Chapter 5

Marketing mix
After determining its overall marketing strategy, the company is ready to begin planning the
details of the marketing mix, one of the major concepts in modern marketing. The marketing
mix is the set of tactical marketing tools that the firm blends to produce the response it wants in
the target market. The marketing mix consists of everything the firm can do to influence the
demand for its product. The many possibilities can be collected into four groups of variables—
the four Ps.
5.1 What Is a Product?
Product is anything that can be offered to a market for attention, acquisition, use, or
consumption that might satisfy a want or need. Products include more than just tangible objects,
such as cars, computers, or cell phones. Broadly defined, “products” also include services,
events, persons, places, organizations, ideas, or a mixture of these.

Services are a form of product that consists of activities, benefits, or satisfactions offered for sale
that are essentially intangible and do not result in the ownership of anything. Examples include
banking, hotel services, airline travel, retail, wireless communication, and home repair services.

Levels of Product and Services

Product planners need to think about products and services on three levels. Each level adds more
customer value. The most basic level is the core customer value, which addresses the question
what is the buyer really buying? E.g. A woman buying lipstick buys more than lip color.
At the second level, product planners must turn the core benefit into an actual product. They
need to develop product and service features, design, a quality level, a brand name, and
packaging. For example, the BlackBerry is an actual product. Finally, product planners must
build an augmented product around the core benefit and actual product by offering additional
consumer services and benefits.
Core product: e.g. BlackBerry Smartphone can bought for more than a cell phone
(communication)
Actual product: Brand Name, Features, Quality Level, Design, Packaging e.g. BlackBerry is an
actual product.

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Augmented product: Delivery and credit, Product support, Warranty, after sale service, e.g. The
BlackBerry is more than just a communications device. It provides consumers with a complete
solution to mobile connectivity problems.
Product and Service Classifications
Products and services fall into two broad classes based on the types of consumers that use them:
consumer products and industrial products. Broadly defined, products also include other
marketable entities such as experiences, organizations, persons, places, and ideas.
Consumer Products
Consumer products are products and services bought by final consumers for personal
consumption. Marketers usually classify these products and services further based on how
consumers go about buying them. Consumer products include convenience products, shopping
products, specialty products, and unsought products. These products differ in the ways
consumers buy them and, therefore, in how they are marketed.
A) Convenience product: A consumer product that customers usually buy frequently,
immediately, and with minimal comparison and buying effort. E.g. Detergent, candy,
magazines and fast food.
B) Shopping product: A consumer product that the customer, in the process of selecting and
purchasing, usually compares on such attributes as suitability, quality, price, and style. E.g.
Furniture, clothing, used cars.
C) Specialty product A consumer product with unique characteristics or brand identification
for which a significant group of buyers is willing to make a special purchase effort. Examples
include specific brands of cars, high-priced photographic equipment, designer clothes, and
the services of medical or legal specialists.
D) Unsought product: A consumer product that the consumer either does not know about or
knows about but does not normally consider buying. e.g.; Insurance, preplanned funeral
services and blood donations.
Industrial Products

Industrial product A product bought by individuals and organizations for further processing or
for use in conducting a business. Thus, the distinction between a consumer product and an
industrial product is based on the purpose for which the product is purchased.

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The three groups of industrial products and services include materials and parts, capital items,
and supplies and services.
i) Materials and parts: include raw materials and manufactured materials and parts. Raw
materials consist of farm products (wheat, cotton, livestock, fruits, vegetables) and
natural products (fish, lumber, crude petroleum, iron ore). Manufactured materials and
parts consist of component materials (iron, yarn, cement, wires) and component parts
(small motors, tires, castings). Most manufactured materials and parts are sold directly to
industrial users. Price and service are the major marketing factors; branding and
advertising tend to be less important.
ii) Capital items are industrial products that aid in the buyer’s production or operations,
including installations and accessory equipment. Installations consist of major purchases
such as buildings (factories, offices) and fixed equipment (generators, drill presses, large
computer systems, and elevators). Accessory equipment includes portable factory
equipment and tools (hand tools, lift trucks) and office equipment (computers, fax
machines, desks).
iii) Supplies and services. Supplies include operating supplies (lubricants, coal, paper,
pencils) and repair and maintenance items (paint, nails, brooms). Supplies are the
convenience products of the industrial field because they are usually purchased with a
minimum of effort or comparison. Business services include maintenance and repair
services (window cleaning, computer repair) and business advisory services (legal,
management consulting, and advertising). Such services are usually supplied under
contract.
Product Decision

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Product Decision

The above Figure shows the important decisions in the development and marketing of products.
It focus on decisions about product attributes, branding, packaging, labeling and product support
services.

Product Attributes

Developing a product or service involves defining the benefits that it will offer. These benefits
are communicated and delivered by product attributes such as quality, features, and style and
design.

Product Quality: Product Quality is one of the marketer’s major positioning tools. Quality
has a direct impact on product performance; thus it is closely linked to customer value and
satisfaction. Most customer centered companies define quality in terms of customer satisfaction.
This customer-focused definition suggests that quality begins with customer needs and ends with
customer satisfaction.

Product Features. Features are a competitive tool for differentiating the company’s product
from competitors’ product. Being the first producer to introduce a needed and valued new
feature is one of the most effective ways to compete.

Product style and Design. Another way to add customer value is through distinctive product
style and design. Design is a larger concept than style. Style simply describes the appearance of
a product. Style can be eye-catching. A sensational style may grasp attention and produce
pleasing aesthetics, but it does not necessarily make the product perform better. Unlike style,
design is more than skin deep—it goes to the very heart of a product. Good design contributes to
a product’s usefulness as well as to its looks.

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Branding

A brand is a name, term, sign, symbol, or design, or a combination of these, intended to identify
the goods or services of one seller or group of sellers and to differentiate them from those of
competitors. Perhaps the most distinctive skill of professional marketers is their ability to create,
maintain, protect, and enhance brands of their products. Consumers view a brand as an
important part of a product, and branding can add value to a product.

Branding helps buyers in many ways. Brand names help consumers identify product that might
benefit them. Brands also tell the buyer something about product quality. Buyers who always
buy the same brand know that they will get the same features, benefits, and quality each time
they buy. Branding also gives the seller several advantages. The brand name becomes the basis
on which a whole story can be built about a product’s special qualities.

Packaging

Packaging involves designing and producing the container or wrapper for a product safety. The
package includes a product’s primary container (the tube holding Colgate total toothpaste). It
may also include a secondary package that is thrown away when the product is about to be used
(the card-board box containing the tube of Colgate). Finally, it can include a shipping package
necessary to store, identify, and ship the product.

In recent times, packaging has become a powerful marketing tool. Well-designed packages can
create convenience value for the consumer and promotional value (sales tax) for the producer.
Companies are realizing the power of good packaging to create instant consumer recognition of
the company or brand.

Innovative packaging can give a company an advantage over competitors. In contrast, poorly
designed packages can cause headaches for consumers and lost sales for the company.
Developing effective packaging may cost lots of money and take from a few months to a year.
The importance of packaging cannot be overemphasized, considering the functions it performs in
attracting and satisfying customer. Companies must pay attention, however, to the growing
environmental and safety concerns about packaging.

Labeling

Labeling is a subset of packaging. Labels may range from simple tags attached to products to
complex graphics that are part of the package. The label may be a simple tag attached to the
product or an elaborately designed graphic that is part of the package. The label might carry
only the brand name or a great deal of information. Even if the seller prefers a simple label, the
law may require additional information.

At the very least, the label identifies the product or brand such as the name Coca Cola is stamped
on the bottle. The label might also describe several things about the product who made it, where

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it was made, when it was made, its contents, how it is to be used, and how to use it safely.
Finally, the label might promote the product through attractive graphics.

Product Support Service

Customer service is another element of product strategy. A company’s offer to the marketplace
usually includes some support services, which can be a minor or a major part of the total
offering. The company should survey customers periodically to assess the value of current
services and to obtain ideas for new ones. Once the company has assessed the value of various
support services to customers, it must next assess the costs of providing these services. It can
then develop a package of services to customers; it must both satisfy customers and yield profits
to the company. Many companies are now using internet and other modern technologies to
provide support services that were not possible before.

New Product Development

Given the rapid changes in consumer tastes, technology and competition, companies must
develop a steady steam of new products. A firm can obtain new products in two ways. One is
through acquisition by buying a whole company, a patent, or al license to produce someone
else’s product. The other is through new-product development in the company’s own research
and development department. By new product we mean original product, product improvements,
product modifications, and new brands that the firm develops through its own research and
development efforts.

Figure 2. Strategies for obtaining new product ideas

New product development process

New product development is the development of original products, product improvements,

product modifications, and new brands through the firm’s own R&D effort. New product
development process involves; idea generation, idea screening, concept development and testing,

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marketing strategy, business analysis, product development, taste marketing and
commercialization.

Figure 3. New product development Process

1. Idea Generation
New product development starts with idea generation the systematic search for new product
ideas. A company typically has to generate many ideas in order to find a few good ones. Major
source of new product ideas include internal sources and external sources such as customers,
competitors, distributors and suppliers, and others. Using internal sources the company can find
new ideas through formal research and development. Externally, good new-product ideas also
come from watching and listening to customers. The company can analyze customer questions
and complaints to find new products that better solve consumer problems.

2. Idea Screening
The purpose of idea generation is to create a large number of ideas. The purpose of the
succeeding stages is to reduce that number. The first idea-reducing stage is idea screening,
which helps spot good ideas and drop poor ones as soon as possible. Product development costs
rise greatly in later stages, so the company wants to go ahead only with the product ideas that
will turn into profitable products.

3. Concept Development and Tasting

Concept Development: An attractive idea must be developed into a product concept. A product
concept is a detailed version of the new product idea stated in meaningful consumer terms. It is
the development of product ideas into alternative product concept.

Concept Testing: It is about testing new-product concepts with a group of target consumers to
find out if the concepts have strong consumer appeal. The concept may be presented to
consumers symbolically or physically. Many firms routinely test new-product concept with
consumers before attempting to turn them into actual new products.

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4. Marketing Strategy Development
Marketing strategy development involves designing an initial marketing strategy for a new
product based on the product concept. The marketing strategy statement consists of three parts.
The first part describes the target market; the planned product positioning; and the sale, market
share, and profit goals for the first few years. The second part of the marketing strategy
statement outlines the product’s planned price, distribution and marketing budget for the first
year. The third part of the marketing strategy statement describes the planned long-run sales,
profit goals, and marketing mix strategy.

5. Business Analysis
Business analysis is a review of the sales, costs, and profit projections for a new product to find
out whether these factors satisfy the company’s objectives. If they do, the product can move to
the product development stage. If not, it is better to eliminate the product concept.

To estimate sales, the company might look at the sales history of similar products and conduct
surveys of market opinion. It can then estimate minimum and maximum sales to assess the range
of risk. After preparing the sales forecast, management can estimate the expected costs and
profits for the product, including marketing, R&D, operating, accounting and finance costs.

6. Product Development
So far, for many new product concepts, the product may have existed only as a word description,
a drawing, or perhaps a crude mock-up. If the product concept passes the business test, it moves
into product development. Product development is the development of product concept into a
physical product in order to ensure that the product idea can be turned into a workable product.
This step calls for a large jump in investment. The R&D department will develop and test one or
more physical versions of the product concept. Developing a successful prototype can take days,
weeks, months, or even years.

7. Test Marketing
Test marketing is the stage of new product development in which the product and marketing
program are tested in more realistic marketing setting. Test marketing gives the marketer
experience with marketing the product before going to the great expense of full introduction. It
lets the company test the product and its entire marketing program—positioning strategy,
advertising, distribution, pricing, branding and packaging, and budget levels. When using test
marketing, consumer products companies usually choose one of three approaches – standard test
markets, controlled test markets, or simulated test markets.

8. Commercialization
Commercialization is the phase at which the company introduces the new product into the
market. Test marketing gives management the information needed to make a final decision
about whether to launch the new product. If the company goes ahead with commercialization, it
will face high costs. The company will have to build or rent a manufacturing facility.

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The company launching a new product must first decide in introduction timing. Next, the
company must decide where to launch the new product – in a single location, a region, the
national market or the international market. The company must also decide to whom to sells and
how to sale the product.

Product Life-Cycle Strategies

After launching the new product, management wants that product to enjoy a long and happy life.
Although it does not expect that product to sell forever, the company wants to earn a decent
profit to cover all the effort and risk that went into launching it. Management is aware that each
product will have a life cycle, although its exact shape and length is not known in advance.
A typical product life cycle (PLC) is the course that a product’s sales and profits take over its
lifetime. The PLC has five distinct stages:
1. Product development begins when the company finds and develops a new-product idea.
During product development, sales are zero, and the company’s investment costs mount.
2. Introduction is a period of slow sales growth as the product is introduced in the market.
Profits are nonexistent in this stage because of the heavy expenses of product introduction.
3. Growth is a period of rapid market acceptance and increasing profits.
4. Maturity is a period of slowdown in sales growth because the product has achieved
acceptance by most potential buyers. Profits level off or decline because of increased
marketing out lays to defend the product against competition.
5. Decline is the period when sales fall off and profits drop. Not all products follow all five
stages of the PLC. Some products are introduced and die quickly; others stay in the mature
stage for a long, long time. Some enter the decline stage and are then cycled back into the
growth stage through strong promotion or repositioning.
Introduction Stage

The introduction stage starts when a new product is first launched. Introduction takes time, and
sales growth is apt to be slow. In this stage, as compared to other stages, profits are negative or
low because of the low sales and high distribution and promotion expenses. Much money is
needed to attract distributors and build their inventories. Promotion spending is relatively high to
inform consumers of the new product and get them to try it. Because the market is not generally
ready for product refinements at this stage, the company and its few competitors produce basic

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versions of the product. These firms focus their selling on those buyers who are the most ready to
buy.
Growth Stage

If the new product satisfies the market, it will enter a growth stage, in which sales will start
climbing quickly. The early adopters will continue to buy, and later buyers will start following
their lead, especially if they hear favorable word of mouth. Attracted by the opportunities for
profit, new competitors will enter the market. They will introduce new product features, and the
market will expand. The increase in competitors leads to an increase in the number of
distribution outlets, and sales jump just to build reseller inventories. Prices remain where they are
or decrease only slightly. Companies keep their promotion spending at the same or a slightly
higher level.

Profits increase during the growth stage as promotion costs are spread over a large volume and as
unit manufacturing costs decrease. The firm uses several strategies to sustain rapid market
growth as long as possible. It improves product quality and adds new product features and
models. It enters new market segments and new distribution channels. It shifts some advertising
from building product awareness to building product conviction and purchase, and it lowers
prices at the right time to attract more buyers.
In the growth stage, the firm faces a trade-off between high market share and high current profit.
By spending a lot of money on product improvement, promotion, and distribution, the company
can capture a dominant position. In doing so, however, it gives up maximum current profit,
which it hopes to make up in the next stage.

Maturity Stage

At some point, a product’s sales growth will slow down, and it will enter the maturity stage.
This maturity stage normally lasts longer than the previous stages, and it poses strong challenges
to marketing management. Most products are in the maturity stage of the life cycle, and therefore
most of marketing management deals with the mature product.

The slowdown in sales growth results in many producers with many products to sell. In turn, this
overcapacity leads to greater competition. Competitors begin marking down prices, increasing

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their advertising and sales promotions, and upping their product development budgets to find
better versions of the product. These steps lead to a drop in profit.
Some of the weaker competitors start dropping out, and the industry eventually contains only
well-established competitors.
Decline Stage

The sales of most product forms and brands eventually dip. The decline may be slow, Sales may
plunge to zero, or they may drop to a low level where they continue for many years. This is the
decline stage.

Sales decline for many reasons, including technological advances, shifts in consumer tastes, and
increased competition. As sales and profits decline, some firms withdraw from the market. Those
remaining may prune their product offerings. They may drop smaller market segments and
marginal trade channels, or they may cut the promotion budget and reduce their prices further.
5.2 PRICING
What is a Price?

In the narrowest sense, price is the amount of money charged for a product or a service. More
broadly, price is the sum of all the values that customers give up to gain the benefits of having or
using a product or service. Historically, price has been the major factor affecting buyer choice. In
recent decades, non-price factors have gained increasing importance. However; price still
remains one of the most important elements that determine a firm’s market share and
profitability.
Price is the only element in the marketing mix that produces revenue; all other elements
represent costs. Price is also one of the most flexible marketing mix elements. Unlike product
features and channel commitments, prices can be changed quickly. At the same time, pricing is
the number-one problem facing many marketing executives, and many companies do not handle
pricing well.
1.2. Objectives of price decisions
The following are the objectives of price policy of a firm:

1. Return of Investment: A business organization must have minimum return on its

investment. E.g.10% to 20% after-tax. This rate is to be decided by the management and
followed in pricing policy.

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 2. Maximization of profit: Pricing policy directly affects the earnings of the concern and,
therefore, its successful functioning. Hence, the first objective of a price policy should be
the maximum of profit for the firm.
3. Acquiring market position: The second objective of price policy is to acquire a position
in the market. Hence a firm should prepare its pricing policies keeping in mind this
objective also.
4. Price stabilization: The price fixed once should be reasonably stabilized as it gives a
continuous income to the firm and brings reputation also. It is possible only when all short
term and long term aspects are taken into account while fixing prices.
5. Charging according to ‘Ability to pay’: The firm should fix its prices in such a manner
that ‘ability to pay’ principle of taxation is followed. It helps in maximization of earnings.
6. Facing the competition: The price policy of a firm should aim at facing the competition
successfully.
7. Long-run welfare of firm: The next objectives of price policy of a firm should be its
long-run welfare.

Factors to Consider when Setting Prices

A company's pricing decisions are affected both by internal company factors andby external
environmental factors.

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Internal Factors Affecting Pricing Decisions
Internal factors affecting pricing include the company's marketing objectives, marketing-mix
strategy, costs and organization.
1. Marketing Objectives
The clearer a firm is about its objectives, the easier it is to set price. Examples of common
objectives are survival, current profit maximization, market-share maximization and product-
quality leadership.
2. Marketing-Mix Strategy
Price is only one of the marketing-mix tools that a company uses to achieve its marketing
objectives. Price decisions must be co-ordinate with product design, distribution and promotion
decisions to form a consistent and effective marketing program. Decisions made for other
marketing-mix variables may affect pricing decisions.
Costs
Costs set the floor for the price that the company can charge for its product. The company wants
to charge a price that both covers all its costs for producing, distributing and selling the product,
and delivers a fair rate of return for its effort and risk. A company's costs may be an important
element in its pricing strategy. Many companies work to become the 'low-cost producers' in their
industries. Companies with lower costs can set lower prices that result in greater sales and
profits.
3. Organization for pricing
Management must decide who within the organization should set prices. Companies handle
pricing in a variety of ways. In small companies, prices are often set by top management rather
than by the marketing or sales departments. In large companies, pricing is typically handled by
divisional or product line managers. In industrial markets, sales people may be allowed to
negotiate with customers within certain price ranges. Even so, top management sets the pricing
objectives and policies, and it often approves the prices proposed by lower-level management or
sales people.
External Factors Affecting Pricing Decisions
External factors that affect pricing decisions include the nature of the market and demand,
competition and other environmental elements.
1. The Market and Demand

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Whereas costs set the lower limit of prices, the market and demand set the upper limit. Both
consumer and industrial buyers balance the price of a product or service against the benefits of
owning it. Thus, before setting prices, the marketer must understand the relationship between
price and demand for its product.
Pricing In Different Types Of Market.
The seller's pricing freedom varies with different types of market. Economists recognize four
types of market, each presenting a different pricing challenge.
 Under pure competition, the market consists of many buyers and sellers trading in a uniform
commodity such as wheat, copper or financial securities. No single buyer or seller has much
effect on the going market price. A seller cannot charge more than the going price because
buyers can obtain as much as they need at the ongoing price.
 Under monopolistic competition, the market consists of many buyers’ and sellers that trade
over a range of prices rather than a single market price. A range of prices occurs because
sellers can differentiate their offers to buyers. Either the physical product can he varied in
quality, features or style, or the accompanying services can be varied.
 Under oligopolistic competition, the market consists of a few sellers that are highly sensitive
to each other's pricing and marketing strategies. The product canbe uniform (steel,
aluminum) or non-uniform (cars, computers). There are few sellers because it is difficult for
new sellers to enter the market. Each seller is alert to competitors' strategies and moves. If a
steel company slashes its price by 10 percent, buyers will quickly switch to this supplier. The
other steel makers’ must respond by lowering their prices or increasing their services.
 In a pure monopoly, the market consists of one seller. The seller may be a government
monopoly (a Postal Service), a private regulated monopoly (a power company) or a private
non-regulated monopoly (Microsoft with DOS and Windows). Pricing is handled differently
in each case; a government monopoly can pursue a variety of pricing objectives. It might set
a price below cost because the product is important to buyers who cannot afford to pay full
cost. Or the price might be set either to cover costs or to produce good revenue. It can even
be set quite high to slow down consumption. In a regulated monopoly, the government
permits the company to set rates that will yield a 'fair return', one that will let the company
maintain and expand its operations as needed. Non-regulated monopolies are free to price at
what the market will bear. However, they do not always charge the full price for a number of
reasons: for example,

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 - A desire not to attract competition,
- A desire to penetrate the market faster with a low price, or
-A fear of government regulation.
Analyze Price-Demand Relationships.
Each price the company might charge will lead to a different level of demand. The normal case,
demand and price are inversely related: that is, the higher the price, the lower the demand. Thus
the company would sell less if it raised its price from P1 to P2. In short, consumers with limited
budgets will probably buy less of something if its price is too high.

Price
P2 demand curve
p1
Q1 Q2 demand
Graph 1: price-demand relationship
Price Elasticity of Demand. Marketers also need to know price elasticity.
How responsive demand will be to a change in price. If a price increase from P1 to p2 leads to a
relatively small drop in demand from Q1 to Q2; we say the demand is inelastic a similar price
increase leads to a large drop in demand from Q1 to Q 2- If demand changes greatly, we say the
demand is elastic.
2. Competitors' Costs, Prices and Offers
Another external factor affecting the company's pricing decisions is competitors' costs and
prices, and possible competitor reactions to the company's own pricing moves.
3. Other External Factors
When setting prices, the company must also consider other factors in its external environment.
Economic conditions can have a strong impact on the firm's pricing strategies. Economic factors
such as boom or recession, inflation and interest rate affect pricing decisions because they affect
both the costs of producing a product and consumer perception of the product's price and value.
The company must also consider what impact its prices will have on other parties in its
environment. How will resellers react to various prices? The company should set prices that give
resellers a fair profit, encourage their support and help them to sell the product effectively. The
government is another important external influence on pricing decisions.

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 PRICING STRATEGIES
Market-skimming pricing
Setting a high price for a new product to skim maximum revenues layer by layer from the
segments willing to pay the high price; the company makes fewer but more profitable sales.
Market skimming makes sense only under certain conditions.
 First, the product’s quality and image must support its higher price and enough buyers
must want the product at that price.
 Second, the costs of producing a smaller volume cannot be so high that they cancel the
advantage of charging more.
 Finally, competitors should not be able to enter the market easily and undercut the high
price.
Market-Penetration Pricing
Rather than setting a high initial price to skim off small but profitable market segments, some
companies use market - penetration pricing. They set a low initial price in order to penetrate
the market quickly and deeply—to attract a large number of buyers quickly and win a large
market share. The high sales volume results in falling costs, allowing the companies to cut their
prices even further.
Several conditions must be met for this low-price strategy to work.
 First, the market must be highly price sensitive so that a low price produces more market
growth.
 Second, production and distribution costs must fall as sales volume increases.
 Finally, the low price must help keep out the competition, and the penetration price must
maintain its low-price position—otherwise, the price advantage may be only temporary.
Psychological pricing
This pricing strategy can be used to play on consumer perceptions. Classic example - £9.99
instead of £10.00! Links with value pricing – high value goods priced according to what
consumers think should be the price.
Destroyer pricing / Predatory pricing:
Deliberate price cutting or offer of ‘free gifts/products’ to force rivals (normally smaller and
weaker) out of business or prevent new entrants. Anti-competition and illegal if it can be proved

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 5.3 PLACE

MARKETING CHANNELS

The channel of distribution is the system of institutions used to deliver goods to the final consumers
from where they are produced. Channel decisions must be considered carefully for several reasons.
In the first place, customers need not only the right product but also at the right place (place utility)
and time (time utility) with compatible size (form utility) and they want the enhanced transfer of
ownership (possession utility). If the company fails to do these things successfully, it will most
hopefully result in the dissatisfaction of customers which eventually puts the acceptability of the
company at the odd. Second, it is very expensive and time consuming to set up and maintain a
distribution channel. Third, the channel may provide a competitive edge over rivals. This edge may
be a unique location, efficient inventory, and delivery practices, special selling skills, market
monitoring services and so on. Finally, the selection of channel or channel design will constrain or
facilitate the choice and implementation of other marketing tact.

Also known as trade channel or distribution channel, marketing channels are sets of interdependent
organizations involved in the process of making a product or service available for use or
consumption. It is the pathway a product or service follows when it moves to producers to
consumers.

Marketing channel is the external contractual organization that management operates to achieve
its distribution objectives. There are four terms in this definition that should be especially noted.

 External: means that the marketing channel exists outside the firm.
 Contractual organization: refers to those firms or parties who are involved in buying,
selling and transferring titles to the product.
 Operates: it meant to suggest involvement by management in the affairs of the channel.
 Distribution objectives: mean that the management has certain distribution objectives in
mind. The marketing channel exists as a means for reaching these objectives.

Producers and consumers made the marketing channel but sometimes intermediaries may involve.
Intermediaries (middlemen) are the independent organizations which involve in moving, selling and
promoting the company’s products. They can be of three types:

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 a. Merchants: include wholesalers and retailers – they buy, take title to, and resell the
merchandise. Wholesalers and retailers are major sources of information in a market
research.
b. Sales agents: include brokers, manufacturers’ representatives and sales agents that may
reach for customers and may negotiate on the producer’s behalf but do not take title to the
goods.
c. Facilitators: assist the distribution process but neither takes title nor negotiates purchases
or sales; they include transportation companies, independent warehouses, banks and
advertising agencies.

Functions of marketing channels

i. Information: gathering information about potential and current customers (what are their
needs, what are they buying), competitors, the current economics of the marketing channel,
new entrants, new technology and other actors and forces in the marketing environment.
ii. Promotion: develop and disseminate persuasive communications (about the performance of
the product, special offers) to stimulate purchasing.
iii. Negotiation: reach agreements in price and other terms so that transfer of ownership or
possession can be affected.
iv. Order processing: place order with manufacturers.
v. Financing: acquire funds to finance inventories at different levels in the marketing channel.
vi. Risk taking: assume risks connected with carrying out channel work.
vii. Warehousing: provide for the successive storage and movement of physical products.
viii. Customization: shaping and fitting the offer to the buyer’s needs including manufacturing,
grading, assembling and packaging products (e.g. fish processors) so that customers can
purchase in a customized manner.

Types of marketing channels

Marketing channels can broadly be divided into two: direct and indirect.

1. Direct marketing channel (Zero-level channel)

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Here, the manufacturer sells its products directly to the customer or business buyer without using
any intermediary. Manufacturers of heavy installations like airplanes, ships or generators may use
direct channels where buyers need a lot of service from manufacturers. The most commonly used
methods of direct channels are:

a) Door-to-door selling: the company employs its own salespersons who search for customers,
convince them and bring the product to the doorsteps of the customers.
b) Manufacturer’s sales branches: the manufacturer operates different branches nearer to
customers’ locations.
c) Direct mail order: means dispatching the product through the mail address of the customer.
It avoids personal contact between the seller and the buyer. The products should not be too
heavy or bulky to be mailed. E.g. newspapers and magazines
2. Indirect channels: the company makes use of at least one intermediary to sell its products.
a) Wholesalers: buy products in large quantities from producers and sell it to retailers. They
do not sell to individual customers.
b) Retailers: they usually buy products from wholesalers and sometimes from producers to sell
directly to final consumers for their personal use.
c) Agents: represent manufacturers on a relatively permanent basis to perform and selling and
other facilitating functions.

Levels of marketing channels

Levels of marketing channels refer to the type of middlemen the producer uses in selling its product.
Direct channel is the shortest channel a producer can use. It is not commonly used in consumer
markets.

 A one-level channel: contains one selling intermediary such as a retailer (super market).
Retailers may sometimes avoid wholesalers to buy products directly from producers.
 A two-level channel: contains two intermediaries; these are typically a wholesaler and a
retailer. It is most commonly used in consumer markets.
 A three-level channel: contains three intermediaries. It is common in import and export
trade.

Flows in the marketing channel

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The term flow is descriptive of movement and it provides the links that tie channel members and
other agencies together in the distribution of goods and services. Major flows in marketing channel:

1. Product flow (physical flow): refers to the actual physical movement of the product from
the manufacturer through all of the parties who take the physical possession of the product.
2. Negotiation flow: represents the interplay of the buying and selling function associated with
the transfer of title to the manufacturer’s products.
3. Ownership or title flow: it shows the movement of title to the product.
4. Information flow: refers to the exchange of information by all parties that participate in the
marketing channel.
5. Promotion flow: refers to the flow of persuasive communication in the form of advertising,
personal selling, sales promotion and publicity.
6. Payment flow: refers to buyers’ payment of their bills to the sellers through banks.

Some functions (physical, title, promotion) constitute a forward flow of activity from the company
to the customer; other functions (ordering and payment) constitute a backward flow from customers
to the company. Still others (information, negotiation, finance and risk taking) occur in both
directions.

Intensity of distribution

Companies have to decide on the number of intermediaries to use at each channel level. Three
strategies are available:

1) Intensive distribution: it is a strategy to use as many outlets (intermediaries) as possible.

This is feasible and advantageous especially for convenience products because the most
important consideration that customers care about is to get the products available in areas
where they are in need of on timely basis with compatible size. So, companies pursuing this
strategy will make their products available in the hands of every possible intermediary.
2) Selective distribution: In some circumstances, companies may not limit the right to
distribute their products to only one or specific intermediary and as well may not allow all
possible and potential intermediaries to distribute their products but limit the right to
distribute their products for intermediaries more than one but fewer than all.

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 3) Exclusive distribution: By contrast, some producers purposefully may limit the number of
their intermediary in a given region to one intermediary in which the intermediary will have
the exclusive right to distribute the company’s products in the specified region.

Generally, no matter what system is designed, the firm’s channel of distribution should be designed
in such a manner that it is capable enough to make products available and easily accessible to areas
where customers are in need of effectively and efficiently so as to enhance customer satisfaction.
Variables That Determine Channel Structure

 Market variables
 Product variables
 Company variables
 Intermediary variables
A. Market variables

Market variables are the most fundamental variables affecting the channel structure. There are four
basic subcategories of market variables.

 Market size: refers to the number of customers making up a market. The general rule about
market size relative to channel structure is: if the market is large the use of intermediary is more
likely to be needed.
 Market density: refers to the number of buyers located within Km 2 or Mile2. The general rule is
the less dense the market (buyers are widely scattered), the more likely it is that intermediaries.
 Geographic location of the market: refers to the geographical size of markets and their physical
location and distance from the producer. The general rule is the greater the distance between the
producer and its markets, the higher the probability that the use of intermediaries will be.
 Market behavior: refers to the types of buying behavior – that is how, when and where
customers buy and who does the buying.
B. Product variables
 Unit value of the product: refers to the price per unit of the product. The lower the unit
value of the product, the longer the channel should be.
 Perishability: products subject to rapid physical deterioration or spoilage (such as fish) are
considered to be highly perishable. When products are highly perishable, channel structure
should be shorter to provide for rapid delivery to producer to consumers.

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  Technicality: refers to the nature of the product (technical versus non-technical). To the
industrial market, a highly technical product such as machinery will be distributed through a
direct channel since the manufacturer provides information about the product’s technical
features, advices and after-sale services to customers.
 Newness: in the introductory stage, a shorter channel is generally viewed as an advantage
for gaining product acceptance.
 Degree of standardization: refers to whether products are uniform (standardized) or custom-
made (made according to customer order). Custom-made products go directly from producer
to users; but as products become more standardized the channel will be long.
 Bulk and weight: heavy and bulky products have very large handling and shipping costs
relative to their value, so that the channel should be as short as possible – usually direct from
producer to user.
C. Company variables
 Financial capacity: in order to directly to consumers, a company needs its own sales force
and support services like retail stores, warehousing and order processing capabilities. The
greater the capital available to a company, the lower its dependence on intermediaries.
 Managerial expertise (capabilities and skills): when a company lacks the managerial
expertise to perform distribution tasks, its dependence on intermediaries will be high.
However, as the company gains experience and managerial skills, it may be feasible to
change the structure to reduce the amount of reliance on intermediaries.
 Objectives and strategies: if the company has strong desire to control the channel, it may
use direct or short channel.
D. Intermediary variables
 Availability: if there are sufficient numbers of middlemen, longer channel may be used.
 Attitude of middlemen: if the attitude of middlemen towards the product of the company is
poor, it may try to change the negative attitude or use a direct selling.
 Cost: if the cost of using intermediaries is too high as compared to the service performed,
the channel structure is likely to minimize the use of intermediaries.

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 5.4. Promotion
Integrated Marketing Communications
Building good customer relationships calls for more than just developing a good product, pricing
it attractively, and making it available to target customers. Companies must also communicate
their value propositions to customers, and what they communicate should not be left to chance.
All communications must be planned and blended into carefully integrated programs. Just as
good communication is important in building and maintaining any kind of relationship, it is a
crucial element in a company’s efforts to build profitable customer relationships.
The Promotional Mix: The Tools for IMC
Promotion has been defined as the coordination of all seller initiated efforts to set up channels of
information and persuasion in order to sell goods and services or promote an idea.
The basic tools used to accomplish an organization’s communication objectives are often
referred to as the promotional mix.
Traditionally the promotional mix has included four elements: advertising, sales promotion,
publicity/public relations, and personal selling. However, in this text review direct marketing as
well as interactive media as major promotional-mix elements that modern-day marketers use to
communicate with their target markets.
The Promotional Mix

Advertisi Sales Publicity/ Personal Direct Interactive

selling. marketing media
ng promotion public
relations

Advertising
Advertising is defined as any paid form of non-personal communication about an organization,
product, service, or idea by an identified sponsor. The paid aspect of this definition reflects the
fact that the space or time for an advertising message generally must be bought.
The non-personal component means that advertising involves mass media (e.g., TV, radio,
magazines, newspapers) that can transmit a message to large groups of individuals, often at the

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same time. The non-personal nature of advertising means that there is generally no opportunity
for immediate feedback from the message recipient (except in direct-response advertising).
Therefore, before the message is sent, the advertiser must consider how the audience will
interpret and respond to it.
There are several reasons why advertising is such an important part of many marketers’
promotional mixes.
 Advertising is the best-known and most widely discussed form of promotion, probably
because of its pervasiveness. It is also a very important promotional tool, particularly for
companies whose products and services are targeted at mass consumer markets.
 It can be a very cost-effective method for communicating with large audiences. The cost
per thousand households reached is low.
 Another advantage of advertising is its ability to strike a responsive harmony with
consumers when differentiation across other elements of the marketing mix is difficult to
achieve.
The nature and purpose of advertising differ from one industry to another and/or across
situations. The targets of an organization’s advertising efforts often vary, as do advertising’s role
and function in the marketing program. One advertiser may seek to
 Generate immediate response or action from the customer;
 Anothermay want to develop awareness and
 A positive image for its product or service over a longer period.
Direct Marketing
Direct marketing is much more than direct mail and mail order catalogs. It involves a variety of
activities, including database management, direct selling, telemarketing, and direct response ads
through direct mail, the Internet, and various broadcast and print media.
One of the major tools of direct marketing is direct response advertising, whereby a product is
promoted through ad that encourages the consumer to purchase directly from the manufacturer.
Direct-marketing tools and techniques are also being used by companies that distribute their
products through traditional distribution channels or have their own sales force. Direct marketing
plays a big role in the integrated marketing communications programs of consumer-product
companies and business-to-business marketers. These companies spend large amounts of money
each year developing and maintaining databases containing the addresses and/or phone numbers
of present and prospective customers.

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They use telemarketing to call customers directly and attempt to sell those products and services
or qualify them as sales leads. Marketers also send out direct mail pieces ranging from simple
letters and advertising material to detailed brochures, catalogs, and videotapes to give potential
customers information about their products or services. Direct-marketing techniques are also
used to distribute product samples or target users of a competing brand.
Interactive/Internet Marketing
As the new millennium begins, we are experiencing perhaps the most dynamic and revolutionary
changes of any era in the history of marketing, as well as advertising and promotion. These
changes are being driven by advances in technology and developments that have led to dramatic
growth of communication through interactive media, particularly the Internet.
While the Internet is changing the ways companies design and implements their entire business
and marketing strategies, it is also affecting their marketing communications programs.
Thousands of companies, ranging from large multinational corporations to small local firms,
have developed websites to promote their products and services, by providing current and
potential customers with information, as well as to entertain and interact with consumers.
Actually, the Internet is a medium that can be used to execute all the elements of the promotional
mix. 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,
personal selling, and public relations activities more effectively and efficiently.
Sales Promotion
The next variable in the promotional mix is sales promotion, which is generally defined as those
marketing activities that provide extra value or incentives to the sales force, the distributors, or
the ultimate consumer and can stimulate immediate sales. Sales promotion is generally broken
into two major categories: consumer-oriented and trade-oriented activities.
Consumer-oriented sales promotion is targeted to the ultimate user of a product or service and
includes couponing, sampling, premiums, rebates, contests, sweepstakes, and various point-of-
purchase materials. These promotional tools encourage consumers to make an immediate
purchase and thus can stimulate short term sales. Trade-oriented sales promotion is targeted
toward marketing intermediaries such as wholesalers, distributors, and retailers. Promotional and
merchandising allowances, price deals, sales contests, and trade shows are some of the
promotional tools used to encourage the trade to stock and promote a company’s products.

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Promotion and sales promotion are two terms that often create confusion in the advertising and
marketing fields. As noted, promotion is an element of marketing by which firms communicate
with their customers; it includes all the promotional-mix elements.
In this course, promotion is used in the broader sense to refer to the various marketing
communications activities of an organization.
Publicity/Public Relations
Publicity: refers to non-personal communications regarding an organization, product, service, or
idea not directly paid for or run under identified sponsorship. It usually comes in the form of a
news story, editorial, or announcement about an organization and/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 favorable story on a product, service, cause, or event
to affect awareness, knowledge, opinions, and/or behavior. Techniques used to gain publicity
include news releases, press conferences, feature articles, photographs, films, and videotapes.
 An advantage of publicity over other forms of promotion is its credibility. Consumers
generally tend to be less skeptical toward favorable information about a product or service
when it comes from a source they perceive as unbiased.
 Another advantage of publicity is its low cost, since the company is not paying for time or
space in a mass medium such as TV, radio, or newspapers. While an organization may incur
some costs in developing publicity items or maintaining a staff to do so, these expenses will
be far less than those for the other promotional programs.
Publicity is not always under the control of an organization and is sometimes unfavorable.
Negative stories about a company and/or its products can be very damaging.
Public Relations: it is important to recognize the distinction between publicity and public
relations. When an organization systematically plans and distributes information in an attempt to
control and manage its image and the nature of the publicity it receives, it is really engaging in a
function known as public relations.
Public relations are defined 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
generally have a broader objective than publicity, as its purpose is to establish and maintain a
positive image of the company among its various publics. Public relations uses publicity and a

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variety of other tools—including special publications, participation in community activities,
fund-raising, sponsorship of special events, and various public affairs activities—to enhance an
organization’s image. Organizations also use advertising as a public relations tool.
Personal Selling
It is a form of person-to-person communication in which a seller attempts to assist and/or
persuade prospective buyers to purchase the company’s product or service or to act on an idea.
Unlike advertising, personal selling involves direct contact between buyer and seller, either face-
to-face or through some form of telecommunications such as telephone sales. This interaction
gives the marketer communication flexibility; the seller can see or hear the potential buyer’s
reactions and modify the message accordingly.
Personal selling also involves more immediate and precise feedback because the impact of the
sales presentation can generally be assessed from the customer’s reactions.
Promotional Management
In developing an integrated marketing communications strategy, a company combines the
promotional-mix elements, balancing the strengths and weaknesses of each, to produce an
effective promotional campaign.
Promotional management involves coordinating the promotional-mix elements to develop a
controlled, integrated program of effective marketing communications. The marketer must
consider which promotional tools to use and how to combine them to achieve its marketing and
promotional objectives. Companies also face the task of distributing the total promotional budget
across the promotional-mix elements. What percentage of the budget should they allocate to
advertising, sales promotion, the Internet, direct marketing, and personal selling?
Companies consider many factors in developing their IMC programs, including:-
The type of product
The target market
The buyer’s decision process
The stage of the product life cycle, and
The channels of distribution.
Steps in Developing Effective Marketing Communication
We now examine the steps in developing an effective integrated communications and promotion
program. Marketers must do the following:
Identify the target audience,

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A marketing communicator starts with a clear target audience in mind. The audience may be
current users or potential buyers, those who make the buying decision or those who influence it.
The audience may be individuals, groups, special publics, or the general public. The target
audience will heavily affect the communicator’s decisions on what will be said, how it will be
said, when it will be said, where it will be said, and who will say it.
Determine the communication objectives,
Once the target audience has been defined, marketers must determine the desired response. Of
course, in many cases, they will seek a purchase response. But purchase may result only after a
lengthy consumer decision-making process. The marketing communicator needs to know where
the target audience now stands and to what stage it needs to be moved. The target audience may
be in any of six buyer-readiness stages, the stages consumers normally pass through on their
way to making a purchase. These stages include awareness, knowledge, liking, preference,
conviction, and purchase
Design a message,
Having defined the desired audience response, the communicator then turns to developing an
effective message. Ideally, the message should get attention, hold interest, arouse desire, and
obtain action (a framework known as the AIDA model). In practice, few messages take the
consumer all the way from awareness to purchase, but the AIDA framework suggests the
desirable qualities of a good message.
When putting the message together, the marketing communicator must decide what to say
(message content) and how to say it (message structure and format).
Choose the media through which to send the message,
The communicator must now select the channels of communication. There are two broad types
of communication channels: personal and non-personal.
Personal communication channels
Channels through which two or more people communicate directly with each other, including
face to face, on the phone, via mail or e-mail, or even through an Internet “chat.
Non personal communication channels
Media that carry messages without personal contact or feedback, Major media include print
media (newspapers, magazines, direct-mail), broadcast media (television, radio), display media
(billboards, signs, posters), and online media (e-mail, company Web sites, and online social and
sharing networks).

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 Select the message source,
In either personal or non-personal communication, the message’s impact also depends on how
the target audience views the communicator. Messages delivered by highly credible sources are
more persuasive. Thus, many food companies promote to doctors, dentists, and other health-care
providers to motivate these professionals to recommend specific food products to their patients.
And marketers hire celebrity endorsers—well-known athletes, actors, musicians, and even
cartoon characters—to deliver their messages.
Collect feedback.
After sending the message, the communicator must research its effect on the target audience.
This involves asking the target audience members whether they remember the message, how
many times they saw it, what points they recall, how they felt about the message, and their past
and present attitudes toward the product and company. The communicator would also like to
measure behavior resulting from the message—how many people bought the product, talked to
others about it, or visited the store.

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