1

MARKETING MANAGEMENT

Definitions of Marketing

Marketing is the economic process by which goods and services are exchanged between the maker

and the use and their values determined in terms of money prices

Marketing is a total system of interacting business activities designed to plan, price, promote, and

distribute need satisfying products and services to existing and potential customers

Nature of Marketing

1. An art: Marketing involves a skill and creativity which comes from experience,

natural instincts and education. The skill to sell a product, promote a product,

plan effective strategies is what makes marketing an art

2. A business function: It is a business function as it is used to earn profit for a

company. Thus, it is a important function or tool of business firms

3. A science: It is a science as marketing is a systematic and scientific discipline that

involves use of scientific tool to carry out marketing research.

4. A practice: It is practiced as a profession by marketing professionals

5. A relationship: it is a relationship between the buyer and the seller

6. Marketing is meeting human needs: In marketing ‘customer need’ is central. It is

important to understand who are the customers, what are their needs (i.e. latent

and future needs), what must be done to meet their needs. The aim of marketing

is meeting customer but meeting the need at a profit. Thus, earning profit as well

satisfying the customer is important.

7. Marketing means being empathetic to customers – marketing is a skill and thus

this skill has to be used to understand and respond to customer needs.

8. Marketing incorporates demand and competition – the main aim of marketing is

generating demand and meeting demand by creating products. Other aim of

marketing is understand competitor’s strategy as well as anticipate competitor’s

action and reaction

9. Marketing is a process –

- It is process of exchange

- Offering something and getting something in return

- Two parties involved – buyer-seller – one offers to other something of

value for which it gets value

- It is a process as it involves various steps in carrying out this function like

planning, organizing, actuating and controlling various aspects like price,

product, promotion etc. It is not a onetime process but a continuous

process that happens over time and place

2

-

6. Marketing is dynamic – It is not stagnant, as in today’s time with high level of

competition there are constant changes in marketing strategy.

Concepts of Marketing

• Exchange concept – As per the exchange concept marketing is exchange of goods

and services between the buyer and the seller. Thus the central idea is that

marketing is exchange, i.e. it is exchange of product between sellers and buyers. It is

exchange of value where the consumer is paying a value (price) in exchange of

the value (benefit/satisfaction) he gets from the product. However this concept of

marketing has been criticized on the ground that exchange is not the only

function but one function of marketing.

• Production concept – This concept of marketing is based on the assumption

that buyers will buy anything that is low priced. There is a category of firms

that believe that business can be managed by maximizing output which will lead

to lowering of average cost and as a result they will be able to sell at a lower price.

Thus mass production and reduction in price the strategy. In those firms that have

this belief, production dominates the thinking and marketing is only an

appendage (additional function). They assume that lower price will automatically

attract the consumer. That is one of the criticisms of the concept. In reality a

consumer takes into to consideration a lot of things in addition to low prices

before buying a product. Thus, reduced prices will not automatically lure

consumers to buying a product.

• Product concept – This concept of marketing believes that marketing is

focusing on product and product quality, i.e. focus is on improved product, new

product, ideally designed and engineered products. Thus, it tries to achieve

business success through providing high quality product and not needs of the

consumer. The product view is that consumer will automatically buy a high

quality product. As a result there is too much of focus on research and

development to improve quality. This concept has been criticized on the grounds

that it fails to get marketing success despite high quality as it ignores consumer

need. A consumer if definitely looking at high quality products. But then it is not

the only consideration in his mind. The failure to understand consumer need with

excessive emphasis on product and its quality is termed as ‘Marketing Myopia’ by

Prof. Theodore Levitt.

• Sales concept – This is another category of firms whose focus of marketing is

aggressively promoting the product and coax the consumer to buy the product.

The firms, in other words believe that marketing’s major concern is to push the

product and persuade the consumer to buy the offered product. Personal selling,

heavy advertising, large-scale sale promotions, heavy price discount are the tools

3

used by the firms that believe in the ‘sales concept’. Such firms are mistaken that

‘marketing’ is same as ‘selling’ and whatever they sell to the consumer through

heavy discounts or attractive advertisement will be acceptable to the consumer

which is not so in reality

• Marketing concept – These are the firms who believe that the consumer is

important for the business and all other functions revolve around the consumer.

They believe that marketing should begin with customer wants and end with

satisfaction of those wants. Thus marketing concept involves:

• That the consumer is supreme and the tasks of marketing should be to

anticipating, stimulating and meeting consumer needs.

• That there should be integrated management function. This means that

all the departments or functions of an organization should function by

keeping marketing as a function in the centre. Which means the consumer

should be central and all other functions should be performed together to

meet the needs of the consumer.

• Just being consumer-oriented is not enough. This concept also believes

that satisfying consumer needs is most important.

Difference between selling and Marketing

Marketing Selling

Total process of business Part of the process

Concentrates on finding and recognizing the needs of the

consumer

Selling to the consumer - increasing sales

and earning profit

Fulfil the needs of the consumer Selling is use of tricks and techniques to

part with the product available with the

sales person

Views business as customer satisfying process Views business as goods producing process

Product as per consumer needs. Need found through market

research

The firm makes the product and figures out

how to sell it

Marketing is the mission Selling is an activity to fulfil it

Marketing done by marketing manager who heads the sales

manager

Selling done by sales manager

However, distribution of goods seen as an important service

that keeps consumer convenience in mind.

Distribution of goods seen only as an

extension of the production function

4

Marketing views consumer as the purpose of the business,

sees the business from the point of view of the consumer,

and all functions or departments of a firm have to integrate

their activities around the marketing department with the

aim to satisfy consumer needs

Selling views consumer as the last link in

the business

Marketing seeks profit by creating value satisfaction for the

consumer

Selling seeks profit by pushing the product

on the buyer.

Marketing Mix or elements of marketing

It was James Culliton who coined the word ‘marketing mix’ as described the role of a

marketing manager as the mixer of ingredients. He described marketing mix with that of

a recipe for marketing. It was Jerome McCarthy, a well-known American Professor of

Marketing who described the marketing mix in terms of the 4 P’s. He classified the

marketing mix variables or elements in 4 heads and each started with the alphabet P.

That is why these came to be known as the P’s of Marketing. The manager’s aim to

provide as much value to a consumer as possible and this value he/she tries to give by

mixing various elements of marketing in various proportions. A marketing mix tries to

answer the following questions:

1. Which product should be offered to an identified target market

2. What should be the price structure

3. Which channel has to be used

4. What is the right promotion strategy

5. How should the marketing resources be divided between the 4 P’s

6. What is the best combination in a given situation

The various elements of marketing or the marketing mix are:

1. Product – 1st element of marketing mix – This involves:

1. Product planning – design, quality, packaging, brand name, warranty,

2. Product development – changes in product as per need of consumer

3. Packing – design, material, appearance and labeling

4. Pre and after sales service – if required provided by co. or through agents,

service charges, service standards.

2. Price – 2nd important element of marketing – Price is the value of a product. This

involves:

1. Fixing the price of the product for wholesaler, retailer, consumer (MRP)

5

2. Planning of what the price should be – to sell more – discount strategies to

be used, or other methods like giving other products free or more quantity

free.

3. Deciding on terms of delivery, payment terms, credit terms and

installments, purchase facilities, resale price, etc

3. Promotion – this element includes creating awareness among consumer about the

product. This effort is known as promotion which includes

4. Advertising: multi-media (newspaper, TV, hoardings, etc), deciding on

media-mix (which media to concentrate more and what are the types of

media that can be used simultaneously)

5. Sales promotion: Gifts, price-offs, coupons, contests, prizes, exhibitions,

conferences, trade fairs, personal selling (this includes selling expertise,

size of sale force, quality or skill of sales force).

4. Place or physical distribution- actual distribution of the product – or place where the

product will be available - this includes –

1. Choice of channels of distribution: this includes channel design, types of

intermediateries (wholesaler, retailer, physical stores, virtual stores), location

of outlets, channel remunerations

2. Physical distribution: transportation, warehousing (storage), inventory levels,

order processing, etc.

5. People – people involved in this function are also important elements like the workers,

management, consumers, wholesalers, retailers, etc

6. Process – This involves procedures, methods and activities

Examples of Marketing Mix

Godrej storewell – More emphasis on product and its quality – good storage,

high quality lock – distribution and promotion the same as other players – price

higher than other players – because – people pay for extra strength, security,

options, life

Asian paints – more emphasis on distribution – semi-urban and rural market –

retail sale instead of only wholesale.

Dell – changed from ‘Direct from Dell’ distribution to distribution through

agents like Wal Mart

MARKETING MIX -1

6

Price per

100 gm

pack

Sale

(MT)

Income

(crores)

Allocation to marketing elements (Rs.

crores)

Profit (Rs.

crores)

Product Place Promotion Total

10 1,00,000 1,000 500 300 100 900 100

MARKETING MIX -2

Price per

100 gm

pack

Sale

(MT)

Income

(crores)

Allocation to marketing elements (Rs.

crores)

Profit

(Rs.

crores)

Product Place Promotion Total

10.50 1,00,000 1,050 480 290 160 930 120

NATURE OF MARKETING MIX

Marketing Mix cannot be static – change in environment – change in customer

preference

Marketing mix is separately worked out for each brand – e.g. HUL’s Lifebouy

and Lux – different Marketing Mix

Marketing mix is the visible part of marketing strategy – once Marketing Mix

known – strategy in terms of price, product, distribution, and promotion

known

MARKETING MANAGEMENT

It is a managerial activity which involves

- Planning regarding personnel requirement, market segmentation, channels of

distribution, product design, quality, sale, etc

- Organizing resources for carrying out the marketing activity

- Actuating which is implementing the marketing plan and ensuring that it is being

done to best of everyone's abilities. Thus directing, motivating, instructing, and

guiding marketing staff to do their work and achieve targets

7

- Controlling which is setting standards and carrying out mid-term and end of

process appraisal to measure and control if any variations

Definition of Marketing Management

Dr. C. B. Mamoria and R. L. Joshi

Marketing management is a “process of ascertaining consumer needs, working up through product

planning, organizing, directing, controlling, and evaluating the efforts of the group of people

towards a common goal, with emphasis on profitability with an optimum use of available

resources”

Pride and Farrel “A process of planning, organizing, implementing and controlling marketing

activities in order to effectively and efficiently facilitate and expedite exchanges. The effectiveness

and efficiency dimensions are two important components”

Functions and objectives of Marketing Management/ Role of Marketing Manager

1. Fixing of marketing objectives – This is the main function of marketing

management. Scholars have defined the objectives of marketing in four broad

heads. These are:

1. Increase in sales volume

2. Increase in net profit

3. Growth of enterprise

4. Satisfaction of consumer needs

2. Marketing analysis on continuous basis: A marketing manager continuously

analyses the market in order understand the changes in the market and reflect

those changes in marketing strategies.

3. Make sales budget: The role of a marketing manager is also to make the sales

budget. A sales budget is an estimate of the targeted sales volume as per

customer, region, sales representative, etc.

4. Judge consumer needs: This is a very important function of marketing

management. As without judging and understanding consumer needs, no

marketing strategies and the marketing mix can be formed.

5. Fix marketing plan, procedures, and methods: The marketing manager also

makes a marketing plan, decides on the procedures and the methods to be used in

terms of market research, sales promotion, advertisement, selling techniques,

pricing, etc.

8

6. Proper coordination between elements of marketing mix: A marketing manager

also has to ensure that there is proper coordination between the various elements

of marketing or the marketing mix. Thus, for each market segment a marketing

manager has to customize a marketing mix and see that they are well

coordinated.

7. Select effective channels of distribution: This is important because if the cost of

distribution of a product turns out to be more than the sales from that channel

then it is an ineffective channel of distribution. Just selecting the right channel for

each group of customers is very important and is an important function.

8. Continuous marketing research: As mentioned earlier, a marketing manager has

to ensure that there is continuous marketing research. Marketing research is

carried out in order to see the changes in customer needs, strategies adopted by

competitors as well as the reaction to the strategies adopted by the company. In

today’s world of increasing competition, marketing has become a very dynamic

process. Thus, continuous changes have to be understood.

9. Evaluation of performance of sales personnel: This is also a function of a

marketing manager. He/she has to continuously evaluate the performance of the

sales personnel as well as the other staff members and take up control measures

wherever required.

10. Review plans, policies and strategies and make changes: This is a very

important function as plans need revision. Many a time’s strategies and policies

also need revision as they need to be made compatible with changes outside.

MARKET SEGMENTATION

• Markets are heterogeneous – age, gender, location, income – thus – one product

cannot serve all – solution – segment market or divide market in small units – each

unit with homogeneous consumers.

• Thus, consumers heterogeneous across segments, but homogeneous within –

consumers segmented - not product

Definitions of Market segmentation

Philip Kotler

“Market segmentation is the sub-dividing of a market into homogeneous subsets of customers where

any subset may conceivably be selected as a market target to be reached with a distinct marketing

mix. The power of this concept is that in an age of intense competition for the mass market,

9

individual sellers may prosper through creatively serving specific market segments whose needs are

imperfectly satisfied by the mass market offerings”

W. J. Stanton

“Market Segmentation consists of taking the total heterogeneous market for a product & dividing it

into several sub-markets or segments, each of which tends to be homogeneous in all significant

aspects

Need for market segmentation: Why segment the market?

1. Facilitates right choice of target market – identify who are the target consumers

2. Facilitates effective tapping of the chosen market – effective tapping is meeting

the needs of the market – once segment chosen – marketer can develop

offer/programs accordingly. He can make changes in product, distribution,

pricing and promotion accordingly.

3. Makes the marketing effort more efficient and economical: If needs of the

consumer is well understood and well-defined then there is better utilization of

resources or no wastage. Producing product without segmentation would lead to

wastage as the product may suit the need of some consumer and may not suit the

need of others.

4. Benefits consumers also: It saves consumer time and effort – as product

designed as per its needs – makes consumer comfortable with the product.

5. Helps to identify less satisfied segment and concentrate on them – What extent

existing offers give satisfaction – who are less satisfied – thus, locate ‘segment

waiting to be served’.

6. Un-segmented market low on rewards and high on risk- as segmentation means

focused offers – firms with un-segmentation likely to lose to competition.

BASIS OF MARKET SEGMENTATION

Markets are segmented on the basis of following factors:

1. GEOGRAPHIC SEGMENTATION

• Factors like climatic zone, continent/country, region, state, district, urban/rural,

etc.

• Global marketers - segment by continent/country – then use other segments

10

• National marketers – segment by region/ state/ district/ urban/ rural – then

other segments

• Geographic segmentation effective only - clear and identifiable differences

between one region and the other

2. DEMOGRAPHIC SEGMENTATION

Segmentation based on – race, caste, religion, community, language, age,

gender, class, marital status, family size, educational level, etc.

Examples:

Age – senior citizens, working age group, youth, teenagers, TWEENS, etc.

Tweens – 8-14 years of age

Gender – women have different buying behaviour – respond to persuasive

messages – slower in decision-making – women targeted in apparel market –

branded clothes picking up.

Purchasing capacity a important basis for demographic segmentation – car

segmentation on that basis

3. SOCIO-CULTURAL SEGMENTATION

Culture decides to a large extent what people will purchase

Culture includes religion, caste, rituals, language etc.

Culture shows in dress, food habits, marriage practices

This will decide which product a consumer will prefer or what he/she will

purchase.

4. PSYCHOGRAPHIC SEGMENTATION

5. Called as lifestyle, attitude segment – what they are and what they want to project

6. Expression of status – decides on which material possession they should have –

thus, products of status – people go beyond their capacity

7. Lifestyle is expression of one’s life – this is how we live or this is how we want to

live – e.g. CCD or going to a coffee shop

8. Café Coffee Day (CCD) cashing on this segment – Visiting a café, meeting friends

or doing work over a cup of coffee is part of lifestyle (mostly copied from the

west) – the upper middle class and upper class are the segments in this.

9. Passenger car manufacturers coming with SUVs, Station Wagons based on

lifestyle segment

5. BUYING BEHAVIOUR SEGMENTATION

11

1. Usage-based segments – Users and non users – then users divided into current users

and users of competitor’s product.

• Sustain current users

• Tackle current users of the competitor’s brand – convince consumer of superiority

of its brand.

• Tackle non-users – create demand for the product – explain the superiority of use

of its product to the traditional products – e.g. baby products, Cadbury's

chocolate.

2. Benefit segment – those expecting specific benefit from product. E.g. calories

watchers and health seekers – Milk manufactures – low fat milk, calcium milk, etc Bread

manufactures – wheat bread/ whole grain bread, diet Pepsi, etc

3. Volume segment: Volume of use, i.e. qty. purchased – light, medium or heavy users.

Heavy users are useful – more benefits provides – Westside – gold and silver cards

4. Purchase occasion – consumers who purchase for certain occasions only

5. Attitude towards product – enthusiastic, negative, indifferent – target the ones’

enthusiastic

6. Loyalty to the brand – loyalty to the brand – reflection from heavy usage

MULTI-LEVEL SEGMENTATION

- Usage of several bases to segment market

- E.g. Watch manufacturer – segmentation as per class – upper, middle and lower –

further segmentation – men and women – further segmentation – gold lovers,

Outdoor lovers, youth, designer segment, seeking fashion in middle income –

children – age groups (6-10 and 11-14), digital segment

- GM – Passenger cars, SUV, etc - 40 segments in passenger cars – older people,

price-conscious, sports-oriented.

Tasks involved in segmentation

- Profiling a segment – defining the characteristics of a segment in terms of the

needs, value requirement, etc

- Segregating the consumers in the segment – labeling the segments

- Checking if separate marketing program/offers should be made for each

segment

12

- Finding out which segment be happy with what the firm offers – these will be

natural targets of firm

- Estimating the likely purchase by each of the segments

MARKETING RESEARCH

• Philip Kotler defined marketing research as “the systematic design, collection, analysis

and reporting of data and findings relevant to a specific marketing situation facing the

company”

Objectives of marketing research

1. Assessment of buyers – To know the potential buyers

2. Sales forecasting – Knowledge of potential buyers and current buyer satisfaction

helps in forecasting sales.

3. Formulation of plans – plans cannot be made for future strategies till past

performance in the market is not known.

4. Advertising and sales promotion – to know the impact of advertisement and

sales promotion

5. Quality of product – If people are satisfied with the quality. If not, what do

people want

6. Reduction in cost – Through market research target market is know. Thus

production can be done accordingly.

7. Marketing channels – What can be effective and efficient channels of distribution

8. To know goodwill of the firm – It helps in knowing goodwill of the company.

Do people like the product of the company, do they enjoy the service of the

company, have they been using the product of the company for long, are they

ready to accept another product of the company readily based on the past

performance of the company, are some of the questions that help find the

goodwill of a company.

Market research process

Market research is a four-step process which starts from identifying the area of research

or the topic of research and ends with recommendations for future course of action

13

1. Identifying the field of research: this includes research on various aspects. These

aspects have been broadly categorized in three heads. These are:

1. Research on product

1. Acceptance of company’s new product

2. Performance of competitor’s product

3. Estimating demand for the product

4. Finding latent and future needs of the consumers

5. Opinion about physical appearance and quality of product.

2. Research on markets

1. Size of market

2. Potential of market for the product

3. Sales potential in market as per area, customer

4. Studying distribution channels

3. Research on sales methods and strategies –

1. Studying sales promotion activities

2. Pricing strategies

3. Methods used by sales representatives

4. Research on consumer

◦ Consumer behaviour

◦ Change in tastes

◦ Brand preference – brand switching

◦ Consumer satisfaction study

◦ Buying influences

5. Research on Competitor

◦ Competitor’s products, price, promotion, channels and sales methods

6. Research on distribution

14

◦ Effectiveness of different manufacturing intermediateries

◦ Channel patronage of competitor's brand

◦ Warehouse efficiency

◦ Effectiveness of modes of transportation

7. Research on Price

◦ Effectiveness of pricing strategy of the firm

◦ Assessing pricing followed by industry

8. Research on Advertising/sales promotion

• Media research

• Appraisal of an Ad campaign

• Assessing effectiveness of individual ads

• Effectiveness of sales promotion measures

2.Developing research design, procedure and instruments – blueprint or plan of how to

carry out research. It includes:

Research procedure methods to be followed to get information – what sources of

data collection – secondary – primary – what will be the sampling technique

Research instruments – which methods to use, whether to use questionnaire,

observation or other instruments to collect data.

Choosing the sampling technique – This includes

o Choosing the sample unit – the segment to be surveyed

o Choosing the sample size – how many

o Choosing the sample procedure – methods – random, stratified, systematic

sample – so that all included

o Choosing sample media – survey, observation, experiment

Data collection – Once the area of research is chosen then the next step is to collect

data. Data is collected from two sources. These are primary source and secondary

source. Primary source of data is where data is collected by the researcher using various

data collection tools. Thus, primary data is data collected by the researcher. Before the

data tools are used there are some preliminary activities carried out. One among them is

15

drawing a representative sample. Since it is very costly to carry out research on the

whole sample, a sample is drawn from the universe. The sample is either chosen from a

list of random tables. The various tools or methods of data collection used are:

1. Observation method: Data is collected through this method by observing

people while they are shopping. In this consumer is not asked any

questions but just observed. In the observation method, researcher can also

use electronics devices like TV or CCTV to see the consumer in an

uncontrolled environment or an environment where the consumer is

auctioning naturally and is not aware then he/she is being observed.

2. Survey method: through this method data is collected by using two

methods. These are:

1. Mail Survey: In this method a carefully prepared questionnaire is

sent to those customers who cannot be reached for a personal

interview or when the sample size is very large that personal

interview will take a lot of time. The questionnaire is piloted or

tested before it is sent to the customer in order see if the questions

asked as proper and is possible for the customer to respond to. A

self addressed and stamped envelope is sent with it to ensure that

the respondent send it back.

2. Telephone survey: Here a pre-structured questionnaire is prepared

and respondents are contacted on phone. In this way a larger

number of people can be reached. However, this method has a

disadvantage as people do not like to be disturbed and hang up on

the researcher.

3. Personal interview: This is when a household survey is conducted.

Field investigators reach out to the customers in their home or in

offices. There are many advantages of a personal interview and

most important is that once a rapport is built with the respondent,

maximum information can be extracted from the respondent.

However, it all depends of the skill and level of commitment of the

field investigator.

4. Feedback method: This is a method where feedback forms are

provided at various shopping areas to get a feel of what people

think about the products and the services offered. However, this

tool is not very effective.

3. Experimentation method: In this method small experiments are carried

out in controlled conditions in order to see the response to a product. Only

after the experiment that a company thinks of launching the product on a

larger scale. Thus, by changing the colour, packaging, price, and even

display by the retailers, the response of the customers are seen. If there is

positive response then these changes are brought on a larger scale.

16

2. Secondary data: Secondary data is data collected by some other agency, which the

researcher can use for supplementing primary data. Many a times only secondary data is

used and analyzed to draw conclusions. The sources of secondary data are:

Publications from RBI, Central Statistical Organization, census publications, research

studies, press, films, directories, etc. Many private agencies also do market research on

various products on a regular basis.

3. Analysis of data – This is the third step in market research. Once data is collected, it

is analyzed using various statistical tools and models. This helps draw conclusions about

the status of the product in the market.

4. Recommendations – This is the last step where it is decided on the basis of the

conclusions of what can be done or what should be the future course of action.

ADVERTISING AND SALES PROMOTION

- Advertising is a method to persuade and make aware potential buyers about the

product, plus keep the existing consumers.

Characteristics of advertising

1. Mass communication for sale of goods and services

2. Addressed to a group of people

3. May audio-visual and print media is used for this purpose.

4. It is taken up the objective of generating demand as well as increasing sales in

current as well as future times.

Objectives of advertising

1. To increase sales volumes

2. To assist in personal selling

3. Introduction of new product

4. Development of brand loyalty

5. Support for dealers

6. Project company image or generate goodwill

Media of Advertising

1. Press advertising

17

1. Newspapers

2. Magazine

2. Film advertising

3. Television advertising

4. Radio advertising

5. Direct mail

6. Mural advertising

Requirements of effective advertising

- Clear in understandable language

- Right media according to the target audience – radio in rural, TV, billboards,

mobile in urban

- Time of advertisement – before festivals

- It should be attractive, well-designed and develop interest

- Should be cost effective and beneficial

Sales Promotion

• Meaning – It is a supporting activity to advertisement and personal selling to

motivate consumers to buy – thus increase sales in short-time. Sales promotion is

not the same as advertising but an additional activity.

• This includes:

• Consumer Sales promotions

• Trade or dealer sales promotions

Purpose of Sales Promotion

1. To introduce a new product to the consumers and dealers

2. To deal with competitors – either keep market share or grab their market share

3. To attract new consumers

4. To do off season selling

5. To motivate the existing consumers to buy more of the product

18

Sales promotional activities

1. Consumer sales promotion: This includes activities such as:

1. Giving coupons Door-to-door demos

2. Limited period special price offers/ free offers – Free petrol for new car,

free offers by tour operators

3. Bonus packs/multipacks – special price for two –Colgate

4. Exchange offers Contests

5. Trade fairs Rewards for loyalty

6. Attractive financing scheme Deals on the net

7. Joint promotion by two or more firms

8. Free samples Demonstrations

9. Contests Store displays

2. Dealer/trade sales promotions: To get cooperation from dealers (wholesalers,

retailers, etc) – inducement to them to sell the co. products

– Cash discounts on certain orders

– Boards

– Gifts

– holidays

– free products

– Prizes for achieving targeted sales

CHANNELS OF DISTRIBUTION

Meaning – avenues, path, and route followed to distribute products to consumers

- These are ways through will goods flow from factories to consumers

- Channels include market intermediearies – wholesalers, retailers, agent etc

Market intermediaries

19

Sole selling agent/Marketer – marketing, distribution on behalf of company –

own warehousing, own wholesaler, retailer, salesmen etc

CFA – carrying and forwarding agents – supply stocks to wholesales and

retailers on behalf of co. – only transfer but not resell

Wholesaler/stockist/distributor – resell products to semi-wholesalers – retailers

– smaller territories than Sole agents – sometimes under Sole agents

Semi-wholesaler – buy in bulk from manufacturer or wholesaler – resell to

retailers – sometimes perform retailing function too – usually handle number of

products

Retailer/dealer – sell to consumer – at the bottom of the hierarchy – buy assorted

products

Types of Channels of Distributions

Consumer goods distribution channels

1. Direct channel: manufacturer to consumer – Here the various ways in which the

manufacture reaches to the consumer is through factory outlets, mail orders, door

to door sales. There is an advantage of this channel which is this is the shortest

route to reach to the consumer. This channel also ensures that the quality

products is not compromised.

2. Manufacturer-retailer-consumer – Here the retailer is the middle agency. The

examples of this channel are supermarkets, grocery stores, virtual stores,

cooperative stores, etc. Thus, the manufacturer here acts as a wholesaler.

3. Manufacturer-wholesaler- retailer-consumer: Here there are two intermediaries

are the wholesaler and the retailers. This is the most common channel used for

many goods. Some the examples are cosmetics, medicines.

4. Manufacturer-Sole agent-wholesaler- retailer-consumer: There is another

intermediaries added here that is the sales agent or distribution agent who

supplies the product of the manufacturer to the wholesaler. The wholesaler passes

it on to retailer and then retailer to consumer. Many a times institutional

consumers that is those who are buying the product is bulk for gifts etc approach

a retailer and the retailer gets the supply of the product directly from the

distribution agent. The agent receives a commission from the manufacturer for

the distribution of the goods.

5. Manufacturer-agent - retailer-consumer: As explained in the point above, in this

channel the agent performs the job of a wholesaler and provides bulk quantities to

the retailer who then sells it to the consumer.

20

6. Manufacturer- wholesaler- consumer – This is a channel used when the goods are

used in bulk by the consumer. Such consumers are hospitals, government etc

when they consume goods like stationery, furniture, medicines, etc in bulk. Thus

a retailer in this case has no role.

7. Manufacturer- wholesaler- semi-wholesaler – consumer

8. Manufacturer – franchisee – consumer

Industrial goods distribution channel

The channels of distribution for industrial goods are different from that of the consumer

goods. There are no retailers in this channel as there are not retail but bulk purchases

that are done. The various channels of distribution of industrial goods are as follows:

1. Manufacturer-consumer: This is a preferred channel of distribution where the

consumer is in direct contact with the manufacturer. This normally happens in

case of heavy machinery. There are also situations when the manufacturer opens

a sale outlet to sell the product

2. Manufacturer- manufacturer sales/service center - consumer

3. Manufacturer-distributor-consumer: in this channel a intermediary is involved

who is the distributor. This is normally in case of industrial goods like machine

parts, tools, accessories, small machines, etc. There is a large market base for such

goods, as a result it is cheaper to have a distributor who keeps a warehouse

facility to store the products as well as sell the product.

4. Manufacturer-sole agent-distributor-consumer: This is used when the consumer

are spread over a wide area

5. Manufacturer-sole agent-consumer: here the agent does the selling of the product

on behalf of the manufacturer

Selection of distribution channels

Selection of right channel depends on following factors:

1. Type of products: The product can be perishable product, non-perishable,

standardized, non-standardized, bulky, durable, fragile, etc. Depending on the

type of product, the channel has to be decided. For example, if the product is a

perishable product then a direct channel, i.e. manufacturer to consumer is used.

Similarly, products that are highly technical need company representatives to pass

it to the consumer.

21

2. Nature of market: This means what the market is like and how big it is. Market

can be segmented as per age, consumer education, habits, religion etc. The

segmentation of market explains how big the market it and where it is mostly

concentrated. Thus, if it is a rural market where the consumer of the product are

concentrated then the channel of distribution may be different. If it is a big market

then the channel of distribution will be different from a smaller market.

3. Cost of distribution: if the cost of distribution of the product is turning out to be

very high if the company distributes then the company will chose another

channel, like choosing a distributor who will have his own sales persons and have

warehousing facility.

4. Company: The size of the company in terms of its financial health is also

important. If it is a big company then there can be more intermediaries to sell the

product.

5. Marketing environment features: if there is large competition for the product then

the manufacturer will try and tap different channels of distribution to make the

product reach the consumer from all directions.

PRICING OF PRODUCT

• Price is the value in exchange of goods and services. It is the value of goods and

services expressed in terms of money. Price normally covers the cost of

production (wages, rent, normal profit, interest, selling and distribution expenses)

• Pricing is very important – right pricing can increase sales volumes and thus

profit.

• Price is for all – wholesalers, retailers, consumers etc.

Objectives of pricing

A marketing manager decides on the price before price is fixed. There are:

• Attainment of targeted returns on investment: The main objective of any business

organization is to get attractive returns on the capital it has invested. They fix a

certain target rate of return that they are supposed to get from the investment they

have made over a period of time. This rate of return could be 15 to 20%. In order

to achieve the target rate of return the companies fix a mark up which is over and

above the price. This helps to get a return on the investment they have made.

22

• To face competition: Pricing is a well thought out process. Prices are fixed to beat

a competitor or prevent a competitor from taking the market share of the

company. Thus, before fixing a price the price of the competitor is seen. Similarly

when a new product is launched it is priced low in order to gain a foot hold in the

market.

• Market share: this is one of the most important objectives of pricing. Price of a

product is also fixed in order to keep the market share and achieve the sales

volumes.

• Maximize profit: The objective of pricing is to earn as much as profit as possible,

either by fixing high price or by fixing low price and selling large quantities.

• To skim the cream: A high price is is charged initially to earn a large profit. Later

price is reduced as competitors enter the market. In this way a firm is able to earn

large profit or get the cream.

Factors influencing pricing decisions

• Internal factors

– Recovery of cost of manufacturing and marketing

– Goals of the enterprise – maximize sales or profit,

– To build a different image of the firm

– Product differentiation – any aspect of change in product can influence

price

• External factors

– Demand

– Price elasticity of demand

– Supply of raw material - cost

– Government – price legislation

– Consumers’ buying behaviour

– Economic conditions – recession, prosperity

– Intensity of competition – very intense, low price

PRICING POLICIES OR PRICING STRATEGIES IN MARKETING

23

What is the method used by companies to fix price of products. These are:

Cost –based pricing

◦ Mark-up pricing (cost-plus pricing)

◦ Absorption cost pricing

◦ Target rate of return pricing

◦ Marginal cost pricing

Demand based pricing

◦ What the traffic can bear pricing

◦ Skimming Pricing

◦ Penetration pricing

Competition based pricing

Affordability-based pricing

MARK-UP OR COST-PLUS – mark-up or margin to cost per unit

◦ Mark-up decided as per

Trial and error

As per market conditions, if know

ABSORPTION COST PRICE – full cost of production calculate – full cost

includes – fixed and variable costs, selling and distribution cost, administration

cost – profit margin worked out – the margin added to cost – this is price –

random profit margin – PRICE THAT ABSORBS ALL COST

TARGET RATE OF RETURN PRICING – similar to absorption pricing –

difference – expected rate of return on investment worked out – price to cover

Rate of Return on Investment.

MARGINAL COST PRICING – price to cover incremental or additional cost

per unit

DEMAND-BASED PRICING

WHAT THE TRAFFIC CAN BEAR’ PRICING - maximum price set

consumer ready to pay – used by retailers – used in monopoly/oligopoly when

demand inelastic

24

◦ very random method – frequent adjustments in price

◦ Chances of error strong

◦ Limitation – when competitors enter/ or consumers become stronger

SKIMMING PRICING – ‘skim the market in first instance’ – i.e. fix high price –

capture as much profit – then settle for lower price – used for new products in

luxury or specialty products – price insensitive segment

PENETRATION PRICING –

◦ Greater penetration or share of market with low prices - Sell large

quantities

◦ Can be used before competitors enter

◦ Advantage – able to face competition from new entrants

COMPETITION BASED PRICING

Not necessary that this price would be same as competitor. There can be three

types

◦ Premium pricing – over competition

◦ Discount pricing – below competition

◦ Parity pricing – same as competitor

AFFORDABILITY PRICING

Set a price which common person can afford

For essential commodities

Cost is not the factor in deciding the price

Element of subsidy here

Price determination under various market conditions (refer to Unit II for this)

1. Price determination under perfect competition

2. Price determination under monopolistic competition

3. Pricing under oligopoly