DBA - 6

1 - 20

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DIRECTORATE OF DISTANCE EDUCATION

Post Graduate Diploma in Business Administration

PAPER – II
MARKETING MANAGEMENT
LESSON : 1-20

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(For Private Circulation Only)
 COURSE – II : MARKETING MANAGEMENT
Code No DBA - 6
Total Number of Lessons – 20
Nature and scope of Marketing and its future – Marketing and Public
Relations – Customers Movement.
Markets and Buyer Behaviuor.
Market segmentation – planning – Marketing Programmes
Methods of estimating future demand – Merits and demerits
Product development – Branding – Standardizations packaging and labeling.
Product life cycle.
Pricing techniques – controls and regulations – and terms of sales – Channel
of Distribution.
Nature and scope of advertising – Economics of advertising – Pros and cons.
Hire purchase and Installment systems.
SUGGESTED READINGS
1. William J. Stanton: Fundamentals of Marketing ( Tokyo : Mc Graw Hill
Publications Ltd. 1978)
2. Jerome Mc Garthy : Marketing Management (Illinois : Richard D. Irwin
1978)
3. Philip Kotler : Marketing Management – Analysis, Planning and Control
(New Delhi : Prentice Hall of India Pvt. Ltd., 1980)
4. Sripati Rangandha : Text book of Marketing Management (New Delhi S.
Chand & Co. 1983)
5. Rustom S. Davar : Marketing Management (Madras : Progressive
corporation Pvt. Ltd., 1978)
6. Philips and Duncon : Marketing Management (Illinois : Richard D .
Irwin Inc. 1983)

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7. UNIVERSITY
Memoria : Marketing Management (Allahabad : Kitab Mahal Pub .
1980)
8. S.A. Sherlekar : Marketing Management (Bombay, Himalaya
Publications Ltd.,)
DBA - 6

POST GRADUATE DIPLOMA IN BUSINESS ADMINISTRATION PAPER : II

MARKETING MANAGEMENT
SYLLABUS
Dear Students,
Congratulation to you on joining the course and we wish you good luck in
you endeavours. the syllabus has been divided into 20 lessons in the following
manner:

LESSON – 1 & 2
Nature and scope of Marketing- Marketing and its future –Marketing and
Public Relation-consumer Movement.

LESSON – 3 & 4
Market and Buyer Behaviour

LESSON – 5 & 6

Market Segmentation-Planning-Marketing Programmes

LESSON – 7 & 8
Methods of estimating future demand-Merits and Demerits
LESSON – 9 & 10
Product development – branding-standerdisation packing and labeling
LESSON – 11 & 12
Product life cycle.
LESSON – 13 & 14
Pricing techniques-controls and regulations terms of sales.
LESSON – 15 & 16

Channels Of Distribution

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LESSON – 17 & 18UNIVERSITY
Nature and scope of advertising – economics of advertising – pros and cons
LESSON – 19 & 20
Hire purchase and instalment systems.

A wide coverage of the topics have been given in the lessons. However the
students are advised, wherever possible, to take up additional reading from the text
and other recommended suggested, books.
Lesson Page
Lesson Name
No. No.

1. Nature and Scope of Marketing

2. Marketing and Public Relations

3&4 Markets and Buyer Behaviour

5&6 Marketing Segmentation, Planning & the Marketing Programme

7&8 Methods of Estimating Future Demand – Merits & Demerits

9 & 12 Product Policies

13 & 14 Pricing

15 & 16 Channels of Distribution

17 & 18 Nature and Scope of Advertising

19. Hire Purchase and Instalment System

20. Future of Hire Purchase and Instalment System in India

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 1

LESSON – 1

NATURE AND SCOPE OF MARKETING

OBJECTIVES
1. To study development of marketing.
2. To learn how marketing is managed

CONTENTS
1.1 Introduction
1.2 Origin and Historical Development of Marketing
1.3 Marketing
1.4 Systems Approach to Marketing
1.5 Controllable Variables
1.6 Marketing Management
1.7 Summary
1.8 Revision Points
1.9 In text questions
1.10 Assignments
1.11 Keywords

1.1. INTRODUCTION
Marketing is a relatively new discipline of study and its origin is as old as
human civilization. Marketing as a separate set of activity was brought into business
only during the middle of this century and it was introduced as a separate subject of
study only in the 1920s in the western countries. But now it has taken such a
prime position in business activity as well as in day to day normal life that without
exception everyone depends on, looks upon and enjoy the fruits of marketing in
some form or other. Fro example, textiles manufactured in Ahmedabad and Bombay
are available to consumers in Andipatti and Bodinayakkanur. Unlike previously, the
famous Kerala bananas are not confined to that State alone. It is available in Madras
and many other parts of India where the consumer wants it. Jasmine from Madurai
is available in Madras and many other parts of India where the consumer wants it.
Jasmine from Madurai is available Bangalore and Bombay on the same day. These
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and a score of other goods and services are available to the consumers as a result of
various activities performed by various people involved in performing the functions
of marketing. In the first two lessons, the origin and development of marketing,
scope of the term and definitions and functions are discussed.

1.2 ORIGIN AND HISTORICALS DEVELOPMENT OF MARKETING

In the earlier stages of civilizations a self sufficient agrarian economy was
existing. Every one met all their needs by their own self. Production was confined to
one’s own family needs. Division of labour which was totally absent at this stage,
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started evolving only in the next stage when each person started evolving only in the
next stage when each person started concentrating in the production of those
commodities in which they had some skill. Production was carried on beyond one’s
need which lead to some form of exchange-exchange of one commodity for another.
The various difficulties and limitation of this stage, the barter economy, created the
need for a common medium of exchange which gave raise to the money economy.
The raise of some form of money, as a medium of exchange, the division of
labour and the need for exchange of commodities led to the raise of trading class,
who were middlemen filling up communication difficulties and making the exchange
process easier. The main emphasis was on production and marketing was not given
any attention. The Industrial Revolution changed this situation wholly. Hand made
village production was replaced by specialization, mechanization and production in
factories. Village and agrarian population started shifting to urban localities, where
production was concentrated. The increasing urban centers and large settlements
increased the various needs of the city dweller who was no longer self sufficient.
Various industries grew infant meet these needs. Even then marketing was only in
an infant stage and emphasis was only on manufacturing.
It was only the next stage of automation, innovation and the consequent mass
production which brought to force the importance of marketing. The need to sell
what was produced induced the producer to take up steps to give importance to
promotion of the product and effected a change from the production orientation of
the consumer orientation. This became a necessity because what was produced
could not be sold unless it was produced, considering the tastes and needs of the
consumers. This was when the traditional marketing concept changed and the birth
of the modern marketing concept was witnessed.

1.3 MARKETING
Marketing is a word which is very commonly misunderstood and very loosely
used by many people in the field. This is due to the importance given to a particular
aspect of the many aspects of marketing. The following definitions are a pointer. The
American Marketing Association defines marketing as “The performance of business
activities that direct the flow of goods and services form the producer to the
consumer or user”. This definition lay emphasis on the distribution aspect of
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marketing. It was found to be defective in various grounds like, (). It was considered
narrow in scope, being production oriented and without considering the need for
consumer wants; (ii). Marketing process starts even before production commences
and continues even after the products are sold according to modern thinking. For
example decisions regarding the product-how it should be made, how it should be
packed, priced, or for that matter before the production starts. After the sale is over
the satisfaction it has generated will have to be studied so that the product could
last in the market by effecting any change whenever it is necessary. According to
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E.J. Mc Carthy, who improved on this definition, “Marketing is the performance of

business activities that direct the flow of goods and services from the producer to the
consumer or user, in order to satisfy customers, by adding consumer satisfaction
also as a goal. This aspect, namely the consumer satisfaction, has been given prime
importance in all the modern definitions of marketing. For example Edward W.
Cundiff defines marketing as the “Managerial Process by which products are
matched with market and through which transfers of ownership are affected. Martin
L. Bell says Marketing is the management task of strategically planning directing
and controlling the application of enterprise effort to profit making programmes
which will provide customer satisfaction-a task which involves the integration of all
business activities into a unified system of action”. In this definition performance of
various business activities, which comprises of the marketing functions for the
purpose of consumer satisfaction is stressed. Paul Mazur gave a very short but all
encompassing definition when he said, “Marketing is the delivery of a standard of
living to the society”. A refinement to this was given by Malcolm Mcnair, according to
this, “Marketing is the creation and delivery of standard of living to the society”. This
emphasis the major function of marketing namely satisfying the consumer by
improving, and increasing the demand for material goods and services and then
fulfilling their needs and desires. Though this definition is vague and is not
descriptive of the marketing concept it brings to force the importance of consumer
satisfaction.
According to Philip Kotler, “Marketing is human activity directed as satisfying
needs and wants through exchange process” according to him the existing human
needs and wants should be identified and products should be produced to satisfy
these needs and wants. The satisfaction is mutually obtained through the exchange
process, which involves the marketing functions whereby products are delivered to
satisfy the consumers and the company is satisfied over attaining their goal, namely
profits.

1.4 SYSTEMS APPROACH TO MARKETING

The concept of system is being widely used during the present time to define,
perceive and solve complex relationship. The systems approach, though new to the
field of marketing, has been widely used in explaining many complex activities. For
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example, our human body is considered as an organic system comprising of many
sub systems, the digestive system, the nervous system the muscular system etc. the
system approach to marketing “is an orderly method of dealing with complex
marketing problems under conditions of risk or uncertainty”, observes W.J.Stanton.
according to him, “Marketing is a total system of interacting business activities
designed to plant, price, promote and distribute want satisfying products and
services to present and potential customers”, “Hence according to this approach
marketing is (i) a system – According to Webseters Dictionary a system is, “a
regularly interacting or interdependent group of items forming a unified whole”.
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Various activities are involved which are interdependent and which forms the whole
system. In a marketing system they are business activities involved at various
stages. These activities are (ii). Designed to plan, price, promote and place or
distribute – various inputs are made use of for producing g the product. This is done
in a planned manner making use of materials, money, men, and various
information. This gives the product, which is priced, promotion efforts are taken to
place the products to the consumers. These are known as the marketing mix at the
disposal of the company to attain their objectives. (iii). Object of the action:- want
satisfying goods and services. The marketing mix is utilised in its various
perspectives. For the purpose of producing goods and services-goods like textiles,
tooth paste, automobiles etc., and services like food and stay (by hotels)
transportation (by railways, bus operators) etc., These goods services must go to
satisfy a want or a need whereby the objective of the company is attained. As it could
be seen the entire purpose of the activities taken that is planning pricing etc., is to
produce satisfaction through goods or services. This is considered as the output of
the system. (iv). The target – present and potential consumers:- The target of all the
above actions that is to answer the question whom to satisfy, is the customer.
Customers are of all class, industrial or household. It is not enough that the
customers are satisfied for the time being. It is implied that customer satisfaction
should be lasting which only could Pave way of Yielding more customers, through
promotion etc., Non satisfaction can never help retaining customers nor win new
ones.
The input model of the systems approach is shown in
INPUT PROCESS OUTPUT OBJECTIVES

Men Product
Materials Price Goods Profits
Money Promotion or Satisfaction
Information Place Services Welfare
(distribute)

FEED BACK INFORMATION

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A. ENVIRONMENT OF A SYSTEM
An system exists and works in an environment which exerts certain influence
in the system. In a marketing system a company plans and operates within the
frame work of certain forces which constitutes the system environment. The system
which works in an environment is constantly influenced by the environmental
forces. The effectiveness with which the system adopts to such forces and changes
either itself or the force, determines the efficient working of the system.
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In a marketing system these forces can be classified into two. Some forces are
external to the system while some are internal. The classification is significant
because external factors are external to the orginsation and are totally
uncontrollable by the organization, whereas internal forces could basically be
controlled.
B. EXTERNAL FORCES
The external force are many and chief among them are,
(i) Market demand
This is considered to be the most important force influencing the marketing
decision of any company. This is because demand for any product depends on and is
influenced by many factors especially income of the consumers, number and
location of the people which has an effect on the buying power of the people which
has an effect on the buying power of the consumer. For example people in most of
the advanced countries have larger disposable incomes as result of which they could
afford to depend on many articles which is believed to be a luxury by us. A
refrigerator, for example is luxury for us but not so in USA or UK. Location is an
important factor especially for perishable articles. Similarly the sociological,
psychological and general behavioural aspects of the demand. For example the
concepts of split family, working couples etc., have resulted in less and less time
spent in the kitchen as a result of which many fast cooking foods like, half cooked
meat, bread, cakes etc., are common in America. Whereas in India any house wife
prefers only purchase of all materials and preparing food by herself. As result such
type of food materials and materials which could be cooked into food with in a few
minutes are not common in India.

(ii). Competition
Competition from other Company’s manufacturing similar products or
competing substitutes and alternate products also affects the marketing decisions of
the company. The competitor enters the market with his own marketing mix which
will have to be put up with. Otherwise the company’s sales would come down.

(iii). Political and leagl forces

Governments have inclined to take higher control of business activities
legislations and other indirect methods of control and thereby affecting the
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production, finance and marketing policies of business. In India, for example,
controls exist on licensing, expansion, capital issues etc., which in certain cases will
have to be done with the approval of the Government. Many countries have enacted
laws against spurious advertisements. These will have to be compiled with by the
company irrespective of the nature of such laws.

(iv). Technology
Changes in technology due to innovations affects the production techniques
which also has an impact on consumption and distribution.
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There are others like social, ethical and structural forces also, influences on the
organization which is external to it. The changes in these forces, external to the
organization constitutes the environment and are beyond the control of the
organization. The organization will have to very carefully watch the change in these
forces and adopt suitably to such changes where by the change in the environment
could be sufficiently offset and it is not allowed to affect the enterprise objectives.
This could be done by suitably making use of and changing the controllable
variables, or the internal forces.

1.5. CONTROLLABLE VARIABLES

As against the environment which is beyond the control of the organization,
there are various other resources at the disposal of and within the reach of the
organization itself which could be manipulated so as to attain the objectives of the
organization. These resources in turn can be classified into two. One is the non
marketing resources and the other the marketing mix.

A. Non marketing resources

In meeting the needs and wants of the consumer, the company makes us of
various resources which is available with in the organization. They are its production
capacity, its machineries, materials, finance, personnel etc., For example if the
company wants to produce a new product it requires machines and materials for
which finance is a prerequisite. The production needs personnel for effectively
carrying out the risks. These resource are at the disposal of the company and are
the back up force for the marketing efforts. Hence they are termed as the non
marketing resources like the public image , research and development position of
the company etc., A good public image as a favourable factor to introduce a new
product in the market as in some cases the name of the company itself might speak
of its good quality products. Contribution to research and development might help
making innovation in production techniques or for new product development.

B. Marketing mix
Marketing Mix Is “ The term used to describe the combination of the four inputs
which constitute the core of the company’s marketing system”. The inputs product,
price, promotion and distribution is properly blended and used to tackle the

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environmental forces in effective marketing. The inputs or the ingredients of the
marketing mix are inter related and decision to change one is bound to affect the
others in one way or other. For example, a change made in the product will have to
be accompanied by a change in the price mostly. Both to be successful effective
promotion will be needed-which might also involve some changes or additional
thrust to the distribution mechanism.
Each of the component of the mix also a number of variables. The selection of
the best combination of these variables only make the marketing programme
effective and profitable to the company. The various variable of the components are:
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C. Product
The range of products to be produced by the company will be varying and
changes within the product itself is possible by changing the nature of packing,
packaging differentiation through colours, size and other physical features. For
example Ponds who were making talcum powder for a long time have expanded their
range to creams and now soaps also. This is also the case with Lakme. The Indian
Tobaco Company, manufacturers of a wide range of cigarettes very their product’s
features of length, tip packing etc., to suit the tastes of different class of customers.
Their ‘Classic, is meant for sophisticated, high class customers who have a taste for
foreign cigarettes, whereas their ‘Scissors’ is meant for the common man. Liril soap
is now marketed with a changed pack as ‘New Liril’.
Introduction of new products and taking away others at the appropriate time
are all some of the various alternative available to the company.

D. Price
Choosing the correct base price for the products, policies regarding discounts,
reductions, price, differentiation, and related matters like freight payments etc., are
some of the variables available. Continuing the same example seen above ‘Classic
cigarettes are priced very high not only to cover extra costs of the sophisticated
packing but also to make it on par with the high priced foreign cigarettes, which the
users of that brand can easily afford. Whereas the other brand is sold at a price
which fetches only a very low profit.

E. Promotion
This is mainly concerned with persuading the consumers to buy the products.
Various promotional measures are at the option of the products. Various
promotional measures are at the option of the company. Advertising through various
media, depending upon the target market, personal selling through salesman,
indirect selling, etc., are some among the various options available.

F. Distribution
The market position of any product results mainly on choosing the most
effective channel of distribution. (The meaning of this term, its importance and its
structure is discussed in a later lesson). Selecting the proper middlemen if needed
and to reach the customers in the right place, at the right time have to be decided
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from among the different variables. Certain products will have to be sold through a
particular channel only. Taking the same example of cigarettes, ‘ Scissors’ will have
to be a sold only through petty shops or such kinds of shop which that consumer
might frequent, whereas the same channel will not be suitable for the ‘ Classic’,
Which is mainly sold in stall if five star hotels, department stores and the like which
is frequent by high class people for whom for whom it is meant.
Choosing the best combination among the multitude of variables determine the
effectiveness of the marketing efforts of the company. The success of the various
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efforts and activities depends on the extend to which they are able to satisfy the
customer. The core around which all these forces are revolving is the consumer for
whom the entire functions are undertaken. Hence in the system approach the
marketing efforts start with the customer and ends with the customer. This is
diagrammatically shown in fig 2 which summaries the above discussions aptly.

1.6. MARKETING MANAGEMENT

So for some of the definition of the term marketing, the first part of the term
marketing management were looked into. Management is defined as, the process of
planning, organizing, staffing, directing and controlling or evaluating the efforts of a
group of people towards a common predetermined goal. In the above definitions of
marketing, reference was made to a number of variables of alternate decisions
among which the most appropriate ones are to be chosen. The task of choosing
implementing and evaluating the results are the tasks of the management.
According to Philip Kotler, “Marketing management is the analysis, planning,
implementation and management is the analysis, planning, implementation and
control of programmes designed to create build and maintain mutually beneficial
exchanges and relationship with target markets for the purpose of achieving
organizational objective”. This is an all comprising definition an analysis of which
clearly gives the meaning and importance of the term marketing management.
Accordingly marketing management is;
i). The involvement of management process namely, planning, analyzing,
implementing through proper organizing, directing and controlling the staff.
ii). Programmes to create, build and maintain : the purpose or the
management process or activities is to create need when no need is there build when
it is not proper and maintain it, if sufficient.
iii). Mutually beneficial exchanges and relationship : The need to be
created built or maintained is the need for exchange. Commodities are exchanged for
money when goods or services are brought by consumer. This exchange should be
mutually benefitial that is the consumer should be satisfied over the commodity at
the same time the company should be benefited, by way of profits. Benefits to only
one section will not lead to long standing relationships. This exchange could lead to
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long standing relationship only when real benefit has been exchange resulting in
mutual satisfaction. This is where the significance of consumer satisfaction is
implied. For example if the main aim of the company is making profits, it could
easily do so at the cost of customer interests al well as the interest of the society,
like selling spurious or adulterated goods. But in this of the case the interest of the
company alone is served at the peril of the consumer and the society. This will not
create long standing relationship, obviously, between the company and the
consumers.
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iv). With the target market: the relationship and exchanges is to be directed
towards the customers who are termed as the target market, for whose satisfaction
the activities are taken.
v). The purpose of achieving organization objectives: All the above said
activities, as was repeatedly stated, is to satisfy the consumers. But what is
important is that this should be the objective towards which the entire organization
is gendered up. Consumer satisfaction is not a sub goal or a subsidiary objective but
he very purpose and the main objective of the organization. Profit is obtained
through providing consumer satisfaction. It is not for profit that goods or services
are sold but consumer satisfaction is provided that goods or services are sold but
consumer satisfaction is provided, which is the main goal and profits emerge out of
it, which is only a sub-goal.
MARKET COMPETITI
DEMAND ENVIRONMENT ON

Controllable
Non Marketing
ETHICAL & STRUCTURAL

Consumer POLITICAL AND LEGAL

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RESOURCE

SOCIAL TECHNOLO
Fig. 2
GY
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1.7 SUMMARY
If this policy of marketing is adopted by the management, it means a complete
change in the entire outlook of the organization. Many a modern successful
companies have adopted to this principle of marketing management to their
advantage. The Relaince Textiles Ltd., makers of ‘ Vimal’ fabrics claim they do not
sell cloth but ‘fashion’. The ponds (Inida) Ltd., makers of the ‘ Ponds’ range of
products claim that they do not sell cosmetics but they market ‘beauty’. This change
in orientation itself brings sea of difference in the various activities of the
organization and the management like production, finance, etc.,

1.8 REVISION POINTS

1. “The performance of business activities that direct the flow of group
and services from the producer to the consumer or user”.
2. In a marketing system, a company plans and operates within the
framework of certain flows within constitutes the system equipment.
3. Controlling variables are non - marketing resources and the other
marketing mix.

1.9 INTEXT QUESTION

1. Where are controllable variables?
2. What is marketing?

1.10 ASSIGNMENT
1. Discuss origin and historical development of marketing.

1.11 KEYWORDS
Marketing
Price
Promotion
Technology
Marketing mix
Non-marketing resources
Product
Distribution
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Environment
Exchange
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LESSON – 2

MARKETING AND PUBLIC RELATIONS

OBJECTIVES
1. To understand marketing functions
2. To elucidated the future of marketing.
CONTENTS
2.1.1 Introduction
2.1.2 Marketing functions
2.1.3 Marketing and public relations
2.1.4 Contemporary marketing and future of marketing
2.1.5 Role of consumer movement
2.1.6 Summary
2.1.7 Revision points
2.1.8 Intext questions
2.10 Assignment
2.11 Keywords
2.1.1 INTRODUCTION
Marketing function include exchange functions physical supply function and
facilitating functions price should be sufficient enough to give a fain margin of
return storage involves involves retaining the goods for a sufficient period of time.

2.1.2 MARKETING FUNCTIONS

The definition, importance and implications of the term marketing and
marketing management were looked into. In the above discussions reference was
made in some places to the functions of marketing. Marketing is termed as satisfying
consumers through goods and services. This involves the journey of these goods
from the producer to the consumer, which requires these goods from the producer to
the consumer, which requires some preparation of the goods and will have to pass
through many operations. These operations are performed in many stages by many
hands. Marketing functions constitute all such activities performed. The marketing
process involves the performance of these marketing functions in different ways,

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whereby goods are made available from the producer to the consumer. Marketing
functions have been classified by different authors in different ways. Pyle classifies
these functions into two, namely concentration and dispersion. Concentration
involves gathering and concentrating raw materials food stuffs, manufactured goods
etc., at a central location or the market place. The factions performed under
concentration are buying and assembling, transporting, storing, grading financing
and risk bearing. Dispersion involves distribution of goods from these central
location or market places to the consumers through the proper channel. The
functions classified as dispersion are selling, transporting storing, grading financing
and risk bearing.
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MARKETING PROCESS

CONCENTRATION DISPERSION
Buying and Assembling Selling
Transporting Transporting
Storing Storing
Grading Grading
Financing Financing
Risk Bearing Risk Bearing
Market Information Advertising
As it could be seen most of the function are common to both the activities of the
marketing process. F.B. Clark classifies these functions into three namely (i)
functions of exchange involving the transfer of ownership of the goods, (ii) facilitating
functions of physical supply, involving the physical transfer of the products and (iii)
facilitation functions. Those involving assisting the performance of the first two class
of functions. The functions which fall under these classification are:

A. Exchange Functions
i). Buying and assembling
ii). Selling
B. Physical Supply Functions
iii). Transportation
iv). Storage
C. Facilitating Functions
v). Financing
vi). Pricing
vii). Standardization and grading
viii). Packing and packaging
ix) Advertising and sales promotion
x) Risk bearing
xi) Market information

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The nature and importance of the above functions are discussed briefly.

I. Buying and Assembling

Buying is a primary function and is considered an important aid to marketing.
The producer or the manufacturer has to buy his materials and input, the trader
has to buy his products from the manufacturers. The performance of their respective
functions depends on efficient buying decisions, pertaining to what to buy, when to
buy and where to buy or whether to buy at all.
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Due to the complexities in the process of buying, purchases are made by any
one of the following ways: I) by inspection: where the purchasers personally inspects
the gods and then purchases. Ii) by sample: a small quantity or a few goods
representing the whole of the commodity is seen and purchases are made and, iii) by
description: where it is possible the commodities are described as to its appearance
quality, or other physical characteristics on the basis of which decisions are made
The commodities brought at various places will have to be assembled at the
production point or the selling point. This is necessary because economical
production point or the selling point. This is necessary because economical
production or selling will be possible only if materials, or produced goods, are
available in large quantities.

II. Selling
It is the final function enabling the flow of goods and services to the consumers,
through the distribution process. In the present day industrial economy
characterized by mass production, demand creation has become the core of selling.
This involves identifying consumer needs, taking promotional measures and finally
selling the products to the consumers.

III. Transportation
The prime function of physical distribution is to make available the goods
needed by the consumers from the place where they are produced to the place they
are consumed. Transportation performs this function of marketing whereby goods
are made available at the place they are wanted. But it should be understood that
transportation is not a marketing activity alone. Transportation is an important aid
and function of marketing. In fact it is only improved transportation that has
spearheaded mass production through improved mass distribution. Transportation
has made it possible to attain the various economics of large scale production. This
was possible because of the wide extension of markets through the variety of
transportation facilities offered. Many industries like the fishing, dairy and poultry
farming, meat packing, flower and fruit cultivation etc., which tended to be localized
due to its perishing nature got a great fillip because of the development of fast and
efficient transportation systems. The boundaries of markets were extended even
beyond nations and international trade is conducted because of the advent of air
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and shipping transportation. This has very much helped various nations in
specializing in those industries for which they have a relative advantage.
Transportation also exercise a stabilizing influence on the prices of commodities
through the movement of goods from the low priced areas to the high priced ones.
The consumers are also benefited by the variety of goods and service available to
them thereby offering diversified consumption of goods which are not produced
locally. They also get the benefits f stable as well as lower prices as a result of the
transportation services.
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On the whole it could be stated that improved transportation has resulted in

greater civilization through increased accessibility of various goods and services to
distant areas, at relatively lesser prices.

IV. Storage
This is another important marketing function which involves retaining the
goods for a sufficient period of time so that commodities are available at the proper
time when they are needed without any deterioration in quality. The importance of
storage stems from the fact that, modern production is carried on in anticipation of
demand. Hence these commodities have to be necessarily stored till the actual
demand arises. Secondly, some products are seasonal in nature. Most of the
agricultural commodities and agro based industrial commodities are produced only
during a particular season of the year. For example wheat or paddy harvesting is
confined from January to April/May; sugar is produced normally from October to
June, whereas the consumption of these articles is throughout the year. Conversely
certain products are produced throughout the year while its consumption is
seasonal or demand arises only during a particular season, like wollen clothes etc.,
All such commodities will have to be stored for a considerable period of time. Thirdly
raw materials might have to be stored for enabling bulk production or goods might
have to be stored for curving or processing purposes. Fourthly storing also becomes
necessary when prices of goods goes down to abnormally low level till prices revive.
Hence storage becomes necessary at every stage of the marketing process. It is
only realization of the importance of storage that has prompted even the Government
to form a Warehousing Corporation with a specific task of meeting the bulk storage
needs of agricultural produce.

V. Financing
This is an important anxillary function of marketing. The entire process of
marketing to work efficiently needs provisions of finance for the various activities.
The mean of provision of finance is the function of financing. At every stage the
concerned functionaries invest fund as fixed and working capital needs facilitating
performance of various activities. This is provided from own source as well as
borrowed from banks or other sources.

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VI. Pricing UNIVERSITY
This is yet another important facilitating function. This is a very delicate task
because the price should be sufficient enough to give a fair margin of return and at
the same time low enough so that it is acceptable or does not discourage, if not
attract, consumers. Many factors like, cost marketing policies, channel decisions,
competitions, competitor’s prices, public policy, etc., will have to be considered in
price fixation. As price is an important aspect in determining acceptance or
otherwise of the products, considerable thought is needed in price fixation.
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A. STANDARDISATION AND GRADING

Standards are models against which products are compared goods are
considered to be of standard quality or description if they confirm to the standards.
Standards are normally set in respect of size, shape, weight, colour, performance
etc. so standards ensure uniformity in quality which acts as a useful aid in
marketing as well as consumption process.
Grading is an important process preceding standardization. According to
Clark, “It involves the division of products into classes made up of units possessing
similar characteristics of size and quality.” While standardization pertains to
manufactured goods so as to bear the same characteristics, grading pertains to
products obtained from nature like agricultural produce paddy, sugarcane, etc.,
forest products-timber, sandalwood etc., mine products-coal, iron ore etc. these
products could not be obtained with the same characteristics, as they bear
difference naturally. But for manufacturing processes the machines need uniform
materials confirming to certain standards of quality. So such materials are classified
so as to bear similar characteristics, if not the same characteristics.

VII. Standardization And Grading Facilitates

Buying and selling to a great extent. Selling or buying through samples is
possible only if grades are standardized or graded properly. Production in large scale
is also possible only if materials are graded and products are standardized. It ensure
proper price fixation with regard to quality. Sales promotion through effective and
better advertisement could be taken up with considerable economy also.
Standardized goods also enables branding and trade mark fixation which is very
much useful in advertising and sales promotion and generally to infuse a sence of
confidence on the products ensuring good quality.

VIII. Packing And Packaging

Packing involves the function of making available the goods needed by the
consumers in the quantity required by them. The main aim is to avoid losses due to
breakage, spoilage, leakage, etc., This is done by packing the goods suitably in
contains packets etc. this ensures the quality of the goods by avoiding any damage
during transportation or storage. Packing involves putting goods in convenient lots
in the markets. The main difference between the two is that, while packing is

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concerned with the bulk, used mainly by the produces and the wholesalers, packing
is for the convenience of the consumers at the retail level. For example Bournvita a
consumer product is packed in bottles or packets of 500 grams or 1000 gms to be
sold at the consumer level but for convenient handling at the production or
wholesale level these packs are packaged in boxes containing say 24 bottles/packets
in each box. Packing have become; specialized job nowdays. The packs are used by
the manufactures and or wholesalers to print the brand names and other
informative literature. The packs are also made attractive to the attention of the
consumers. Proper packing also prevents products from deterioration in quality over
a period of time and also avoids damages to a considerable extent.
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IX. Advertising and Sales Promotion

Advertising is resorted by the manufacturers, and retailers with an intention to
attract consumers towards a particular product. Modern business not only meets
the needs and wants of the consumers but is also primarily involved in creation of
the needs, which is the task of advertisements. It also informs the consumers of the
product, their advantages and other useful information so that the consumers get
the maximum satisfaction by its consumption. Advertising is supplemented by other
sales promotion techniques, like personal selling involving salesmanship etc. the
main aim is to induce the consumer to go in for the concerned products.

X. Risk Bearing
Right from the stage of production of goods up to the final sale of these goods to
the final consumer carrying out all the functions in the marketing process involves
considerable risks. Risks are of many kinds but all of them result in losses of
various types. Some of the risks could be shifted to others or would be indemnified
while the rest would base to be borne by the functionaries. Risks could be shifted to
specialized agencies through the contracts of insurance. For example risks
pertaining to loss of goods during transshipment could be covered by an insurance,
while some others like loss due to downfall in prices could not be guarded against in
all cases. Insurance is helpful to the various functionaries because it spreads losses
due to risks on several persons, thereby preventing or mainlining personal loss. This
gives a sense of security to the persons involved in the marketing process as
otherwise their functions might not be forthcoming.

XI. Market Information

This is yet another important facilitating function which mainly involves
transfer of view, information, opinion etc., of the consumers to the producer. In the
modern business, production is carried on in anticipation of demand. Unless it is
known what the consumer would need and how it could be met, product would
become fruitiness. The demand will also have to be quantified precisely through
various information for useful and economical production. Moreover market
information helps in identifying scrotal and area needs so that stratagles could be
suitably adopted to successfully market the goods. In its course it also helps the
consumer to review the products and improve their standard through constructive

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criticism and offering worth while suggestions.

2.1.3 MARKETING AND PUBLIC RELATIONS

According to the traditional view, marketing was solely confined to selling the
goods that were produced. Hence contact with the public by any institution was
restricted to and only when the need arose. But in the present days the concept of
marketing has undergone radical change, which was looked into in the earlier
lesson. The need for efficient public relations in marketing of a company’s product
could be understood well if the importance of what was explained as the external
environment is realized. As it was seen, any organization acts in an environment
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which exerts influence over the functions of an organization. It was seen that the
organization, in the cases organization. It was seen that the organization, in the
cases could not control the influence of this external environment. But at the same
time the organization could, not afford to ignore the effects of such influence. Hence
it has become a part of the work of the, marketing man to see that the influence of
the external environment, to the extent it is possible, does not affect the organization
unduly. This is done by maintaining a contact with the factors and change their line
of thinking or make sure of these factors to the benefit of the organization. This has
become the main task of the public relation function, “Public relation is the
management function which evaluates public attitudes, identifies the policies an
procedures of an organization with the public interest and executes a programme of
action and communication to earn public understanding and acceptance”.
Accordingly, public relations concerns itself with evaluation public attitude and in
the light of this, identifying organizational policies and procedures as it relates to
public interest and communicating to the public how the public and its views are
taken care of in order to gain acceptance and understanding among the public is
simply to gain a good image.
The external environment can be considered to consist of a number of public
whose interests and influence cannot be ignored according to Phililp Kotler, “A
public is any distinct group that has an actual to potential interest or impact on an
organization”. The publics could be classified in three from the point of view of the
organization, for tackling purposes. They are; (a) the mutual public which is one that
is interested in the company and the company is also interested in; (b) the sought
public is one which the company is interested in but that is not necessarily
interested in the company; and © the unwelcome public is that which is interested
in the company but the company is not interested in it.
A company no longer worries only about the feelings of its consumers. Now it
has to worry about many others who do not have any direct connection with the
company, like the legislators, financiers, stock brokers, consumer advocates, press
etc. they constitute the key publics. The publics influence not only the company but
also the other publics. The company seeks to cultivate mutually exchanging
relations with the publics, by offering them their own services and benefits in
exchange for their valued support and resources. This is the prime function of the
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public relations department it interacts with the key publics which has considerable
interest and influence. A brief discussion of the influence of the key publics and how
it is met is made here.

A. The financiers
The consist of the banks, other financial institutions, stock brokers, stock
holders etc., who either supply funds or influence the ability of a company to obtain
funds. The ability of a company to obtain funds does not rest in good financial and
position statements alone, though it is an important pre requisite. Creating and
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maintaining the goodwill of these financial publics is also essential which is

accomplished through appropriate programmes.

B. The independent press

This is the mass media and the trade media carrying new, features and editorial
opinion. They carry great value among the population in general. Any company is
interested over two issues as far as the press is concerned. First, how much the
press volunteers to cover and second, what the press wants to say about the
company both has an important impact on the general population. Because theses
reports or news items carry more value than advertisements. Moreover there is also
an element of free advertisements. There is nothing more valuable than a favourable
report of feature or nothing more disastrous than are adverse one. The public
relations man in a company is responsible for supply of information and other needs
of the media so as to keep them in good terms in return for which the media
reporters respect the company’s needs of favorable coverage, being informed of any
important development, a chance to submit the company’s view point (in case of
adverse coverage) etc.

C. Government agencies and legislators

The government has become an important persons to recon with due to the
increasing intervention in business. Laws are enacted, imposing restrictions on
methods of production, prices, information regarding products etc., for purpose of
safety, security and many other reasons. The public relation man has to constantly
keep in touch with the concerned people to fulfill these obligations, to voice their
concern, views or interests through lobbying. This is done either individually by the
company or through their associations.

D. Interest groups
There are many groups of people like the consumer organizations, environment
associations and others who have now-a-days started voicing their concern over
indiscriminate developments, trade practice etc., of a company or any industry. The
views of these interest group could not be totally ignored and will have to be taken
care of by keeping in touch with them. This is done by communicating the policies or
strategies whereby the social consciousness of the company could be projected. This
normally done through advertisements, conference etc.
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E. General public
Any company in the present day attaches great importance to the public image
or the attitude of the public image or the attitude of the public towards the company.
This is of much more concern to the company. This is of much more concern to the
company because while interest groups act in an organized manner individual do
not act at all, or even if they do, not in an organized manner. They only carry images
of the company. So it becomes imminent for the company to have a favourable
image. This is normally done by taking up to public causes like donating to
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charities and good causes or making general purpose advertisements on how the
important is contributing to national growth or helping consumers with guidelines
for their general advantage. For example some TV manufactures now give
advertisement informing them on how to purchase or select a good TV. This helps
the company to create intelligent consumers as well as uses of their products.
Hence the main job of the public relations in a company is to constantly be in
touch with the different kinds of publics and satisfy their needs, maintain good
relations and goodwill. There by the company tries to turn the external marketing
environment as far as possible, favorably to the company. Many forward looking
company have stared taking interest in public opinion and increased the role of the
public relations department on par with the development.

2.1.4 CONTEMPORARY MARKETING AND FUTURE OF MARKETING

Marketing is a constantly evolving craft and discipline as and when changes
have taken place in a society, the concept and constituents of marketing have also
been simultaneously changing. Marketing which was not given so much importance
during the earlier decades of this century, now has taken much importance and it
has now become the point around which the entire activities of the organization is
centred. The modern marketing principles took shape during 1950s and 1960s
coinciding with the rapid industrial development throughout the world. This was the
time when important new inventions and innovations were taking place all over the
world. Computers, televisions rapid communications through satellites etc., changed
the nature of life, society and consequently, business activities. The western
economics were facing a situation of abundance due to mass production, which
resulted in growing affluence caused by the rapidly expanding varieties f goods and
services. This was the time when marketing was taking rapid stridedsin business
activities, especially in the western countries. The task of giving the fruits of these
inventions and innovations was to be shouldered by marketing.
Marketing played three major roles during this time. I monitored the character
of emerging wants of the consumers and translated them into appropriate products.
This was possible due to the shift to consumer orientation whereby the producers
had to not only identify the needs but also to lead it in proper direction, so as to
result in consumer welfare and not otherwise.
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ii) In fulfilling the first role, massive expenditure on advertisements, promotion,
market research etc. were taken up which resulted in fresh avenues of investment,
business activities and new lines of employment potentialities. This contributed to
the growth of consumption values.
iii) It created new forms of mass distribution to ensure that goods and services
would be available and affordable to large groups of people. This had to be done so
that the efforts of the first two roles were properly met and distributed.
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While this transformation was rapid and massive in the western economies in
the developing countries like India, the change was rather slow because of inherent
difficulties caused by a combination of lack of sufficient technology, know-how
resistance to changes, government controls etc., moreover the main cause for the
surge in the marketing activities namely, mass production was not so widely
prevalent in all the commodities. Nevertheless marketing played its own part in India
and other developing nations, by way of identifying the needs of the consumers and
develop products to meet them. There was also considerable improvement in the
various functions of marketing. For example transportation systems improved
substantially in quality due to improvement and development in rural roadways
which increased access to production centers. Retailing of essential commodities at
fair prices through the public distribution system organized by the government was
of great importance attached to the distribution function o marketing. Presently due
to considerable improvement in the literacy, advertisements and sales promotion has
increased and a general increase in the standard of living has permeated into the
hitherto isolated rural areas of India (if the goods and services they purchase could
be taken as an indication of the standard of living). Marketing and its future. The
trend which the world is witnessing as mass production, aggressive sales promotion,
increased consumption etc., is not to be construed as an unmixed blessing. Though
the society was benefited at large due to higher production, larger avenues f
employment increasing purchasing power, resulting in increased standard of living,
at the same time the society was also exposed to serious dangers due to deprivation
and exploitation as a consequence of mass production and mass consumption.
Hence marketing had to assume the task of meeting the challenges the industry has
been put to. The future functions of marketing relate to effectively finding solutions
to the problems raised by (1) environmentalism (2) inflation and (3) consumerism.
Environmentalism: Of production of goods on a large scale had led to careless
use of natural resources which has resulted in huge waste exploitation and pollution
of nature namely, air and water. A voice has started to be raised against this
indiscriminate resulting in neglect of the purity of the environment. This issue is
being increasingly raised by the environmentalists or the people concerned over
environmental safety. “Environmentalism is an organized movement of concerned
citizens and government to protect and enhance man’s living environment against
those who run it down much concern is voiced now on the effluence of poisonous
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chemicals which is fed into the rivers and seas by the various industries, the
harmful effects of the pesticides sprayed on food articles etc., which in turn has a
harmful effects on human life. For example, the extent of effluence of poisonous
chemicals by the leather industry in the river bed of Palar in North Arcot district and
Dindugal areas has resulted in making land in those areas unfit for cultivation
destruction of all natural growth like tress in that area and people living in those
areas have been afflicted crippling deceases due to the intake of polluted water,
which only is available in those areas.
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To prevent these and other kinds of exploitation of nature like large scale
cutting away of trees in forests for commercial purposes, the government has come
in with a number of legislations. Consequently many industries have to treat their
industrial effluents so as to be sufficiently below the danger level before it is let out.
Similarly poisonous gasses and smoke let out in the air will have to be treated
chemically to get rid of any toxic substances. This is a legally imposed obligation on
the industry. Very few industries control measures. In most of the western countries
there are organized associations or societies who take up environment protection as
their main task. As result many industrial units have taken protective steps to check
environment hazards by themselves. This is mainly due to the fact that is has been
accepted as a marketing challenges by those organizations. But in most of the
developing countries like India, such movements have not taken deep roots. Still
with increasing hazards and have not taken deep roots. Still with increasing hazards
and growing education and realization this is bound to take large strides. The future
task of the marketing man in this respect is two; i) he will have to device plans and
programme to communicate to the public at large about the environment
consciousness of the company; and ii) study its impact on costs. Presentation of
environment pollution means additional investments in treatment, control and
research. This means additional costs which will have to be shifted to the
consumers. The impact of this will have to studied and he will have to equip himself
for such measures.

A. Inflation
The effect of inflation on the common man is a well known phenomenon. It
symbolizes increased prices and increases in quantum of money with reduced value.
The reverse is the situation in periods of recession. In such periods what is going to
be the product mix, market mix and consumer mix strategies will have to be decoded
so as to make favourable use of the prevailing market situation to give optimum
profits and consumer satisfaction.

B. Consumerism
From the beginning of the 1960a industries in many western countries started
finding themselves the target of a new movement. This movement of the organized
consumers started questioning the very premises of marketing. Consumers who
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have silent takes of goods and services offered in the market started becoming vocal
instead of the passive role acceptance which they had subjected themselves passive
role acceptance which they had subjected themselves to. As the industry the
producers and the retailers were organized they were in a position to get anything
through to the consumers. But the consumers were more scattered and totally
unorganized in nature as a result of which they were not in a position to tell out or
get their grievances redresses. The continuous exploitation of the consumers by the
industry and the trade through defective faulty and unsafe products, questionable
practices, misleading advertisements were brought to light by many persons through
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their though provoking and analytical books and articles. It brought to force the
need for an organized consumer movement to protect themselves from exploitation.
Consumer movement or consumerism is a movement organized by vigilant
consumers in the market place to safeguard their interests and rights and
accomplish a fair to safeguard their interests and rights and accomplish a fair deal
in the marketing. The birth of the consumer movement was consequent to the
recognition of the rights which the consumers were entitles to. These rights have
been very aptly summarised by the Consumer Guidance Society of India as follows:

1. The right to be informed

This is the right of the consumer to be informed about the product, its
ingredients, characteristics, and all relevant facts needed to make a well informed
decision.

2. The right to satisfy

This involves the right to be free from any hazards or dangers from any
products, production process, and services.

3. The right to choose

This involves the right to select or choose from a variety of products or services
without any restrictions especially in case of monopoly conditions, with an
assurance of satisfactory quality at fair prices.

4. The right to be heard

It means right to be sufficiently represented so at protect the consumer interest
and to receive adequate consideration in the formulation of policies by institutions
and the government.

5. The right to redress

This emphasis the right to be compensated or identified in case of any kinds of
loss arising out of transactions.

6. The right to consumer education

This means the right to be imparted with a reasonable knowledge and to
acquire enough skills so as to be an informed consumer not only of the products but
also of the rights.

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7. The right to a healthy environment
This involves the right to be devoid of any hazards in the natural environment
so as to enjoy a healthy and a better quality life.
The consumer movement picked up very fastly in the western countries
because of many reasons. Chief among them are high level of literacy, very high
degree of consciousness of individual rights and duties, large number of publications
informing about hazardous products, well organized nature and above all efficient
administration of protective laws by government as well as other organizations.
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But in India the situation is entirely different. An estimated 80% of the

population is illiterate and nearly 40% of the population lives below the poverty line.
To worsen the matter consumers are generally indifferent and docile and silently
accept whatever is offered in the market. The level or right consciousness is
strikingly low. The ultimate result is, the common occurrence of. i). adulterated
foodstuffs, ii) potentially harmful drugs. iii) unsafe “safety” irons, water filters which
are not bacteria free as they claim to be etc., iv) defective weighments, v)
victimization through unfavourable practices and vi) misleading advertisements
propagating spurious goods and making tall claims totally irrelevant.
In the absence of a vociferous consumer movement it is the duty of the
government to see that the consumers are protected against exploitation and unsafe
products. Fortunately in India there is absolutely no breath of laws to protect the
consumers. The major laws and their purposes are;
1. Agricultural products (Grading and Marketing) Act 1937. this is the earliest
laws which provides for certification of quality of mainly agricultural produce.
2. The Indian Standards Institute (Certification Marks) Order of 1952 offers
certificate of quality to processed foods and other manufactured goods. However
these two certifications are not a legal must for the production or sale of any
product.
3. The Essential Commodities Act of 1955. gives quality standards for various
products which includes. The Food Products Order. The Meat Products Order, and
the Vegetable Products (Vanaspathi) Order.
4. The prevention of Food Adultration Act of 1955 as amended 1975. is a very
elaborate and comprehensive act having within is ambit all aspect of manufacture,
storage purchased sale etc., of food Stipulations are made pertaining to a) absence of
harmfully substances prohibited colors sweeteners ate. b). Foods stuffs should fall
within the limits laid down by the Central committee of Food Standards of the
Government of India. c). Proper labeling and storing d). Licensing of storing
processing, sale etc., of food by an appropriate authority. This law is mandatory on
all, concerned and anybody found guilty of non observance are liable are for a fine
and imprisonment.
5. The Drugs and Cosmetics Act of 1940, lays down restrictions on important if
drugs nor recognized as safe and restricts import, manufacture sale or distribution
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of drugs which have been banned in the country of its origin.
6. Price Control Regulations, which fixes the selling prices of drugs and many
other essential commodities.
7. Weights and measures Act of 1953. this is to ensure that the weighing and
measuring equipments are according to the prescribed standards. The most common
from of cheating in under-weighments during sales.
8. The Monopolies and Restrictive Trade Practices Act of 1969. this ensures fair
competition among the firms in an industry and imposes a ban on any kinds of
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trade practices which may go against the interest of the consumers. This includes
deceptive misleading r false advertisements, creation of monopoly conditions in the
market through mergers, either actual or inconspicuous of the producers,
appointment of sole selling agents or anything of the like.
9. Forward Contracts (Regulation) Act of 1952. Forward contracts are entered
into an order to offset any adverse price movements or supply restrictions. The act
restricts the contracts to be with stipulated limits to avoid misuse of such contracts
for unethical purpose.
These are some of the major acts. There are a number of minor acts whose
effected is excepted to be on the same lines.
Inspite of such extensive and comprehensive legislations consumer protection is
very poor. It has been reported that more than Rs. 3000 crores is suffered as loss by
consumers due to false weights and measures. Laboratory tests among 20 common
safety stoves, commonly available in the market (with ISI certification) and
extensively used, revealed that none of them were safe under any standards. The
reasons for such gross negligence of consumer safety, though there are enough laws
in our land for consumer protection, are that the implementation of these laws is
very poor and highly inefficient. There have been many instance when offenders
booked under various laws were allowed to go scott free because of trival technical
reasons of non- fulfillment of some procedures in the concerned act. The accuracy is
so inefficient and the procedures so irksome that is takes now nearly 3 to 5 years for
a food adulteration case to be finalized by a court of law. By this time the
adulterated goods freely their way in the market.
The following are the urgent need of the day for consumer safety and
protection. i). Enforcement of the various laws on consumer safety more efficiently so
that the unnecessary delays are avoided and the present lengthy procedures
contributing to the frustrating delays are cut short, ii) More food testing laboratories
are to be established to test food adultration and quick dispersal of results for faster
follow up action and punishment. The present inadequate testing laboratories are
also contributing to the delays. iii) A strong consumer movement.

2.1.5 ROLE OF CONSUMER MOVEMENT

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The total consumer expenditure on goods and services in India is estimated at
around Rs. 7500 crores. Even then, for reasons stated earlier, the involvement of the
consumers in the consumer movement is very tardy. For the amount of expenditure
and level of population there is only one national level organization to voice
consumers views namely the Consumers Guidance Society of India, based in
Bombay. This organization started in 1966 is doing pioneering services in arousing
consumer awakening and imparting consumer education. This is done by
organization exhibitions seminars etc., periodically. There are also a few other
organization at the regional or state level. But what these organization could do
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without active mass public participation, which is very little. In the absence of and
self regulation by the industry the trade it is the prime role of the consumer
organizations to bring pressure on the government and to have a constant vigil in
implementing the various laws to protect the consumers. It is well known that India
is a poor country and majority of the people only have a hand to month existence.
The organized power of this segment would be enormous strength and a leap
forward for the movement.

2.1.6 SUMMARY
Peter F. Drucker stated that consumerism is a shame on marketing. This is
because marketing in its trust sence if followed by concerned people, there does not
arises the question of consumer protection, as the very basis of marketing is to
satisfy consumer. If this is not done the very purpose of marketing is defeated. At
the beginning consumer movement was neglected by the industry. But later it was
realized that consumerism is a challenge, which has to be faced and met by the
industry. In the light of this only many companies, recognizing consumer interest,
have positively responded by opening consumer affairs department. The main task of
this is to settle consumer grievances. In India as in many other western countries,
have imposed self regulations in order to gain consumer acceptance. For example a
Fair Trade Practices association has been started and endorsed by many trader and
manufactures by which they voluntarily submit to follow ethical and fair trade
practices only. But the industry has to go a long way in meeting the fairly consumer
interest.

2.1.7 REVIEW POINTS

1. Marketing functions can be claim field into three, namely a). exchange
functions, physical supply functions and facilitating functions.
2. Marketing is a constantly involving and evolving craft and discipline.
2.1.8 INTEXT QUESTIONS
1. What is transport a Tim?
2. What are exchange functions?
3. What is general public?
2.1.9 ASSIGNMENT

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1.
2.
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Discuss marketing functions?
Discuss the future of marketing?
2.1.10 KEYWORDS
Standardisation
Packing
Pricing
Transportation
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LESSONS 3 & 4

MARKETS AND BUYER BEHAVIOR

OBJECTIVES
1. To understand characteristics of the different types of markets
2. To elucidate buyer behavior
CONTENTS
3 & 4.1 Introduction
3 & 4.2 Types of markets
3 & 4.3 Buyer behavior
3 & 4.4 Buyer process
3 & 4.5 Sociological approach to understand the burger behavior
3 & 4. 6 Family life cycle product.
3 & 4. 7 Summary
3 & 4. 8 Revision points
3 & 4. 9 Intext questions
3 & 4. 10 Assignment
3 & 4. 11 Key words
3&4.1. INTRODUCTION
Markets are the people with wants, and purchasing marketing power to satisfy
them. They must not be mixed up with the term ‘marketing’. One must carry out the
marketing activities only in a market. The term ‘market’ may be used to mean (1)
place or building, (2) all the buyers of a product, as one might speak of the market of
electronic goods, (3) all the inhabitants of a country, e.g. the Indian market or) a
phrase pointing to the state of the market condition, e.g. one might speak of a bright
or dull market for a particular commodity. However, for our study we shall use the
term market to refer to all individuals and organisations which are actual or
potential customers for a product or service.

3&4.2 TYPES OF MARKETS

According to the institutional characteristics five types of markets may be
identified, viz., consumer market. Producer or industrial market reseller market,

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government market and international market. In this lesson, we will restrict our
discussion to the first two types only. Consumer market consists of individuals and
households buying for personal consumption. Producer market refers to individuals
and organizations buying for the purpose of further processing. These markets have
their own characteristics because of the differences in the buyer’s motives as well as
the differences in the characteristics of goods and services dealt with.

A. Characteristics of consumer goods market

For consumer goods buyers are numerous and they lie scattered over a wide
geographical area. Therefore, dispersion is more important and a long channel with
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large number of middlemen becomes necessary. The demand is elastic and

aggressive of marketing is possible. However, producer can exercise more control
over his marketing activities as well as the quantity and quality of his products.

B. Characteristics of industrial goods market

Compared with the consumer goods, industrial goods market contains relatively
few buyer who are well informed or knowledgeable. They are also concentrated n a
limited geographical area. Though this market contains a limited number of buyers,
its purchasing power is large. This market concentration enables the marketer to
deal directly with industrial user short-circuiting the middlemen. The demand for
industrial goods being derived demand. It fluctuates considerably. These
fluctuations can influence all aspects of a concern’s marketing programmes.

C. Goods in consumer market

The goods in consumer market are generally classified as (i) convenience goods,
e.g., soap, match box. (ii) shopping goods, e.g., readymade dress, electric gadgets,
and (iii) specialty goods, e.g., camera, stereo. The American marketing association
has defined these as follows.

1. Convenience goods
Those consumer goods which the customer usually purchase frequently,
immediately, and with the minimum of effort in comparison and buying.

2. Shopping goods
Those consumer goods, which the customer, in the process of selection and
purchase, characteristically compares on such bases as bases as suitability: quality,
price and style.

3. Speciality goods
Those consumer goods with unique characteristics and or brand identification
for which a significant group of buyers are habitually willing to make a special
purchasing effort.
Each one of these categories of goods has its own characteristics.

4. Characteristics of convenience goods

In the case of convenience goods, the consumer devotes very little time and

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effort in making the purchase. The purchases are made frequently. Very little
planning is involved. The wants are generally satisfied immediately after they arise.
Price is usually low and no comparison with quality is made. The goods themselves
are not important.

5. Characteristics of shopping goods

In contrast to the convenience goods considerable time and effort are spent in
planning and making the purchase in the case of shopping goods. Price and quality
considerations are very important and the price will be usually high. Further, a want
is seldom satisfied as soon as it arises, and the actual purchase will be made only
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after a relatively long time. With the result, the purchases will not be frequent.
Unlike the convenience goods, shopping goods are often very important by
themselves.

6. Characteristics specialty goods

Although the time and effort spent in planning the purchase of specialty goods
may be considerable, one cannot generalize the time and effort that may be devoted
by a consumer in making the actual purchase. The consumer may spend either
minimum time and effort or spend much time and effort. He may buy the article
from a nearest shop or from a distant one. Similarly, the importance of specialty
goods cannot be generalized. Price is usually high and the purchases are made only
less frequently, relatively a long time after the need arises, price and quality are
seldom compared.
Theses differences in the characteristics of different classes of consumer goods
lead to different marketing considerations as well. Marketing considerations include
the lengthen of channel, number of outlets, importance of retailer, stock turnover,
gross margin, importance of point-of purchase display, importance of brand or store
image and the importance of packaging.
We shall now proceed to look at these marketing considerations.

7. Marketing considerations involved for convenience goods

In the case of convenience goods, the channel of distribution is usually long
and as many outlets as possible are opened. No one single retailer or a shop is
important. A high stock turnover with a low gross margin should be the aim. The
manufacturer himself will have to take responsibility for advertising and the point of
purchase display is also very important. Brand name and packaging too are very
important considerations.

8. Marketing considerations involved for shopping goods

In the marketing of shopping goods, only a few outlets are involved and the
length of channel will be short. The place of retailer in the channel is very important
a higher gross margin will have to be aimed at in view of lower stock turnover.
Advertising will be the responsibility of retailers packaging and brand name are less
important compared with the name of the shop.

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Marketing Considerations Involved For Specialty Goods
The length of the channel for specialty goods is the shortest of all. For each
market often only one outlet will be found. The retailers are important. Advertising
will be the joint responsibility of manufacturers and retailers. Both the brand and
shop names are important. However, packaging stock turnover will be low and so a
high gross margin should be aimed at.

9. Goods in producer market (industrial market)

The industrial products fall under five categories, viz., (1) Raw materials, (2)
fabricating parts and materials, (3) Installations, (4) Accessory equipment; and (5)
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Operation supplies and business services. The examples of raw materials are iron,
ore, wheat, cotton, and fruits. Fabrication parts and materials are tires, castings,
small motors, steel, cement, wires, etc. installations refer to capital goods such as
blast furnaces, generators, computers, elevators etc. hand tools. Lift trucks,
typewriters, duplicators, etc., are examples of accessory equipment. Supplies may be
operating supplies or maintenance and repair items. Lubricants, coal, typing paper,
etc., fall under the first category and paints. Nails and brooms are example for the
latter category. Business services include office cleaning, typewriter repair,
advertising, legal and management consultancy.

10. Characteristics of industrial goods

Industrial goods are to be differentiated from consumer goods on the basis of
their ultimate use these are produced and sold to industries and are meant for
further processing either for converting as consumers or capital goods. Demand for
these goods is derived demand which is also inelastic and widely fluctuating. The
market is very knowledgeable and marketing considerations vary according to the
class of the industrial product. In general, a short channel with no or a few
middlemen is involved. Mass advertising is not necessary and also not economical.
Direct mailing and personal selling will serve the purpose. Technical details are more
important.

11. Marketing considerations for industrial raw materials

In the marketing of industrial raw materials on middlemen are involved and the
channel is short. Advance long term buying contracts are involved. While brand
preference is no price considerations are important. Very little demand stimulation
is possible.
Here too the channel is short but middlemen may be employed by small buyers.
In view of low brand preference moderate demand stimulation is often resorted to.
Price considerations are important and advance long-term buying contracts are
used.

12. Marketing considerations for installations

No middlemen are necessary and a short channel would be enough. While post
sale service is important, price competition is not important. Demand stimulation
through personal selling is often resorted to; and brand preference is high. No
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advance or long-term buying contracts are entered into.

13. Marketing considerations for accessory equipment

As in the case of installation, post-sale service guarantees alone are important
and not the price. There will be no advance or ling-term buying contracts. But brand
preference would be high and so demand stimulation is important.

14. Marketing considerations for operating supplies

As in the case of accessories, middlemen are employed in the marketing of
supplies. In view of low brand preference, demand stimulation is not very important.
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However, price competition will be here. Advance or long-term buying contracts are
not entered into.
The above discussion is intended to show the importance of the knowledge of
the nature of the market, nature f the goods in each market and the marketing
considerations involved for each type of goods. A sound marketing programme
should not only take note of these factors but also the differences in buyer behavior
however, understanding the buyer behavior is a very difficult task. Buy an
understanding of buyer behavior is critical to the success of a marketing
programme. That is why people often say (1) marketing both begins and ends with
the consumer’ and (2) ‘The solution to every marketing problem – lies with the
consumer’.
Therefore, now let us pass on to discuss this aspect of marketing

3&4.3 BUYER BEHAVIOUR

Every marketer must have a complete knowledge of this customers or prospect
behaviour in general. Consumer behaviour is determined by psychological,
sociological and economic considerations. Various motives based on psychology,
sociology and economics can be attributed as explanations to buyer behaviour.
Basically motives are divided as rational or economic motives and emotional motives.
The emotional motives are (1) Satisfaction of senses (2) Love, marriage, sex and
family, (2) Far, (4) Rest and recreation, (5) Price, (6) Sociability and social
achievement and (7) Curiosity, the economic or rational motives are (1) Reasonable
price, (2) Dependable use, (3) Durability, (4) Possibility of auxiliary uses and (5)
Appropriate size / quantity, etc.

3&4.4 BUYING PROCESS

The buying process is both mental as well as physical. It can be divided into
certain distinct stages, viz,
1. Feeling the need
2. Pre-purchase activities
3. Final decision on purchase and actual buying
4. Using the product
5. Post-purchase feelings.
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These logical stages are helpful to marketers and their appeal begins with
appealing to or arousing or activating the need; they must hell in the pre-purchase
decisions by right approaches and rationalizations needed. The marketer’s strategy
should be to make sure that the product is actively considered at every successive
stage.

A. Decision complex
For a buyer, decision making is usually a complex affair. He is in need of
answers for these questions.
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1. What class of product?

2. What type or brand?
3. What design?
4. What quantity?
5. At which place?
6. For whom?
7. At what price?
8. By what method of payment?
The buyer makes a decision in the following six stages: (1) Awareness, (2)
Knowledge, (3) Liking (4) Preference, (5) Conviction and (6) Purchase. Therefore, a
marketer must help the buyer in reaching the decision after crossing these six stage
successfully.

B. Psych logical approach to understand the buyer behaviour

Psychology has contributed a great deal to marketers in understanding the
buyers, their buying behaviour, etc., besides helping other aspects of marketing as
well. Psychology can explain how a consumer learnt about a product, how the
learning is stored and recalled from memory and how the remembering and regular
buying habits develop. The basic factors that influence learning are explained in
different ways buy in general there seems to be a process or ‘repetition, motivation,
conditioning and relationship and organization. Repetition helps learning. For
example, an advertisement message may create and warmness and not more. By
repetition the audience may gain further knowledge and understanding of other
relevant details. Motivation to learn and to act upon it is another factor. Knowledge
or information is not interesting for its own sake. The human being must have
interest in the knowledge information available and one is not likely to be interested
unless the knowledge information has some use for him. Conditioning in a leaning
process means, by a long process of association, symbols are associated with
objects. For instance, the inverted red triangle is with projects. For instance, the
inverted red triangle is associated with family planning. Advertisers seek to reinforce
conditioning by associating their products to specific want satisfying characteristics.
To be affective such message must be attractive and sufficiently repeated.
Relationship and organization enhance the effectiveness of learning. The message
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must be related to an understandable situation. The audience easily understands a
local and familiar situation. The learning so acquired may not remain in memory
permanently, hence, to help retention and avoid forgetting advertising messages are
to be repeated at appropriate time intervals.

C. Maslow’s heirachy of needs

The human behaviour is always directed towards satisfying certain basic needs,
these basic needs are explained in an order of priority by Maslow’s (this order is
known as Maslow’s hierarchy of needs) as follows:
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1. Physical needs – like hunger, thirst and sleep. The satisfaction of these
needs is essential before one can try to satisfy the next or the rest of the needs.
2. Safety needs – like security for one’s self and secured social life.
3. Belongingness and love needs – like family relations, companionship, social
discourse. It is at this stage one begins to feel that life is worth living and is exposed
to the richness of human inter-personal relationship.
4. Esteem needs-like self – respect, desire for independence popularity and
fame in a narrow or a wider circle.
5. Need for self-actualisation-like the quest for knowledge creativity or
intellectual pursuits.
6. Desire to know and understand – like the quest for knowledge creativity or
intellectual pursuits.
7. Aesthetic needs – like the love of beauty in its finer forms-in everything in
and around one.
As one basic need is fulfilled, the individual proceeds to fulfill the next higher
needs. This, however, a generalization. Marketing success depends on explaining to
the prospective buyer in a subtle way; how best the product can satisfy a particular
need (or more needs). But before doing that, the marketer must know whether his
prospect is in a position to fulfill that particular need. In other words, if the
marketing appeal is made to meet the aesthetic needs, the target audience must be
those who have already fulfilled the rest of the needs categorized above.

D. Freudian psychology
Freudian psychology is based on the proposition that individuals have an ‘id’ an
‘ego’ and a ‘super’ – Ego’. The ‘id’ represents instinctive needs; the ‘super-ego’
represents social values which tend to be in conflict with instinctive needs, the ‘ego’
is the mechanism seeking to resolve the conflicts between the ‘id’ and the ‘super-ego;
‘ed’ remains the reservoir of buyer’s strong instincts or urges. ‘ego’ becomes his
conscious center for planning o find outlets for his inner urges. ‘super-ego’ shapes
and channelises the urges into socially approved outlets. The point to rote her id
that human behaviour is very complex. Motivation research can lead to useful

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insights and provide inspiration to creative man in product design, advertising and
packaging.

E. Some related concepts in psychology

Some related concepts in psychology may be noted here with advantage. First is
the fact that many buyers may out wardly say one thing as to why they buy a
product by the reason may be a different one a hidden thing in the subconscious.
The buyer himself may not be consciously aware of what is lying in his
subconscious. In such cases direct questions will not elicit answer, buy indirect
methods like depth interview are necessary. Secondly, many people try to rationalize
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their actions. in other words, decisions need justification. Buying of a rafile ticket
may be actually motivated by a desire to become rich in the easily way possible-but
it may be ratioalised with the justification that the money spent for the ticket will be
used by the government for noble purposes. The advertising theme brings to this to
help the buyers to rationalize their decision which they have already made and to
encourage to make the actual buying or to repeat the buying.
Another explanation relevant here is that after a buyer has made a decision to
buy, he may have second-thoughts. The subsequent doubts about the wiseness of
his decision may lead to what is called ‘dissonance’ – a state of his indecision and a
tension arising out of fear of making a mistake. At this stage, the decision maker
requires additional information and justifications to assert the rightness of his
decision. It is at this stage that the sales message provides the additional
justification required.

3&4.5 SOCIOLOGICAL APPROACH TO UNDERSTAND THE BUYER BEHAVIOUR

Human behaviour in general and buying decisions in particular cannot be
explained from psychological point of view alone. Individual decisions and behaviour
are quite often influenced by the family and society. Within a family there may be
many ways of decision making to make a purchase and decisions may be made by
one, actual buying done by another, and the product used by yet another member of
the family. Even the decision maker may in turn be influenced by many forces as
well as other members in varying degrees. This process varies from family to family
Family is a unit of the society or a larger social group. A social group may share
some common characteristic, customs, traditions, taboos, etc., however, the larger
social group is too big a size and only broad generalizations are possible. Hence a
larger social group may be subdivided into smaller cohesive sub-groups which share
many common characterisations. These sub-groups are usually classified as upper,
middle and lower classes. Each in turn may be further subdivided into upper and
lower as: (1) upper upper, (2) lower upper, (3) upper middle (4) lower middle, (5)
upper lower and (6) lower lower. The division is done mostly on the basis of income
or wealth or consumption levels. If the class is not divided on the basis of income or
wealth, it may be considered on some there basis like wage-earners or blue collar
workers, salary earners or white collar workers, business - men professionals, and
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so on. With the segregation of classes it may be found that they have identifiable
values, patterns of behaviour, etc. common to particular class members. There are
recognizable status symbols to each group. An advertisement theme message that
appeals to a lower class member may appear to be in bad taste to a high class
member. In the behavioral pattern of classes, one may find that, for example, some
middle class members or families are trying to imitate the upper class members or
families. However, in most of the cases, the members need acceptance of their
behaviour by the class to which they belong. Hence the generalizations about class/
group behaviour.
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Within the group, an individual’s behaviour may not be influence or melded by

the whole of the rest of the group, bu by some specific persons only. These specific
persons are those with whom the individual has closer and regular contacts. These
persons are said to form a peer group. Among children, the peers are often
playmates, among students the peers are often other students. The peer group has
the greatest influence on the individual’s decision as a consumer. Another
significant source of influence is provided by the reference group, i.e. people to
whom the individual often looks forward for forming his opinions, attitudes and
habits. A person normally has several reference groups, for various subjects one may
look forward to film-stars for depressing styles but may turn to others for other
things. This influence may be exerted by groups (films-stars, politicians, players etc)
or individuals and the latter are known as influencers or opinion leaders.
However, the influence exerted by peers, reference groups and the influencers
any not make everyone a follower. There is a diffusion process. A new style is usually
picked up by a few in the beginning and then it spreads to others. In the society as a
whole there may be only a minority (innovators) who invent or first adopt a new
style, then this is adopted by another slightly bigger group (early adopters). In the
growth of the style this is like a take-off stage. When the style speeds wider and
faster and a great majority fall in line. But still there may be a minority who
continue in a state of indecision (laggards).
Social groups may also be divided on the basis of urban and rural population or
other convenient components of the composition of the population or other
convenient components of the composition of the population. Since the marketer has
to deal with individuals as well as groups the family life cycle approach is also
necessary.

3&4.6 FAMILY LIFE CYCLE CONCEPT

In the family life cycle approach a marketer recognizes the fact that the life-
cycle position is a major determinant of buying behaviour. The survey research
center of the university of Michigan has distinguished the following stages in the
family life-cycle:
1. The bachelor stage: young, single people.
2. Newly married couples: young, no children
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3.
4.
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The full nest I: Young married couples with youngest child under six.
The full nest II: Young married couples with youngest under six o over.
5. The full nest III: Older married couples with dependent children.
6. The solitary survivor : Older single people.
Each life cycle group has certain distinguishable needs and interest with
respect to various goods, and expenditure patterns are influenced considerably.
Marketers should be aware of the striking differences considerably. Marketers
should be aware of the striking differences in spending patterns between people in
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the full-nest stage and people in the empty nest need so on. Yong married couples
with no children typically devote large shares of their income to clothing, travel any
recreation. When they be get children expenditure patterns shift as many young
families prefer to buy and furnish a home. Families with teenagers find larger
portions of the budget going for food, clothing and educational needs. Families n the
entry-nest stage, especially when the head is still in service are attractive to markets
because typically these families have more discretionary buying power.

A. Economic approach to understand the buyer behaviour:

The size of a family’s income is probably an obvious determinant of how that
family spends its income. Therefore marketers should analyse the expenditure
patterns of the various income classes. Basically, it is the level of income, its
distribution and the consequent purchasing power that determines the buyer
behavior. Ones purchasing power is equal to his total income and of which a part
may be saved and a part is available for consumption needs. Of the total income
available for meeting the consumption needs, a sizeable part has to be set apart for
essential consumption and it is only the remaining art the individual had discretion
to spend. Based on the level of income and pattern of spending it may be possible to
project a demand pattern and identify the goods that will meet such a demand.
Further, b constructing a demand schedule the elasticity of demand may also be
estimated. These are valuable and basic economic approaches. Besides the study of
market structure in terms of competition oligopoly, monopoly is also basically an
economical approach.

3&4.7 SUMMARY
Thus, knowledge derived from the psychological, social and economic stand-
points provide the framework with which the marketer can both focus attention on
the prospective customers, eliminate those who have no use for him and understand
their motivation or expectations as well as buying behaviour.

3&4.8 REVISION POINTS

1. Types of market and its characteristics.
2. Family life cycle concept.

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3&4.9 INTEXT QUESTION

1. Classify consumer goods and industrial goods. What are the marketing
consideration involved for each?
2. How industrial markets might be classified in order to examine
broadly common characteristics of purchasing behaviour.
3. What are the special features affecting the industrial buying process
which create selling problems quite different from those usually
encountered in selling consumer products.
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4. Why is ‘direct selling’ such an important factor in many industrial

markets?
5. What are the some of social and economic group factors to be
considered in examining buying patterns?
6. What is meant by ‘the hierarchy of needs’? What is its importance to a
marketer?
7. What are the different stages in a buying process? How far can they
help the marketer?
8. What are buying motives? How does the buying motives of industrial
consumers differ from the consumers of manufactured consumer
goods?
9. Explain the psychological approach to understand buyer behaviuor.

3&4.10 ASSIGNMENT
1. Discuss the types of markets with its characteristics.
2. Discuss family life cycle concept.
3. Explain buyer behaviuor.

3&4.11 KEYWORDS
Buyer behaviour.
Pre- Purchase.
Post-Purchase.
Family Life Cycle.

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LESSONS 5 & 6

MARKETING SEGMENTATION, PLANNING & THE MARKETING

PROGRAMME
OBJECTIVES
1. To study marketing segmentation.
2. To understand marketing programme.
CONTENTS
5 & 6.1. Introduction
5 & 6.2 Definition of Market Segmentation
5 & 6.3 Essential Requirements for Effective Segmentation.
5 & 6.4 Benefits of Segmentation.
5 & 6.5 Planning the Marketing programme.
5 & 6.6 Multi-Stage approaches to approach
5 & 6.7 Summary
5 & 6.8 Revision Points
5 & 6.9 Intext Questions
5 & 6.10 Assignment
5 & 6.11 Keywords
5&6.1 INTRODUCTION
Market segmentation is a customer oriented philosophy, and is one of the
marketing strategies. It is done with a view to developing specific marketing
programmes for specific target groups or prospects. It is considered necessary
because markets are heterogeneous both in the supply side and the demand side.
The differences in production equipment processing techniques, resources or inputs
available to different manufactures, unequal capacity of progress among the
competitors in terms of design and improvement and the deliberate effort to remain
different from others are some of the factors which account for the heterogeneity in
the supply side. The demand side is heterogeneous due to differences, in purchasing
power tastes and preferences, etc,. of the consumers. Therefore, the assumption that
the market is perfect or homogeneous, is not valid today as it never was. However,

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between the polar extremes of total homogeneity and total heterogeneity, it is
possible to identify pockets, with common characteristics, and to design a specific
marketing programme for each pocket or segment. This process of identification of
pockets with common characteristics, is known as market segmentation. In the
economic sense, it involves the construction of several demand schedule for various
sub markets in the place of one schedule for the total market.
5&6.2 DEFINITION OF MARKET SEGMENTATION
Stanton has defined market segmentation as ‘nothing but the process of
dividing the total heterogeneous market for a product into several sub markets or
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segments. Each of which tends to be homogeneous in all significant aspects’.

According to Schwartz ‘ a market segment to target market consists of a reasonably
homogenous group of people who want a specific kind of product and who have the
money to buy it. For Philip Kotler, market segmentation is the sub-dividing of a
market into homogenous sub sets of customers, where any sub-set may conceivably
be selected as a market target to be reached with a distinct marketing mix.
A. Market segmentation as a strategy
Market Segmentation is nothing but a strategy of ‘divide and rule’. In market
segmentation, instead of following one marketing programme aimed to draw in all
potential buyers, the markets tries to create separate marketing programmes aimed
to meet the needs of different buyers. This approach is sometimes called as ‘ rifle
approach’ as opposed to the ‘shot gun approach’. The rifle approach enables the
marketer to reach pinpointed markets with separate marketing programmes, the
shot gun approach involves only one programme aimed at a broad target. Only a
production oriented company will adopt this approach treating the entire market as
a single homogenous unit.
B. Bases of market segmentation
Market may be segmented of geographic demographic, psychographic and
buyer-behaviour variables. In fact, the idea of market segmentation itself evolved
through several stages, viz., those of geographic segmentation, demographic
segmentation, psychographic, marketing-factors segmentation and product-space
segmentation.
C. Major segmentation varibales
1. Geographic Segmentation : Involves the study of the size and density of
population in various regions, climate, etc., based on those variables the market
may be segmented regionally as East, West, North and South or on the basis of the
size of the population in each sales territory as A class, B class, C class and so on.
When density of population is used as the criterion the markets may be segmented
as urban, suburban and rural.
2. Demographic Segmentation: Involves the study variables such as age, sex,
occupation, income, education, religion, race, nationality, social class, family size,

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family life cycle, etc. this type of segmentation based on demographic variables is
popular among the various bases since these variables correlate well with the sales
of many products and also they are easiest to identify and measure than most of the
other variables.
3. Psychographics Segmentation: Is an attempt to group consumers
according to the similarities of their life style. This is useful because people who
have common demographic characteristic such as sex, age and income, often have
extremely, different personal product preferences. There are dependents,
independents, conservatives liberals, radicals, authoritarians, democrats, leaders,
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followers, high achievers, low achievers, status seekers, plain fellow, etc., among the
target groups. Therefore enough information should be collected by then marketer
on these several and other psychographic variables to male psychographic
segmentation of the market.
In the segmentation based buyer behaviour, the prospects or buyer are sub-
divided on the basis of the various benefits sought by them from a particular
product. The typical segmentation variables here are (1) usage rate, readiness factor
sensitivity. On the basis of the study of the usage rate, the buyers are classified as
heavy users, medium users, light users and non- users. A study of the readiness
stage will lead to segmentation such as Unware, aware, interested, intending to try,
tier and regular buyer. The benefits sought by the buyers may be economy, status or
dependability. The end use may be for sophisticated purposes and unsophisticated
purposes eg., transistor for pocket radio and for computer manufacture. The brand
loyalty may be strong, light or none. The sensitive marketing factor may be quality,
price, service, advertising or sales promotion.
When the markets makes the segmentation on the basis heavy, medium, light
and non product, it becomes Volume segmentation. All attempts made to appeal to
the prospects on the basis of the marketing factor sensitivity, results in marketing
factor segmentation. This type of segmentation is involved when the degree of brand
loyalty is taken as the base.
In product – space segmentation, the buyers are asked to compare existing
brand according to their similarity and in relation to their ideal brands. An inference
is made on the latent attributed used by the consumers through n on-metric multi
demonstrational scaling technique. Then the consumer are segmented through
‘cluster analysis’. Thus this type of segmentation involves the measurement of
different product perceptions and preferences on the part of the consumers using
scientific tools of analysis.,
Whatever may be the basis for segmentation of the market, the segments
themselves should be measurable, accessible and substantial.

5&6.3 ESSENTIAL REQUIRMENTS FOR EFFECTIVE SEGMENTATION

The various segmentation variables used should be capable of measurement
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and quantification. They should not be merely subjective phenomenoen, e.g status.
For this measurement adequate data should be available or be capable of being
collected. If the data are not available, and not easily quantifiable the segmentation
will become difficult or unscientific.
The object of segmentation being effective direction of marketing efforts to
specific segments, the segments themselves should be accessible through channels
of distribution, advertising media, company sales force, etc., If the access to the
market is difficult segmentation will become meaningless.
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Segmentation being costly and involves separate marketing programmes and

sometimes separate products as well, the segments should be substantial or large
enough to warrant such efforts. Otherwise various diseconomics in production,
marketing inventory holding etc., will arise.
Thus, the requirements for effective segmentation fall under three groups, viz.,
measurability, accessibility and substantiality.

5&6.4 BENEFITS OF SEGMENTATION

Market segmentation is resorted only to severe the consumers better and for
guiding the development of the appropriate marketing mix. According, the marketer
may enjoy the following advantage through segmentation;
1. He does waste his marketing efforts over the entire area.
2. He does not treat all customers alike.
3. He is able to pay proper attention to particular areas.
4. He is able frame and adopt separate policies to meet the needs of the
different buyers.
5. He uses the advertising media effectively and develops promotional
programmes specifically for each segment.
6. He makes a more efficient use of the marketing resources.
7. Each of the 4 Ps of the marketing mix-product, price, place and
promotion can be designed with the target market in mind.

A. Segmentation of industrial users

Industrial users differ vastly in their characteristics from the ultimate
consumers. Industrial market is vastly different from the consumers market. This
consist of business industrial and institutional organizations who buy products or
services for use n their own business or make other products. Industrial market also
needs segmentation in order to develop effective marketing prorammes. But the
bases of segmentation vastly differ from that of consumers market segmentation.
The characteristics of industrial consumers have already been dealt with in an
earlier lesson. These characteristics play an important role in segmenting the

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industrial market. However, for all practical purposes, the following classification of
industries usually provides the basis for segmenting the industrial market:
1. Agricultural, forestry and fishing.
2. Mining and Quarrying
3. Contract Construction.
4. Manufacturing
5. Transportation, Communication and other public utilities.
6. Wholesale and retail trades.
7. Finance, Insurance and Real Estates.
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8. Services
9. Government – Central and State.
10. Local Authorities.
Compared to ultimate consumers, industrial users tend to be concentrated
geographically, both nationally and regionally. With the result, minute segmentation
as is done in the case of the ultimate consumers may be unnecessary in most cases.
B. Alternative strategies towards market segmetns
Marketing strategy is nothing but a set of objectives, policies, and rules that
guides over time the company’s marketing efforts, its level, mix and allocation. It is
based on the assumption of probable market response. The alternative strategies
towards market segments available are.
1. Undifferentiated Marketing
2. Differentiated Marketing
3. Concentrated Marketing
In undifferentiated marketing the marketing the marketer exposes only one
product and tries to draw all buyers with one marketing programme. Differentiated
marketing involves designing of separate products and marketing programmes for
each segments. Usually, thus strategy is costly due to (1) product modification costs
(2). Production costs (3). Administrative costs, (4). inventory costs and (5). Promotion
costs. Unless the segment is substantial, these costs may prove a burden to the
marketer. In concentrated marketing, the marketer concentrated all his energies in
one or a few lucurative segments only.
In general, homogenous markets are best exploited by undifferentiated
marketing. The differentiated or concentrated marketing is adopted in the case of
heterogeneous markets.
The stage of the product in its life cycle is also a relevant factor in this regard.
Undifferentiated marketing or concentrated marketing may be adopted to develop
primary demand at the stage of introduction. Even the strategy of concentrated
marketing may be employed. At the saturation stage, the differentiated marketing
becomes necessary.

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C. Market segmentation vs. product differentiation
The concept of market segmentation should not be mixed up with product
differentiation. These two are only related product strategies.
Product differentiation is reported to differentiate one’s product from
competitors, and thereby eliminate price competition. This strategy is usually
resorted to by companies selling standardized products such as soaps to a fairly
homogeneous market. It is an act of ‘ bending of demand to the will of supply’. A firm
adopting the strategy of markets segmentation is often forced by competition to
combine it with product differentiation as well, while market segmentation is
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resorted to penetrate a limited market in depth, product differentiations is used to

secure breadth in amore generalized market. According to Smith, ‘the differentiator
seeks to secure a layer of the market cake, whereas one who employs market
segmentation strives to secure one or more wedge-shaped pieces. Compared to
product differentiation, segmentation of markets is only a transitory phenomenon.

5&6.5 PLANNING THE MARKETING PROGRAMME

The various elements of the marketing mix will have to be properly planned
blended into a marketing programmes for the success of the firm. The plan may be
for a short term as well as for a long-term. Short-term planning generally covers a
period of twelve months or less. It may related to succeeding year’s advertising
programme, sales quotas, inventory etc. Long-term planning normally covers a
period of 3 to 10 years. This planning is done by top management and special
planning staff.
The task of planning may be considerable in different ways. It would be
reasonable to approach planning in terms of the 4ps of the marketing mix, viz.,
product, place, promotion and price. In other words, plans are to be drawn for these
four elements of the marketing mix. Only on the basis of these plans, specific
marketing programmes can be drawn and implemented. The planning process sets
the task before the different department of the organization. It is the planning
process that provides answers to the following questions:
1. Where are we, and where are we going?
2. How do we get (there) where we want to go?
3. How are we doing?
4. Did we do what we have undertaken to do?
A. Setting out a plan
Marketing planning, just like any other kind of planning, involves broadly, the
following steps.
(a). Setting and defining the marketing objectives,
(b). Generating alternative marketing mix options
(c). Selecting the best marketing mix option, and

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(d). Creating conditions for implementing the marketing mix.
The setting of objectives and generating of marketing mix are always done with
reference to a target, i.e., by selecting a particular segment of the market. The
marketing objectives are integrated with the overall company objective and the
marketing plan is made a part of the business since it plays a dominant role in the
growth of the business. In fact, the growth of a business can be explained in terms
of the growth of the market for its products. A firm can generate growth by
considering a plan for the existing, related to totally new markets as well as by
adopting a new marketing mix.
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B. Product planning
The idea of product planning is highly relevant in the context of the customers-
oriented marketing. Product planning also ensure greater choice to the customer,
since each producer can effort a product with some distinct features to suit the
requirements to specific customers. To the producer, products planning helps of
effectively face the competition by virtue of the distinct features of the product. Often
new product means more profits. Through proper product planning, the product life
cycles can be effectively faced by the producer.

C. New product and its palnning

Despite the risks involved, new product is a necessity at times. Such a
necessity may arise due to competitor’s pressure, desire for expansion, need for
survival, etc. there are several ways in which a new product may be added to the
existing product line. These include.
1. Modification of an existing product, eg., additions of new ingredient in a
tooth paste or toilet soap.
2. Addition of complementary product, eg., a variety or brand of beverage-
orange or lime, in additional to the existing cola.
3. Entry into a totally new market, eg., a producer of stationary goods like
pens, etc., enters the market for cosmetics.
4. Development of a new market through the introduction or a totally new
product, eg., a sewing machine manufacture introduced electrical fans.
There are both opportunities and risk involved in introducing new products. In
the first case, the risk is minimum since the market is not new, and the product is
also fairly established, the change being only in the ingredient of product. The
degree of risk involved increase in the remaining cases, and in the last type of new
product, the risk is maximum since in expose the firm to an unknown situation,
besides some totally new products take time to establish themselves.

D. Sources of new product ideas

Usually the ideas for new products come from the following sources.
1. Research and development personnel.

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2.
3.
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Marketing research.
Marketing Personnel.
4. Outside Technological and Scientific discovers.
5. Employee suggestions and brainstorming sessions of executives.
6. Individual executives.
7. Competitors.
8. Knowledge of government needs.
9. Government pressures.
10. A study of unused patents.
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E. Steps involved in new product introduction

The organization which plans to introduce a new product should adopt a
procedure before entering the market on a large scale. These procedure greatly
minimize the risks involved. The basic procedural steps are as follows.
1. Identification of new products.
2. Screening of new products.
3. Evaluation of market potential and possible contribution to the firm’s
objectives.
4. Prototype development and product testing.
5. Test marketing.
After the selection of the right product idea, in view of the high risks involved in
new product introductions, proper screening of the ideas is essential. Screening is
the process of eliminating ideas while are not likely to become successful. Such a
screening involves consideration such as.
1. What is the potential demand and in what markets?
2. What is the likely cycle of the product?
3. What is the maximum development time for profit exploitation?
4. Is the new idea in line with company policy and objectives?
5. Is the new idea inline with company resources?
6. Are sufficient numbers of qualified personnel available or can they be
recruited or trained?
7. What is the competition?
8. How do the company’s likely costs compare with those of potential
competitor?
9. What potential consideration are involved
Full – scale production risks are avoided by building models, prototypes, or by
using a pilot plant. Limited tests of the product may also be carried out in the
market, to assess the consumer and channel reaction. Product testing involves an

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objective appraisal of the producer’s performance in the market. This test is followed
b y test marketing which involves the launching of the product on a limited scale in
a representative market to avoid the risks of full scale marketing straight way. A
gradual extension of the test market will follow with the knowledge gained from test
marketing.

F. Product mix
A related questions in the planning for a new products is that of product mix,
i.e, what are the products that the firm wants to produce. There may be the
advantages of technical economics associated with a series of products and it may
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be with in the capacity of the firm to manufacture. But the marketing plan need not
necessarily coincide with the technical capability. Further, of the different products
that can be manufacture with existing equipment, what will be the appropriate
quantum of each product is a question to be decided mainly from the point of view of
market planning and objectives. For instance, Modern Bakeries manufactured only
plan sand-which bread, sweet bread, milk bread and some units of buns and rolls
were also added. The problem involved in this situation is that of finding out the
optimal product mix to generate more revenue of profits. The cost and, the
contribution made by the product to the total profit on the other, are basic
consideration in deciding the product mix.

1. What Is Optimal Product Mix?

It is easier to identify the sub-optimality in the current product mix than to
attain the optimum product mix, itself. A current product mix many be termed sub-
optimal, if
(i). There s excessive productive capacity
(ii). A disproportionately large share of total profits come from few
products.
(iii). There is insufficient product width making the existing sales force
contacts inefficient, and
(iv). There is a steadily declining sales or profits.
In general the current mix many be considered optimal, if no adjustment in the
mix would enhance the company’s chances of maximizing its profits, increasing the
rate of sales growth and ensuring the sales stability.

2. Advantages And Disadvantages Of Multi-Product Operations

A company offering a variety of products in its product mix may enjoy the
following advantages.
1. Lower unit costs because of greater absorption of over heads.
2. Lesser sales force costs because of the use of similar outlets.
3. More effective advertising if a broad range of products.
4. Better channel cooperation because of a satisfactory range of goods
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and buying economics.
5. Lesser threat of complete lots of business.
6. The opportunity of short-circuiting inefficient intermediaries.
As against the above advantages, a multi-product operation may result in the
following disadvantages too.
1. Costs of development, manufacturing and marketing may be too high
to effect economics of sale.
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2. The marketing, effort may be so thinly spread out that the strategic
advantage of concentration may be lost.
3. Short product runs of a great variety of products may lead to high unit
cost of manufacture.
4. Advertising and selling efforts when spread cross a wide range of
products may become both infective and costly.
Now, let us take the next of marketing mix, viz., place or target market as an
area for planning.

G. Target market planning

A firm may have a vast area where its products can be sold. But it must plan its
marketing activities in such a way that concentrated efforts may be directed towards
specific target concentrated efforts may be directed towards specific target areas for
maximum results. Some produces may embark upon a nation-wide target market at
the earliest stage itself. And some may start in a limited scale and slowly expand. A
large number of factors influences the decision to plan for a target market or
segments. The following are some of the important factors.
1. Capacity and resources of the company,
2. Nature of the market,
3. Distribution network available,
4. Competitor’s hold on the market segment,
5. Physical distribution costs and facilities,
Generally, the firm’s technical capacity to produce and the resources available
with it constitute the first set of first set of limitations on the size of the market.
Even assuming that vast capacity exists and resources can be mobilized, the nature
of the product sets another limit. A well developed distribution net work is another
factor. In its absence, it will be much difficult or costlier to create a totally new
distribution channels. Opening of one’s own retail outlets involves fixed costs, and
as such, is an important factor to influence the decision to geographically expand
the market. Next, the competitors existing hold in the market is to be considered. If
there are two market segments available for a particular product, and if one among
them is a stronghold of a competitor, a firm may first try at the other segment where

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there is lesser competition. Finally, the physical distribution cost and risk involved
therein–is another factor to be considered. Some products can be distributed only
with careful handling, where some may be perishables. Though air transport may be
available, the cost is to be considered. When a producer finds all but the last factor
favourable, the solution lies in establishing production centers at different locations.
Now, let us take up the planning for promotion.

H. Planning for promotion

Promotional mix is another critical area under market planning. Packaging,
advertising, sales promotion, and personal selling are the important constituents of
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the promotional mix. In fact, many organizations have a separate ‘ Promotional

Manager’ which explains the importance they attach to the promotional mix.
Promotion element of then marketing mix is a tool which helps to build up a
favourable image about the firm and its products, and this in turn leads to
favourable action on the part of the existing and potential consumers.
A market has two basic issues in planning the promotional mix. First is, how
much to spend on promotion as a whole, and second is, what should be the relative
element of the promotion mix. The overall decision is taken by considering the
effectiveness of individual elements of the mix, promotional mixes used by
competitors, and the firm’s own capacity to spend. The decision often becomes
difficult because effectiveness or consumer response to a particular promotional mix
cannot be measured. Much will depend on the promotional objectives.

I. Marketing programme for pricing

Pricing policies and strategies affect the firm’ competitive position and its share
of the market demand for it. Accordingly, planning for pricing is a vital area of
market planning. There are also forces that limit the importance of pricing in a firm’s
marketing programme, e.g. differential product features or a strong brand loyalty
may be more important than the price. These forces often tend to make prices more
rigid and less responsive to changes is demand or supply. Therefore, marketing
success does not depend upon price alone. This is particularly so when economic
conditions are good and consumers feel relatively affluent. However, during periods
of recession and inflation, planning for pricing is an important activate contributing
to marketing success.
While planning a programme for pricing of the firm’s products, the
psychological aspects of pricing also should be kept in mind. For instance, studies
have shown that consumers perception of product quality very directly with price.
That is higher the price, the better the quality is perceived. This is so because
consumer rely on price as the indicator of quality of the product, when no other
information as to product quality are available. Often, consumer’s quality
perceptions are also influenced by firm’s reputation, advertising and other variables.
A pricing programme may have the following goals or objectives in mind.
1. Maximize profits.
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2.
3.
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Achieve target return on investment.
Maintain or improve share of the market.
4. Meet or prevent competitions.
5. Maintain or improve share of the market.
A satisfactory planning of the pricing programme may lead to some of the
following results.
1. Maximum long-run profits.
2. Maximum short-run profits.
3. Growth of the firm.
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4. Maintain price leadership of the firm.

5. Discourage new entrants.
6. Drive out marginal firms.
7. Create price sensitive customers.
8. Avoid Government intervention or control.
9. Make the product a loss leader.
10. Discourage others to raise or lower prices.
11. Create good will.
Pricing decisions are influenced by the following parties: (1). Investors, (2).
Financiers, (3). Competitors, (4). Suppliers of raw materials or inputs, (5). Resellers
and (6). Government. The divergent of all these parties have their own influence in
planning. Therefore, a multistage approach to pricing is necessary.

5&6.6 MULTI-STAGE APPROACH TO RPICING

1. Selection of market targets: The firm should determine the extent of
market share it wants to gain. It may be a share in the total market of a particular
segment of the market. Such a decision requires an evaluation of the firm’s
capabilities, goals and resources.
2. Selection of the brand image: The firm must decide as to what kind of
image or reputation it wants to build up with references to its own name or name of
the brand it is marketing. Some may wish to establish a reputation for high quality
and others may go in for economical outlet for mass-produced goods. The pricing
policies must be consistent with the image the firm is trying to build.
3. Selection of a marketing mix: The firm’s marketing mix should emphasize
the price factor when there is a reduction in prize and emphasize on a quality of the
firm’s product.
4. Selection of the specific price policy : The firm should next determine an
overall price policy within which it can establish individual prices. Illustration of
such policies are mark up pricing, target return on investment, one price policy, etc.,
5. Selection of a price strategy: The firm should choose such prices which are
consistent with its long-term objectives. For instance, a penetration price may aim at
the creating of familiarity with the product as rapidly as possible, with subsequent
dominance in the market.
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6. Setting specific prices: From the range of prices provided by the above
steps, specific prices are to be set. When cost and demand information are available
the problem would be simple.
5&6.7 SUMMARY
With this we may wind up the discussion on planning the marketing
programme with reference to the 4Ps of the marketing mix. You will find a more
detailed discussion on the product development, product life cycle, channels
management and pricing techniques in the lessons that follow.
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5&6.8 REVISION POINTS

1. There excersise productivity capacity in optimal product mix.
2. Setting and defining the marketing objectives.
5&6.9 INTEXT QUESTION
1. What do you understand by market segmentation?
2. Why and how markets are segmented?
3. What are the benefits or market segmentation?
4. What are the components of marketing mix?
5. What are the consideration in screening ideas for new products?
6. What are the advantages and disadvantages of multi product
operations?
7. What is multi-stage approach to pricing/
8. What is the importance of planning a market planning?
9. What are the various elements of the marketing programme?
10. What are results may follow from a right pricing policy?
5&6.10 ASSIGNMENT
1. Discuss market segmentation.
2. Explain marketing programme.

5&6.11 KEYWORDS
Market segmentation
Marketing programme
Product mix
Market planning
Pricing

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LESSON – 7 & 8

METHOD OF ESTIMATING FUTURE DEMAND MERITS & DEMERITS

OBJECTIVES
1. To elucidate importance of sales forecasting
2. To understand sales forecasting procedures.
CONTENTS
7 & 8.1 Introduction
7 & 8.2 Importance of sale forecasting
7 & 8.3 Sales forecasting procedures
7 & 8.4 Summary
7 & 8.5 Revision points
7 & 8.6 Intext questions
7 & 8.7 Assignment
7 & 8.8 Keywords
7 & 8.1 INTRODUCTION
Estimating and forecasting of future demand may be termed the cornestone of
successful market planning. This estimate and forecast may relate either to the
market as a whole or the market share of the firm concerned. The former is
concerned with the market potential for a product for all the sellers during a given
period. The market share is the proportion of the firm’s sales to total industry sales.
In this lesson, we are concerned with the estimation of the market share of the firm
only. The key figure needed to estimate the market share of the firm is the sales
forecast.

7&8.2 IMPORTANCE OF SALES FORECASTING

Today sales forecasting is a practices of rapidly growing importance. The first
step in any budgeting is sales forecasting. It may be considered as the basis of all
industrial activities. It will govern the capacity of the plant to be installed, the capital
and raw materials that will be required, the stocks and distribution to be achieved,
the amount of promotional expenditure to be incurred and the size of the operation
to be conducted in general. The responsibility for charging out the course of future
operation based on detailed marketing plan, rests with the Chief Marketing
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Executive. The sale forecast figures arrived by the marketing executive is the guide
for action for the production, personnel and finance departments as well as the
advertising manager, the production manager brand manager, credit manager,
traffic manager and other top executives. This is because, the company is dependent
on the revenue from sales, and since nothing can be done without revenue, great
attention must be paid to its probable volume. Sales forecast are needed for control
also. It is impossible to evaluate performance without a measure of expected
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achievement. It is the actual and anticipated sales that keep the system of business
organization going.

A. Definition of sales forecasting

A sales is not just a sales estimate. It is the act of matching opportunities-
actual and potential demands with the marketing efforts required to capitalize on
them. It involves different marketing plans. Careful research and some high grade
theorizing are required to develop sales forecasting. In addition, the forecaster
carefully weight a given asset of uncontrollable and competitive forces influencing
the company’s future as well as his sales estimate and his marketing.
Cundiff and Still define sales forecasting as ‘an estimate of sales during a
specified future period, which estimate is tied to a proposed marketing plan and
which assumes a particular set of uncontrollable and competitive forces’.
According to Kotler it is ‘the excepted level of company sales based on a chosen
marketing plan and assumed marketing environment’.

B. Length of the sales forecast period

The sales forecast differ in the length of the periods they cover and also in their
uses. Sales can be forecasted over short-run or long-run forecasts generally cover
periods upto a year. It may take the form of annual, half-yearly, quarterly and even
weekly forecasts. These are also known as operating forecasts. Long-run forecasts
covering long periods from two to ten years. When forecasts covering long periods
are made, the probability of error is high. In the short-run or operating forecasts, the
management in concerned with seasonal matters and development. In the long-run
forecasts the management is concerned with trends.

C. Building up a sales forecast

The usual method of building up a sales forecast by areas is to ask the various
area managers to submit estimates of sales in their respective areas for the
forthcoming forecast period. These area forecast would be made on the assumption
that no changes are made in existing marketing arrangements. When the area
forecasts are completer, they are consolidated and reconciled with the total forecasts
prepared in their ways.
Suitable adjustment would be made in the case of areas in which previous
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estimate have proved consistently wrong. Sales forecasts by individual products will
be built up in the first instance by brand managers. The sales forecasts for each
product or group of products will be determined by forward projection of recent
trends. It will be assumed that if sales have risen by 5 percent during each of the
three years, they will go on rising at this rate if they have fallen by this percentage,
they will go ‘There is of course, no sure way of knowing in advance when an
established trend is about to be reversed. A man walking up an undulating
mountain road on a foggy day cannot tell how near he is to the submit. He only
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knows he has not reached the top because, he is walking uphill for longer periods
than he goes down the hill. Eventually, he finds that there is beginning to decent for
longer periods’ then he rise, and then he known that he is past the submit’. In the
same way, the marketing executive can only be reasonably certain of change of trend
after the change has first been defected and then confirmed.
When the position is complicated by random fluctuations and seasonal peaks
and troughs, the fluctuation are smoothened by the method of moving averages and
the overall trend established.

7&8.3 SALES FORECASTING PROCEDURE

The general steps are
1. Determining the objectives for which the sales forecasts are to be
used.
2. Dividing company’s products into homogenous groups.
3. Determining the relative importance of the factors which affect sales of
each group.
4. Selecting the appropriate sales forecasting method.
5. Collecting and analyzing the sales and drawing conclusions there
from.
6. Converting the conclusion into specific forecasts relating to the
products and territories involved.
7. Applying these forecasts to company’s operation’; and
8. Periodically reviewing and revising the forecasts.

A. Limitation of sales forecasts

1. It need time, money and skilled persons
2. Fashions and style affects the sale.
3. Absence of sales history also affects sales forecast.
4. Anticipated growth rate will not be uniform.
5. Psychological behaviour is not easy to measure.

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After the forecast, the management plan for marketing action. Next step is to
evaluate this results. Evaluations alone shown what really was done. This can also
be a circular, starting with planning then action and then evaluation. After that new
plans are prepared based on the evaluation. Marketing audit is a systematic,
comprehensive, periodic review and evaluation of the marketing function is an
organization.
Through audit only management can identity its problem areas and can easily
review the strategies to the changing marketing environment. It also anticipate
future situations. Evaluation helps to correct misdirected marketing effort.
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First step in evaluation process is to find out what happened second phase is to
find out why it happened then the last phase is to decided what to do for the matter.
Analysis of sales volume must be done on the whole and as well as on the basis
of product lines and marketing segments. Then only it would be accurate to find
what is happening and what should be done. Market share is an useful method of
evaluation but does not measure the relative performance of competitors.
Based on this evaluation the management must take decision about.
i. Territorial aspect;
ii. Product decisions; and
iii. Decisions on customer classes and older sizes taken territorial problems
may be due to distribution system then changes in channels of distribution is
needed. On the whole the executives must decide to adjust territories to bring then
into line with correct sales potential.
Regarding product revisions, it may be improved by eliminating slow- moving,
unprofitable models, sizes colours.
According to the changes in the customer classes revision must be made on the
sales forecast.

B. Method of sales forecasting

Forecasting procedures and techniques very among companies. There are both
sophisticated and unsophisticated methods. A company may use one or more of a
number of methods to avoid the risk of putting all its eggs in one basket. The various
approaches to the setting of sales forecast are.
1. Surveys of buyer intentions.
2. Poll of sales force opinion
3. Expert opinion.
4. Market Test Method.
5. Projection of Past Sales.
6. Industry Forecast and Share of the Market percentages.
7. Product in Use Analysis.

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8.
9.
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Time Series Analysis
Statistical demand Analysis
10. Exponential Analysis
11. Correlation Analysis
12. Econometric Model Building

C. Surveys of buyer intentions

This is the most sensible and practical method to sales forecasting. This
approach is preferred by industrial marketers. A list of all potential buyers would be
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drawn up and an estimate of their requirements made for the manufacturer’s brand
after a face to face interview. This may be made on the basis of sample survey. It is
presumed that the buyers will cooperate and would their original intentions. It
means, therefore that surveys of buyer’s intentions are probably most effective only
when (1) there are willing to express their effective intentions and (2) their past
record reveals follow-up actions are consistent with their stated intentions.
However in the case consumer products, this method may not be very useful.
The major problem is that of selecting the sample of potential buyers. Invariably,
surveys of buyers, intentions in the case of consumer products show an inflated
measure of market potential for the company’s product.

D. Poll of sales force opinion

This method is useful where it is impractical to make direct surveys of buyer’s
intentions. This approach is based on the fact that the salesman are the most
knowledgeable source of information. This is essentially a gross root forecasting
method. This method is often used as a means of getting as alternative estimate of
sales for use as a check on a sales forecast obtained through some other approach.
However, there is one limitation in this method. The sales force usually does
not have the time or the experience to do the research needed in forecasting future
sales. This method cannot be used unless the firm has competent, high-caliber sales
people. As such, this method would be more appropriate to sales to a relatively few
large customers.

E. Expert opinion
This method involves using the services of outside experts for assessment of
future demand. A company can also buy general economic forecast or special
industry forecasts prepared by rome outside agency, e.g., National Council of
Applied Economic Research.
Another method of forecasting in this way involves the tapping of the opinion of
group of executives within the company from marketing, production, finance,
research and statistics. This method can be quick, easy and inexpensive. This may
be a desirable method, if the opinions of the executives are based on valid measure
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such as market factor analysis. However, forecasting by executive opinion alone is
risky, for in many instance, such opinions are simply intuition or guess work.

F. Market test method

This method is more frequently used by consumer goods marketers. When
industrial goods marketers employ this it is called as a ‘market probe’. A company
may consider it desirable to have a direct market test before attempting a sales
forecast based on expert opinion or executive opinion or poll of sales force opinion or
survey of buyers’ intentions. It is a matter of comparing the ‘excepted value of
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immediate action and the excepted value of first sampling and then acting’. The real
merits of this method is that it can tell management how many people actually by
the product instead of only how many say they intend to buy it. If a firm can afford
the time and money for this method, and can run a proper test, then this is the best
way of estimating the sales potential for its products.

G. Projection of the sales

This approach recognize the basic fact that today’s sales activities flow into
tomorrow’ sales activities that last year’s sales extend into tomorrow’s sales activities
that last year’s sales extend into this year’s sales. By far this is the widely used
approach in sales forecasting. It is both simple and easy to apply. The forecast is
made by adding or deducting a set percentage to test year’s sales. It is a safe method
for companies in more or less stable industries. However, pass sales method of
forecasting is not a reliable guide for future operations in most cases. This method is
not available to new companies and to new products. Strictly speaking, this method
is highly unreliable.

H. Industry forecast share of the market percentage

This method relies on the sales forecast for the industry as a whole and the
company estimate only its own share of the market by applying a percentage based
on past or excepted sales performance. Industry forecast, which are made by trade
associations or the Government are generally more accurate, provided they are
available.

I. Product is use analysis

This method involves taking a census of number of the products of closely
allied brands already in use. It is assumed that the future market for the product
will vary directly with the quantity already in use. It is also presumed that the
present users will continue to patronize the company’s brand and the company itself
would be able to merchandise the product competitively.

J. Time series analysis

A time series analysis isolation of long-term trends, cyclical changes, seasonal
variations and irregular fluctuations in company’s sales. Through the time series
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analysis it is possible to isolate the trend and arrive at the sales forecasting.

K. Statistical demand analysis

In this age computers, statistical demand analysis is becoming a very popular
method of sales forecasting. While in the time series analysis, sales are treated as a
function of time, ignoring the real demand factors, statistical demand analysis
attempts to discover the most important factors that are usually analyzed are likely
to cause variation in sales. The factors that are usually analysed are prices,
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disposable personal income, advertising and population. The sales are estimated on
the basis of the following equation.
Y=f(X1X2……………….Xn)

L. Exponential smoothening
This is a newer time series techniques. It uses three pieces of information in
forecasting sales, for a given period, viz., this period’s actual sales, this period’s
smoothened sales and a smoothening parameter. The sales forecast for next period’s
sale is given by the equation.
Next Year’s Sales = a (this year’s sales) + (1-a) (a this year’s forecast). The ‘a’ in
the equation is called the smoothening constant and is set at a value between 0.0
and 1.0. If for example, actual sales for the year came to 320 units of a product; the
sales forecast for the year was 350 units and the smoothening constant was 0.3, the
forecast for the next year’s is;
(0.3) (320) + (0.7) (350) = 431
Determine the value of ‘a’ is the main problem in using this method. In practice,
it is estimated by trying several values and making retrospective test of the
associated forecast error. The ‘a’ value lead in to the smallest forecast error is then
chosen for future smoothening.

M. Correlation analysis
This is also a statistical approach to sales forecasting. It determines and
measures the degree of association between company sales and one or more factors
influencing demand. It is essentially concerned with fitting an equation to explain
fluctuations in sales in terms of dependent variable’. I.e., sales and ‘independent
variables’- such as prices, disposable consumer rupee, and shift in population.

N. Econometric model building

This involves a mathematical approach and is considered a near ideal way to
forecast sales. An econometric model is defined as a implied abstraction of real
economic situation expressed in equation form, and employed as a prediction system
that will yield numerical results. These econometric models do not depend entirely

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on correlation analysis. The mathematical expressions chosen in the construction of
econometric models usually assume formidable forms; even in advanced countries,
very little use has been made of econometric models in forecasting sales of individual
companies. Non-availability of complete information is the main reason for this.
However, it has great scope for use in forecasting sales for the industry as a whole.

7&8.4 SUMMARY
Thus, there are a number of approaches, both simple and involved the setting
of sales forecast. One should choose a method this is quick, less costly and more
accurate.
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7&8.5 REVISION POINTS

1. Sales forecasting is a practice of rapidly growing importance.
2. The expected level of company sales based an a chosen marketing plan
and assumed marketing environment.

7&8.6 INTEXT QUESTIONS

1. What is sales forecasting?
2. What are different role of sales forecasting in market planning?
3. Explain the role of sales forecasting in market planning?
4. What are the methods used in sales forecasting? What are their merits
and demerits?

7&8.7 ASSIGNMENT
1. Discuss the method of estimating future demand.
2. Discuss sales forecasting procedure.

7&8.8 KEYWORDS
Expert Opinion
Market Test
Sales Forecasting
Econometric Model
Time Services
Experiential Smoothening

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LESSONS – 9 to 12

PRODUCT POLICIES
OBJECTIVES
1. To elucidate product policies
2. To study standardisation.
CONTENTS
9 to 12. 1. Introduction
9 to 12. 2. Defining a product
9 to 12. 3. Consumer products and marketing mix
9 to 12. 4. Role of standardization
9 to 12. 5. Types
9 to 12. 6. The functions of packaging
9 to 12. 7. Package design
9 to 12. 8. Major stages of the s-shaped product life cycle
9 to 12. 9. New product development
9 to 12.10. Summary
9 to 12.11. Revision points
9 to 12. 12. Intext question
9 to 12. 14. Assignment
9 to 12. 15. Key words
9to12.1. INTRODUCTION
The key element in any marketing program is an organization’s product. Before
making decisions about pricing, promotion, and placement-the other elements of the
marketing mix-a firm has to determine what product it will present to the public.
The most important questions a product planner can ask are
-What is my product?
-Which market shall I sell it in?
-Should I try to win a brand – name reputation for may product?
-How shall I package and label what I sell?

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We will discuss how a marketing strategy can be built around answers to these
questions.

9to12.2. DEFINING A PRODUCT

To plan a successful product strategy, managers must know what their product
is that may seem like a simple task. In fact, many business executives make key
errors in identifying their product for the public. One reason for this is that all
products have several dimensions to them. A product is like an onion. It has several
skins, or layers, each or which contributes to the total product image.
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As the figure on the following page shows, at least three layers can be
distinguished. The core product is the bundle of tangible and intangible features
offered in the market place. An automobile is clearly a product because it is
composed of chrome, steel, glass, and plastic put together in a pleasing style. Less
obviously, auto repair may also be considered as a product. An auto mechanic may
add nothing tangible to a car. But if the car runs better as a result of his work, the
mechanic has clearly produced something. All services such as car repair, hotel
rental, health care legal and accounting advice, education, and entertainment- are
products. Even something as intangible as an idea (such as to drive safely) may be
considered a product.

The Total Product

Core Product

Product as perceived by consumer

Product plus extra benefits added by seller

Tangible and intangible features
But products are more than simply particular kinds of goods, services, or ideas.
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Another layer of the total product, what Philip kilter calls the ‘Augmented product’,
must be distinguished. The augmented product consists of values added to a
product by packaging, advertising the reputation of the manufacturer, financing and
delivery arrangements, or other benefits offered to the consumer by the seller. Many
products that are indistinguishable physically become the preferred products of
consumers because of these added features. Many toothpastes contain clove oil as
an ingredient to fight against tooth decay, but promise by its explicit and forceful
advertisement has created a powerful brand image and capture sizable market
share. These added features, too, can distinguish services. For example, all tax
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consultants perform essentially the same service, but some auditors have captured
an important share of this market by locating offices in many convenient places, and
offering counselling and other services. A product manager can also fail by not
recognizing that consumer perceptions play an important part in defining the
product.
The late Charles Revlon, former president of Revlon, one made the comment,
“In the factory we make cosmetics, but in the drugstore we sell hope”. Women do not
buy red wax and talc for their makeup, but an ideal of feminine beauty; men do not
purchase lime-scented chemicals but virility and sex appeal. The symbolic product is
the psychological feeling about a product that influences a consumer purchases.
The most serious errors in marketing occur when the symbolic layer of a
product is ignored. For example, one manufacturer of a ballpoint pen spent years
designing a very. Functional product guaranteed for life. The manufacturer meant it
to be an every day product, but found instead that consumers bought the pen for
gift-giving, not for themselves. In the consumer’s mind, usefulness and high quality
were poles apart. One rupee pens were useful; 100 rupees lifetime-guaranteed pens
were not supposed to be.
The total product then, is a very complex being. It is a bundle of tangible or
intangible features which, together with service extras and symbolic characteristics,
is meant to satisfy consumer wants. Ignoring or misjudging all the dimensions of the
total product can seriously hamper a marketing effort.

9to12.3. CONSUMER PRODUCTS AND THE MARKETING MIX

Consumers buy goods and services not just for their use value but to satisfy a
variety of emotional needs. A classification system based on use would therefore be
of little value. Instead, consumer products are usually grouped according to the
manner in which consumers buy them. They may be convenience goods, shopping
goods, or specialty goods.
The table given below summarizes the differences between these three
categories in terms of marketing strategy. A closer look at each will clarify these
differences.
The marketing plan for various types of consumer goods
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Convenience goods Inexpensive Sold through many Advertising;
scatterd stores and
outlets
Shopping goods Relatively Sold through a few Advertising;
expensive clustered stores
Specialty goods Usually high priced Sold through a few, Direct mail
very selected outlets
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A. Convenice goods
Products that individuals buy quickly and often are convenience goods; candy,
drug products, food are included in this category. Such products any be staple items
bought through habit (such as milk), impulse items bought on the spur of the
moment (such as an ice-cream cone), or emergence items bought when an
unexpected need arises such are a razor while travelling)
Ordinarily, convenience goods are low priced. Because each item costs so little,
few individuals shop around for such goods. You will rarely go to more than a shop
or two to pick up a pack of cigarettes, for instance. Consequently, manufacturers of
cigarettes must supply many retail outlets with their products.
Although consumers will not make a special effort to purchase a convenience
good, they can be persuaded to buy a particular manufacturer’s product regularly.
This is done by building a brand name for a product and then advertising the brand
heavily. The outstanding user of this tactic is Hindustan lever. Hindustan lever is
selling detergent (surf) shampoo (clinic), toothpaste(close-up) & soaps (Lux, Liril,
lifebuoy) and all are very popular. Retailers sometimes draw customers to their
stores by marking down the prices of such widely advertised, popular convenience
goods. Such marked-down goods are often referred to as ‘loss leaders’ because store
owners may take very little profit on these items, but many additional customers are
led into the store by them.
Convenience goods are the fastest growing category of consumer goods. In part,
this is due to the increase in the number of working wives and mothers who no
longer have time to compare shops. In additions, more goods are now considered
convenience goods by consumers. That may account for why drug stores now stock
such items as toothpaste, milk power, beverages, etc, and pan Beda shops sell
head-ache tablets.

B. Shopping goods
Products that individuals buy only after goods. If the basis of comparison is
priced, those products are known as homogenous shopping goods. If you were
looking for a suit or dress, you would probably go from store to store until hit upon
an appealing style.

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Shopping goods are usually more expensive than convenience goods. Because
consumers are willing to make an effort to locate these more expensive goods,
manufacturers need fewer stores in which to sell thei products. Stores carrying
shopping goods generally cluster together. This s unlike the pattern of stores selling
convenience goods. Rarely will you find two supermarkets on the same block but a
row of paper stores or automobile dealers is not uncommon. Clustering makes
comparison shopping easier.
Advertising can be important in the case of shopping goods, especially to lure
customers into stores where the goods are sold. But at the point of purchase, the
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most important means of promotion is the personal selling effort of sales people.
They are needed to explain the features that distinguish the shopping goods under
consideration.
Specialty goods are so named because consumers ate willing to make a special
effort to obtain them. Included in this category are such goods as LUXURY CARS
LIKE CONTESSA, STANDARD 2000. ‘specialty-goods’ buyers differ from ‘shopping-
goods’ buyers in that the former know what they are looking for and have a
particular brand in mind. They are unwilling to settle for substitutes and will go out
of their way to find an outlet handling the products.
Speciality goods are usually high priced. But because they are so highly valued
by the consumers who seek them out, few sales outlets need to carry such items.
Speciality goods are a growing category of products because many Indians are
becoming more affluent and have more leisure time. Hobbyists are typical shoppers
for speciality goods. Advertising is really unnecessary to reach speciality – goods
shoppers. Marketers and manufacturers often keep in touch with known customers
through mailings.
The question of branding: A major decision, particularly for manufacturers of
consumer goods, is whether to produce a product with a recognizable brand name or
market the product without such identification. A brand may be defined as a name
or symbol used to identify a company’s products. Coca-Cloa, Xerox, and Anacin are
all brand names. Butterfly is the brand symbol are registered with the government
and declared the sole property of the seller, they are referred to as trade-marks.
The practice of attaching a brand name or symbol to a product is very old.
Some decades old brand names are still around, including LIFEBUOY soap, Coca-
cola and Dalda.

C. Branding – pros and cons

Branding has already caught on since its reintroduction a century ago. Nearly
all consumer products today are branded, and even some industrial products (BHEL
boilers, IBM Computers) carry brand names.
Why do businesses favour branding? Primarily because it permits a company to
distinguish its products from those of others through advertising. In that way, the
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company does not have to compete with others directly on the basis of price. Any
people purchase coca- cola even when cheaper substitutes are readily available
because they have built up a certain loyalty to the brand.
Another important reason for using a brand name is the value it creates and
lends to other products the company produces (called the company’s “product line”).
For example, Bajaj Auto Company is very well known in scooters of 1.5 HP. When it
introduced its new line 50cc motor cycle, there was an instant market for the
product because of the name. This transfer of good will from one product in a
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company’s line to another is known as the halo effect. Ponds, a talcum power
manufacturing company, created this effect by launching shampoo under the brand
name pond’s shampoo.
Consumer groups sometimes complain that branding is detrimental to their
interests. Establishing a brand name involves heavy advertising costs, which are
passed on to consumers. Undeniably, establishing a brand name costs a
considerable sum of money. For example, Hindustan lever spends nearly 5 cores
every year for advertising. But consumers do benefit from branding. They are
guaranteed consistent quality because brand name companies would never create a
branded product unless they could assure the same quality for each production run.
Moreover, brand-name merchandise allows a consumer to comparison shop for
value. EC colour televisions are the same in all stores, so potential buyers can
compare prices in various stores. A final advantage for consumers is that some
branded products confer status or prestige on their owner- a social bonus.
Despite these advantages for both the seller and the buyer, some companies
decide not to seek national brand awareness of their products. The cost of promoting
a national brand may be too great for them. Or they may deal in a standardized
product that does not lend itself to differentiation and brand recognition.

D. Planning for branding

If a company has a unique enough product and the resources to promote that
product, the advantages of branding far outweigh the disadvantages. Once the
decision to brand has been made two other important questions must be answered:
what type of brand should be used? And what name should the product carry?

E. Brand type
Marketers generally distinguish two types of brands. A family brand covers
many products under one brand name. For example, the name KISSAN is used for
sauce, sou jam, pickles, etc im contras, some companies treat their products as
individual brands, giving each of company’s products a distinct name. Hindustan
lever, for example produces RIN, SURF, SUNLIGHT detergents, Lux and Lifeboy
soaps and clinic shampoo.
Family brand names are commonly used when products are essentially similar
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or sold in the same market. The KISSAN products mentioned above are obviously
related and might be bought together. Products sharing the same brand name also
share promotional costs, thus cutting down on that expense. Moreover, new
products can take advantage of the halo effect. Of course, the halo effect can run
into a kind of ‘pitchfork effect’. When a company markets a poor product, the rest of
the line, can suffer.
Using individual brand names avoids this problem. Of course, the advantages
are also lost. But there may be sound, positive reasons for using individual names.
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Sometimes, a company produces products that are essentially dissimilar, so no halo

effect could occur. The pepsi-cola company produces sporting goods as a result of its
merger with Wilson in 1970. the Wilson name was already well established and no
advantage would have resulted from a change of names occasionally,, one product
may actually detract from the sales of another if marketed under the same name.
Markets, too may be so dissimilar that individual brand names are called for.
Chevrolet and Cadillac, both produced by general motors, appeal to very different
segments of the market.
Some companies actually promote individual brands that compete with one
another. Thus, Hindustan lever produces two toothpastes under individual brand
name signal and close-up. Marketers call this tactic a multiple brand strategy.
Hindustan lever maintains lever maintains that this policy promotes efficiency
within the company by encouraging competition between individual brand mangers.
Also, since there is competition for supermarket shelf space between companies,
Hindustan lever keeps its competitor (Colgate-Palmolive) from having more room to
display its they might well switch to close-up, thus retaining sales for Hindustan
lever. Finally, a multiple brand strategy increases the total market share of a
company.
A few companies seek the benefits of both family branding and individual
branding by combining a company name with an individual product name. The Du
pont name is well established, but in the field of synthetic materials lied nylon and
Dacron. When the company introduced a wall paint, it took advantage of the family
name for promotional purposes, but dramatized its product by an attention getting,
individualized name – Lucite.

F. Naming a brand
For a company that decides on an individual brand name, the next problem is
to find a distinctive name around which to build a marketing program.
Marketers have established several general rules to follow in the search for a
good brand name:
1. The name should be easy to pronounce, recognize and remember: joy, tab
and tide obviously qualify on this account. So do combinations of letters and
numbers like 77 and omega 100. of course, there are always exceptions to
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this rule. Recently an ayurvedhic tonic : “CHYAVAN PRASH” difficult to
pronounce is being promoted
2. The name should suggest product benefits or qualities: Clinic shampoo and
miller’s low-calorie like beer come to mind. On the other hand, a name should
not be too descriptive, or it will not be distinctive enough. Marketing a pair of
overalls under the brand name blue jeans would not excite much attention.
3. The name should be available for use: the law protects named w and symbols
that have been registered with the trade-mark commissions.
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4. The name should be available for use: the law protects names and symbols
that have been registered with the trade-mark commission.
Many firms engage in continuous legal battles to defend their names from
encroachers. One firm that set a record for longevity and persistent effort in its
defence of a brand name is the coca-cola company. Coke is the products trademark.
Typically, the company will institute fifty cases a year against soft-drink firms who
use the name coke. In addition, the firm sends warning letters to print media when
coke is not capitalized or is used in the possessive form. The company even
investigates bars where Pepsi may be mixed with rum when the customer specifies
coke
A part from the harmful impression left by the misuse of brand names, the
major reason why companies seek to protect their trademarks is that they can lose
legal protection and market share if the name comes into common use. Such names
as cellophane, thermos, aspirin, escalator, yo-yo, and ping pong can now be use by
any company to day because the companies that woned these names allowed them
to be used to describe product categories. The companies that produce Raggie
plastic bags, Xerox copiers, and Formica Countertaps are now waging a fierce
campaign to keep from suffering a similar fate.

G. The battle of the brands

Thus so far, we have used the term brand mainly in connection with those
branded items distributed by national manufacturers. Such items are called
national brands. In addition, there are products sold under the name of a retailer or
wholesale middleman called private or distributor brands. VOLTAS, SPENCERS are
examples of distributor brands.
The ‘battle of the brands’ refers to the competition that exists between owners of
national and private brands to win retail outlet shelf space and consumer loyalty.
One obvious advantage that privet brands have over national brands is that they are
generally less expensive. Since most private brands are not advertised nationally,
they can be marketed more cheaply.
The consumer appeal of private brands is matched by their appeal to retailers
and wholesalers as well. Many store owners maintain that such brands allow them
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greater freedom to sell what they and their customers need. Moreover, selling private
brands allows middlemen to build u a faithful clientele who prefer such brands.
Finally, middlemen prefer private brands because they earn higher markups on
them.
Manufacturers oppose private brands on the ground that the quality of private
brands is inferior to their own. They also maintain that it is nationally advertised
products, not private brands, that tends to bring customers into stores. Despite their
objections to private brands, many manufactures of nationally advertised
merchandise also produce private-brand products for retailers.
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H. Without brand names

Some supermarkets are also hard oppressed to increase profits by attracting
more customers that they have initiated an even chapter alternative to private
brands-no name, or generic, products. These are unbranded, slightly lower grade
goods that receive no advertising. Since they are usually sold in plain white package
with black lettering, they are also referred to as ‘ no frills’ goods. According to a
spokesman for supermarkets that carry the goods, the lower grades, plain
packaging, and lack of advertising allow them to sell products for about a third less
than national brands and 10 percent less than private brands.
National manufacturers are naturally upset by the development. They claim
that the no-name goods are actually parasitic since they depend on the advertising
of national brands to bring customers to stores. The manufactures also claim that
supermarkets carrying no-name products have, in fact, conducted large advertising
campaigns to introduce the products and then absorbed the costs. Thus, the current
low prices of no-name products do not reflect true costs to participating
supermarkets.
Consumers plagued by rising inflation rates are delighted with this new foray in
the battle of the brands. And the battle may soon spread to others fronts besides
supermarkets. Many countries now have or are considering laws allowing (or
ordering) the substitution of cheaper ‘generic drugs’ for brand name drugs in the
filling of prescriptions. The pharmaceutical companies are gearing for that battle.
Some are even producing branded generics – prescription drugs that are priced
midway between the leading brand name drugs and those produced by smaller
generic drug manufacturers the outcome of the battle will be interesting to watch.

I. Standardisation and labelling

These are highly essential for frictionless functions and helps in marketing
tasks and make the consumers to identify the product. Standardization is the
process of determining the classes or grades of a product that have fixed limits. It
consists of three sub-functions viz (a) fixing the standards (b) grading and (c)
inspection and labelling.

1. Fixing the standard

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Standard is a measure to designate the quality of a product and carries the idea
of uniformity.
Example: Pond’s powder bought at different places are of the same quality
which ensures uniformity.

2. Grading
Grading is sorting the products into certain groups which are uniform quality
or size. Standardization has a broader are uniform quality or size. Standardization
has a broader significance than grading.
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3. Inspection and labelling

It is an act verification that facilitates the work of labeling. Label is anything,
may be a piece of paper with printed statement indicating the value of product,
contents of product, price, name and place of the producer. So it is the act attaching
tagging the labels.

9to12.4 ROLE OF STANDARDISATION

1. It helps to protect products in transit from damage.
2. It reduce the cost of marketing.
3. Helps in future trading and it widens the market.
4. Standard good’s prices can be easily determined.
5. It helps in using the brand names effectively.
6. Helps the consumer in getting good quality at a fair price.
7. It helps for comparison.
In India Standardization is of recent development. Grading of agricultural
produce is undertaken by various institutions like, the Central Agricultural
Marketing Department, the Directorate of Marketing and Inspection, the Central and
State Warehousing Corporations, and the Indian Standard Institution. Regarding
manufacturing goods standardization is determined by the Indian Standards
Institution and Indian Statistical Institute. The Indian Standards Institution
popularly known as I.S.I was established 1947. this institution was created by the
passing of Indian Standards Institution (certification) Marks Act 1952. this is
affiliated to Asian Standard Advisory Committee. I.S.I’s main aim is to lay down
national standards for commodities, Materials, Practices and processes. The
following are the aims of the institution.
1. Preparation of standards relating to products, commodities, materials
and process.
2. Promotion of general standards at national and international level.
3. Certification of industrial products.
4. Helping the production of quality goods.
5. Circulation of information relating to standardisation.

A. Benefits of I.S.I.
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In protects consumers through assured quality and performance of
products
2. It minimises wastage.
3. It cuts down unnecessary varieties.
4. It increases productivity and reduces cost of production.
The function of I.S.I. is done through a large number of technical committees
appointed by tem various division councils. I.S.I. promotes standardization, quality
control and simplification in industry and technology.
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The Agricultural produce (Grading and Marketing) Act was passed in 1937 to
promote grading in case of agricultural commodities. The standardized agricultural
goods are marketed with a standard name ‘AGMARK’. In the word AGMARK, AG
denotes agriculture and mark stands for marketing. Food products order, 1946,
vegetable oil products order, 1947,prevention of food adulteration act 1954 are the
other enactments passed in the field of grading of agricultural commodities.

B. Purpose of labelling
The two main purposes are:
1. To bring home the characteristics of a product.
2. To simplify the process of exchange.

9to12.5. TYPES
1. Brand Label
2. Grade Label and
3. Descriptive Label
1. Brand label
A brand label is one that carries the information relation to a brand. A company
can be remembered if a brand label is given. Thus a cloth piece has a stamp namely,
‘sanforised a mark of shrinkelssness stabilized for ceaselessness.

2. Grade label
As per the quality labels are attached labeling of tea on the basis of quality like
‘A – 1 tea’ etc.
3. Descriptive label
A detailed description is given abut different aspects of product and producers.
Its components, or formula of product and producers. Its components, or formula of
preparation, uses, etc. are described.

4. Packaging and labelling products

The importance of packaging is often underestimated. The story is told of the
mad scientist who rushed into his research chief’s office and shouted “Eureka” I
have found it – an acid so powerful it will eat through every known substance”. The
research chief was a bit puzzled “ fine”, he said “but in what will we keep it in?”.
Fortunately, most marketers are not like the mad scientist. They are concerned
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with packaging-so much so that packaging has become a $ 30 billion-a-year
industry in the united states. Innovations in packaging are, in fact, responsible for
the success of some products. Marlboro cigarettes introduced its flip-top box in
1954, and its sales jumped from 0.3 billion cigarettes to 14.3 billion in two year’s
time. The advent of the aerosol can give birth to a whole industry-hair sprays.
Packaging can be a major expense in marketing. For some cosmetics and
toiletries, packaging costs actually exceed the costs of the contents. In part, the
differences in cost can be attributed to varying costs of the packaging material.
Aluminum cans and plastic wraps are more expensive than paper boxes. But
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sometimes design considerations add most to the cost. Women probably would not
buy perfume in a milk carton. Marketers justify the costs of packaging on the basis
of the functions it serves.

9to12.6. THE FUNCTIONS OF PACKAGING

Fifty years ago, the main function of packaging was to provide a means of
transport for a product between a neighborhood store and the home. Grocers
scooped sugar into brown paper sacks and bar keepers filled a bucket with beer. A
packaging revolution has occurred since then. Today, packages are expected to
perform the following functions:

1. Packages protect the product

Egg cartons and dark tonic bottles are examples of packages that serve
primarily to protect products from damages and spoilage. In addition to protecting
the product, some packages protect the consumer from danger when using the
product. Many shampoo manufacturers, for example, package their products in
plastic containers to avoid broken battles in titled bathrooms.

2. Packages promote the product

The trend today is toward self-services in retail stores. Discount and variety
stores offer sales help only when requested, and super markets do not use any sales
personnel. Products must now sell themselves, and that is an increasingly difficult
task. The average shopper in a supermarket passes by 300 products per minute.
That shopper will make 150 buying decisions in a shopping period lasting about 18
minutes which amounts to 1 decision every 7 seconds. Obviously, catching the
consumer’s eye at this pace requires careful attention to design.

3. Packages increase the use of the product

Marketers want consumers not just to try a product but to continue to use it in
greater quantities. Packaging can help here. By packaging their products in smaller
twin packs, the makers of cleansers have induced homemakers to keep a can in the
bathroom as well as the kitchen.

4. Packages increase sales by adding a reuse value

A number of package are designed to allow package reuse for other purposes.
Containers that can be reused offer a product a competitive advantage.
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9to12.7. PACKAGE DESIGN
For package to serve these functions it must be well designed. That is a more
difficult task than it may seem. For any given type of product, packaging is fairly
standard. All toothpaste comes in a tube, and all salt in a cylindrical box. How,
then, can the package designer of a particulate brand of tooth paste or salt
distinguish one company’s products from others on the same shelf?
One way is to use colour effectively,. Psychologists have shown that people
react to certain colours in very definite and predictable ways. For the buyer of
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impulse items, red is an effective colour because it has been shown to be a high
action motivator. For the buyer looking for an elegant speciality good, gold or silver
is a good choice. Men seem to buy anything that is packaged in brown, including
cosmetics, probably because it brings to mind outdoor images.
Besides colour, style can serve to individualize packages. Two quite opposite
styles are noticeable on the contemporary scene: the old-fashioned and the ultra-
modern look. Natural cereals, picturing scenes of nineteenth century rural American
on box panels, convey a nostalgia for the past in their design. On the other hand,
cigarettes that appeal to the liberated woman, like Virginia slims, are packaged
modernistic in a long, thin gold pack that is stripped of ornamentation.
Package copy-both words and pictures-can help distinguish a product. In one
survey conducted in USA brand names were removed from packages, and people
were then asked to identify the product.
The words “squeezable soft” on one package alerted 97 per cent of those
surveyed that the product was chairman tissue. Mr. Clean’s bald head and gold
earring won recognition from 68 per cent of those tested.
Some variation in package form within a product category is acceptable, but not
very much. When Ipana toothpaste came out with an aerosol dispenser a few years
ago, it failed to catch on. Retailers resist odd shapes and sizes as much as
consumers. They object to packages that take too much space, topple over, r can’t be
stacked. Clearly, the requirement that packages be both attention-getting and
functional puts an heavy burden on designers.

A. Packaging and consumer

The consumer movement’s major complaint against packaging is that it has
sometimes been deliberately deceptive and misleading. The sheer number of
package sizes from economy, king, and super to extra large, giant, and super king
has hindered comparison price shopping. Also package labeling has often given no
clear information on package contents. Progress has been made in remedying both
these faults.

B. The concept of product life cycle (P.I.C.)

Sales potential and profitability will change over time. The product life cycle is
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an attempt to recognize distinct stages in the sales history of the product.
Corresponding to these stages are distinct opportunities and problems with respect
to marketing strategy and profit potential. By identifying the stage that a product is
in, or may headed toward, companies can formulate better marketing plans.
To say that a product has a life cycle is to assert four things.
1. Product have a limited life.
2. Product sales pass through distinct stages, each posing different
challenges to the seller.
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3. Product profits rise and fall at different stages of the product life cycle.
4. Products require different marketing, financial, manufacturing,
purchasing, and personnel strategies in the different stages of their life
cycle.

9to12.8. MAJOR STAGES OF THE S-SHAPED PRODUCT LIFE CYCLE:

Most discussions of product life cycle (PLC) portray the sales history of a typical
product as following as S-Shaped cure. This curve is typically divided into four
stages, known as introduction, growth, maturity and decline:

1. Introduction
A period of slow sales growth as the product is introduced int eh market.
Profits are non-existent in this stage because of the heavy expenses of product
introduction.

Product Life Cycle Curves Showing Sales And Profit Cycles

Sales
Sales & Profit

Profit

Introduction Growth Maturity Decline

Time
2. Growth
A period of rapid market acceptance and substantial profit improvement.

3. Maturity
A period of a slow down in sales growth because the product has achieved
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acceptance by most of the potential buyers. Profits stabilize or decline because of
increased marketing outlays to defend the product against competition.

4. Decline
The period when sales show a strong down-ward drift and profits erode.
Designating where each stage begins and ends is somewhat arbitrary. Usually
the stages are marked where the rates of sales growth or decline become
pronounced. Those planning to use this concept must investigate the extent to
which the PLC concept describes product histories in their industry. They should
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check the normal sequence of stages and the average duration of each stage. Cox
found that a typical ethical drug spanned an introductory period of one month, a
growth stage of six months,, a maturity stage of fifteen months, and a very long
decline stage the last because of manufacturers reluctance to drop drugs from their
catalogues. These stage lengths must be reviewed periodically. Intensifying
competition is leading to shortening PLC s over time, which means that products
must take their profits in shorter period.

5. Rationale for the product life cycle

We described earlier the S-shaped PLC concept without providing a rationale in
marketing terms. The theory of the diffusion and adoption of innovations provides
the underlying rationale. When a new product is launched, the company has to
stimulate awareness, interest, trial and purchase. This takes time, and in the
introductory stage only a few persons (“innovators’) will buy it. If the product is
satisfying, larger numbers of buyers (‘early adopters’) are drawn in. The entry of
competitors into the market speeds up the adoption process by increasing prices to
fall. More buyers come in (‘early majority’) as the product is legitimized. Eventually
the growth rate decreases as the number of potential new buyers approaches zero.
Sales become steady at the replacement purchase rate. Eventually sales decline as
new products classes, forms, and brands appear and divert buyer interest from the
existing products. Thus the product life cycle is explained by normal developments
in the diffusion and adoption of new products.
The PLC concept provides a useful framework for developing effective marketing
strategies in different stages of the products life cycle. We now turn to these stages
and consider the appropriate marketing strategies.

6. Introduction stage
The introduction stage starts when the new product is first distributed and
made available for purchase. It takes time to fill the dealer pipelines and roll out the
product in several markets; so sales growth is apt to be slow. Such well-known
products as instant coffee frozen orange juice, and mouth wash took many years
before they entered a stage of rapid growth. Several causes were entered a stage of
rapid growth of many processed food products; delays in the expansion of
production capacity; technical problems, delays in making the product available to
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customers, especially in obtaining adequate distribution through retail outlets; and
customer reluctance to change established behaviour patterns. In the case of
expensive new products, sales growth is retarded by additional factors such as
number of buyers who can afford to buy the new product.
In this stage, profits are negative or low because of the low sales and heavy
distribution and promotion expenses. Much money is needed to attract distributors
and ‘fill the pipelines’. Promotional expenditures are at their highest ratio to sales
“because of the need for a high level of promotional effort to (1) inform potential
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consumers new and unknown product, (2) induce trial of the product, and (3) secure
distribution in the outlets”.
There are only a few competitors, and they produce basic versions of the
product, since the market is not ready for precuts refinements. The firms focus their
selling on those buyers who are the readiest to buy, usually higher income groups.
Prices tend to be on the high side because (2) technological problems in production
may have not yet been fully mastered, and (3) high margins are required to support
the heavy promotional expenditures which are necessary to achieve growth.

7. Marketing strategies in the introduction stages

In launching a new product, marketing management can set a high or low level
for each marketing variables such as price, promotion, distribution and product
quality. Considering only price and promotion, management can purse one of the
four strategies shown in Figure.

Four Introductory Marketing Strategies Promotion

High Low

Rapid Slow
High
Skimming Skimming
Strategy Strategy
PRICE Rapid Slow
Penetration Penetration
Strategy Strategy
Low

A. Rapid - skimming strategy

Consists of launching the new product at a high price and high promotion level.
The firm changes a high price in order to recover as much gross profit per unit as
possible. It spends heavily on promotion to convince the market of the product’s
merits at the high price level. The high promotion acts to accelerate the rate of
market penetration. This strategy makes sense under the following assumptions; (1)
a large part of the potential market is unware of the product (2) those who become
aware are earger to have the product and be able to pay the asking price; (3) the firm
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faces potential competition and wants to build up brand preference.
A slow-skimming strategy consists of launching the new product at a high price
and low promotions. The purpose of the high price is to recover as much gross profit
per unit as possible; and the low level of promotion keeps marketing expenses down.
This combination is expected to skin a lot of profit from the market. This strategy
makes sense when: (1) the market is limited in size; (2) most of the market is aware
of the product; (3) buyers are willing to pay a high price; and (4) potential
competition is not imminent.
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A rapid-penetration strategy consists of launching the product at a low price

and spending heavily on promotion. This strategy promises to bring about the faster
market penetration and the largest market share. This strategy makes sense when :
(1) the market is large; (2) the market is unaware of the product; (3) most buyers are
price sensitive; (4) there is strong potential competition; and (5) the company’s unit
manufacturing costs fall with the scale of production and accumulated
manufacturing expenses.
A slow- penetration strategy consists of launching the new product at a low
price and low level of promotion. The low price will encourage rapid product
acceptance; and the company keeps its promotion costs down in order to realize
more net profit. The company believes that market demands highly price elastic but
minimally promotion elastic. This strategy makes sense when (1) the market is large;
(2) the market is highly aware of the product; (3) the market is price sensitive; and
(4) there is some potential competition.

8. Growth stage
The growth is marked by a rapid climb in sales. The early adopters like the
product, and middle-majority consumers start following their lead. New competitors
enter the market, attracted by the opportunities for large scale production and
profit. They introduce new product features, and this further expands the market.
The increased number of competitors leads to an increase in the number of
distribution outlets and factory sales jump just to fill the distribution pipeline.
Prices remain where they are or fall only slightly in so far as demand is
increasing quite rapidly. Companies maintain their promotional expenditure at the
same or at a slightly raised level to meet competition and continue educating the
market. Sales rise much faster causing a decline in the promotion sales ratio.
Profits increase during this stage as promotion costs are spread over a larger
volume, and unit manufacturing costs fall faster than price declines owing to the
‘experience curve’ effect.

A. Marketing strategies in the growth stage

During this stage, the firm uses several strategies to sustain market growth as
long as possible.
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The firm improves product quality and adds new-product features and
models.
2. It enters new market segments.
3. It enters new distribution channels.
4. It shifts some advertising from building products awareness to
bringing about product conviction and purchase.
5. It lowers prices at the right time to attract the next layer of price
sensitive buyers.
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The firm that pursues these market-expanding strategies will increases its
competitive position. But this improvement comes at additional costs. The firm in
the growth stage faces a trade-off between high market share and high current
profit. By spending a lot of money on product improvement, promotion and
distribution, it can capture a dominant position. It foregoes maximum current profit
in the hope of making it up in the next stage.

9. Maturity stage
At some point a product’s rate of sales growth will slow down, and the product
will enter a stage of relative maturity. This stage normally lasts longer than the
previous stages, and it poses formidable 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 maturity stage can be divided into three phases. In the first phase growth
maturity the sales-growth rates starts to decline because of distribution saturation.
There are no new distribution channels to fill, although some buyers still enter
market. In the second phase, stable maturity, sales become level on a per capita
basis because of market saturation. Most potential consumers have tried the
product, and future sales are governed by population growth and replacement
demand. In the third phase decaying maturity, the absolute level of sale now starts
to decline and customers start moving toward other products and substitutes.
The slow down in the rate of sales growth creates over capacity leads to
intensified competitors engage more frequently in mark downs and off-list pricing.
They increase their advertising and trade and consumer deals. The y increases their
R & D budgets to find better versions of the product. These steps mean some profit
erosion. Some of the weaker competitors start dropping out. The industry eventually
consist of well-entrenched Competitors whose basic drive is to gain Competitive
advantages.

10. Marketing strategies in the maturity stage

Many companies give up no mature products, feeling there is little they can do.
They think the best thing is to conserve their money and spend it no newer products
in the development pipelines. This ignores the low success rate of new products and
the high potential that many old products still have. Several old brands like Jell-O
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Oval tine, Arm & Hammer Baking Soda have had major sales revivals several times
through the exercise of marketing imagination. Marketing managers should not
ignore or passively defend aging or “dog-eared” products. A good offense is the best
defense. Marketers should systematically consider strategies of market, product, and
marketing mix modification.

11. Market modification

The company should seek to expand the market for its brandy by working with
the two factors that make up sales volume.
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Volume - Number of brand users X Usage rate per user We will examine
each factor in turn.
The company can try to expand the number of brand users three ways

1. Convert non-users
The company can try to convert nonusers into users of the product category.
For example, the key to the growth of air freight service is the constant new users to
whom air carries can demonstrate the benefits of using air freight over ground
transportation.

A. Enter new market segments

The company can try to enter new market segment-geographic; demographic,
and so on-that use the product but not the brand. For example, Johnson & Johnson
successfully promoted its baby shampoo to adult users.

B. Win competitor’s customers

The company can work to attract competitor’s customers to try or adopt the
brand. For example, Neutramul is constantly coaxing other brown beverage
(Bournvita, Boost) users to switch to Neutramul, throwing out one challenge after
another.
Volume can also be increasing by getting current brand users in increase their
annual usage of the brand. Here there are three strategies.

C. More frequent use

The company can try to get customers to use the product more frequently. For
example, Horlicks marketers try to get people to drink Horlicks on occasions other
than bed time.

D. More usage per occasion

The company can try to interest users in using more of the product each time it
is used. Thus a shampoo manufacturer might indicate that the shampoo is more
effective with two rinsing than one.

E. New and more varied uses

The company can try to discover new uses for the product and convince people
to make more varied use of it. A common practice of food manufacturers for
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example, is to list several recipes on their package to broaden the consumer’s
awareness of all the uses of the product.

F. Product modification
Managers also try to turn sales around by modifying the product’s
characteristics in a way that will attract new users and or more usage from current
users. The product relaunch can take several forms.
A strategy of quality improvement aims at increasing the functional
performance of the product-its durability reliability, speed, taste. A manufacturer
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can often overtake its competition by modified and improved automobile, television
set, coffee, or cigarette. They claim something new in the existing products.
This strategy is effective to the extent that the quality can be improved, buyers
believes the claim of improved quality, and a sufficient number of buyers want
higher quality.
A strategy of feature improvement aims at adding new features (e.g size,
materials, additives, accessories) that expand products veracity, safety, or
convenience. For example, the addition of power to hand lawn mowers increased the
speed and ease of cutting grass. Manufacturers then worked on engineering better
safety features. Manufacturers than worked on engineering better safety features.
Factures then worked on engineering better safety features. Some manufacturers
have added conversion features so that a power lawn mower doubles as a snow
plow. Five advantages of feature improvement can be outlined.
1. New features build a company image of progressiveness and
leadership.
2. New featured can be adapted quickly, dropped quickly and often
made optional at very little expense.
3. New features can with win the loyalty of certain market segments.
4. New features can bring the company free publicity.
5. New features can generate sales-force and distributor’s enthusiasm.
The chief disadvantages is that feature improvements are highly imitable;
unless there is a permanent gain from being first, the feature improvement may not
pay.
A strategy of style improvement aims at increasing the aesthetic appeal of the
product. The periodic introduction of new car models amounts to style competition
rather than quality of feature competition. In the case of package food and
household products, companies introduce colour and texture variation and often
restyle the package, treating it as an extension of the product. The advantage of a
style strategy is that it might confer a unique market identify and secure a loyal
following. Yet style competition has some problems. First, it is difficult to predict
whether people and which people will like a new style. Second style changes usually
mean discontinuing the old style, and the company risks losing some customers who

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liked the old style.

12. Marketing –Mix Modification

The product manager should also try so stimulate sales through modifying one
or more marketing-mix elements. Here is a list of key questions that marketing mix
in their search of ways to stimulate the sales of a mature product.

A. Prices
Would a price cut attract new triers and users? If so should the list specials,
volume or early-purchase discounts, freight absorption, or easier credit terms? Or
would be better to raise the price suggest more quality?
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B. Distribution
Can the company obtain more product support and display in the existing
outlets? Can more product be penetrated? Can the company get the product into
some new types of distribution channels?

C. Advertising
Should advertising expenditures be increased? Should the advertising message
or copy be changed? Should the media vehicle mix be changed? Should the timing,
frequency, or size of ads be changed?

D. Sales promotion
Should the company step up sales promotion-trade deals, cents-off, rebates,
warranties, gifts, and contests?

E. Personal selling
Should the number or quality of sales people be increased? Should the basis for
sales-force specialization be changed? Should sales territories be revised? Should
sales-force incentives be revised? Can sales-call planning be improved?

F. Services
Can the company speed up delivery? Can it extend more technical assistance
customers? Can it extend more credit?

G. Decline stage
The sales of most product forms and brands eventually decline. The sales
decline may be slow, or rapid. Sales may plunge to zero, or they may stand at a low
level land and continue for many years at that level.
Sales decline for a number of reasons, including technological advances,
consumer shifts in tastes and increased domestic and foreign competition. All these
lead to overcapacity, increased price cutting, and profit erosion.
As sales and profits decline, some firms withdraw from the market. Those
remaining may reduce the number of product offerings. They may drop smaller
market segment and marginal trade channels. They may cut the promotion budget
and reduce their prices further.
Unfortunately, most companies have not developed a well-thought out policy for

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handling their aging products. Sentiment plays a role. The company may not like to
part with old friend. Logic also plays a role. Management believes that products sales
will improve when the economy improves, or when the marketing strategy is revised,
or when the product is improved. Or the weak product may be retained because of
its alleged contribution to the sales of the company’s other products. Or it may be
that its revenue covers out-of pockets costs, and the company has no better way of
using the money.
Unless strong reasons for retention exist, carrying a weak product is very costly
to the firm. The cost is not just the amount of uncovered overhead and profit.
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Financial accounting cannot adequately convey all the hidden costs. The weak
product may consumer a disorientate amount of management’s time; it often
requires frequent price and inventory adjustment; it generally involves short
production runs in spite of expensive set up times; it requires both advertising and
sales-force attention that might better be diverted to making the ‘healthy’ products
more profitable; its very unfitness can cause customer misgivings and cast a shadow
on the company’s image. The biggest cost may well lie in the future. By not being
eliminated at the proper time, weak products, they create a lopsided product mix,
long on ‘yesterday’s’ bread winners and shorten ‘tomorrow’s bread winners’; they
depress current profitability and weaken the company’s foothold on the future.

1. Marketing strategies during the decline stage

A company faces a number of task and decision to handles its aging products.

2. Identifying the weak products

The first task is to established a system for identifying weak products Six steps
are involved:
The company appoints product–review committee with representatives from
marketing, manufacturing and finance departments.
This committee develops a system for identifying weak products.
It collects data for each product showing trends in market size, market share,
prices, costs and profits.
This information is analyzed by a computer program that identifies dubious
products. The criteria include the number of years of sales decline, market-share
trends, gross profit margin, and return on investment. Product put on the dubious
list are reported to those managers, responsible for them. The managers fill out
rating forms showing where they think sales and profits will go, with and without
any changes in marketing strategy.
The product review committee examines this information and makes a
recommendation for each dubious product to leave it alone modify its marketing
strategy, or drop it.

3. The drop diecision

When a company decides to drop a product, the firm faces further decisions.
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First it can sell or transfer the product to someone else or droop it completely.
Second, it must decide whether to drop the product quickly or slowly. Third, it must
decide on how much parts inventory and service to maintain to service past
customers.
9 to12.9 NEW PRODUCT DEVELOPMENT
One of the major challenges in marketing planning is to develop ideas for new
products and to launch them successfully. The company will have to find
replacements for its products that have entered the decline stage. Customers want
new product, and competitors will do their best to supply them.
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The new-product planning gap can be filled in two ways, acquisition or new
product development. The acquisition route can take three forms.
1. The company can pursue a corporate acquisition program involving the
search for smaller companies that have attractive product lines,
2. The company can pursue a patent acquisition program in which it buys
their rights to new products form their patent holder.
3. The company can pursue a license-acquisition program for manufacturing
various products.
In all three cases, the company does not develop any new products but simply
acquires the rights to existing ones.
The new product route can take two basic forms. The company can pursue
internal new product development by operating its own research and development
department. Or it can pursue contract with new product development agencies to
develop specific products for the firm.
Many companies combine several of these strategies for growth. ‘New products’
for our purposes will include original products, products improvements, product
modifications and new brands that the firm develops thought it own R&D efforts. We
will also be concerned with whether the consumer sees them as ‘new’.
New Product Development

Idea generation

Evaluation and screening

Concept Development and Testing

Total Ideas / Concepts

Business Analysis

Development
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Commercialisation

Out

Cumulative Time Successful Products

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We can identify six categories of new products in terms of their newness to the
company and to the market place. The categories are:
1. New –to- the world products: new products that create an entirely new
market.
2. New-product lines: new products that allow a company to enter an
established market of r the first time.
3. Additions to existing products lines: new products that supplement a
company’s established product lines. Improvements in revisions to
existing products.
4. New products that provide improve performance or greater perceived value
and replace existing products.
5. Repositioning: existing products that are targeted to new markets or
market segments.
6. Cost reductions: new products that provide similar performance at lower
cost.
A company usually pursues a mix of these new products are truly innovative or
new to the world. These products involve the most cost and risk because they are
new to both company and the market place.

A. Idea generation
The new-product development process starts with the search for ideas. The
search should not be casual or open-ended. Top management should define the
products and markets to emphasize. It should state the new product objectives,
whether it is high cash flow, market share domination, or some tore objective. It
should state how much effort should be devoted to developing original products,
modifying existing products and limitation competitors’ products.
New product ideas can be derived from many sources; customers, scientists,
competitors, company sales people dealers, and top management.

B. Idea screening
The purpose of idea generation is to create a large number of ideas. The
purpose of the succeeding stages is to reduce the number of ideas.
In the screening stage, the company must avoid two types of errors. A DROP-
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error occurs when the company dismissed an otherwise good idea.
If a company makes too many DROP- errors, its standards are too conservative.
A Go- error occurs when the company permits a poor idea to move into
development and commercialization.
The purpose of screening is to spot and drop poor ideas as early as possible.
The rationale is that product development costs rise substantially at each successive
development stage. When products reach late stages ,, management after feels that
they have invested so much in developing the product that it should be launched to
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recoup some of the investment. But this is letting good money chase bad money, and
the real solution is to not let poor product ideas get this far.

C. Concept development and testing

Surviving ideas must now be developed into product concepts. It is important to
distinguish between a product idea, a product concept, and a product image. A
product concept, and a product image. A product idea is an idea for a possible
product that the company can see itself offering to the market. A product concept is
an elaborated version of the idea expressed in meaningful consumer terms. A
product image is the particular picture that consumers acquire of an actual or
potential products.

D. Concept development
We shall illustrate concept development with the following situation. A large
food processor gets the idea of producing a power to add to milk to increase its
nutritional level and taste. This is a product idea. Consumers, however do not buy
product ideas; they buy product concepts.
Any product idea can be turned into several product concepts. First the
question can be asked, who is to use this product? The powder can be aimed at
infants, children teenagers, young or middleaged adults, or senior citizens. Second,
what primary benefit should be built into the is product? Taste, nutrition
refreshment, energy? Third what is the primary occasion for this drink? Breakfast,
midmorning, lunch, mid afternoon, dinner, late evening? By asking these questions,
a company can form several product concepts.
Concept 1 : An instant breakfast drink for adults who want a quick nutritional
breakfast without preparing a breakfast.
Concept 2 : A tasty snack drink for children to drink as a mid-day refreshment.
Concept positioning: each concept requires positioning so that its real
competition would be understood the product concept and not the product ideas
defines the product’s competitor. The concept also has to be positioned against
existing brands in the product category.

E. Concept testing
Concept testing calls for testing these concepts with an appropriate group of

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target consumers. The concepts may be presented symbolically or physically. At this
stage a word and/or picture description suffices, although the reliability of a concept
test increases, the more concrete and physical the stimulus. The consumers are
presented with an elaborated version of each concept. Then they are asked to react.
Based on the reactions, decisions are arrived at.
Concept development and testing methodology applies to any product, service,
or idea such as an electric car, a new banking service, anew type of museum, or a
new health plan. Too many managers think their job is done when they get a
product idea. They do not develop it into some alternative concepts and test them
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adequately. Later the product encounters all kinds of problems in the market place
that would have been avoided if the company had done a good job of concept
development and testing.

F. Market strategy development

The new product manager will have to develop a preliminary marketing
strategy statement for introducing this product into the market. The marketing
strategy will be refined in sub-sequent stages.
The marketing strategy statement consists of three parts. The fist part
describes the size, structure, and behaviour of the target market, the planned
product positioning and the sales, market share, and profit goals sought in the first
few years.
The second part of the marketing – strategy outlines the product’s planned
price, distribution strategy, and marketing budget for the first year.
The third part of the marketing strategy statement describes the planned long
run sales and profit goals and marketing – mix strategy over time.

G. Business analysis
Once management develops the product concept and a marketing strategy, it
can evaluate the business attractiveness of the propose. Management must review
the sales, cost, and profit projection to determine whether they satisfy the company’s
objectives. If they do, the product concept can move to the product development
sage. As new information comes, in, there will be further revision of the business
analysis.
Management needs to estimate whether sales will be high enough to return a
satisfactory profit to the firm. Management should examine the sales history of
similar products and should survey market opinion management should prepare
estimates of minimum and maximum sales to learn the range of risk.
After preparing the sales forecast, management can estimate the expected costs
and profits of this venture. The costs are estimated by the R&D, manufacturing,
marketing and finance departments.

H. Product development
If the product concept passes the business test, it moves to R&D and or

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engineering to be developed into a physical product. Up to now it has existed only as
a word description, a drawing, or a very crude mock-up . this step calls for a large
jump in investment, which dwarfs the idea evaluation cost incurred in the earlier
stages. This stage will answer whether the product idea can be translated into a
technically and commercially feasible product.
If not, the company’s accumulated investment will be lost except for any useful
information gained in the process.
The R&D department will develop one or more physical versions of the product
concept. It hopes to find a prototype that satisfies the following criteria.
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1. Consumers see it as embodying the key attribute described in the

product – concept statement.
2. The prototype performs safely under normal use and conditions.
3. The prototype can be produced for the budgeted manufacturing costs.

Developing a successful prototype can take days, weeks, months, or even years.
Designing a new commercial aircraft, for example, will take several years of
development work. Even developing a new tasks formula can take time.
The lab scientists must not only design the required functional characteristics
but also know how to communicate the psychological aspects through physical cues.
This requires knowing how consumers react to different colours, sizes, weights, and
other physical cues. It the cases of a mouthwash, a yellow colour supports an
‘antiseptic’ claim a red colour supports ‘refreshing’ claim, and a green colour
supports a ‘cool’ claim. Or to support the claim that lawn owner is powerful, the lab
people have to design a heavy frame and a fairly noisy engine. Marketers need to
work with lab people to fill them in on how consumers judge product qualities they
are seeking.
When the prototypes and ready, they must be put through rigorous functional
and consumer tests. The functional test are conducted under laboratory and field
conditions to make sure that the products performs safely and effectively/ the new
aircraft must fly; the new snack food must be shelf stable.; the new drug must not
create dangerous side effects. Functional product testing of new drugs now takes
years of laboratory work with animal subjects and then human subjects before they
obtain Drug Controller’s approval.

I. Market testing
After management is satisfied with the product functional performance, the
product is ready to be dressed up with a brand name, packaging, and a preliminary
marketing program to test it in no more authentic consumer settings. The purpose of
market testing is to learn how consumer and dealers react to handling, using and
repurchasing the actual product and how large the market is.
Not all companies choose the route of market testing Well established
companies do market testing.

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The amount of market testing is influenced by the investment cost and risk on
the one hand, and the time pressure and research cost on the other. But the amount
of market testing may be severely limited if the company is under great pressure to
introduce its brand because the season is just starting, or competitors are about to
launch their brands. The company may prefer the risk of a product failure to the
risk of losing distribution or market penetration on a highly successful product. The
cost of market testing will also affect how much is done and what kind.
Market-testing methods differ in the testing of consumer versus industrial
products.
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J. Commercialisation
Market testing presumably gives management enough information to make a
final decisions about whether to launch the new product. If the company goes ahead
with commercialisation, it will face’ its largest costs to date. The company will have
to build or rent a full-scale manufacturing facility. The size f the plant will be a
critical decision variable or the company can launch even on a smaller scale, to be
on safe side.
Another major cost is marketing. To introduce a major new consumer package
good into the national market, the company may have to spend a large sum money
in advertising and promotion in the first year. In the introduction of new food
product, marketing expenditures typically represent 57 percent of sales during the
first year as found in one survey conducted in U.S.A
9to12.10 SUMMARY
During commercialization, the following questions are to be answered.
1. When to launch a new Product (Timing)
2. Where to launch the product (Geographical Strategy)
3. To whom the product should be aimed at (Target Market Prospects)
4. How to launch the product (Introductory Market Strategy)
Thus the purpose of each stage is to decide whether the idea should be further
developed or dropped. The company wants to minimize the chance that poor ideas
will move forward and goods ideas will be rejected.

9to12.11 REVISION POINTS

1. The core product is the bundles of tangible and intangible features.
2. Convenience goods include consumer drug products, food consumer and
cigarette etc.,
3. Standardization helps to project the products is therein have damage.
4. Package products, promote and increase the USA of product.

9to12.12 INTEXT QUESTION

1. What is a products?
2. What is packaging?
3. What is standardization?
4. What is packaging?
9to12.13 ASSIGNMENT
1. Discuss the functions of packaging.
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2. Explain product policies.
3. Explain the role of standardization.

9to12.14 KEYWORDS
Packaging
Standardization
I.S.I
Products
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LESSON 13 & 14

PRICING
OBJECTIVES
1. To understand the problems of pricing
2. To elucidate discuss
CONTENTS
13 & 14.1 Introduction
13 & 14.2 Problems of Pricing
13 & 14.3 Kinds of Pricing
13 & 14.4 Pricing a new Product
13 & 14.5 General steps in Pricing
13 & 14.6 Discounts
13 & 14.7 Summary
13 & 14.8 Revision Points
13 & 14.9 Intext Questions
13 & 14.10 Assignment
13 & 14.11 Key words
13&14.1 INTRODUCTION
Any goods that has the capacity to satisfy a human want is said to possess
utility. The power of such utility or of the goods possessing it to command other
goods in normal and regular exchange is its value. Such value, expressed in terms of
a standard monetary unit as the rupees is the price of the goods. Price is the money
value of a commodity or service which emerges after a market transaction has been
completed.

13&14.2 PROBLMES OF PRICING

A. PERFECTS COMPETITION
A great deal has been written be economics on the interaction of price and
demand. Perfect competition demands that goods from different producer are
identical, that there are identical circumstances under which a sale takes place, that
complete information on products and markets is equally available to all potential

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buyers and that there are sufficient producers to prevent restriction of supply to one
(monopoly) or a limited few hardly (oligopoly) producers. In actual markets such
conditions hardly ever exist and the growth of an affluent society has further
complicated the quantitative assessment of elasticity. I.e., the sensitivity of demand
in relation to price.

B. IMPERFECT COMPETITION
Quantitative variables take on an increasing importance because most of the
people live in above mere substance level exercising discretionary spending power
with wider ranges of goods available from competing producers.
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Imperfect market and imperfect competition are a feature of a sophisticated

capitalist or mixed-economy. Even then a varying degree of demand elasticity exists.
Economic pricing theory has relevance to practical marketing situations. The more a
product is regarded as a necessity the more inelastic is the demand likely to be. If
discretionary income falls, the demand for good and other essential items will
continue whereas the demand for T.V or Radio will decline. Such decline will be
much more in the case of exotic expensive items. There is an upper and a lower price
level with all products and outside these levels demand would fluctuate sharply and
these level have to be determined. Within a given price range products have a more
elastic demand pattern than others. Demand is a measures of the utility that a
product has a for a consumer or a market and price is only one aspect of that utility.

C. FACTORS OF DEMAND
The factors which affect demand can be considered under the broad
headings.

A. MARKET CONSIDERATION
Demand is affected by the size of the market and the needs and desires the
people constituting that market.

I. Population
The population is generally growing and the size of then market is also
increasing. Now a days populations are becoming more mobile and industrial
concentration are shifting. Therefore demand for both goods and services will
depend to some extent on the direction of marketing effort to particular market
sectors.

II. Disposal income

A large proportion of the population has considerable discretionary incomes. In
underdeveloped countries. There may be few people above substance level but there
may be a small layer f society with exceeding high levels of disposals income.
Government economic policy and other system may affect actual and anticipated
disposal income levels. Expectation of earnings or profits has a definite effect on
demand for deferrable items e.g., luxury goods, plant and equipment.

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III. Customer satisfaction
People are motivated to buy goods and services for economic, social fashion,
prestige, limitation of others, convenience or security may all have a bearing on
buying behaviour. Some products may even sell better in certain markets because
they are high in price.

B. Company and product consideration

Demand for a product is influenced by the ideas people have about that
product and the company that manufactures it.
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I. Company and product reputation

Normally people attach much importance to the products coming from reputed
companies. They take it for granted that the products from such companies quality
and reliability.

II. Advertising and promotion

A product must be known before it is bought. It requires advertising through
proper media. Selling skill or the creation of a favourable product image through
advertising may have a vary considerable effect on purchasing.

III. Service
Before and after sales, advice and service may be essential for some goods and
for which n initially high prices is more than compensated by prompt after sales
service.

C. The demand for other prodcuts

(i). The demand for goods may be influenced by the demand for other goods
which may very according to price (cooking gas, kerosene and firewood).

(II). Competition
Demand will depend not only on the price of competitive products or
substitutes but on their reputation, availability, performance, aesthetic appeal,
length of services, flexibility of use etc.

(III). Derived demand and choice

The demand for almost all products is conditioned by the demand for others.
Sometimes there is a closed dependency in the demand for one product on the
demand for another. The demand for rubber depends on the demand for rubber
made products. The demand for coconut fibre depends on the demand for coir
products. The demand for machines depends on the demand for the goods the
machines produce.
It is also possible for the manufacture of derived demand goods to stimulate
primary demand e.g., large scale advertisement aided by other campaigns of
manufacturers of Terence, Terri cotton fabrics led to an increased demand for the
fibers and for the raw materials and machinery.

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Economic factors are not the only factors that influence the price
determination. There are other factors also that play an equally important role in the
price determination of a products. A businessman when setting a price of his goods
today has to consider various factors like consumers demand, competition, political
consequences, legal and ethical aspects of pricing. In addition he must consider his
own costs, cost of the channel used to reach the market, and the various activities to
be performed in connection with the sale. For convenience, the factors that influence
price decision are divided into two groups: internal and external factors.
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D. Internal factors
Internal factors are well within the control of the organization.
Cost: The most importance factor is the cost of production. Previously the price
fixing was done by adding up all the costs incurred and dividing the total cost by the
number of units produced and adding certain margin of profit to it. The main defect
with this approach is that is disregard the external factors, particularly, the demand
and the value placed on goods by the ultimate consumer. Whatever may be the cost
of production, there is a price at which the consumer is willing to buy. Moreover,
finding cost of production is not a simple job on account of the various lines of
production as well as the distribution of overhead costs among such qualities of
products.

E. Objectives
Many companies have established marketing goals or objectives and pricing
contributes its share in achieving such goals. These goals may together be called
‘Pricing Policy’. Such pricing policies may be classified as follows.
(i) Target rate of return (rate of return on investment).
(ii) Maintenance or increase of the share of the market.
(iii) Meeting or preventing competition.
(iv) Maximising profit
Generally, a combination of the above policies would be considered before fixing
the price of a product.

F. External factors
External factors are beyond the strict control of an organization. However, such
factors have to be considered in deciding the price of a product. The external factors
are demand, competition, the influence of distribution channel, political
consequences, legal aspects, etc.

G. Demand
In consumer oriented marketing, the consumers influence price. What is prime
consideration to the customer is the value of the product. Every product has some
utility for the buyer. It gives the buyer service satisfaction pleasure, the total of
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which is its value to a particular customer. If the customer dos not consider the
value of the product worth the price, he will not buy. Thus with the multiplicity of
choices available to the customer, the first influence dictating the manufacturer is
the consumer himself. This makes it clear that not only must the total demand be
determined, but also the rate at which this demand must be met.

H. Competition
Competition is yet another factor which influences pricing. No manufacturer is
free to fix price without considering the effect of competition. It is difficult to
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determine how far competition ranges from that of direct substitutes to that of the
items which may complete. Convenience goods, in general, have a wide range of
competing products while shopping and specialty goods have a narrow group of
competitors.
To avoid competitive pricing, a firm may deicide that its product may be
sufficiently differentiated from that of others. This is achieved through advertising,
branding, packaging, etc. Sometimes, a higher price may itself differentiate the
product. But this is possible only when the product is backed by perfect quality.
Sometimes, the opposite also takes place. It is seen that many products are sold
below cost mostly in the initial stages.

I. Distribution channels
The price of a product, some times, affected by the type of distribution channel
through which the product reaches the ultimate customer. As a rule the consumer
knows only the retail or ultimate price. But there is a middleman working in the
channel of distribution between the manufacturer and the consumer. Each one of
them has to be compensated for the service rendered. This compensation amount
also must be included in the ultimate price of the product. For some items, it may
happen that the price increases so high that the consumer rejects it.
Legal restrictions, government interference such as the control of prices, levy of
taxes, excise duties, surcharges, etc. are other considerations which affect the
pricing of products.

J. Pricing policies
Formulating price policies and setting the price are the most important aspects
of managerial decision making. Price, in fact, is the source of revenue device a firm
can use to expand its market. If the price is set too low, his income may price
himself out of the market. If it is too low, his income may not over costs or fall short
of what it could be. Fixing selling price is a complex problem and there is no rule of
thumb for doing so. Whether to set a low price or a high price would depend upon a
number of factors and a wide variety of conditions. Pricing decisions are critical not
only in the beginning but it must be reviewed and formulated from timer to time.

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Manufacturer is not really free to adopt his own pricing polices. A good pricing
policy must be aimed at offering a reasonable price to the consumer, ensuring a fair.
Return as investment to the manufacturer and providing reasonable price stability.
A good pricing policy should also meet competition and comply with legal
requirements.
The majority of companies have no clear pricing policies. When these are
quoted, they often cover a range of general and specific strategies, objectives and
practices such as those mentioned below.
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K. Cost oriented or cost plus pricing policy:

This pricing method assures that no product is sold at a loss, since the price
covers the full cost incurred. Costs furnish a point from which the computation of
price could begin and at least fixing a tentative price is made easier. But it ignores
competently the influences of competition and market demand.
Manufacturing industries where the production is non-standardised and the
retailers often use this cost plus policies. The method of pricing is based on simple
arithmetic, adding a diced percentage to the unit cost. Therefore, the retail price of a
particular item might be the manufacturer’s cost plus his gross margin plus the
wholesaler’s gross margin. This method is called as sum of margins method.
Another method used under cost oriented pricing is known as target pricing.
This method of pricing is commonly adopted by manufacturers who fix a target
return on its total cost .
Break-even analysis technic is widely used for deciding cost plus pricing. It
helps to calculate in advance the likely relationship between the cost, volume and
profit over various time periods. The break even analysis helps a firm to determine at
what level of output the revenues will equal the costs assuming a certain selling
price. For this purpose the cost of manufacture is divided into fixed cost and variable
cost. Fixed costs theoretically remain constant over all levels of output and fixed cost
per unit decreases as the output increases, whereas the variable costs vary with
changes in output level. Break even point can be found out by drawing a graph
connecting total cost and sales revenue or by using the formula. The breakeven
point is the point where there is no loss or no profit. At this point the total revenue is
just equal to the total costs. Breakeven analysis helps to establish prices only when
the costs o production remain reasonably constant. Another difficulty is accurately
forecasting demand at various prices.

L. Demand oriented pricing policy

Demand is the pivotal factor in this method of pricing a product. Price is fixed
by simply and adjusting it to the market conditions. A high price is charged when or
where the demand is very high and a low price is charged when the demand is low.
Under such market situations, price discrimination is usually adopted.

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M. Competition oriented pricing policy
Most companies set prices after a very careful consideration of the competitive
price structure. Deliberate policies may be formulated to sell above, below or
generally in line with completion. A very important feature of this method is that
there cannot be any rigid relation between the price of a product and the firms own
cost or demand. Firm ‘ s own cost or demand may change nut it maintains its
prices. Co-versely, the same firm will change its prices when the competitor change
theirs, even if is own cost or demand has not altered.
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13&14.3 KINDS OF PRICING

odd pricing
This policy of pricing has a psychological significance in retailing. Odd pricing
may be a price ending in an odd number or a price just under a round number.
Such a pricing is adopted generally by the sellers of specialty or convenience goods
e.g. shoe manufacturer – Bata shoe Rs. 124.99. there is no conclusive evidence that
such a pricing would attract more sales.

2. Psychological Pricing
The price is fixed, in this method, at a full number. Such a price has an
apparent psychological significance from the view point ob buyers. For example,
there are certain critical points at prices such as 1.5 and 10, the experiments
conducted proved that a change of price over a certain range has little effect until
some critical point is reached.

3. Customary Prices
Such prices are fixed by custom e.g. particular variety of sweets is sold at
approximately the same price. Soft drinks also can be cited as an example for
customary prices. Customary prices any be maintained even when products are
changed e.g. new model of an electric fan may be priced at the same level as the
discontinued model.

4. Pricing at The Market Rate

Pricing a product at the market rate is done to meet the competition. Such a
strategy presumes a market in elasticity of demand below the prevailing market
price. A price above those of competitors would sharply bring down sales while a
lower price would not significantly increase the sales. Therefore such a policy is
aimed at avoiding price competition and price wars. Under such circumstances, it is
not possible to have any further price reduction.
Many companies attempt to keep price levels in line with an average rate for the
industry (the going rate). The going rate is a valid policy where market conditions are
highly competitive and where products are narrowly differentiated. This is a major
problem of commodity and raw material trading.
Indeed the first rule of market rate pricing is that the costs that count are not
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our on but those of the industry’s lowest cost producer. Every seller must get his
own cost down to that level, or take a lower return on investment; or differentiate the
product in someway so that customers will pay more for it or withdraw it from the
market.

5. Prestige Pricing
Most of the customers think that the quality of the product goes with the price.
The higher the price of a product, the higher will be the quality of the product.
Generally per sting pricing is resorted to in the case of luxury goods where the seller
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is successful in creating a prestige for his product. The price fixed will be in excess
of these asked for rear prefect substitutes. In such cases, sales would be less at low
price that at high price. The merchandise can be priced too low as well as too high.
Customers may fear that at the low price it cannot be of good quality and at higher
price they are tempted to buy more.

6. Price Lining
Under this policy the pricing decisions are made only initially and such fixed
prices remain constant over long periods of time. Any changes in the market
conditions are met by adjustment s in the quality of merchandise. That is the
decision is made with reference to the prices paid for a product rather than the
prices at which it will be sold.

7. Geographpic Pricing
Big manufacturers having regional or district offices of distribution normally
adopt different prices in each area without certain any ill feeling among the
customers. Petrol, depending on the distance from the storage area to the retail
outlet, is priced slightly at a varying rate. Zone pricing indicates some amount of
equality or prices, in the same zone. A product will be sold in that zone at the same
price irrespective of the difference in distance between two places inside the zone.

8. Dual Pricing
Dual pricing is a price control device and refers is to two system. A fixed price
concept applies only to a part of the output and the remaining output is sold freely
in the market. Also when a manufacturers sells the same product at two or more
different prices it is a dual pricing. This is possible when different brands are
marketed. Railways charge differently for first and second class passengers for the
same distance and speed.

9. Administered Pricing
On the basis of the decision of the sellers without necessarily basing their
reason on cost, competition or law of demand and supply, if they decide to price the
market, then it is an administered price. This would mean his own seller discards all
other considerations except his own desires maximizing profits.

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10. Monoploy Pricing
New product pricing is a monopoly pricing, as there is no competition at all and
the seller is completely free to fix any price with an idea of maximizing profit.

11. Skimming Pricing (Short-Terrm Profit Maximising)

It is a policy of setting very high prices in order to make as much profit as
possible in a short time. It is possible only of the producer has an innovation of such
significance that there is a ready price elastic market with virtually n immediate
competition but likely competition in the near future. The producer must also, if
needed be prepared to move out of the business when he ahs made company
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introduced ballpoint pens at a retail price of $ 12.50 and in three months made a
profit after takes of $ 1,55868 on an investment of $ 26000. competitive prices
forces prices down and the company closed, but the originator made a fortune. The
primary objective of most companies is to stay in business.
‘Skimming the cream’ policies have been successfully applied to segment
markets to recover costs quickly in conditions of uncertainty or to conditions of
uncertainty or to compensate for high development costs. Limited expensive edition
of text-books are followed later by chapter paper back editions,. New drugs are often
extremely expensive initially but prices fall rapidly after the first one or two years of
the product life. Colour TVs and VCRs were priced very high at the initial period and
these are now priced less than all of its initial prices.
This approach to pricing is an experimental search for the right price and it
may result in a market determined price. The method starts with a high price and
moves the price downward by steps with a high price and moves reached.

12. Market Penetration Pricing

Low prices are set in order to penetrate markets, to gain a major market share
usually in a comparatively shorter time. The market penetration policy is effective
only if the market is very price-sensitive and if production cost fall considerably in
line with volume increase and or competitors will be discouraged. If penetration
targets are achieved and competitive activity has been restricted, the problem of
whether to increase prices or reduce margins to intermediaries might arise.
When considering market penetration pricing the production and supply
capacity of the company has to be considered. When demand exceeds supply of the
goods whose prices are considerably lowered, the company may not be able to
advantage of the increased demand, if its production capacity is not adequate.
Penetration price policies are also considered when substitute product is marketed.
Low initial prices sacrifice short run profits for long run profits and, hence,
discourage potential competitors.

13. Expected Pricing

Though market survey, the price that will be accepted by the consumers is
found out. Because of the difficulty in fixing a price before hand, a price range is
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offered to the consumers. After some time, the responses of the consumers to this
price range are analysed carefully and a satisfactory price is fixed.

14. Bid Pricing

When contracts are awarded as a result of tender (Government contracts, large
scale plant construction) companies must attempt to determine the level of
competitive bids. If the object is to obtain the contract, for the sake of prestige, cost
will be considered mainly to determine the minimum price level in bid pricing the
anticipated expenditure is worked out in detail and the competitors offer price
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quotation. Based on the minimum price quoted or based on the overall minimum
price quoted, the work is awarded to the party concerned.

15. Negotiated Pricing

Negotiated pricing policy is mainly adopted by industrial suppliers.
Manufacturers who require goods of highly specialized and individually desired
items, often negotiate and then fix the price. For various components required for
the manufacture of automobiles, the company locates the suppliers of such
components, negotiate prices and get in the contract for regular supply of the
components required.

16. Satisfactory Rate of Return

Some companies have the policy of fixing their prices on the basis of a
traditional rate of return over a given time period, related to the extent of risk, or
investment involved. It is also called ‘Target Pricing’. It is aimed at securing, in a
given period of time, a predetermined rate of return on investment. The process
involves the calculation of an average mark up ion average costs and at the same
time projecting sales revenue at various stages of the product life cycle, At particular
points of time, the return will be high, and at other low.

17. Prodcut Line Pricing

Many companies selling a wide range of products gear pricing to a range of
products rather than to individual products. Certain products which yield
comparatively low profit. Some products may even be ‘loss leaders’ – product which
are basically non profit profitable lines. A housewife who buys low priced aspirin
tablet may be tempted to buy at the same time a perfume carrying high profit.

18. Varible Pricibng

Variable pricing policy is applied to products or services with known variable
time demands. It is used to take advantages of extra profit peak periods or to reduce
production and overhead costs by stimulating demand in non-peak period. Hotel
room tariffs especially in summer resorts are high during season sand low during off
season periods (fans, refrigerators, etc., season and off season prices are quoted)

A. ONE PRICE VS VARYING PRICE POLICY

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Disadvantages of Varying Price Policy
a). Basis for friction, complaints from customers regarding prices. (b) Poorest
and least desirable customers are some times the best bargainers. (c). Weak
salesman are apt to sell most of their goods at the minimum authorized price (d).
difficult to keep a check on salesman.

Advantages of one Price

a). Fair to all customers
b). Saves time
c). Better control
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19. Follow the leader policy

In every market there are one or more firms which are recognized as leaders in
the trade and whose prices are used as a basic for the determination of the prices to
be charged for competing goods. Prices announced in catalogues by a leader in an
industry are usually watched closely by the other members of the industry who then
fix their prices accordingly.

13&14. 4 PRICING A NEW PRODUCT

The pricing of a new products is often a puzzle the top their prices accordingly.
The introduction of new product involves some problems as there in neither as
established market for the product not a demonstrated demand for it. However, the
firm except a substitutes, the actual degree of substitution has to be estimated.
Pricing a new product is an art, New products when introduces appeal to many an
novel items. But this distinctiveness created by novelty is only temporary.
Competitors sooner or later may appear in the market. Therefore, the new product
are hard to be priced with right price. Incorrect pricing will definitely lead to product
failure. The three guide lines for setting a priced with right price. Incorrect pricing
will definitely lead to product failure. The three guide lines for setting a price on an
new product are (a). making the products accepted, (b). maintaining the market, (c).
retaining the profits. The two options available for pricing a new product are :
market Skimming and Market Penetration. If the product is entirely new in all
respects, skimming policy are (a). initial sales would be less, (b). Helps to extract the
cream of the market through high prices, (c). People generally like to own a new
product even at a higher cost, (d). Helps to increase the demand as the price is
gradually reduced.
As said earlier, the pricing of a new product is often a puzzle that the top
management has to solve. Some solve this problem by hunches, others by needed
economic studies. Market analyst and industrial economics are often employed to
study pricing and make recommendations.
Some of the economic considerations that go into the decision making about
pricing polices are:
1). When the patent rights for a new product a have been achieved, the

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management may take into consideration the security of such patent: (a) If the
patented article cannot be copied with ease, the price may be set high. (b). If the
patented article can be copied by competitors the management may adopt a ‘skim-
the – cream’ price policy in the market and dictates the need for price revision, the
price is lowered.
2). Where the product is a type of machine that requires regular purchase of
supplies for use in machine. (a). the machine price may be low, (b). the supply
material is priced high. This method is called by the American as ‘the razor-and –
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blade’ price policy. Here the price of the ‘razor’ is kept low, while blades are
reasonably high priced.
3). The cycle of demand of a product is the best guide for a manufacturer of
that product to formulate his pricing policy. (a) if his product is new, it enjoys a
shout period of freedom form competition. He can charge reasonably high. (b) as
item goes on, competitive items appear on the market and the originator revises his
price. Eventually the price of all competitive products becomes highly competitive.
Today, the manufacturer of a new product must also take into consideration
the two basic fundamentals of price fixing. (a) the market potential in the price range
at which the manufacturer wishes to sell his product. (b) the actual amount of profit
that a retailer would earn on each unit of the product as compared to competitive
product.

13&14.5. GENERAL STEPS IN PRICING

(a) Estimate impact of price on volume. (b) shape the marketing plan (will give
some insight into selling cost). (c) plot growth curves at several prices to know the
projected product sales pattern. (d) approximate costs (only as indirect factor in
pricing). (e) appraise competitors capabilities:
(i) How long will it take him to do what we do now? (ii) how effectively and at
what cost can he do it? (iii) can we, by virtue of being first, look up key distribution.
(f) Estimate competitors costs. (g) decide on price: (1) we can skim the market or
penetrate it. (ii) can aim for quick profit or long range sales pattern. (iii) can set a
price that will discourage competition. (iv) can try, develop market on our own or
welcome competitors for their help opening it. When in doubt (and you always be)
price high. You can always come down.

1. Common ills in pricing

(a) Managements erroneously consider their business to be ‘volume sensitive’
when in fact it is price sensitive’. (b) companies feel that salesmen should be paid on
a basis that records only the ‘volume’ of their sales instead of on a basis that
recongnises also the quality’ of the sales job done. (c) fond delusion that each
manufacturer can set prices based on cost accounting system of his individual
choice rather than on an industry wise uniform system of accounting.
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2. Price change and coustomer attitude
The risks involved in price change either upward or downward are so great that
suppliers are usually slow to move prices upwards, knowing that such action will
affect competitors, ultimate buyers, middlemen and will also be, in some cases,
subject to government scrutiny. The fact that prices of particular types of products
tend to move upwards or downwards at a particular time may be the result of: (i)
Unofficial intercom any communications. (ii) changes in cost factors which affect all
supplies e.g. variations in material costs. (iii) a fear of low of business if prices are
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not competitive. (iv) action which should have been taken previously but has been
delayed in order to avoid placing the company in an isolated pricing situations.
Some of the methods of prejudging customer’s reactions are attitude surveys,
use of mathematical models, statistical estimates, experimental pricing and the use
of operations research techniques.

13&14.6. DISCOUNTS
Distributors’ discounts are price deductions that systematically make the net
price vary according t buyers’ position in the chain of distribution. They are so called
because these discounts are given to various distributors in the trade channel e.g.
wholesalers, factors, dealers and retailers. For the same reason , they are also called
trade channel discounts. As these discounts create differential prices for different
customers on the basis of marketing functions performed by them, they are also
called functional discounts.
Discounts involve the offer of reductions from a base price and must also be
considered when price policy is being determined. Hence there must be built in
flexibility in the price structure to accommodate such offer. These are known as
‘Discounts, allowances and guarantees, etc.

(1) Trade discounts

These discounts are allowed by a manufacturer to a wholesaler or by a
wholesaler to a retailer. Prices to retailers might be at list price less a percentage
discount to cover the retailers margin. Prices to wholesalers might be at list price,
less retail discount, less a discount to cover the wholesaler’s margin. Although there
is no control over resale prices, discounts have some stabilizing influence on final
prices. Therefore, the general purpose of a trade discount is to compensate the
distribution for the performance of their functions by providing a gross margin.

A. Sons For Trade Discounts

(a) Catalogue revision costly-list prices stated on catalogue and without revising
it, is easier to issue supplementary sheets. (b List prices may be used to indicate the
prices at which the goods should be resold to other middlemen or consumers. (c)
possibility of using list prices as means of resorting t a varying price policy. (d) when
the dealer shows catalogues to customers, he does not see the prices paid by the

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B. Disadvantages
Trade discounts are disadvantageous from the buyer’s stand point because thy
do not permit direct comparison of prices quoted by different sellers.

2. Quantity discount
Price advantages might b offered on the basis of order size or particular
assortments. Quantity discounts might be applied to retailers and wholesalers
within their own price structure; or there may be a general quantity rate pricing
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structure which gives bulk buying advantages to retailers and wholesalers equally –
size of business or order being the only criterion. Quantity discounts may attract
large buyers or induce smaller buyers to order large quantities. Most quantity
discount arrangements apply to either single orders or single deliveries and these
involve economies of scale in transportation and administration. Some discounts are
paid retrospectively on the basis of orders received or goods delivered. Quantity
discounts are suitably modified as cumulative and non-cumulative discounts.

3. Cash discounts
Cash discounts are price reductions based on promptness of payment. Most
business transaction are conducted on remitters. The length of time allowed for
payment varies considerably and payment in practices is often delayed beyond the
credit period agreed upon. Therefore, to make the buyer to clear the dues well within
the credit period, the seller allows certain deductions which is called cash discount.
Certain sellers allow cash discounts to buyers who pay cash and take delivery of
goods. Cash discount is a convenient device to identify and overcome bad credit
risks.

4. Seasonal discounts
This refers to discounts offered during a particular season. It is usually done
during the ‘off peak’ period e.g. fans, refrigerators.

5. Geography differenctials
These are differential rates offered in relation to distance form supply base e.g.
petrol zone pricing.

6. Allowances
Allowances are given to the wholesalers, retailers or brokers of performing
specific services. The various types of allowances are: promotional allowances,
brokerage allowance, ect.
Before arriving at a price for a product, various discounts and allowances that
are likely to be allowed should also be taken into consideration.

7. Legal restriction on pricing

To protect consumer’s interests, there are various legislations existing in India.
government interference is one o the major influencing factors in determining the
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pricing policies of a firm.
M.R.T.P. (Monopolies and restrictive trade practices act, 1969) prohibits the
increasing of prices unreasonably. It prevents monopolistic organization and hence
monopoly pricing too.

8. Essential commodities act, 1955

This imposes price controls on most of the products. Drugs (price control) Act.
R.P.M. Resale price maintenance is a policy adopted by a manufacturer
whereby he fixes a price for his product to be sold to customers by retailers. It is an
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arrangement of a contract entered into between the supplier and the reseller
(Wholesaler or retailer). The contract normally stipulates a condition that the reseller
will have to sell the product are a price fixed by the supplier. In case the dealer does
not maintain the specified prices, the supplier will withhold further supplies. Strict
enforcement of the suggested price is possible only when a manufacturer uses a
selective or exclusive distribution system, and the particular brand has achieved a
high degree of customer acceptance and popularity.
In India, RPM is controlled through MRTP Act.
In 1965 monopolies enquiry commission was appointed and it felt that the
agreement regarding resale price maintenance is not conductive to public interest
and must be prohibited.

13&14.8. REVISION POINTS

1. Fairness, saving of time and better control are the merits of one price.
2. Distribution discounts are price deduction that systematically make the net
price vary according to buyers position in the chain of distribution.
13& 4.9. INTEXT QUESTIONS
1. That are the major factors (internal and external) that should be taken into
considerations in developing a price policy?
2. That are the basic pricing policies?
3. Briefly describe various kinds of pricing?
4. Under what circumstances would you recommend:
a) Market skimming pricing
b) Market penetration pricing
c) Differential pricing.
5. Examine the influence and allowances on pricing decisions.
13&14.10. ASSIGNMENT
1. Discuss the problems of pricing.
2. Explain discounts.
13&14.12. KEYWORDS
Pricing
Customer attitude

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Trade discount
Quantity discount
Leadership policy
Product lien pricing
Market penetration pricing
Plot growth
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LESSONS 15 & 16

CHANNELS OF DISTRIBUTION
OBJECTIVES
1. To study channels of distribution
2. To explain middlemen

CONTENTS
15&16.1 Introduction
15&16.2 Middle men
15&16.3 Channels of Distribution
15&16.4 Direct Canvassing
15&16.5 Departmental Stores
15&16.6 Chain Stores of Multiple Stores
15&16.7 Co-operative Stores
15&16.8 Direct Mail Order
15&16.9 Whole Saling
15&16.10 Growth of Distribution
15&16.11 Sale Distribution
15&16.12 Financing
15&16.13 Summary
15&16.14 Revision Points
15&16.15 Intext Questions
15&16.16 Assignment
15&16.17 Keywords
15&16.1 INTRODUCTION
To today’s marketing practice, most producers do not sell their goods directly to
the final users. Between them the final users stands a host of marketing
intermediaries performing a variety of functions. The marketing routes or channels
through which goods and service flow from seller to buyers is a fundamental
consideration in marketing. The means by which manufactured goods reach the
ultimate user constitute their ‘channels of distribution’. The Trade Hands through
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which the goods pass physically, or which facilitates the passing of title to the goods
constitute that manufacturer’s channels of distribution. Channels are called short
when the path traveled by the goods is direct from producer or manufacturer to the
user. Channels are called long when middlemen are employed-whether these
middlemen be ‘merchants’ (title taking) or agents. Or these middlemen may be
independent operator or manufacturer owned institutions operated by employees of
the manufacturer. The channels of distribution that are available, used, or can be
developed are basic to many marketing problem to the manufacturer. The channels
of distribution that are best achieved and through which marketing means or
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marketing channels must the goods or services flow? Sellers who are new in the filed
must decide on the channel to be used and established, sellers must continually
evaluate their present channels to determine whether or not conditions or changes
in the market pleture warrant the adoption of anew channel. Marketing channel
begins with the initial seller and ends with the final buyer. But often with in the
channel there will be middlemen, broker, agent, wholesaler and retailer. Functional
middleman operate on agency basis without having title to the goods whereas the
merchants (whole salers and retailers) purchase and sell goods at their own risk.
Every middlemen performs or pretends to perform definite marketing functions and
thus helps the marketing process.

15&16.2 MIDDLEMEN
There is a very wide range of marketing institutions which carry out variety of
functions along the distribution channels. Among the most important are the
following.

A. Retailers
Independent traders operating outlets selling ‘at retail’ to household consumers.

B. Wholesalers
Independent traders who sell ‘at wholesale’ to other business organizations
either for the purpose of resale or for business use.

C. Agent and brokers

Organization which buy or sell on behalf of a firm without buying anything from
the firm, in a manner defined by agreement. They normally earn their profit from
commission payments made in return for their part in negotiating business
transaction. Brokers usually specialize in narrow ranges of products e.g., sugar, tea,
cotton piece goods, etc., Brokers negotiate sales between sellers and buyers. They
take neither title to nor possession of goods.

D. commission agents
They do not buy goods, nor do they take title, but they take title, but they do
take possession and provide warehousing and handling facilities. Payment is
normally fixed by commission.

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E. Distribution
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Organization which contract buy a firm’s goods and service and sell to there
parties.

F. Selling agents
Selling agents are most commonly found where small manufacturers wish to be
believed of marketing responsibility so that very limited financial assets may be
devoted exclusively to production. The selling agent usually works closely with the
manufacturer over long periods, having complete responsibility for all sales. He
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sometimes supplies advice on style and design. Some sales agents work for one
principle (manufacturer) but the majority carry a range of manufacturer’s products.

G. Facilitating institutions
Organizations which neither take title to goods nor negotiate purchases or sales
but assist the marketing activities of manufacturers and the institution mentioned
in (a) to (d) above. Examples includes:
i. Commodity trading exchange
ii. Trade associations
iii. Advertising and marketing research agencies.
iv. Credit service organization and finance companies;
v. Foreign carriers.

15&16.3 CHANNELS OD DISTRIBUTION

(P)___________________________________________________________(C)
(P)___________________________________________(R)_____________(C)
(P) _________________________________ (W)_____(R)______________(C)
(P)______________(B)__________________(W)_____(R)_____________(C)
(P)______________(B)__________________________(R)______________(C)
P: Producer W: wholesaler C: Customer Consumer B: Broker R:
Retailer

I. Producer - Consumer
This channel appears simple, logical, economic. There is no middlemen; the
producer undertakes all the marketing functions until the goods or services reach
the consumer. This channel is often found under the following conditions.
a. The operation is on small scale.
b. Large scale volumes obtained on a single product transaction.
c. The product is highly specialized.
d. The product is made to specifications of the buyer.
e. The product requires specialist guidance in installation, maintenance and
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operation.
f. Market either localized or limited to a very few clients.
g. The producer has competent sales force.
h. completed control over sales is desired by the producer.
i. The producer has adequate financial resources and can wait till payment
is received from the ultimate consumer.
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j. The nature of the product requires quick delivery to the consumer and
cannot wait for the flow through the normal channel of middlemen
(perishables0.

II. Producer-Retailer-Consumer (P.R.C.)

In this channel one middleman, the retailer, is introduced. This reduces the
responsibility and burden of the producer slightly since his responsibility ceases
when retailer steps in buy this reduces his share of the price paid by the ultimate
consumer as a provision has to be made for remunerating the retailer for his service.

III. Producer-Wholesaler-Retailer-Consumer (P.W.R.C.)

One more middleman is introduced and the producer’s share of price as well as
his responsibility is reduced. The producer can hope to compensate his loss by the
economics accruing to him on account of bulk selling to few (reduction in cost of
packing, transportation, reduced credit risks etc). the disadvantages are that
wholesalers may demand exclusive selling rights and that they may interest in
competing lines and not push sufficiently your product. Moreover, since the
producer is further removed from consumer, sales promotion may require
‘missionary salesmen’ employed by the producer.

IV. Producer-Agent Middleman (Selling Agent, Broker, Ect.) Wholesaler-Ratailer –

Consumer (P.B.W.R.C.):
The marketing channels of some of our major industries conform to this
pattern. The selling agent may be a firm associated to the producing arm and all
selling rights may be enjoyed by the agent. These agents may or may not be
discharging useful marketing functions. But in theory, they do discharge certain
useful functions. They take up the entire output of the firm.
The entire marketing and sales promotion work devolves on the agent. The
producer has no marketing functions and need not have marketing staff. The main
disadvantage is that the producer is completely at the mercy of the agents with no
contact with the market and consumer and if the agent is not sincere and diligent
there is very little the producer can do except remove the agent and start fresh.

V. Elimination of middlemen:
Any consideration for elimination middlemen must be evaluated in terms of
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what services the middlemen must be evaluated in terms of what services the
middlemen perform and at what cost, and who will perform these services, if
required to be continued, and at what cost if the middlemen are eliminated. The
various arguments advanced in favor of elimination of middlemen are (i) The many
layers of profits and other operating costs would be eliminated and the consumer
would be able to obtain goods at a considerably lower cost. (ii) the manufacturer
would have better control over the maintenance of retail prices. (iii) the consumers
reactions can be measured with comparative ease. (iv) brand image can be built
faster.
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VI. Direct Marketing

Direct marketing concerns distribution directly from the producer to the
industrial consumer, the ultimate consumer or retailer without intervening
middlemen entering the picture.
Direct marketing is feasible only when there are favorable conditions relating to
the nature of the goods or services, the market, existing middlemen, channels of
distribution, service requirements, competition, finance and sales organization.
Some producers sell direct to end users. This type of operation is found more
frequently in the marketing of industrial goods and services than in marketing ot
domestic consumers. Door-to-door selling and mail order, are examples of direct
consumer marketing.
Goods and services which just reach the consumer with the least possible delay
may be marketed direct as time is inadequate to work through middlemen (fruits,
fish, eggs novelties, etc). items of high unit value such as power plants, factories,
etc. and goods manufactured to the specification of the consumer also normally
short-cut form producer to consumer.
Unless the market is local and clients few, direct marketing can be attended
only by fairly large organizations with adequate finance, well trained and sufficiently
staffed sales force and enjoying considerable turn over. To attempt direct selling on a
national basis the above requirements at considerably higher proportion must be
available to the firm. For successful direct market there must be concentration of
ultimate consumer or retailers, purchases must be frequent and purchases should
be in reasonably large quantities.
The response of existing middlemen must be another consideration. If you are
satisfied that the middlemen are pushing on competing lines, or starving them
market of your products, or not actively promoting your lines, or discouraging your
lines or if proper after sales service is not being conducted or if prompt payments
are not forthcoming, then you may consider the desirability of cutting them out.
Existing channels may not be suited for marketing a new product, or a standard
product by a new firm may not be encouraged by established middlemen. In such
instances also direct marketing may be considered. To reduce cost in the face of

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fierce competition producers may desire to sell in bulk to a few big wholesale stores
in each place. Similarly smaller stores may join a cooperative venture to obtain the
economies of buying. Under these circumstances also direct selling by cutting our
middlemen may be attempted.

VII. Going Direct to Consumers

For a number of reasons there are circumstances or occasions when a
manufacturer will elect to go direct to his consumers. For instance, it is quite clear
that if the product is a high-class and high priced specialty calling for intensive
selling and sales promotion methods, the only satisfactory method is to sell direct.
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VIII. Specialities
Long establishment and universal adoption may enable the method to be varied
as has been the case with typewriters and similar equipment, although
manufacturers of such equipment have a large distribution through dealers, local
agents, sole agents and similar channels. They also maintain their own selling force,
constantly seeking business direct, despite the fact that their products are known
and well established. No doubt, a specialty needs representation direct to the use or
consumer and particularly so when first introduced to the market.

IX. Other Products

There are many other examples of manufacturers going direct to their market
and the methods chosen are: (i) direct canvassing, (ii) manufacturers own retail
shop, (iii) direct mail.

15&16.4 DIRECT CANVASSING

Direct canvassing implies going from factory to factory, shop to shop, office to
office and house to house depending upon the nature of products.
Factories, shops, and offices all require many goods that are not for resale,
such as cleaning and maintenance goods, ribbons, carbons and general office
requirements and such products that may or may not be expensive but are bought
in such quantities as to present an order of sufficient value to pay for sales effort as
well as for the goods themselves and provide a margin of profit. The advantages are
attractive. The sales policy and effort are entirely under the control of manufacturer
and so are the price policy and the granting of discounts. Its major disadvantages
are high selling costs, the difficulty of obtaining constant and complete coverage, the
hostility of local traders handling similar goods, the high costs of accounting ,
collection, packing, delivery, etc. when the goods are household goods and the
canvassing is form house to house, each of the disadvantages grows in volume and
intensity.

I. Manufactures Own Shop

There are a great number of manufacturers who offer goods direct to their
public through their own retail shops; for example, footwear, confectionery and
many others. There is one thing common there is a wide variety offered of the one

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product. Thus the manufacturer will cater to men’s , women’s and children’s all of
which will be in different sixes, styles and colours. The difficulty of doing this
represents one of the difficulties in opening shops. Unless the product is made in
great variety to attract a wide market, it will surely fail.
Vertical integration-complete control from production to ultimate distribution-
is comparatively rare for the following reasons: (a) most companies prefer to utilize
limited assets in specialized activities from which they have the greatest opportunity
of profits. (b) rarely it is possible to provide a satisfactory assortment of goods in
retail outlets from a single manufacturer’s range. (c) selling to other (now
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competitive) retail outlets becomes difficult and the rate of retail growth must
therefore correspond closely to the rate of manufacturing growth. (d) the number of
range of retail distribution points is inevitably curtailed.
Arguments in favour of an integrated manufacturing retailing organization
include the following: (a) possible cost savings: the elimination of middlemen
margins may provide the opportunity for pricing advantages. (b) provision of mare
effective service: this argument might apply particularly in the case of certain
technical products or ‘do it yourself’ items (singer sewing machines). (C) more
effective merchandising and broad line stocking. (d) the growth of large scale
integrated organizations dominating distribution for a product range. Eg. Footwear,
men’s clothing pharmaceuticals.

III. Disadvantages of Direct Marketing

(i) Financial burden on account of increased investments on inventory, plant
storage, transport, staff risk. (ii). Management problems, such as coordination and
control arising from expanding organization. (iii) Middlemen have a valuable
contribution to make. By taking over the responsibility for the functions of
middlemen, producers may be venturing into fields not very familiar to them and
also it is likely that the cost involved may, at times, outweigh the advantages gained.
(iv) Lack of know-how is effecting final distribution. Retail store management calls
for special skills. (v). Lack of sufficiently wide assortment storage of own products to
operate economically, sales of individual items at retail are affected. Marketing by
the assortment (variety) available.

Retailing
Retailing is the final link in the chain of distribution of consumer products. The
function retailers perform are the consequences of the separation of distance time
and information between producers and consumers. Hence all retailers are involved
in assisting in the physical movement of goods and in effecting a change of
ownership. Retailers also hold stock so that goods are available when required by
the consumer. Thus contributing to the reduction of the time separation. Retailers
pass information on products to consumers and bask to producers, so reducing the
information separation.

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The manner in which retailing functions are performed differs widely; eg. Some
retailers have van or tricycle delivery, some rely on counter selling, others on self
service; some retailers hold wide stock assortments; others hold very limited ranges.
Retail outlets may be small or big organizations like the Department Stores and the
chain stores organization.

15&16.5 DEPARTMENT STORES

A department store is retail store, handling many different line merchandise.
The main object of such a store is to make all consumer goods available under one
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roof and to make it a center of attraction. The department store is like a large shop
with a number of smaller shops with in fold. A visit to such a shop can result in the
consumer making a large number of purchases.
These department stores are normally housed in big buildings located at the
heart of the city which is most frequented by the public. They generally offer to
supply almost anything that the customer may require and provide restaurants, hair
dressing saloons, saving banks, music car parks, drinking water and toilet facilities
and other amenities to make the visit of the customers as comfortable and enjoyable
as possible. The present trend is to make all their purchases under one roof instead
of going from shop to shop. The department stores appeal more to women than to
men. The women who has to go shopping regularly with a long list of her family
requirements is greatly attracted by the department store as she can make all her
purchases under one roof.
The main idea of this type or organization is to have a central shop and
attracted as many customers as possible to that location. Therefore the cite has to
be centrally located to cater to the needs of people surrounding that area. Now days
well organized supermarkets are becoming famous in big cities and also making is
way in talk centers too.

15&16.6 CHAIN STORES OR MULTIPLE STORES

Chain stores are groups of retail stores of a similar type with a common
ownership and some degree of centralized control. Here a number of shops are
opened in different localities and an attempt is made to approach as near the
customer as possible and thus cater for large number of customers. Many of the
multiple shop organizations had their origin in small retailers opening further
shops with their success. The Bata shops are an example of the chain stores type of
organizations specializing in shoes and related articles. Textile Mills such as Tatas,
D.C.M., Calicos, Lakshmi, Premier have also opened their own chain of retail stores
in important cities in India.

15&16.7 COOPERATIVE STORES

This types of retail outlet is gaining importance. The cooperative store is
generally a shop owned by a society formed of consumers. The members of the

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society pay a small subscription in order to become members. The principle on
which the business is done in their shops is to supply good quality at a fair price.
The surplus remaining after deducting the cost of goods and other expenses is
generally distributed among the members as divided. The main idea of this
organization is the pooling of the orders of the members and purchasing at
wholesales prices from cooperative wholesale societies or from the
manufacturers/producers themselves. Many cooperative societies have failed
because of poor management, poor service, lack of integrated policy, lack of member
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loyalty, the high degree of decentralization and problems in relation to pricing policy
and dividends.

15&16.8 DIRECT MAIL ORDER

In advance countries this system of direct Mail order is wide spread and
popular and there is hardly a product that cannot be bought through “Direct Mail”.
Many factors such as distance, inaccessibility of shopping centers, favour its use.
This method calls for a continues and expensive advertising. Further expensive
involved in idle enquires and many orders are lost by the absence of the personal
contact.

15&16.9 WHOLE SALING

Whole salers may be said to provide the economic utilities of time, place and
possession which may lead to economic in distribution adequate stock to be
available at the right time in a convenient locations. Merchant wholesalers buy and
sell goods, taking title to the goods then deriving profit from the marginal differences
between the price at which they buy and the price at which they sell. Most merchant
wholesales under-take the following additional functions. : (a) They store goods and
help secure market for the goods. (b) They undertake some advertising or
promotional activities. (e).They fix selling price (d). They arrange for credit facilities.
(e). They make delivery as and when required. (f). they offer advisory services to
retailers, customers and manufacturers.
Buying and selling margins vary widely, fluctuating in general with the risk
carries and the range and effectiveness of functions performed. If a wholesaler for
example stocks expensive durable goods which require technical service, his margins
must be sufficiently high to compensate for these activities. It would, therefore be
reasonable to except that the manufacturers of refrigerators who expect a wholesaler
to carry high stocks and provide servicing facilities would give much higher margins
than a manufacturer of fast moving canned food products. Sometimes, however,
margins remain at a traditional; level when original functions such as stocking and
servicing are no longer carried out.
As the wholesalers generally enter into forward contracts for supply of goods,
they relieve the manufactures of the worry of their goods remaining unsold.

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Wholesales can advise the manufacturers as to the changes or alternations to be
introduced in their manufacture. Whole salers also help retailers by making delivers
in quantities as and when required by the retailers and by extending credit facilities.
Wholesalers are generally experts in their line, they know exactly from which
manufacturers they should make their purchase thereby securing the best quality at
the most favourable price. This benefit the passes to the retailer. The wholesaler is a
great help to the ultimate consumers as he makes available to them a large variety of
goods in the retail shop from which the consumer can make his ultimate selection.
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Some merchant wholesalers handle a wide range of general merchandise, but

the majority specialize to a greater or less extent. Many are small and operate with
in a comparatively small geographical radius, but a number especially in grocery are
large have regional even national distribution.

15&16.10 GROWTH OF DISTRIBUTION

Not the least of the changes which have already taken place in wholesaling s
the creation of manufacturer-owned distribution centers. Despite the relatively
recent development of the distribution center, several distinct advantages have
already been reported. (a). Greater inventory turnover with lower investment. (b).
Reduced warehouse space devoted to the particular product. (c). Increased return
per rupee invested in inventory (d). Dependable schedules for ordering and delivery
(e) More frequent, faster delivery, thus reducing time, order and receipt of goods. (f).
Increasing self-service or mechanical ordering at buyer’s salesman in taking orders
and allowing him more time for helping the customer (chain of wholesale buyers0 to
movement goods out of the retail stores.

15&16.11 SOLE DISTRIBUTIOR

A manufacturer often appoints certain wholesalers or large retailers territories.
He encourages the wholesaler to push the goods of his manufacturer by allowing
such a monopoly for a sufficiently lengthened period. Some manufacturers are not
keen or granting such local agencies but are prepared to assure the wholesaler
concerned that they will not supply their goods to a competitor that they will not
supply their goods. To a competitor of such wholesaler in that particular locality so
long as he maintain a satisfactory level of sales. The sole distributor therefore must
be selected very carefully. The manufacturer must make himself sure tat the sole
agent to be appointed not only has an efficient organization but also enjoys
considerable influence in the locality concerned. While assigning territory, the
manufacturer should avoid granting too large a territory. The monopoly given must
be for a sufficiently long period.
There are many advantages in appointing sole distributors. As most of the
accounting system is passed on to the sole distributor, the manufacturer has to

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watch over a small number of accounts. The sole distributor is often willing to
advertise at his own expenses. The disadvantages are (i). It limits the outlet for sales
thereby possible limiting the sales volume of the manufacturer in that locality. If the
sole distributor does not do well, the manufacturer may not be able to terminate the
agency until of the period of agency agreed upon. Sometimes, it may be true that he
may not really be interested in the agency, but still accepts the agency only to
prevent his competitors from obtaining and profiting by it. The sole distributor is
unpopular in his district, the manufacturer would lost the customer who dislike the
sole distributor.
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15&16.12 FRANCHISING
One of the most interesting recent distribution development is franchising. The
franchiser supplies a name, product services and general known how and the
franchiser services in an agreed manner with in an agreed territory. That is, it a
system of distribution under a licensing system through which the owner of a
product, method or services approaches independent businessmen is selected
territories, appoint them as sole franchisees for particular areas and encourage them
to make profit for themselves whilst the owner retains control over the techniques or
style with which the product or service is merchandised. Franchising was started as
one of the marketing devices by giant companies such as Coca-Cola, Pepsi-Cola.
This system has also been introduced in India and Coca-Cola first came to Indian in
1950 and in 1958, it made a rapid progress and made a ht in India. later is
disappeared, when there was a change in the policy of the Government.
Franchising may be attractive to manufacturers in that it offers some of the
advantages of forward vertical integration without the risk of capital investment or at
least sharing the risk with franchisee and the speed with widespread distribution
can be achieved. To the franchisee it offer a degree of independence in operating a
business of a size which may otherwise not be feasible and it offers immediate
access otherwise, under professional knowledge.
Small businessman, under this method, can join hands with a larger
organization whilst still reserving for them selves a larger degree of independence.
For giant organization, it has the advantages of permitting rapid expansions with
minimum working capital greater sales penetration above all quicker build up
national acceptance and creation tied outlets exclusively handling the sale of the
parent company’s product and service. It eliminates the problem of local branch
management as well as those normally associated with the use of agents.

A. Not one but all channels can be used

It is common for a manufacturer or seller to use more than one channel. For
one area or section a particular channel might be used and at the same time, for
other areas, a different channel might be used. Also several channels might be used
simultaneously in the same area. In the final analyzing marketing channels are a
means and not an end. Through one of the proper channels a seller is able to reach
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his market and obtain the optimum quantity of sales. The objective of the selling
effort permeates the choice and the number of channels to be used.

B. Channel-choice-problems for the manufacturer

Channel choice must be considered in the light of market coverage and control,
product characteristics and market characteristics.

I. Market coverage and control

Distribution policy can be based on the following systems: (a) Intensive
distribution: this is a term used in different ways: viz., limited geographical
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distribution as opposed to national distribution: maximum distribution to all outlets

of a specific type e.g., Chemist, Grocers, maximum distribution to every possible
type of outlet. (b). Selective distribution: this involves selection by the producer to
the type of retail outlets through which the product may be bought. The decision
may be made because of the need to create an appropriate prestige image. (c).
Exclusive distribution: This is a future development of selective distribution.
Particular outlets are granted exclusive handling rights usually within prescribed
geographical areas. Wholesalers are given exclusive distribution to rights more
frequently than retailers. Sometimes exclusive distribution rights more frequently
than retailers. Sometimes exclusive distribution is coupled with special financing
arrangements for land, buildings or equipment.

II. Product characteristics

(a). Frequency, value and quantity of purchases. In general, low value items
bought in large quantities and frequently are widely distributed, using various
channel combinations, whereas high value items infrequently purchased are sold by
selective or exclusive distribution or direct to the consumer. (b). Value in relation to
weight and density: the usefulness of intermediaries in the case of large, heavy items
of low unit value may lie in their provision of local storage and bulk breaking
facilities. (c). Product life or seasonal demand: product which deteriorate rapidly or
are affected by seasonal demand involves special problems of risk and inventory
control which have a bearing on channel selection. Speed of movements is essential
and channels tend to be shorter. Special storage e.g,., refrigeration or transport may
be necessary. (d). Product service requirement e.g, repair facilities, spares etc.,

II. Market Characteristics Which Affect Channel Decisions Include The Following
A. Market size
If the market is large the cost of performing all the marketing functions will
probably be higher and manufacturers may prefer or be forced to use intermediaries
extensively. Cost could be reduced by limiting geographical distribution.

B. Market Structure
Consumer markets are inevitably dispersed. There are difference in the
concentration of the potential users and distributors of products. Industrial

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customers require services of different types e.g., Technical advice, ready availability
of spare parts. They are fewer in number widely scattered and have very different
financial resources.

C. Market exposure
Some products are bought almost on impulse and sales are affected by
exhibition and special displays. Others required much more personal selling.
After consideration of the foregoing basic problems, manufacturers are faced
with more specific problems such as the following: (i). Organization of selective
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selling: In most types of business there are many outlets but there is a
disproportionate concentration of business in a small number of large units. This
leads to ‘selective selling’ and use of moral than one channel e.g., direct sales to
large outlets, small outlets being supplied through wholesalers. Profitability depends
on securing wide distribution and or promoting sales of slower moving lines. (ii).
Pricing guarantee and arrangements for return of goods may be necessary. (iv).
Organization of sales force: Sales forces may have to be organized partly by territory,
partly by product type an partly by outlet sales mangers in many companies. (v).
Promotional support: Channel choice will determine to what extent advertising
should be used to pull products through the channels and to what extent sales
products through the channels and to what extent sales effort will be needed to push
products through the channels. (vi). Motivation and control of intermediaries:
Intermediaries are frequently order takers and problems of motivation and provision
of sales training may arise. In selective or exclusive distribution systems it will be
necessary to evaluate the performance of intermediaries following careful selection.
Replacement will have to be considered from time to time. Both intermediaries and
channels which are the most suitable or feasible in the early stages of development
of a business may ceases to be so later on. In general the manufacturer is removed
from the ultimate consumer by links in the channel chain, the more difficult it is for
him to control the flow of goods.
In general, the following are the factors important in determining the
appropriate channel for the company’s products.
a. The type of goods.
b. The value-volume relationship
c. The location of the buyers
d. Consumers buying habits, and consumer demand
e. The type of retail outlet
f. Cost of obtaining the desired volume of business.
In all these considerations, it is good to bear in mind that a channel is not
necessarily best because it gives the highest volume of sales at the lowest cost.
Under marketing management what is sought is optimum performance, the best
overall results. The effectiveness of marketing activity is accordingly evaluated in
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terms of total company operations in which consumer satisfaction plays an ever
increasing role.

15&16.13 SUMMARY
Thus under integrated marketing, the choice of channels of distribution for the
product for co-ordination with research, product planning, sales, advertising and
promotion as well as with warehousing, transportation and inventory policies and
beyond the marketing department itself with engineering research and development
manufacturing and purchasing.
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15&16.14 REVISION POINTS

1. Middlemen are retailer wholesaler, and Agents and Broker.
2. The money buyers of points and other operating costs.
3. Brand image case be limit faster.

15&16.15 INTEXT QUESTION

1. What is a Channel of distribution? Describe briefly the various
functions of middlemen in the channel.
2. Middlemen are parasites’ they should be eliminated. Do you agree with
this statement?
3. What are the factors determine the channels of distribution?
4. Under what circumstances are the following channels suitable?
a). Selling direct to customers
b). Selling through middlemen
5. Which distribution channels are appropriate for the following
products? Describe how.
Cars Refrigerators Detergent soaps
Cigarettes Office furniture
6. What are the factors to be considered by a manufacturer in selecting
as suitable channel of distribution for his products?

15&16.16 ASSIGNEMNT
1. Discuss the characteristics distribution.

15&16.17 KEYWORDS
Retailers
Wholesale
Agent
Broker
Middlemen
Consumer
Producer
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LESSONS 17 &18

NATURE AND SCOPE OF ADVERTISING

OBJECTIVES
1. To explain types of advertising
2. To understand the importance of advertising

CONTENTS
17&18.1 Introduction and Meaning
17&18.2 Importance of Advertising
17&18.3 Objectives of Advertising
17&18.4 Types of Advertising
17&18.5 Quality of a good Advertising and Copy
17&18.6 Summary
17&18.7 Revision Points
17&18.8 Intext Question
17&18.9 Assignment
17&18.10 Keywords
17&18.1 INTRODCUTION AND MEANING
Advertising is any paid form non-personal presentation and promotion of ideas,
goods, or service by an identified sponsor. The means employed to bring a particular
message to the notice of the public is called advertising. Advertising is mass
communication of information to persuade buyers so as to maximize profits.

A. Definition
“Advertising is mass communication, the ultimate purpose of which is to impart
information, develop attitudes and induce action beneficial to the advertiser
(generally the sale of a product or service)”.

17&18.2 IMPORTANCE OF ADVERTISING

Mass production requires a wide market to absorb the output. Advertising is
one of the most economical means of tapping the wide market known to the free
competitive economy. In serves as a medium for educating the consumer. Adverting
helps to keep prices with in reasonable limits. The customer is in a better position to
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know the prices for advertised products than for non advertised products. It
facilitates standardization and in turns in encouraged by standardization. The
customer may buy the advertised product in any store with, reasonable assurance
that it will be the same quality product that he would buy in his local store in whose
reputation he has absolute confidence. Advertised products save time. The
consumer is not required to spend a great deal of time seeking products to meet his
needs because he has been told about many standard products through their
advertising. He also learns of new product through advertising.
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Effective advertising makes the salesman’s task easier. A perfectly good non
advertised product may be sold by an energetic, qualified sales person, but mach
more effort d required. Good salesman recognize this fact and prefer to sell well
known products. The part of the selling programme that can be accomplished by
advertising can be done at less cost than by performing the entire selling functions
on a personal basis.
Thus, advertising has a vital role to play the economy of our modern society. It
is one of the most vital tools of competition and innovation which maintain the
dynamics and the initiative of industry. It provides the outlet for the results of sound
research and development without which a nation must decline. Advertising helps to
maintain employment and the uses of all resources, at a steady pace, without undue
swings in supply or demand. It increases the aspirations of the public so that the
desire to work harder and earn more money are increased. It improves the quality of
material life the mass of the public.

17&18.3 OBJECTIVES OF ADVERTISING

The primary objective of advertising is to increased sales. Besides increasing
the sales other objectives of advertising may be stated thus. (1). To make an
immediate sale ; (2). To build primary demand ; (3). To introduce a price deal; (4). To
inform about a products availability; (5). To maintain brand loyalty ; (6). To help
salesmen by building an awareness of a product among retailers; (7) To create a
reputation for services, reliability or research strength; (8) To increase market share;
(9). To modify existing product appeals and buying motives. (10). To inform about
new products, availability of features or price (11) To increase the frequency of use
of product (12). To increase the number of units purchased (13) To build positive
business image (14) To effect immediate buying action; (15) To develop overseas
market; (16) To counteract competition; (17). To develop increases sales in off
season; (18). To obtain dealer support, and (19). To secure leads for sales people.

A. Advertising versus publicity

Advertising is any paid form of non-personal presentation of non-personal
presentation of goods, services, or ideas to a grouped such presentation being openly
sponsored by the advertiser. Whereas publicity is any form of non-personal
presentation of goods, services or ideas to a group such presentation may or may not

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be sponsored only by the one responsible for it and it may or may not be paid for. So
in advertisement the advertiser has to pay whereas in publicity the payment s not
necessary. In the case of advertising it is openly sponsored but in publicity the
person passing the message will not come into the picture.

B. Advertising and salesmanship

In distribution both advertising and salesmanship play an essential role. They
are two different marketing efforts. The main differences are
a. Advertising is impersonal whereas salesmanship is personal.
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b. Advertising is a general approach but salesmanship s individual.

c. Salesmanship follow advertising.
d. Advertising encourage craftsmanship whereas salesmanship
promotes are of speaking.
e. Comparatively salesmanship is costly.
f. Advertisement is not flexible but salesmanship is flexible approach.

17&18.4 TYPES OF ADVERTISING

A. Product advertising
Here the purpose is to inform and stimulate the market about the advertiser’s
product. It is of two types.

i. Direct action advertising

It urges the buyer to take action at once.
ii. Indirect action advertising
It hopes to stimulate demand over a long period of time.
B. Institutional advertising
It is to create a proper attitude toward the seller and to build goodwill rather
than to sell specific product or service. Its purpose is to create a frame of mind and
to un plant feelings favourable to the advertiser’s company.

C. Other types
1.National advertising
When it is sponsored by manufacturers it is National.
2. Local advertising
When it is placed by retailers it is local.
3. Consumer advertising
This is the one which is aimed at ultimate consumers who purchase for
personal use.
4. Industrial advertising
It is mainly for industrial user.
5. Emotional advertising

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Where an advertising is done to create an image that someone would look like a
sportsman like Kapil Dev and thus attempts to create a common bond between them
through a common use of boosts then it is said to be emotional advertising.

6. Rational advertising
If the advertising is done to explain the medicinal quality it is rational
advertising.
D. Benefits of advertising
Advertising broadens the knowledge of the consumer. With the aid of
advertising consumers find any buy necessary products without waster of time. This
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speeds up the sales of commodities; the efficiency of labour in distribution increases;

and the cost of selling diminishes. The benefits of advertising may be narrated as
follows.

E. Benefits of manufacturers
(1). It is increases sales volume. On the one hand it reduces the cost of
production and, on the other, it increases profits; (2). It helps easy introduction of
products into the markets; (3) In helps to create an image and reputation, not only of
the product but also of the advertiser; (4) Retail price maintenance is possible; (5) It
helps to establish a direct contact between manufacturers and consumers.

F. Benefits to wholesalers and retailers

(1). Easy sale of product is possible since consumers are a ware of the product
and its quality; (2). It increases the rate if the turn-over of stock (3). It supplements
the selling activities; (4) The reputation created is shared by the wholesalers and
retailers alike (5) It enables to have product information; (6) It ensures more
economical selling.
G. Benefits consumers
Advertising stresses quality and very often prices. This forms, large an indirect
guarantee to the customers. Further more, large-scale production, assured by
advertising enables the seller to sell the product at a lower cost; (2) It helps them to
know where and when the product are available. This reduced their shopping time;
(3). It provides an opportunity to the consumers to compare the merits and demerits
of various substitute products; (4) It is perhaps the only medium through which
consumers could known the varied and new uses of a product. (5) Modern
advertisement are highly uses information.

H. Benefits to salesman
Salesmanship is incomplete without advertising. Advertising serves as the
forerunner of a seaman in the distribution of goods. (1). Introducing the product is
made easy; (2) Advertising prepares necessary ground for a salesman to begin his
work. Hence sales efforts are reduced; (3). The contact established with the customer
by a salesmen is made permanent through advertising; (4) The salesman can weight
the effectiveness of advertising when the makes a direct contact with the customer.
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I. Benefits to the community
(1) Adverting, in general, is educative in nature. In the words of the late
president Roosevelt of the USA, “Advertising brings to the greatest number of people
actual knowledge concerning useful things; it is essentially a form of education and
the progress of civilization depends on education”. (2). Advertising leads to large-
scale production creating more employment opportunities; (3). It initiates a process
of creating more wants and their satisfaction resulting in a higher standard of living.
To quote sir Winston Churchill, “Advertising nourishes the consuming power of man.
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It created wants for a better standard of living… it spurs individual exertion and
greater production; (4) Newspapers would not had become so popular and so cheap
if there had been no advertisements. The cheap production of newspaper is possible
only through the population of advertisements. In other words it is advertising
revenue that makes the newspapers live; (5) It assures employment opportunities for
the professional artists.

J. Criticism of advertising
1. Multiplication of needs
It is said that advertising compels people to buy things that they do not need.
Human instincts are provoked in order to sell products. Sometimes, various types of
appeals are advanced to arouse interest in the product. Sentiments and emotions
are played with to gain customers.

2. Misrepresentation of facts
Exaggeration of facts runs into mostly in medical, health and cosmetic
preparations. Such exaggerated advertising tantamount to ‘swindling’. This type of
advertisement is often used by unscrupulous individual through: 1).
Misrepresentation of facts (2). Undue emphasis, (3). Misleading names and brands,
and(4) testimonials of persons like cinema stars or some sportsmen or social
workers whose words are quoted in the advertisement, even though such persons
may are quoted in the advertisement of even using the thins advertised.

3. Consumer’s deficit
People with less purchasing power cannot afford to buy articles though the
advertisements create a strong need in them for the product. This makes a section of
the that with changes remain discontented.

4. Wastage of national resources

It is regarded as a waste in the sense that with changes in fashion and styles
half used or old articles are often discarded.

5. Advertising contains outraging sentiments

Exciting emotions, node poses of fair sex and all these are given undue value.
Some of them are full of sex appeal and cupidity; others are vulgar, silly and stupid

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in that they appeal to shame, fear and envy and some are offensive to public
decency. They lower down the morale of the younger generations.

6. Advertising
Works to produce a society composed of greedy self centered individual who
worship materialism.

7. Advertising
Stresses insignificant product details, minor product differences and
unimportant product changes.
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8. Too much advertising

By far promotes ordinary products; inferior products, and even worthless
products.

9. Advertising
Is an economic waste, and it contributes little or nothing to economic growth.

K. Scientific advertising
Whatever may be said against adverting, it is difficult to deny that it has
becomes a force to reckon with in the modern business world. In fact, there is hardly
any controversy left about it now, considering that the worst enemies of adverting
have themselves, made use of its techniques to air their views. In the sphere of
production, the use of scientific method of reasoning reflection and enquiry has got
entrenched fairly firmly. But in the domain of distribution, it has yet to make its
mark.
Scientific advertising means properly planned advertising based on serious
deliberation over all factors that have a bearing upon its success. It involves the use
of the logical method or the reasoning method. The logical method involves.
1. The development of a clear recognition of the problem to be solved.
2. The recognition of the alternative to the selecting an alternative.
3. The collection of all data that would help in selecting an alternative.
4. The weighing of these data and the application human judgment to them
in the final selection of a course of action, in short, the use of a fact
finding approach to the formulation and execution of an advertising
programme.

L. Phase of scientific advertising

There are four phases of scientific advertising: They are
1. Preliminary in yestigation
2. Budgeting and media planning
3. Execution of the programme
4. Testing of results

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1. Preliminary investigation
All scientific plans are based on facts of empirical evidence. The first step
towards the formulation of a proper logical plan of advertising is, therefore, to collect
the information which will involve the following steps.
a. Market identification
b. Product analysis and
c. Consumer research or motivation research
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2. Budgeting and media planning

Budgeting for advertising generally based on the rival appropriation fore the
purpose. The appropriation for adverting must be determined with direct references
to the clearly defined objectives and targets of the advertising programme. Likewise,
the medium of advertising must be selected on a careful consideration of the
effectiveness of the various alternative media in reaching the consumers, its cost,
and the length of the sales message etc.,

3. Execution
The actual execution of the advertising programme should be in conformity
with the plan formulated on the basis of research and investigation. The various
variable which influence the success of any advertising programme include the copy
appeal, illustration, size, colour, etc. these must be entrusted to experts, for they
requires skilful handling.

4. Testing of results
The last steps in the scientific advertising will be the testing of results. A
number of devices have been perfected for this purposes. The most popular is the
split run test used with keying. Under this test, different advertisements for the
article are inserted in different number of copies of the medium selected, keying
determined as to which medium elicited the largest number of inquiries or which
was ready by the largest number of prospects. These results can be put to good in
formulating further advertising programme is future.

5. Advertising copy
The basis function of advertising is achieved through the advertising copy. The
words used to convey the advertising idea or them are called the copy. According to
James Hunter, “the aim of advertising copy is that it shall be seen, read, the
message conveyed and then acted upon”. But the problem is to prepare a good copy
capable of emphasizing how the product can satisfy consumer needs and desires.
The preparation of a copy requires a combination of various skills psychological
skills, imaginative skills and artistic skills. The copy writer should also have the
knowledge of the product, the company’s image, and the motivations aspects.
Recently introduced Liril Soap would provided and example for this. The producers

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stressed the lime freshness of the soap which is a novel theme hitherto unclaimed by
rival producers. This now aroused some desired to use the soap. Thus the
advertisement copy refers to the reading matter that forms the nest of the
advertisement, whether the next consists, of only one word or many thousand
words.

17&18. 5 QUALITIES OF A GOOD ADVERTISEMENT COPY

An advertisement copy should bridge the gap between the advertiser and the
readers, if it is to effective. A great deal has been written and spoken about the art
of copy writing and the qualities necessary for an effective copy.
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The following qualities should be present in an advertising copy.

1. Advertising is the business or that art of providing a substitute for talking
to some one about something.
2. What must be cleat must also be important.
3. It should bring out the personality of the advertiser in terms of quality.
4. It must have a personal appeal.
5. It must be reasonable but never dull, and
6. It should be imaginative but never misleading.
The physical nature of an advertisement copy should have the following four
factors viz.,
1. Description, 2. Narration, 3. Exposition and 4. Argumentation.
Moreover, the advertisement copy should also have the following values.
1. Attention value
2. Suggestion value
3. Memorizing value
4. Conviction value
5. Sentimental value
6. Educational value
7. Instinctive value and
8. Action Value

A. Attention value
People are generally busy and they go through the advertisement only seldom.
It should also be remembered that the customers are under no obligation to read the
advertisement. Further, the advertisement are large in number and the readers are
puzzled as to what should be read, what should not be read. It is seen that the
advertisement that do not catch the eys becomes fruitless.
Thus, it becomes inevitable for the advertiser to make advertisement attractive.
For this, various devices are available. They are.
1. Using pictures and drawings

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2. Using attractive headlines and slogans
3. Using artistic borders and plenty blank space and
4. By introducing contests reply coupons

B. Suggestive value
The copy should suggest to the reader the usefulness of the article advertised.
Example,
“Add beauty and comfort”.
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Beauty you can see… comfort you can feel.

Usha : Today’s best selling fans.
Headache begins to get you down? A single Saridan clears this trouble”.

C. Memories value
The advertisement should leave a lasting impression upon the reader’s mind. It
is this purpose that advertisements are repeated. But even the first advertisement
should be capable of making the reader remember the production image, e.g.,
“Will-made for each other”
“Horlicks builds extra energy”
“ Glaxo builds bonnie babies”
Memorizing value could be easily created by using symbols, brand names,
slogans, phrases and pictures. In fact, most in fact most of the articles that we use
today have become common things because their advertisement contain a
memorizing value.

D. Conviction value
The advertisement should never be misleading. What is said should be true
(facts) and that which could be readily believed. The picture, drawing or the painting
should corroborate the facts, e.g.,
Relax – smoke a Charminar

Firestone – Your symbol of created by a dentist

Forhans – the tooth paste created by a dentist.

Sentimental value
The advertisement should respect the sentiments and feelings of the people for
whom it is meant. This aspect ios extremely necessary in the case of products that
are means for the educated and people belonging to the higher strata society. It is
they who are more sentimental. Tata used to stress the elements in their
advertisement when Swadesh Movement was on: They advertised: Inidan Co-Indian
made’.

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The Golden Tobacco also used the same aspect in their earlier advertisements.

E. Educational value
The advertisements should be in the nature of enlightens concerning the use
and values of a product. Fundamentally people keep certain habits which cannot to
be easily changed. The creation of demand is possible only of such habits are
changed. Advertisements should be capable of introducing new habits are attracting
the people towards the new products. This fact is clear from the incident that when
safety razors were introduced first. The Gilletteen Razor Manufacturing Company
took five years to sell the first seven safety razors.
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F. Instinct value
This is largely a psychological problem. The human behaviour is fundamentally
related to instincts. It is these which make a person behave differently at different
times. The motivation research is meant to measures the changes of instincts of
people. In order to create the desired instinct, the advertiser should plan well before
the preparation of an advertisement copy. The se instincts are pride, beauty, health,
economy, fear, etc., and the advertisement should be capable of thinking these
instincts and directing the people towards a particular product.

G. Action value
Action is often induced because of the good will which the advertiser has built
up through advertising. When the advertiser has built up through advertising. When
the purchaser sees the well known symbol of manufacturer, that itself satisfies him,
and the sales resistance, if any, is reduced. Sealed Units gain this value very easily.

ECONOMICS OF ADVERTISING
It is difficult to say about the appropriate cost of advertising. Mostly it does not
cost at all. By the increases in the sales it meet its cost. But some view it is injustice
against society due to huge sum on advertising.
Usually the amount is fixed as certain percentage of a sales which is based on
gross sales or net sales of the preceding year.
Generally the budgeting is done by considering the following aspects.
a. Budget must be realistic and flexible.
b. Sufficient fund must allocated.
c. Amount must be budgetary control to control the procedures of
spending the sums allotted, purpose, etc.
d. An open mind and an experimental attitude are essential to sound
budgeting because change is endless.
Totally the advertising charges may include media, advertising department
expense, advertising production costs and advertising research. Usually these
accounts are maintained by advertising manager/marketing manager and he also
submits periodic reports to the top management relating to the matters like,
expenditures, explanation for deviations if any estimated results of the advertising.

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H. Evaluation of advertising programmes
It helps to study the effectiveness of an advertisement and also for comparison
with other advertisements. But it is very difficult to measures because many
elements are intertwined which influences the sale. Usually the survey of sales
results test, readership, recognition and recall tests are used to find the
effectiveness.

I. Is advertisement a waste
A major criticism against advertising is that it is wasteful. From a company
point of view advertising may be justified when the increase in revenue is greater
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than the cost of advertising provided that this is the most satisfactory and profitable
of the various uses of scarce resources. Companies will examine expenditure
carefully, because.
a. Profits are bring squeezed, since costs tend to rise proportionately
faster than rapidly.
b. Demand patterns change more rapidly.
c. High levels of investment are put at risk.
From the customer point of view, the extent that advertising increases the cost
of the product to the consumer, it is wasteful, actually advertising when properly
balanced, reduces sales cost rather than increases them. Well directed advertising
campaign reduces the personal selling effort and lowers units sales costs. It is true
that the retail margin is usually smaller in the case of highly advertised articles, but
the sales effort required of the retailer is also loss. Advertising creates a demand for
products and the retailer has little more to do than to stock the product and serve
the customer. It is by no means to be interpreted that advertising may not be
wasteful.
If two strong competitors have products that are well known in the community,
and if one of them increased his advertising by 50% in an effort to get a larger share
of the available business, it will almost certainly be met by a corresponding outlay
by the other competitor. The result will be no net gain to either competitor unless
the public can be persuaded to buy a greater quantity of the product than before. In
some types of goods, such as certain foodstuffs, the demand remains quite inelastic.
The price to the consumer may not rise if there are other fairly well known products
of satisfactory substitutes available, in which even the increased cost of advertising
must be absorbed by the competitors thus reducing their profits. This type of
advertising, sometimes referred to as tug-of-war advertising, is probably nether
destructive nor productive but socially natural, unless there is real shortage of man
power.
An argument is support of advertising and public interest is that by advertising
a supplier is identifying his company or his company’s products. This attempt to
create a distinction must be accompanied, if it is to be successful, by the setting of
quality standards. Research has shown that while it is sometimes possible to find
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that the price certain strongly advertised products may be higher than those of
random goods, the variation in quality of the advertised selection on non advertised
products is much less than that of the non-advertised products. Advertising,
therefore, would appear to reduce the risk to the consumer of buying low quality
products.

17&18.6 SUMMARY
It may also be argues that advertisement, laid too much emphasis on material
aspiration, and well being, but advertising is only responding to social trends,
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encouraged by the redistribution of wealth. Advertising does not shape the society; it
only reflects the shape that exists.
Finally, the not been devised a more economical system for facilitating sales
than advertising and therefore advertising is economically desirable.

17&18.7 REVISION POINTS

1. The purpose of product advertising is to influence and stimulate the
market about the advertising product.
2. Emotional advertising is for sportsman.

17&18.8 INTEXT QUESTION

1. What are the objectives of advertising?
2. Discuss four marks of scientific advertising?

17&18.9 ASSIGNMENT
1. Discuss advertising

17&18.10 KEYWORDS
Advertising
Execution
Media panning
Budgeting

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LESSON –19

HIRE PURCHASE AND INSTALMENT SYSTEM

OBJECTIVES
1. To explain hire purchase
2. To understand installments system

CONTENTS
19.1 Introduction
19.2 Hire purchase of Installment Credit
19.3 History
19.4 Hire-Purchase System
19.5 Difference Between the hire purchase and Installments system
19.6 Distinction between a sale and hire purchase agreement
19.7 Summary
19.8 Revision Points
19.9 In text Questions
19.10 Assignment
19.11 Keywords
19. 1 INTRODUCTION
Hire purchase and installment systems play a vital role in the retail trade of
business concerns and they are more effective channels of distribution of
manufactured goods under retail trade to increase the sales. They enable the public
to purchased their requirements on easy installment basis. Hence the study of
these system is very important in the marketing management.
Before going to see the salinet features of these systems, it is necessary tot race
the origin of these systems, especially that of their purchase or installment credit.

19.2 HIRE PURCAHSE OR INSTALLMENT CREDIT

Installment credit or hire purchase as it is known in Great Britian is the means
by which a large part of the durable consumer goods is paid for. Wherever
automobiles, refrigerators, laundry equipment, television, radios, fans and others

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such products play an important role in the lives of the people., this credit is a large
item in the financial structure of the country. The greatest single use of installment
credit, in all the wealthy countries of the world, is for the purchase of passenger
automobiles. For example in the United States beginning in 1920s and with
exception of the period immediately after world war II, from 60% to 70% of
automobiles have been bought on the installment plan and automobiles credit
constitutes about 40% of total consumer installment credit outstanding.
It is interesting to know installment credit may also be used for other
exceptionally large expenditure, such as tax payment, insurance premiums, travel,
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Christmas expenses and unpaid bills. Even business credit may also be repaid by
installments. Now banks and other financial institutions such as sales finance
companies, credit unions and consumer fiancé companied have made a large
number of business loans repayable in installments over several years. In certain
countries a limited amount of small loans to business is given under installment
credit system. In the United States every attempt has been made to confine the
concept and statistics of installment credit to the consumer segment of the economy.
Moreover installment credit constitutes the great bulk of all short and
intermediate household credit in most countries, but household also have other
debts that do not provide for regular periodic payments. The total household debts
except house mortgage is commonly refereed to consumer credit. Installment credit
may be best understood as a major part of all consumer credit, which is the sort
term and medium term portion of individual debt. Retail outlets such as
departments stores, furniture stores and appliance and automobiles dealers also
extend substantial amount of consumer credit. Commercial banks are by far the
largest issue, owning about 50% of all consumer credit finance by financial
institution and over 40% of all consumer credit.
The volume of consumer credit in country depends on the employment and
income conditions, the types of goods. Purchased and the level of competition in the
sale of these goods. Installment credit if feasible only where a large part of the
population receives its income in regular periodic amounts, such weekly or monthly
payments of wages and salaries. But their incomes must be large enough for the
population to afford rather expensive consumer goods. Post war Europe including
the U.K has experienced a rapid growth in consumer credit requires the ability to
forecast the future of consumer credit is offered to attract customers to specific
stores or products.

19.3 HISTORY
Consumer credit is an old institution. Ever since market existed where products
were sold; there has been financing of consumers. However until the 19th century
much of this credit was on personal basis; debt was not institutionalism and
repayment agreements were often not formally written down. Installment loans for
the purchase of consumer durable goods, such as furnitures appeared in the 19 th
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century in the U.S. only after the World War I serious attention to this credit first
arose. The introduction of the mass produced passenger automobiles in the 1920s a
was the main cause for the rapid expansion of consumer credit which has aroused
great public interest and discussion. The development is regarded by some as
unsound form the view point of economy and unwise from the view point of the
borrower. But others feel that this credit it essential for the distribution of new
durable goods among broad groups of the population, permitting the development of
industry on an efficient and highly productive basis. Consumer credit, during
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depressing of the early 1930s, proved to be sound affect. Some observers, however,
continue to feel that the installment credit does contribute to economic instability
and ought to be regulated.
Between 1947 and 1965 consumer credit grew at a faster rate than individual
mortgage credit in the U.S. where the rate of increase in consumer credit has been
10% per year or double rate of growth of income. In the U.S. installment credit
constitutes about 75% of consumer credit and 25% non-installment loans. Amount
40% of installment credit is automobile loans and personal loans and loans to
purchase consumer durables account about equally for the balance.
Thus the installment credit throughout the post war period has increased
relative to non-installment loans. The initial spurt after the world war II probably
reflects the end of war time period of short supply of automobiles and consumer
durables. Easily available credit and the widening verity of uses for personal uses
help to explain the growth since then.
The origin and history of the consumer or installment credit were the same in
European countries such as great Britain. As far as our country is concerned
installment credit is of recent origin. Only now it is picking up in a large measure.
Let us see the salient features of hire purchase and installment systems.

19.4 HIRE-PURCHASE SYSTEM

In the words of J.Stephenson “The hire purchase is a form of trade n which
credit is granted to the customer on the security of a lien on the goods”. So under
the hire-purchase system, the hire purchaser contracts with the vendor to buy goods
at a price payable in some installments which include interest also. The purchaser
gets the delivery of the goods from the vendor soon after the cash down price
(amount paid on signing the agreement) is paid. The balance of the amount is paid
in installments as agreed upon. The peculiarity of this system is that the right on the
property of the goods is transferred to the purchaser only after the payment of last
installment. Here the purchaser is allowed to make use of it on his agreeing to pay
the agreed price of the goods in installments over a period. Each installment is called
the hire or rent.
If there is any default on the part of the purchaser in payment of installment
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amount, the seller has a right to recover the goods and forfeit all the payments made
already. The purchaser can also return goods at any time without having to pay
further installments.
In our country the hire purchase act, 1972 deals with purchases and sale of
goods under hire-purchase system. According to the act when goods are purchased
on hire purchase system, then they are sold subject to some following special terms.
i. Possession of goods is delivered by the owner there of to a hirer (means a
person who obtains or has obtained possession of goods from an owner under a hire
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purchase agreement, and includes a person to whom there hirer’s rights or liabilities
under the agreement have passed by assignment or by operation of law ) on
condition that such hire pays the agreed amount (hire purchase price) in periodical
installments and.
ii. The property in the goods is to pass to such hirer on the payment of the last
of such installments and
iii. Such hirer has a right to terminate the agreement at any time before the
property so passes.
It may be worth while to note that the payments made by the hirer prior to the
final payments are treated as payments in respect of hire and are not returned to the
hirer in case he (hirer) does not want to continue the contract. The hire purchaser,
during that period when he is in possession of goods cannot damage, destroy, pledge
or sell such goods. He is supposed to take all such care of goods as a prudent
person does in his own case.
Thus a hire purchase agreement is a contract of bailment coupled with an
option to the hire-purchaser to acquire the goods delivered to him under such
agreement. By the delivery of goods to the hire-purchaser, the hire vendor merely
parts with heir possession not the ownership. The property of title to the goods is
transferred to the hire purchaser on his paying the last installment of the hire
purchase or complying with some other conditions stipulated in the contract. The
hire-purchaser at any time before that, has the option to return the goods, and if he
does so, he has only to pay the installment of price that by then have fallen due. The
right of option to purchase is the essence of hire-purchaser agreements. In the event
of a default by the hire purchaser in the payment of any of the installments other
price, the vendor can take the goods into his possession; this is legally permissible
since the property in the goods is still with the hire-vendor.

A. Instalment System
When goods are sold under an agreement to pay by installments the right on
property is immediately transferred to the purchaser. Under this system if the
purchaser makes any default in payment of any installment, the vendor has no right
to recover the goods and he has to go to a court of law for the recovery of the
balance. Under this system both possession and legal ownership of the goods pass
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immediately to the buyer.

b. Analysis of the hire price

In both the systems, the hire price is always greater than the cash price, since
it includes premium payable over and above the price of the goods to compensate
the seller for the sacrifice he has made by agreeing to receive the price by
installments and the risks that he there by undertakes. Thus the rice is made up of
cash price, interest on unpaid installments and a charge to cover the risk involved in
the buyer’s defaulting to pay one or more of the installment of price.
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Interest is the charge for the facility to pay the price for the goods by
installment after they have been delivered. Generally the rate of interest is higher
than that payable in respect of an advance or a loan since it also includes a charge
to cover the risk that the hirer may fail to pay any of the installments, and in such
an event, goods may have to be taken back into possession in what ever condition
they are at the time. A separate charge on this account is not made as that would
not be in keeping with the fundamental character of the hire purchase sale.

19.5 DIFFERENCE BETWEEN THE HIRE PURCHASE AND INSTALMENT SYSTEM

Under the hire-purchase system the property in the goods sold does not pass to
the buyer but remains with the seller until the last installment has been paid and if
default is made I payment, the seller can retake possession of the goods. Under the
installment system the property in the goods or assets sold passes at once to the
buyer although the payment of them is to be spread over a period of years; of default
is made in payment the seller cannot retake possession of the goods but he can only
use for the balance of the debt. Except the above points the hire purchase and
installment systems are one and the same in all other respects.

19.6 DISTINCTION BETWEEN A SALE AND A HIRE PURCHASE AGREEMENT

Contract of sale resembles contract of hire-purchase very closely and indeed the
real object of a contract of hire purchase is the sale of the goods ultimately. None the
less a sale has to be distinguished from a hire purchase as its legal incidents are
quite different. As already mentioned under hire purchase agreement the owner of
the goods agrees to transfer the property in the goods to the hire purchaser when a
certain fixed number of installments of price are paid by the hirer. Till that time, the
hirer remains the bailer and the installment s paid by him are regarded as the hire
charges for the use of the goods. If there is a default by the hire purchaser in paying
an installment, the owner has a right to repossess the goods immediately without
refunding the amount received till then , because the ownership still rests with him.
Thus in the hire purchase contract, there is n agreement to buy, but there is only a
bailment of the goods coupled with an option to purchase them which may or may
not be exercised.
Moreover it is noted that mere payment of price by installments under an
agreement does not necessarily make it a hire-purchase, but it may be sale. For
example, in the case of installment system, there is a sale , because in this case the
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buyer is bound to but with no option to return and the properly in goods posses to
the buyer at once.
Hence whether an agreement is a hire-purchase agreement or a contract of a
contract of sale, the test would be whether or not any option has been given to the
hirer to terminate the contract. If the answer is in the affirmative it would be a hire-
purchase agreement and if it is in the negative it would be a contract of seal.
However the hirer must not be compelled to exercise the option. But where a buyer
has no right to terminate the agreement and is bound t pay the price, the agreement
is a sale. For example in the case of Helby vs.
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Mathews (1895) A.C.471.B hired a piano from H on an agreement that he

should pay some amount per month as rent. The stipulation was that if he regularly
paid the rent for 36 months the piano became his properly at the end of 36 months.
Further it was provided that b could return the piano at any time, and he need not
pay any more. This was a hire purchase agreement proper. If, however, it was agreed
that 36 months, rent must be paid and that he could not return the piano, because
the agreement was a sale, and not a hire purchase agreement.
19.7 SUMMARY
Therefore the main points of distinction between the sale and hire purchase are
as follows: (1) In a sale, property in the goods is transferred to the buyer immediately
at the time of contract, whereas in hire-purchase the property in the goods passes to
the hirer upon payment of the last installment. (2) in a sale, the position of the buyer
is that of the owner of the goods but in hire purchases the position of the hirer is
that of a bailer till he pays the last installment. (3) in the case of sale, the buyer
cannot terminate the contract and is bound to pay the price of the goods. But in the
case of hire purchase the hirer may, if he so likes, germinate the contract by
returning goods to its owner without any liability to pay the remaining installments.
(4) in an installment sale if the payment is made by the buyer in installments, the
amount payable by the buyer to the seller is reduced, for the payment made by the
buyer to the seller is reduced, for the payment made by the buyer is towards the
price of the goods. But in a hire purchase the installment pain by the hire purchaser
are regarded as hire charges and not as payment towards the price of the goods till
option to purchase the goods is exercised. (5) in the case of a sale, the seller takes
the risk of any loss resulting form the insolence of the buyer whereas in the case of
hire purchase, the owner takes no such risk , for if the hirer fails to pay any
instalment the owned has the right to take back the goods. (6) in a sale sales tax is
levied at the time of the contract, whereas in a hire purchase sales tax is not livable
until it eventually ripens into a sale. (7) in a sale, the buyer can pass a good title to a
bonfire purchaser from him but in the case of a hire purchase, the hirer cannot pass
any title even to a bonafide purchaser.
19.8 REVISION POINTS
1. Installment credit of fine purchase up it is known in great Britain is the
means by which a large part of the durbar consumer goods is paid for
2. Installment credit constitutes the credit bulk of all shout and intermediate
have hold credit in most counties.

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19.9 INTEXT QUESTION
1. What is hire purchase?
2. What is installment credit?
19.10 ASSIGNMENT
1. Discuss hire purchase and sale.
19.11 KEY WORDS
Hire purchase
Installment credit
Sale
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LESSON NO. 20

FUTURE OF HIRE PURCHASE AND INSTALMENT IN INDIA

OBJECTIVES
1. To explain suitability of goods
2. To evaluate hire purchase and installment.

CONTENTS
20.1 Introduction
20.2 Suitability of goods
20.3 Advantages of hire purchases and installment
20.4 Disadvantages
20.5 Hire purchase finance
20.6 Future of hire purchases and installment selling in India
20.7 Summary
20.8 Revision points
20.9 Intext question
20.10 Assignment
20.11 Key words
20.1 INTRODUCTION
A hire purchase agreement may also be distinguished from. “an agreement to
sell” (or ‘an agreement to but” from buyer’s point of view). As already observed, a
hire-purchase agreement initially is merely an irrevocable offer for sale, that is under
it the owner is bound to sell the goods later if the hirer pays all the installments as
agreed, but on the part of the hire purchaser there is an option to buy or to retune
the goods and the hirer cannot be compelled to but ‘an agreement to buy’ on the
other hand, imports a legal obligation to buy on the other hand, imports a legal
obligation to buy or to terminate the contract in this case. Again, in a hire purchases
contract delivery of goods to the hire purchase is necessary whereas it is not so in an
‘agreement to sell’.

20.2 SUITABILITY OF GOODS

Both the hire purchase and installment transactions cover a very wide range of

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products. To be suitable for such trading, the articles concerned must possess the
following characteristics.

1. Durability
The articles should at least be so durable as to last longer than the period over
which installments are spread.
2. Stability of demand
The demand for such articles should not be subject for frequent changes in
fashion. If that is the case, the customer may easily return it after paying some
installments.
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3. High price
The article should be one of such a high price as cannot be paid out right by
the consumers. Only then will installment selling or hire purchase basis be justified.

4. Easy congnizability
The articles should be of a type which can be easily identified and recovered in
the event of default.

5. Standardised specifications
The articles should possess standard specifications so that it can be easily
disposed of in case it has to be resold.
On the basis of the above factors, the following articles can generally be
recommended for hire purchase selling in our country. Furniture, radios, trucks,
motor cars, refrigerators, sewing machines, pianos radios, televisions, machines
used by engineers, printers, small and medium manufacturers, builders and
contractors, office equipment, hotel equipment and hospital equipment.
Customer: Proper care must be taken in selecting those customers for the
extension of hire purchase and installment facilities, who will be in a position to pay
the installments regularly and in time. Because of this reason, people with stable
and regular incomes should generally be preferred generally minors, married
women, foreigners without fixed occupations and other people without permanent
residence are considered to be unsuitable for selling on these systems.

20.3 ADVANTAGES OF HIRE PURCHASE AND INSTALMENT SYSTMES

(1) The systems enable people of modest means to buy certain valuable articles
without having to spend a large sum which will be rather difficult for them to
arrange. By undertaking to pay the installments regularly they have to compulsorily
save the required sum regularly every month. (2) the small-scale and medium-scale
manufacturers find great facility in the systems. They can install the required
machinery and machine tools without having to find the total sum of capital
required for the purpose all at once. In our country the national small industries
once. In our country the national small industries corporation is helping the small
industrialists in this manner. (3) the hire=-purchase trader also stands to gain
because the system tempts a very large number of people to purchase costly things
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on easy payments. These systems help in increasing the turnover of non essential
luxury articles which will other wise be very slow to sell. (4) people with higher
income can invest their savings in more profitable securities rather than sink them
in articles which are in keeping with their status if they purchase them on these
systems. Thus they will have to pay money in small amounts of installments along
with interest which will be lower than the interest derived from other investments.
(5) by extending credit facilities, these systems help in avoiding surplus stocks
during the period of depression.
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20.4 DISADVANTAGES
(1) These systems encourage people to buy the articles which are beyond their
means and land them in trouble at a later stage. (2) under these systems the seller
has to run a heavy risk. Though he has the right to recover the articles for which
installments are not paid, such recovered articles cannot fetch good prices as they
are second hand articles. (3) the systems make the articles dealt costlier. The price
includes the interest on unpaid balances, the cost of collection of installments and
the losses owing to default on the part of the customers, besides the normal price of
the article.
These disadvantages can be avoided if the seller takes enough care to see that
goods are sold only to those people who have the capacity to pay the installment
regularly. The business by these system is an important factor in commerce. It
means greater production to the manufacturer and more turn-over to the dealer.
Prof. Seligman in his famous book entitled the economies of installment selling has
written that “in its ultimate and refined forms, installment credit will be reognised as
constitution significance and valuation contribution to the modern economy.

20.5 HIRE PURCHASE FINANCE

A hire purchase trading house must like any other trading concern, estimate
the amount of capital that will be required to urn the business. In any such
estimation it is necessary for it to take stock of some peculiar features of financing
hire purchase transactions under this system as it does not receive cash
immediately after sale, there is need for a large amount of capital for doing this
business. So the hire purchase trading house must realize that within an increase in
the turnover in the initial stages; its capital requirements will increase quiet fast. He
will have to pump in more and more of capital, though it will be getting back small
portions of his investment in the from of installments only after sometime has
elapsed. However when it has built up a large clientele his receipts of installments
will sever to finance his working capital requirements in a large measure.
Next it must take into account the fact that his capital will remain tied up in
hire purchase stock out with customers irrevocably for some time. It cannot draw
against its investments such as land, securities, stocks etc.

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Lastly it must think of the source from which he can obtain cheap finance so
that its income from interest and profit is not washed away by interest payments. Its
various sources are: (a) long-term, (b) bank overdrafts, (c) issue of debentures of
irredeemable perforce share in the case of a company, and (d) financing by finance
companies.

A. Finance companies
These companies have been set up practically in every large city to finance the
dealings of hire purchase and installment trading house. It is one of the recent
developments in the domain of market finance and credit.
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Generally a finance company works in co-operation with a number of hire

purchase and installment traders. Whenever a customer wishes to purchase an
article on hire purchase or installment basis, he is given a proposal form in which
the finance company is shown as the owner of the article. After filling up this form
the hire purchaser takes it to the hire purchase trader, who satisfies himself as to
the financial soundness of the buyer and signs a statement to financial soundness of
the buyer and signs a statement to this effect in the capacity of the sponsor of the
transaction. Then the trader sends the form to the finance company enclosing a sale
note or invoke for the article therewith, so that the finance company may become the
owner of the article. After the company satisfies itself as to the financial integrity of
the buyer, it enters into a hire purchase agreement with him. The customer pays
certain amount of cash on signing the agreement with the company. Then the
company directs the trader to deliver the article to the buyer. The trader takes a
receipt from the customer on a form of the finance company and sends it to the
company as proof of having delivered the article. The finance company, on reviving
the buyer’s receipt, pays to the trader the amount that is due to him in respect of th
article so sold. That is the end of the role of the trader. All installment s must
subsequently be paid by the buyer to the finance company. Generally it makes the
trader agree that it will take back the article if there is default in the payment of
installments on due dates. The financer company generally insists on substantial
‘cash down’ in order to reduce its risks to the minimum, and limits the period of
credit.
Thus the principal activities of the hire purchase finance companies are(1) to
finance sales of a variety of goods on hire purchase terms. Even after sale, the goods
in question legally remain the property of H.P. finance company until the customer
has fulfilled the agreement. If the dealer introduces the customer, he usually also
guarantees the performance of the agreement by the customer to the H.P. finance
company and (2) to purchase from dealers or from other finance companies
contractual rights with third parties under installment credit agreements. This is
known as discounting (or block discounting of batches) of agreements. The sellers
are immediately paid the amount recoverable under the agreements but they
usually undertake to act as agents for the H.P. finance company in the matter of

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collection of installments. (the customers, however are not informed that there has
been a discounting of the contractual rights). The sellers guarantee the fulfillment of
the agreements by the customers.
In our country the first form of activity is generally carried out by H.P. finance
companies and second by the commercial banks. However the banks do not
discount the hire purchase agreements they only advance loans against them. Thus
the income of a H.P. finance company consists of the difference between the amount
collected from the ultimate customer and that paid to the dealer. As the income arise
over the period of the hire purchase agreement, it is not proper to treat it as having
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arisen as soon as the agreement is entered into or to defer it until the last
installment has been collected. The income properly must be matched with expenses
which have to be incurred for earning it.

B. Discounting the bill

Another arrangement which has been devised for financing hire purchase
dealer is that the hire purchaser accepts a bill of exchange drawn on him by the
dealers or gives a promissory note for the total price of the article to the dealer, who
gets it discounted with the finance company. Thus the dealer avoids the evils of the
finance company’s finance while he still gets the necessary finance from such a
company.

C. Evaluation
The method of financing hire purchase transaction by the finance company is of
considerable benefit to the trader who suffers from lack of sufficient capital. However
it is not favoured by the big and established hire purchase trading houses for the
following reasons: (1) the finance company will generally accept only such business
that does not involved much risk. Risky business is more likely to be passed on to
the hire purchase trader. (2). Goodwill of the hire purchase trading houses is likely
to be affected adversely by the objectionable methods which finance companies may
adopt in dealing with hire purchases. The finance company for examples, may
charge an exorbitantly high rate of interest or may be unduly strict and adopt
harshness in enforcing payment of installments and in recovering goods from
defaulting purchases.
The finance companies, in spite of these short-comings, are being floated in
increasing numbers. They have become considerably popular particularly with those
who purchase trucks, motor cars or taxis and auto-rickshaws.
It is appropriate to mention here about the study prepared by the department of
Financial Companies of the Reserve Bank during 1983. the study has found that
“Credit squeeze coupled with reluctance of the commercial banks to expand their
credit purchase advance and the cumbersome formalities for obtaining bank
finance has been responsible for growth of the Hire Purchase Finance Companies
in the country. It is interesting to note that Hire Purchase Finance Companies
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account for nearly50% of the total deposits held by all non-banking financial
companies. According to the reserve bank of India study now there are 254 hire
purchase finance companies had a total deposits rs. 91.1 cores out of rs.
183.5crores held by all non-banking financial companies. It is further interesting to
know that the study covering about third of these companies has shown that eight
of them have a total deposits in excess of the limit of tem times their own funds,
prescribed the reserve bank. The study further has observed that “off these, seven
companies were rendered loss. Northern region and the deposits held by them were
rendered loss and suffered consequent erosion in their net owned funds. Of the 105
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companies which responded to the question are from the reserve bank, only one
company asked for a raise in the limit to 15 times the net owned funds. The others
have either not offered any comments or have found the present limit quite
adequate. “further the study has shown that the geographical distribution of these
hire purchase finance companies in the country are not. Even as 251 (71%)
companies are in the northern region and only 21 in the western region. The 58
companies in the southern region are found to be mostly larger and better managed.
A large number of theses companies are found to be small units with no branches
and having a turnover of less than Rs. 1 crore.
According to the study, commercial vehicles account for the bulk of hire
purchase advance and the recovery performance of most of these companies is found
to be generally satisfactory. Almost all the hire purchase companies are opening with
public deposits. The aggregate of these deposits held by these companies is only
2.83 times of their aggregate net owned funds. About 95% of the reporting
companies show that more than 50% of the deposits are renewed on maturity. As
per the RBI directives these companies are permitted to accept deposits for periods
ranging from 6 months to 36 months.

20.6 FUTURE OF HIRE PURCHASE AND INSTALLMENT SELLING IN INDIA

With improvements in standards of living and increasing in incomes the
demand for durable goods, particularly for consumer use has gone up in the cities
as also n the rural areas throughout the country. This has enabled hire-purchased
business to make some headway in the country. The trend of hire purchase and
installment business has received support also from the change of outlook on the
part of business houses and cut-throat competition among them. The
manufacturers, in some cases, are advertising installment selling plans in a bid to
increase their share of the market. For example advertisements are made by
manufacturers for the sale of fans, sewing machines, T.Vs, refrigerators, radios etc.
in large metropolitan areas, hire purchase selling is being tried out increasingly for
home furnishings, domestic appliances and machinery for small industrial units. In
the villages it has been experiment. It is expected that such business would make
further progress in the country as the demand for better goods and improved living
comes up in the villages as well in the towns. Further the mass communication
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media like newspaper advertisements and commercial broadcasts on the radio are
also contributing their bit in popularizing hire purchase business.

20.7 SUMMARY
Encouraging feature of this type of business is the impact of the western,
particularly the U.S. culture of which installment selling is an important integral
part. Hence people in cities are increasingly availing themselves of offers to buy now
and pay later at leisure following the example of the western world. But at the same
time out Government should not failure to introduce the consumer credit
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regulations as enforced in the U.S. and in Great Britain to protect the interest of
consumers. Generally the consumer credit controls take the form of a down be
borrowed in relation to the value of the objects to be purchased and limits on the
period over which repayment can be essential for the growth of hire purchase or
legistalment business. As far as our country is concerned the future of hire-
purchase or installment business is very bright and these systems, no doubt are
going to play a vital role marketing of consumer durable goods.

20.8 REVISION POINTS

1. Finance companies have been set up to finance hire-purchases.
2. Quantity high price, stability have been suitability of goods.

20.9. QUESTION
1. What is meant by installment credit? Trace out its origin and history.
2. Define hire purchase and installment systems. What are the points of
differences between them?
3. What are the advantages and drawbacks of the hire-purchases selling.
4. Distinguish the hire purchase agreement from a sale and agreement to
sell.
5. What do you know about the hire purchase finance?
6. Discuss the role played by Hire Purchase Financing Companies.
7. What do you understand about the future of the installment selling in
India? Discuss.

20.10 ASSIGNMENT
1. Discuss suitability of goods.
2. Discuss future of hire purchase and installment selling in India.

20.11 KEYWORDS
Hire purchase
Durability
Stability
Cognoscibility

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SELECTED READINGS
Stanton: Fundamentals of Marketing, Mc Graw, Hill, Chapters 4 to 7.
Kotler : Marketing Management – Analysis, Planning and Control,
Prentice Hall, Chapters 4 and 5.
Giles : Marketing, The English Language Book Society and Macdonald and
Evans, Chapter II.

Dr. B. Varadharajan
Professor in Commerce
Annamalai University.
SELECTED READINGS

1. Philip Kotler - Marketing Management, Chapters 6 &12 to 19.

2. William Staton - Fundamentals of Marketing Chapter 4
3. Sherlekar, S.A - Modern Marketing Chapter 17.
4. Amarchand and varadharajan- An Introduction to Marketing,
Chapter 9.

SELECTED READINGS
1. Philip Kotler - Marketing Management, Chapters 7.
2. William Stanton - Fundamentals of Marketing Chapter 24.
3. Sherlerkar, S. A - Modern Marketing’s Chapter 26.
4. Gilies, G.B - Marketing, Chapter 15.

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