditions as well as about
the ruling prices;
(v) There should be organized and regulated markets where the farmer
will not be cheated by the dalals and arhatiyas; and
(vi) Avoidance of a large number of intermediaries will lead to a better
price for the farmer.
All these factors will result in providing better returns to the farmers. The
share that a farmer gets out of a rupee spent by the consumer is not uniform
across all commodities and all parts of the country. Some estimates have
put it at 30 to 35 percent in respect of horticultural produce. Studies have
indicated that farmers’ share in the consumer’s rupee is higher in food
grains, oilseeds, and spices compared to that in perishable crops such as
fruits, vegetables, flowers, and milk which need to be processed or where
consumers like more processed products.
There is considerable scope for increasing marketing efficiency by
introducing new marketing technologies, training farmers, institutional care,
and creating marketing infrastructural facilities. The use of information
technology can also help in increasing access to market information and
thereby increase competition and efficiency of the market. To provide
dynamism and efficiency into the marketing system, large investments are
required for the development of post-harvest and cold-chain infrastructure
near the farmer’s field. A major portion of this investment is expected from the
private sector, for which an appropriate regulatory and policy environment
is necessary. Also, enabling policies to need to be put in place to encourage
the procurement to agricultural commodities directly from farmers’ fields
and to establish effective linkage between the farm production and the retail
chain and food processing industries.

12.5 Markets and Marketing

Institutions
The objective of reorienting the agricultural marketing system should be to
give to the farmers the benefit of a good market facility without subjecting
them to the intricacies of market transactions.
• The primary cooperative marketing societies can render this service.
It would be necessary to expand their network so that ultimately these
societies could open branches.
• The farmer’s service societies should assist the cooperative marketing
societies and perform marketing functions on their own where
cooperative marketing societies do not exist.
• The Food Corporation of India and other commodity corporations
should also strengthen their relationship with the primary societies
and encourage them to undertake purchasing activity on their behalf.
Unnecessary intermediaries, like brokers, should be phased out from
the market.
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Marketing Strategy • Market functionaries, like commission agents and traders, should
be licensed. The State marketing authority should issue licenses to
functionaries operating within a State and the Directorate of Marketing
and Inspection (DMI), Government of India to those who operate in
more than one State.
• The weighing of produce should be done by the market committees,
and only duly weighed and graded produce should be handed over
to the commission agents. The system of payments through banks
located in all regulated markets needs to be popularized.
Input Marketing: It is important from the point of view of augmenting
agricultural production that all inputs needed by the farmers for agricultural
operations should be made available to them on time and at reasonable
prices. Similar arrangements for the supply and service of farm machinery
and implements are also necessary. Suitable marketing facilities are to be
built on an adequate basis so that all the farmers could obtain the needed
inputs from any of the three channels, namely, the primary cooperative
marketing societies, agro-industries corporations, and sale depots of the
private traders. The farmers’ service societies should also be entrusted with
the running of input depots in respect of seed, fertilizers, and insecticides
or pesticides.
Output Marketing: In the case of crops, output marketing includes the
stage of pre and post-harvest techniques and transport and the disposal of
the produce for further processing or consumption. Livestock and livestock
products need special care before they are taken to the market for sale.
Research should be done on improving, pre-harvest treatment of crops,
prevention of post-harvest losses, and improving the quality of agricultural
products intended for marketing.
Role of Agro-Industries Corporations
The agro-industries corporations should participate in processing and
manufacturing activities based on a common pattern applicable throughout
the country. The spheres of activities could be:
a. Agricultural processing industry;
b. Preservation industry relating to perishable commodities; and
c. Selected agro-based industries.
The corporation should render all possible help to private entrepreneurs or
cooperative enterprises, particularly those functioning on a small or medium
scale. They should shoulder the responsibility for purchases and sale of the
products manufactured by units in the small and medium sector operating
under their patronage. The corporation should be directly responsible for
establishing agro-processing industries in an inaccessible areas.

12.6 Expanding Uses of Agricultural

Commodities / FOOD PROCESSING
INDUSTRY
Foodgrains and other agricultural raw materials are being increasingly
used in several industries. Bread, nans, and biscuits are some items of daily
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use which have gained popularity even in rural areas. There is a need to Logistic Services
establish manufacturing units in towns and rural areas to produce nutritious
bakery and confectionery items under hygienic conditions. The equipment
used in the preparation of parched products from cereals and millets
should be modernized. More manufacturing units should also be set for the
preparation of malt syrup and other malted products and beer and for this
purpose; the indigenous cultivation of hops should be encouraged for use in
the production of beer.
The food processing industry in India is increasingly seen as a potential
source for driving the rural economy as it brings about the synergy
between the consumer, industry, and the farmer. A well-developed food
processing industry can increase farm gate prices, reduce wastage, ensure
value addition, promote crop diversification and increase export earnings.
However, the food processing activity is still at a nascent stage in India with
low penetration. The challenges for the food processing sectors are diverse
and demanding and need to be addressed on several fronts to derive market
benefits. Some of these challenges are:
• Inadequate infrastructural facilities;
• access to credit;
• lack of applied research;
• constraints on quality of inputs; and
• food safety laws.
Facilities for grading agricultural produce have to be considerably
strengthened. Grading of all agricultural commodities, raw, as well as
processed, should be made compulsory and all products meant for inter-
state trade should be graded, inspected, and certified by the staff of the
DMI. All markets brought under regulation should have facilities to
grade all agricultural commodities. There is a need for evolving a simple
procedure for grading at the producer’s level by laying down one or two
recognized quality factors in the case of each kind of produce. The grading
and inspection of export consignments before shipment need to be strictly
enforced by the DMI acting as an export inspecting agency on behalf of the
Export Inspection Council.

12.7 Development of Agricultural

Marketing infrastructure
Bank finance can play a significant role in augmenting the marketing
infrastructure such as establishment and development of physical markets,
including the facilities required for sorting, grading, packing, quality control,
etc., development of transport and storage, and facilities for retailing of the
products. The Ministry of Agriculture and Farmers Welfares, Government
of India, had launched, in January 2005, a credit-linked back-ended subsidy
Scheme for the Development / Strengthening of Agricultural Marketing
Infrastructure, Grading, and Standardization. With the adoption of
technology by the existing markets and networking of markets to disseminate
real-time price information to farmers and other stakeholders, the scope for
bank finance of the sector has also increased. Further, the establishment
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Marketing Strategy of terminal market complexes in the public-private-partnership mode also
would call for substantial financial assistance in building up the required
infrastructure. With improved marketing facilities, backward integration in
the agricultural value chain would provide further scope for the financing
of other players. If agriculture can be defined as the entire set of activities
along the value chain leading to the final consumption of a product, its
success would depend to a great extent on the strength of the link provided
by agricultural marketing. The Advisory Committee on Flow of Credit
to Agriculture under the Chairmanship of Prof. V. S. Vyas set up by the
Reserve Bank of India in 2004, had, inter alia, also observed that the credit
needs for the development of market infrastructure for the agriculture sector
would be enhanced in the context of commercialization and globalization of
agricultural operations.
For financing orderly marketing of increasing levels of marketable surpluses
in the coming years, commercial and cooperative banks would be required to
play a vastly expanded role. Special measures are necessary to facilitate the
marketing of specific agricultural commodities. In the case of perishables,
there should be Central legislation to suppress unfair and fraudulent practices
in inter-State trade. Packaging these commodities required urgent attention,
particularly aspects like designing suitable cardboard boxes scientific use of
paper for wrapping, padding, and lining.
For the marketing of livestock produce, State Marketing Departments
should provide temporary physical facilities for orderly transactions at
cattle fairs and depute officials to supervise trading. Separate space has
to be provided within the marketing yards of the regulated market for
trading in livestock, and where there are no regulated markets suitable
arrangements for supervising trading in these products are needed. The
primary cooperative marketing societies or wool boards should assist sheep
breeders in assembling, grading, transporting, and selling wool. Curing
centers have to be set up in rural areas and the vicinity of slaughterhouses.
Poultry farmers’ associations or cooperatives should organize the marketing
of eggs from collection to sales in terminal markets on behalf of poultry
breeders. They should also go in for the processing of poultry products in
urban areas.
Check Your Progress 12.2
Note: a) Use the spaces given below for your answers.
b) Check your answer with those given at the end of the unit.
1) Point out the processes of agricultural marketing.
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
2) What do you understand by agricultural marketing infrastructure?
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………

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 Logistic Services
12.8 Transport and Storage
Agricultural marketing includes all aspects of the market, pre, and
post-harvest operations, assembling, grading, storage, transport, and
distribution. Road transport plays an important role in agricultural
marketing. Their weakest point is, however, below the town level i.e. rural
roads. Village roads should, therefore, be improved. The Central Road
Research Institute should intensify research on the contraction of semipucca
roads from locally available materials. Construction of all-weather roads in
hilly areas where fruits and vegetables are grown should be taken up on a
priority basis. The introduction of helicopter service in inaccessible areas
also needs consideration. To improve the modes of transport, the regional
research-cum-testing centers should redesign the conventional bullock cart
to improve its technical efficiency.
Efforts have to be made by the railways to increase the number of quick
transport services, reduce detention time at transshipment points, and avoid
procedural delays at the time of booking and unloading. Rationalization of
freight structure for fruits and vegetables and an increase in the number of
refrigerated and insulated wagons to be attached to express or mail trains
would go a long way in facilitating the marketing of these commodities.
Detailed studies would have to be undertaken to assess the requirements of
various types of rail vans needed at each production and marketing center
to make maximum use of scarce finances available. Sample traffic surveys
should be conducted in selected areas to collect data on quantity and type
of commodities moved to find out wasteful use of transport facilities and
suggest a better method of effecting transport. Special types of trucks have
to be designed to transport by road perishable commodities and livestock.
Covered sheds should be provided at check posts on highways where
the trucks are likely to be detained. In designing trucks for livestock, the
objective would be to prevent bruises and shrinkage in transit.
12.8.1 Storage
Improvement of storage facilities for certain commodities needs special
attention. The cooperative marketing societies and regulated markets
located in cotton-growing areas should plan an increase in the capacity
of warehouses according to requirements in different areas. The Cotton
Corporation of India (CCI) should advance money to producers on
warehouse receipts issued by the CWC, SWC, and the primary cooperative
marketing societies. In jute growing areas, cooperative marketing societies
have to be organized to provide the much-needed storage and credit facilities
at the assembly points and regulated market complexes. Adequate measures
have to be taken by cooperative and public sector undertakings to provide
cold storage facilities in production areas and terminal markets to facilitate
the storage and transport of perishables like fruits and vegetables to prevent
the fall in their prices to uneconomic levels in the post-harvest period.
Improved storage structures needed by farmers should be manufactured by
agro-industries corporations and other entrepreneurs as per ISI specifications.
Research on designing improved storage structures, using locally available
material, should be taken up by state agricultural universities. It would be
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Marketing Strategy necessary to train the existing staff at the block level to conduct demonstration
and training of farmers in a method of scientific storage and pest control.
The measures needed to prevent storage losses are: (a) popularizing the use
of chemicals to control losses in storage due to insects, pests, and rodents:
(b) storage of grains after proper drying; (c) fumigation of storage structures
and dipping of bags in pesticide solutions; and (d) removal of grains stored
in bulk to prevent further damage when there are signs of bad smell or
discoloration.
Grameen Bhandaran Yojana: Construction of Godowns / Cold Storage
Despite the warehouse built by CWC, SWC, and other private players
including the commodity exchange over time, including the commodity
exchange over time, there exists a huge gap in the availability of storage
facilities. To give an impetus to set up warehouses in the private sector, the
Government of India had introduced a credit-linked subsidy scheme for the
construction of cold storage for horticultural produce and rural godowns
for agricultural produce. The scheme, which primarily depended on bank
finance for implementation, has helped in reducing the post-harvest losses
in different areas to some extent. With the Warehouse Development and
Regulation Bill getting the approval of the Parliament, the opportunities
for setting up more godowns/warehouses by private parties are expected to
increase in the short term and medium term. Two important provisions of the
new Bill are (i) accreditations of the warehouses by a Central Authority, and
(ii) conferring negotiability status to warehouse receipt (WR). Bank finance
against the pledge of warehouse receipts is essential to enable farmers to
store their produce and take advantage of any favorable price movement in
subsequent months.
12.8.2 Cold Chain
Cold chain logistics supply chains should take advantage of technology
improvements in data capture and processing, product tracking and tracing,
synchronized freight transport transit times for time compression along the
supply chain, and supply-demand matching. Management of cold chain
involves maintaining an appropriate temperature regime when the product
travels from the farm in Himachal Pradesh to the consumer in London
or New York City. This makes the logistics challenge formidable in food
chains operations. By their very nature food chains is a very cost-conscious
industry. In matters of food, there are several governmental regulations in all
countries and the responsibility to maintain hygiene and standards falls on
the food retailer or manufacturer. The recent developments in technology,
electronic tagging could be useful for monitoring the temperatures and also
the shelf life of the product. The capacity of India to penetrate world markets
depends on its ability to meet increasingly stringent food safety standards
imposed in developed countries. Food standards are expected to acquire
greater importance given increasing concerns on food safety.
12.8.3 Recent Logistics and Infrastructure Development
Schemes
Infrastructure is one of the important aspects of agricultural marketing.
The development of infrastructure, especially during the post-harvest stage
of the agricultural produce will lead to better opportunities for optimum
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utilization of produce, its value addition, and better returns to the farmers Logistic Services
keeping in view the doubling farmers’ income goal of the government. It is
also pertinent that agricultural infrastructure development can help address
the regional and local inequalities, help in developing human resources and
it will lead to the realization of the utilization of our limited land resources.
In India, agriculture and activities allied to it are key sources of income to
approx. 58% of the total population, with Small Holding Farmers (85%)
having less or equal to 2 hectares of land that is cultivable and managing
about 45% of agricultural land. The income of farmers is abysmal. In India,
the infrastructure is limited that connects farmers to markets, and hence,
15-20% of yield is wasted which is relatively higher, unlike other countries
where it ranges between 5-15%. Investment in agriculture in India has
further been stagnant with less than 2% CAGR over the last 5 years.
Keeping this into view the government of India in 2020 made a huge
announcement to boost up the agricultural infrastructure across the country
by announcing one lakh crore rupees Infrastructure Fund for farm-gate
infrastructure for farmers known as Agriculture Infrastructure Fund
(AIF). The government made the guidelines for proper utilization of
this fund and announced that the funding will be provided to Agriculture
Infrastructure Projects at farm-gate & aggregation points that include
FPOs (Farmers Producer Organizations), PACS (Primary Agricultural
Cooperative Societies), Agriculture entrepreneurs, Start-ups, etc. The
government is detrimental to push for the development of farm gate &
aggregation point and at affordable and fiscally feasible infrastructure for
Post-Harvest Management.
The objectives of the scheme are:
• Improvement in marketing infrastructure that will facilitate farmers,
selling their produce directly to consumers, henceforth, it will help in
increasing value realization for the farmers and improvement in their
overall incomes.
• The logistics infrastructure will be developed by the huge investment
earmarked by the government this will help farmers to sell in the
market with abridged and minimum post-harvest losses and a few
intermediaries. This shall make farmers independent and develop
entrée and access to the markets directly.
• This scheme has an objective that deals with modern packaging and
cold storage system access to the farmers and it further helps farmers
to decide when to sell in the market and improve realization.
• Community farming assets for improved productivity and optimization
of inputs will result in substantial savings to farmers.
• The government has also taken entrepreneurs into account and
dedicated a good amount of funding to them, this will provide an
impetus for agricultural innovation and the sector will be able to
leverage new-age technologies including IoT, AI, etc.
• This will also help in connecting various players in the ecosystem and
therefore, more and improved opportunities for collaboration between
entrepreneurs and farmers.
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Marketing Strategy • With reduced inefficiencies in a post-harvest ecosystem, the key
benefit for consumers will be a larger share of produce reaching the
market and hence, better quality and prices.

12.9 Government Policies

Food and Agriculture are important national activities and affect the well-
being of the population of every country. In formulating the policies of
farming, production, processing, distribution, and retailing and also in
financing these activities the Governments play a leading role. This becomes
all the more important in view of the globalization of the food industry.
The decision to allow foreign operators for food production, distribution,
and retailing is of national importance. The decisions must be consistent
all along the supply chain and mutually reinforcing and not contradictory.
This is important because there are several regulatory measures handled by
several departments spread over Central, State, and Local governments.
Agri Export Zones (AEZs): The foreign trade policy of the government
attempts to take a comprehensive look at a particular produce/product
located in a contiguous area to develop and source the raw materials, their
processing, and packaging, finally exporting them. The idea of Agri export
zones was mooted by the Agricultural and Processed Food Products Export
Development Authority (APEDA) to increase international trade in agri-
commodities are an attempt to take a holistic approach to encourage trade
in specific commodities located in contiguous areas. For instance, in Tamil
Nadu, the AEZs would focus on grapes, mangoes, and chikkoo, in Kerala
-vegetables, in Punjab and Haryana -- kino, wheat, and rice, Karnataka
-- vegetables and flowers, Maharashtra -- mangoes, grapes, and flower,
Gujarat -- bananas, mango, castor and garlic, and in Uttaranchal -- litchi
and medicinal plants.
The Prime Minister’s Economic Advisory Council has made an interesting
observation on ‘Reforms in Agricultural Marketing’. That the Government
should encourage suitable models for marketing agricultural produce for
different commodities. The council is also critical of States’ control over
the marketing of agricultural produce. It laments that while agricultural
production is free of government controls, marketing of farm products is
not. It blames laws in States that bar direct marketing for the situation.
Some State Governments have made it mandatory to market agricultural
produce through designated markets only. Accepting that the law was
imposed to protect poor producers from the machinations of traders and
middlemen, the council regrets that the said objective has not been achieved
yet. Mooting suitable models for different commodities and regions, the
council has called for fair terms for contracting parties and an effective
adjudication mechanism.
Check Your Progress 12.3
Note: a) Use the spaces given below for your answers.
b) Check your answer with those given at the end of the unit.
1) Distinguish between input marketing and output marketing.
………………………………………………………………………
………………………………………………………………………
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2) What is the relevance of Grameen Bhandaran Yojana? Logistic Services

………………………………………………………………………
………………………………………………………………………
3) Explain the concept of Agri Export Zones (AEZs).
………………………………………………………………………
………………………………………………………………………

12.10 LET US SUM UP

An efficient supply chain can contribute to an increase in the marketable
surplus by lowering the inefficiencies in production, processing, storage, and
transportation. It ensures better prices to the farmers inducing them to invest
more in the vital inputs so that productivity leaps frog. It widens market
opportunities for products and thus helps in maintaining an ever-increasing
demand for the same. Organized retailing acts as a stimulator to promote
the growth of agro-based industries, helping the farmers in production
planning in advance, based on demand forecast. Facilities and infrastructure
for agricultural marketing in the country have to be considerably improved
and strengthened to enable the agriculturists to dispose of their produce at
incentive prices, reduce the price spread between the primary producer and
the ultimate consumer and ensure the availability of consumer products and
agricultural inputs to the farmers at reasonable prices.
The supply chain needs to be designed and built as a whole in an integrated
manner with the processes of new product development, procurement, and
order to delivery processes well designed and well supported using IT tools
and software.
It was derived that the supply chain will be effective and efficient, only
when farmers’ forums are formed as a vital step to go further. This in turn
would help to improve the quality of their produce (spotless fruits and even
ripening) and improve the feasibility of broadening the distribution area of
this commodity apart from increasing the keeping quality.
The Directorate of Agri-Business Development now responds to the needs
of not only the farmers but all the partners in the supply chain. Special effort
is being made to involve and include small farmers and develop more tie-
ups with national and international markets and companies. Aimed towards
helping the farmers and other members of the supply chain to enhance
quality, value, and returns from their produce.

12.11 KeyWORDS
Agricultural marketing: Covers the services involved in moving an
agricultural product from the farm to the consumer. Numerous interconnected
activities are involved in doing this, such as planning production, growing
and harvesting, grading, packing, transport, storage, agro- and food
processing, distribution, advertising, and sale.
Agricultural marketing infrastructure: Marketing infrastructure provides
a common facility for proper weighing, cleaning, grading, packaging, and
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Marketing Strategy storage of agricultural produce e.g. food grains, vegetables, fruits, and
medicinal herbs.
Agricultural marketing institutions: embrace a wide range of
organizations, including associations of farmers, traders, and others in the
value chain, as well as cooperatives and government marketing agencies.
Agricultural products logistics: It is the process of physical distribution
of the agricultural product from the supply place to the receiving place.
According to actual need, basic functions including agricultural product
transporting, storing, loading and unloading, packing, allocation, circulation
processing, information processing are integrated to realize the agricultural
product to keep and increase its value in the process.
Agro industries: Industry dealing with the supply, processing, and
distribution of farm products. Also connotes large-scale production,
processing, and packaging of food using modern equipment and methods.
Cold chain: A cold chain is a temperature-controlled supply chain. An
unbroken cold chain is an uninterrupted series of storage and distribution
activities that maintain a given temperature range. It is used to help extend
and ensure the shelf life of products such as fresh agricultural produce,
seafood, frozen food, photographic film, chemicals, and pharmaceutical
drugs.
Grameen Bhandaran Yojana: this scheme creates a scientific storage
capacity with allied facilities in rural areas to meet the requirements of
farmers for storing farm produce, processed farm produce , and agricultural
inputs; promotion of grading, standardization, and quality control of
agricultural produce to improve their marketability; prevention of distress
sale immediately after harvest by providing the facility of pledge financing
and marketing credit.
Food supply chain: A food supply chain is a network of food-related
business enterprises through which food products move from production
through consumption, including pre-production and post-consumption
activities. Typical links in the supply chain are inputs, producer, processor,
distributor, wholesaler, retailer, and consumer.
Grain storage: grain storage plays an important role in preventing losses
that are caused mainly due to weevils, beetles, moths, and rodents. The
storage methods range from mud structures to modern bins.
Input marketing: value chains begin with production. And efficient
production is not possible if necessary farm inputs are not available in time
or if inputs are not affordable. Improved efficiency in farm input marketing
reduces unit costs and increases availability.
Logistic services: Logistics contains the integrated planning, control,
realization, and monitoring of all internal and network-wide material.
Output marketing: market output in agriculture includes agricultural
products sold in the case of crops, output marketing includes the stage of pre
and post-harvest techniques and transport and the disposal of the produce
for further processing or consumption. Livestock and livestock products
need special care before they are taken to the market for sale.
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Supply chain management for agriculture: the agriculture supply chain Logistic Services
refers to the activities of procurement, order fulfillment, product design
and development, distribution, delivery, and customer service executed by
two or more separate organizations in the agribusiness industry, to fulfill
customer orders.

12.12 Suggested Further Readings /

REferences
• Bhalla, G.S. (2007), Indian Agriculture since Independence, National
Book Trust, New Delhi.
• Chandy,. K T. (2010): Agricultural Marketing in India, http://
www.world-agriculture.com/agricultural_marketing/agricultural-
marketing.php
• Coyle, John J., Edward J. Bardi, and C. John Langley, Jr. , (2003) :
The Management of Business Logistics: A Supply Chain Perspective.
Mason, OH: South-Western Thomson Learning.
• Department of Agriculture (1976) : Report of National Commission
on Agriculture, Ministry of Agriculture, GoI, New Delhi.
• Department of Agriculture and Corporation (2012) : State of Indian
Agriculture (2011-12), Ministry of Agriculture, GoI, New Delhi.
• Government of India (2000), National Agricultural Policy, Ministry
of Agriculture, July, New Delhi.
• Inman, R. Anthony : (2009), Logistics and Transportation (in
Encyclopedia of Management edited by Marilyn M. Helms,
5ht edition, Gale, Thomson,) (http://www.referenceforbusiness.
com/management/Log-Mar/Logistics-and Transportation.
html#ixzz26bdEIDkN.
• Khan, Harun R., (2012) : Food Inflation and Agricultural Supply
Chain Management, RBI Monthly Bulletin, October.
• Ramaseshan, R (2009) : Commodity Markets and Agriculture
Financing, Journal of College of Agricultural Banking, Pune (October
– December).
• Yingxia1, Zhao and Guo Xiangyu, (2008) : The Research on Chinese
Agricultural Product Logistics Based on the Supply Chain.
Internet links:
• www.agriskmanagementforum.org/sites/.../12651774740z0nfa8s.pdf
• http://www.upscmains.in/2013/06/food-processing-and-related-
industries.html
• http://lcm.csa.iisc.ernet.in/nv/Mypublications/
Thoughtleadershippapers/canindiabethefoodbasket.doc
• http://www.scribd.com/doc/18502534/Agriculture-Marketing
• http://www.slideshare.net/SuryanarayanSahoo/rural-project-
management-on-mgnrega

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Marketing Strategy • http://www.crosstree.info/Documents/Pages-from-Transreporter-
March12.pdf
• http://www.gjms.co.in/index.php/gjms/article/download/71/103

12.13 Answers to check your progress

Check Your Progress 12.1
1) Agricultural products logistics is the process of physical distribution
of the agricultural product from the supply place to the receiving
place.
2) A supply chain is a set of three or more organizations linked directly
by one or more of the upstream or downstream flows of products,
services, finances, and information from a source to a customer.
3) The features of agricultural product logistics are (i) The strong
seasonal characteristic, (ii) great difficulty, and the strict request of
agricultural product logistics: The agricultural logistics emphasizes
safety and no pollution and requests realizing “the green logistics”,
and (iii) many varieties and big scale of agricultural product logistics.
4) Due to the inadequacy of a uniform supply chain in commodities,
farmers are getting exposed to price fluctuations; lack of supply chain
is also making the sector too risky for farmers to invest in otherwise
profitable activity.
5) A food supply chain is a network of food-related business enterprises
through which food products move from production through
consumption, including pre-production and post-consumption
activities. Typical links in the supply chain are inputs, producer,
processor, distributor, wholesaler, retailer, and consumer.
Check Your Progress 12.2
1) There are three main processes, namely (a) assembling (concentration),
(b) preparation for consumption (processing), and (c) distribution.
2) Marketing infrastructure goes a long way in ensuring higher
remuneration to the farmers and meeting the satisfaction level of the
consumers. Marketing infrastructure of agricultural produce helps
in the complete elimination of middlemen and commission agents
who charge a high level of commission fee from the agriculturists/
farmers coming to the market yards for selling their produce and then
artificially inflating the retail prices.
Check Your Progress 12.3
1) Input marketing relates to the provision of all the inputs required
for doing farming like seeds, fertilizers, water, insecticides, and
pesticides. Output marketing is concerned with the sale of agricultural
produce after they have been harvested.
2) Despite the provision of storage and warehousing, still there exists a
huge gap in the availability of storage facilities. To give an impetus to
set up warehouses in the private sector, the Government of India had
introduced a credit-linked subsidy scheme for the construction of cold
270
 storage for horticultural produce and rural godowns for agricultural Logistic Services
produce.
3) Agri export zones attempt to take a comprehensive look at particular
produce/products located in a contiguous area to develop and source
the raw materials, their processing/packaging, leading to final exports.
Thus, the entire effort is centered on a cluster approach of identifying
the potential products, the geographical region in which these are
grown and adopting an end-to-end approach of integrating the entire
process, right from the stage of production till it reaches the market.

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