Marketing Management

DEMKT503

Edited by
Dr. Aashish Sharma
Marketing Management
Edited By:
Dr.Aashish Sharma
 Title: MARKETING MANAGEMENT

Author’s Name: Dr. Pretty Bhalla

Published By : Lovely Professional University

Publisher Address: Lovely Professional University, Jalandhar Delhi GT road, Phagwara - 144411

Printer Detail: Lovely Professional University

Edition Detail: (I)

ISBN: 978-93-94068-35-3

Copyrights@ Lovely Professional University

 CONTENT

Unit 1: Introduction 1
Dr. Pretty Bhalla, Lovely Professional University

Unit 2: Marketing Orientation 17

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Unit 3: Marketing Mix 38

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Unit 4: Marketing Environment 56

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Unit 5: Consumer Behavior 67
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Unit 6: Segmentation Decisions 83

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Unit 7: Targeting and Positioning 101

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Unit 8: Product Decisions 112
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Unit 9: Pricing Decisions 128
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Unit 10: Distribution Planning 146
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Unit 11: Distribution Planning 162
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Unit 12: Distribution Decisions 178
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Unit 13: Promotion Decisions 196
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Unit 14: Trends in Marketing 213

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Dr. Pretty Bhalla, Lovely Professional University Unit 01: Introduction

Unit 01: Introduction

CONTENTS
Objective
Introduction
1.1 Market Vs Marketing
1.2 Exchange Process
1.3 Selling
1.4 Marketing
1.5 Selling Vs Marketing
1.6 Types of Marketing Entities
1.7 Nature of Marketing
1.8 Scope of Marketing
1.9 Need and Want
1.10 Maslow Need Hierarchy Theory:
1.11 Need want and Demand
1.12 Marketing Concepts
1.13 Functions of Marketing
Keywords
Summary
Self Assessment
Answers for Self Assessment
Review Question
Further Readings

Objective
• understand about market and marketing
• basic concepts of marketing.
• nature and scope of marketing.
• Understand exchange process
• Marketing concepts
• analyze detailed functions of marketing

Introduction
Far-reaching changes have been taking place in the Indian economy during the recent past,
consequent to the opening up of our economy through globalization and liberalization policies. The
floodgates have been thrown open to allow international competition for manufactured goods as
well as services, making it a question of survival of the fittest in any industry. In the present highly
competitive economy, which can be called a buyer’s market, it is the customer who wields full
power. He can make or wreck a company.

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Food for thought

Why Sachets Ruled over the Indian Markets?

➢ SACHETS ARE CHEAPER
➢ MORE Convenient
➢ Pocket friendly
No wonder that the collective battle cry from sales and marketing people, retailers, wholesalers
and advertising wizards alike is now ‘Serve the Customer’, or ‘Delight the Customer’. The customer
who was considered the ‘King’ is now treated almost like ‘God’, emulating the highly successful
marketing people of Japan. When consumer expectations become higher and higher, superior
market driven strategies or customer driven strategies and their execution in the market are
important. Companies have to be fully customer oriented to succeed in the present competitive
scenario, and should ‘think customer’, ‘live for customer’, ‘smell customer’, and ‘build customer
relations’
There are various standard definitions of marketing. While the words used may be different, it is
obvious that all marketing activity is about the customer, focused at acquiring them and retaining
them.
Marketing is a business function and set of processes involved in creating, delivering and
communicating value to customers, followed by managing customer relationships, resulting in
mutual benefit for the business and its stakeholders.
Marketing is also the science of selecting target markets via market analysis and segmentation, with
a comprehensive knowledge of buying behavior, aiming to provide the best customer value.
However, marketing is successful only when an organization’s mission, vision, tasks and ability to
leverage technology align with and complement each other, and the business as a whole.

• Marketing is an organizational function and a set of processes forcreating,

communicating, and delivering value to customers and for managing customer
relationships in ways that benefit the organization and its stakeholders.”(The
American Marketing Association)
• “Marketing is a total system of business activities designed to plan, price, promote,
and distribute want- satisfying products to target markets to achieve organizational
objectives”(William J. Stanton, Michael J. Etzel, and Bruce J. Walker)
• Marketing is the creation, communication and delivery of value, as well as the
management customer relationships for a lifetime. (Luman Learning)
Although marketing viewed as an indicator of a firm’s success, it is a matter of perspective.
For example, brands like Toyota, Nissan and Nestle must rely on marketing to grow and keep their
customer base. For regulated industries like utilities and medical care and small businesses with
unique products, marketing may be low key and confined to flyers.

1.1 Market Vs Marketing

In the business world, you have heard about the terms market and marketing, end number of
times. but have you ever wondered, as, they are same or different? Market refers to a place where

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Unit 01: Introduction

buyer and sellers can come in contact with each other either directly or indirectly, so as to trade
goods and services for value. Its main function is to determine the price of the commodity, with the
help of demand and supply factors.
The term marketing is derived from the term market, and implies a process that involves some
activities which creates value for customers, clients and society as a whole. It encompasses the
promotion of business or its products/services so as to increase sales and thus the profit.

1.2 Exchange Process

A marketing exchange is what happens any time two or more people trade goods or services. In
marketing theory, every exchange is supposed to produce "utility," which means the value of
what you trade is less than the value of what you receive from the trade. Of course, all exchanges
in the real world are much more complicated.
How Exchanges Work?
Marketing theorists consider exchange to be the central concept without which there would be
no such thing as marketing. For an exchange to happen, both parties have to have something of
value for each other. For instance, a man visiting a coffee shop might have enough money to buy
a cup of coffee while the cafe has the coffee. Both parties must be able to communicate with each
other, and both must want to exchange something and be able to do so.
If the customer in the coffee shop can't make himself understood, or if he decides he doesn't want
a cup of coffee, or if he turns out not to have quite enough money, then there will be no
exchange. If all of the needed conditions are met, there will be an exchange of money for coffee.

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1.3 Selling
The selling theory believes that if companies and customers are dropped and detached, then the
customers are not going to purchase enough commodities produced by the enterprise.
The notion can be employed argumentatively, in the case of commodities that are not solicited, i.e.
the commodities which the consumer doesn’t think of buying and when the enterprise is
functioning at more than 100% capacity, the company intends at selling what they manufacture, but
not what the market requires.
In the sales process, a salesperson sells whatever products the production department has
produced. The sales method is aggressive, and customer’s genuine needs and satisfaction is taken
for granted.

1.4 Marketing
The marketing theory is a business plan, which affirms that the enterprise’s profit lies in growing
more efficient than the opponents, in manufacturing, producing and imparting exceptional
consumer value to the target marketplace.
Marketing is a comprehensive and important activity of a company. The task generally comprises
recognising consumer needs, meeting that need and ends in customer’s feedback.
In between, activities such as production, packaging, pricing, promotion, distribution and then the
selling will take place. Consumer needs are of high priority and act as a driving force behind all
these actions. Their main focus is a long run of business ending up with profits.
It depends upon 4 elements, i.e. integrated marketing, target market, profitability customer and
needs. The idea starts with the particular market, emphasises consumer requirements, regulates
activities that impact consumers and draws gain by serving consumers.

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1.5 Selling Vs Marketing

1.6 Types of Marketing Entities

Anything which is sellable needs marketing. Based on the above statement, the following is the list
of entities to which marketing is a necessary function:

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Goods: Any product manufactured in mass quantity, requires proper marketing to make it
available to its consumers located in different places of the country or world.
For example; Mobile phones manufactured in China and sold all over the world

Services: An economic activity performed to meet the consumer’s demand, needs, promotion
andmarketing.For example; Ola cabs providing for local taxi services

Events: Various trade fairs, live shows, local events and other promotional events need advertising
and publicity.For example; Indian Fashion Expo is the event where leading fashion houses
participate in displaying exhibit their creation needs marketing to reach customers, manufacturers
and traders.

Experiences: It even organizes and customizes the impression made by certain goods and services
to fulfil the customer’s wish.For example; A Europe trip package provided by makemytrip.com or
tripadvisor.com

Persons: A person who wants to promote his skills, profession, art, expertise to acquire customers,
take the help of marketing functions.

For Example; A chartered accountant updates his profile over linkedin.com to publicise his
skills and talent to reach clients.

Places: Marketing of tourist places, cities, states and countries helps to attract visitors from all over
the world. For example; India’s Ministry of Tourism promoting India through ‘Incredible India’
campaign

Properties: It provides for selling of tangible and intangible properties like real estate, stocks,
securities, debentures, etc.For example; Real estate agents publicise the residential plots to investors

Organizations: Several corporations and non-profit organisations like schools, colleges,

universities, art institutes, etc. create and maintain a public impression through marketing. For
example; Circulars and advertisements made by colleges as ‘admission open.’

Information: Certain information related to healthcare, technology, science, media, law, tax,
market, finance, accounting, etc. have to demand among the corporate decision-makers who are
marketed by some leading information agencies.For example; Bloomberg provides all current
financial, business and market data

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Ideas: Brands market their products or services through advertisements spreading a social
messageto connect with the consumers.For example; Idea 4G’s advertisement spreading the
message of ‘sharing our real side.’

1.7 Nature of Marketing

1. Marketing is Customer Oriented: Marketing begins and ends with the customer. The job of
the marketing is not only to satisfy the consumer but even to delight him/her. All the activities of
an organization must be directed and focused towards the consumer.
The organizations cannot ignore emerging technologies, materials, instruments and new ways of
organizing the things but with the considerations of consumers. Therefore, marketers must allow
their customers to dictate product specifications and standards regarding quality. The job can only
be performed if consumers’ needs are continuously monitored.

2. Marketing is the Delivery of Value: When a consumer derives satisfaction from a particular
product on the basis of product’s overall capacity and performance is known as value in
consumer’s perception. The consumers today make a trade-off between cost and benefit of the
product and they consider the product’s value and price before making a decision.
At times they will have to give up a particular product to obtain the other one since first one
involves a big cost. Thus, he will choose the product that gives him more value per rupee.
According to De Rose, “Value is the satisfaction of customer requirements at the lowest possible
cost of acquisition, ownership, and use”. Thus, the organization’s strategies must be aimed at
delivering greater customer value than that of their competitors.

3. Marketing is a Network of Relationships: The customer is at the centre-stage and focus of

all marketing activities. From 1990s onwards the focus is not only to identify the needs and delivers
it to customers but is shifting towards relationships marketing. The marketers who are smart
enough maintain their relationships by delivering high quality products in time, better services and
fair prices in comparison with their counterparts.
4. Marketing as a Separate Discipline: There used to be the days when marketing was treated as a
part of economics. But now it is recognized as a full-fledged separate discipline. With the
emergence of marketing concept, the issues of green marketing and environmental protection have
come up and regarding that various laws have been framed.
When we talk of knowing consumer behavior, it leads us to entirely a new world of human
behavior and for that matter; a marketer must possess the knowledge of psychology. Therefore,
marketing has emerged as separate discipline and got its strengths from the related areas like law,
psychology, anthropology, sociology and statistics etc.
5. Marketing is Business: When it is said that marketing is business, the contention is that the all
activities starts from marketing i.e.; through knowing consumer and end up on the consumers i.e.;
knowing consumer dissonance. It means the entire business revolves round the marketing.
According to Peter F Drucker, “Marketing is so basic that it cannot be considered as a separate
function. It is the whole business seen from the point of view of its final result, that is, from the
customer’s point of view. Business success is not determined by the producer but by the customer”.
So, business seeks customers because they are the business providers and ultimately marketing is
business.

1.8 Scope of Marketing

Nature of marketing can be studied under the following terms which will explain it in a better
manner:
1. Marketing is a Science as Well as an Art: A science is something that is done in a systematic
manner following certain standard processes. Science is a systematic body of knowledge regarding
a particular subject. Marketing too has a very systematic approach and practices. Right from
developing a new product or service, understanding needs and wants through research,
segmentation, targeting, positioning, pricing etc. or taking feedback from customers, everything is
done in a systematic manner.

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Marketing is a never ending process. At every stage of the process a marketer undertakes research
to offer excellent products to customers, thus proving that marketing is based on scientific
practices.
Art is the expression of human imagination and skill, it has an emotional connect. In Marketing we
see this aspect in areas of customer relationship, product positioning, advertising, packaging,
pricing etc. The process of segmentation, targeting and positioning is done in a systematic manner,
but it also possesses creativity in communicating the message to the customer.
This creativity and emotional connect makes marketing an art. How effectively the marketer
segments, targets and places the product in the minds of customers depends on the systematic
process adopted and the creative skills applied. Either it is packaging of a product or placing
products on the shelves, everywhere, we can see the application of science and art.
2. Marketing is Customer Oriented: The key objective of marketing is to provide goods and
services as per the needs of the customers. Before developing and providing a product, marketers
try to find out, what exactly customers are looking for? Based on the findings, the product is
created and provided to customers.
Once customer consumes or experiences the product or service, the marketer again does research
about the performance of the product and service. So Marketing is totally customer oriented, which
starts with customers and ends with customer.
3. Marketing Involves Human Actions: Humans are an integral part of all marketing activities.
Right from marketing research, product development, delivery consumption, post consumption
etc. Humans help to satisfy other human beings needs and wants. Without proper human actions
marketing would be impossible.
4. Marketing is an Exchange Process: By exchange we mean transfer of something for one party to
another. Every stage of marketing is an exchange and therefore we can rightly say that marketing is
an exchange process. There is exchange between buyers and sellers, sellers offer products and
buyers give money in exchange for the products. There is exchange of ideas and views between
Company and Customer, Marketer offers some benefits in exchange for customer feedback.
Advertising agencies offer their services in return for money. There is an exchange of ideas,
communication, money, products, experiences, technology etc. between all stakeholders and the
Marketer.
5. Marketing is Strategy: Strategy is a plan of action to achieve long term or overall goals.
Marketing involve short term and long term goals. Every function of marketing needs a systematic
plan of action. Questions such as, “What to Produce”, “What to Sell”, “When to Sell”, “Whom to
Sell to”, etc. is answered only thorough strategy of the Organization.
6. Goal Oriented: The main goal of marketing is customer satisfaction, all activities or functions of
marketing are undertaken for achievement of one major goal that is customer satisfaction. To
achieve the major goals many smaller goals need to be addressed by marketing. Therefore it is
rightly said that Marketing is Goal Oriented.

1.9 Need and Want

A need is anything which is essential for survival. Everything else than need falls into the category
of want which is inessential for basic survival but is usually required for the fulfillment of desires.

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Need and want are different from each other. A need is defined by the things which are essential
for basic survival. However, want include all the things that one desires or wishes to have. Need is
important for a person as one cannot survive without fulfilling of these basic needs like food and
water.
Some of the common needs include shelter, food, water, clothing, etc. Heat and electricity are also
included in the category of needs. One should focus on fulfillment of needs than fulfillment of
wishes, as need is of prime importance. Need is described by a term called as a necessity. Maslow’s
hierarchy of needs depict five needs ranging from physiological, safety, belonging, esteem and
finally self-actualization.
On the other hand, want is related to desire not with the necessity. It is not essential for life, but still
a person tends to consider his or her wants as of immense importance. It is important to mention
that need and want may differ from one person to another. One cannot categorize concretely that
what will be considered as a need or as a want. For example – a car may be a want for someone,
and a need for another one who has no other means of transportation nearby.
Many times a person fails to understand the difference between want and need. Therefore, it is very
important to prioritize need over wants after recognizing them. Want is never satisfied. It tends to
take a monstrous form before one actually starts thinking about overspending in wants thinking
them as needs. One should be practical enough and should spend on needs first and then on wants.
Want is something associated with emotions rather than practical approach.
It is very important to find a balancing equation between the two, through which all basic needs
must be treated first, and then some of the wants may also be achieved without being in trouble
financially or in any other way.
Need or want ?

1.10 Maslow Need Hierarchy Theory:

Maslow’s hierarchy of needs was proposed by a humanistic psychologist, Abraham Maslow in
1943. He proposed this theory in a paper in Psychological Review entitled “A Theory of Human
Motivation”. Further, he subsequently extended the concept by including the observation on
human behaviour.
In 1954, Maslow’s theory was fully explained in his book Motivation and Personality. The theory
became very popular in many areas of subjects like science, management, sociology research, and
psychology.
Maslow’s hierarchy of needs is displayed like a pyramid with the most fundamental need at the
bottom, while the highest on the top. According to the theory, Maslow explains that there are four
needs like

I. Physiological needs.
II. Esteem.
III. Love.
IV. Deficiency needs.
All these four needs are required to match the fundamental requirement of a human being. This
theory further states that the most basic level of need strengthens the desire in human personality.
The original Maslow’s hierarchy of needs has five-stage models, and it is briefly explained below.

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Stage:1 – Biological and Physiological Needs.

Air, Water, Food, Warmth, Shelter, Sleep and Sex.

Stage:2 – Safety Needs.

Freedom from Fear, Protection from Natural Elements, Law and Order, Security and Stability.

Stage:3 – Love and Belonging Needs.

Love, Friendship, Affection, Trust and Acceptance, Intimacy, Receiving and Giving, Affiliating and
being part of a Family or Friends or Work.

Stage:4-Esteem Needs.
Self-Esteem, Independence, Mastery, Dominance, Achievement, Prestige, Status Self-Respect

Stage:5-Self-Actualization Needs.
Self-Fulfilment, Seeking Personal Growth and Realizing Personal Potential.
However, in the 1960s and 1970s, the five-stage model has been changed during the development
of the theory and marked it to eight-stage model.

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Types of needs:

1.11 Need want and Demand

NEED
Need is a term that used for describing those requirements that exist naturally, for example: we
need foods, water, safety, clothing, home, etc. Needs can be classified to different categories:
Physical Needs: basic requirements of life (foods, air, home, safety)
Social Needs: basic requirements of human beings (family, friends) for different of relation-ships.
Individual needs: education, knowledge, expression, creativity, ego-needs (self-esteem).
WANT
Wants are indirect requirements that we like to get them, wants can be conditional and un-
conditional, for example: we want to buy a computer if price is cheap; there are infinite wants of
human beings. Wants can be created by providing different products that affecting individuals
thinking.
Wants of human beings are related to human intelligence that chooses what their mind decides
according to their preferences and behavior.
DEMAND
Demands can be used for paying money for (Needs and Wants). This term if very important in
business because finally, demands of products and services are the final decisions that taken to
consideration for business activities. Usually, demand is a monetary term that transfers requests
from buyer to seller; this process is a core of each business that marketing playing a big role in it.

1.12 Marketing Concepts

There are 5 different concepts of marketing, each of which vary in the function that they deal with.
For example – production concept deals with production and selling concept deals with selling.
Each of the concept was developed as per the need of the market. As the market changed, so did
the concepts of marketing. And today, we have an opportunity to look at all 5 concepts of
marketing and what they represent.

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➢ Productionconcept
➢ Product concept
➢ Sellingconcept
➢ Marketing concept
➢ Societalmarketing concept

1) Production Concept: Consumers prefer products that are widely available and inexpensive.
The production concept is more operations oriented than any other concept.

2) Product Concept: Consumers favor products that offer the most quality, performance, or
innovative features. The product concept believes in the consumer and it says the consumers are
more likely to be loyal if they have more options of products or they get more benefits from the
product of the company.

3) Selling Concept: Consumers will buy products only if the company aggressively promotes or
sells these products. Off course, in this era of marketing, we know that selling is not the only tactic
to sell your product. You have to focus on marketing as well.

4) Marketing Concept: Focuses on needs/wants of target markets & delivering value better than
competitors. The marketing concept believes in the pull strategy and says that you need to make
your brand so strong that customers themselves prefer your brand over every other competitor.
This can be achieved through marketing.

1.13 Functions of Marketing

Marketing is the process that comprises of all the activities involved from the concept of
the product all the way till it reaches the final consumer. So there are a lot of activities in this
process, which we call the functions of marketing.

1. Identify consumer Needs: One of the first steps the company needs to take is to identify the
needs and wants of the consumers in the market. To do so they must gather information and
analyse this information. Once you understand your customer thoroughly you can base
your product design on this information.

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2. Planning: The next logical step would be to make a marketing plan. Firstly you must be very
clear about the objectives of the company and what it wishes to achieve. Then you figure out
a timeline to achieve these objectives. And finally, you plan the marketing strategy of your
company accordingly.
3. Product Development: As per your consumer research, we then develop the product that
suits the needs of the consumer. The design of the product is also an important factor in
many products. Like for example when buying a car, the design will play a huge factor.
There are other factors to be considered like cost, durability etc
4. Standardization and Grading: Standardisation means ensuring uniformity in the product.
All customers must get the same product of the same design and quality. And these
standards need to be maintained throughout.
Grading is the process of classification of products according to similar characteristics and/or
quality. If the product does not have any predetermined quality or other specifications like
say agricultural products. Grading will ensure the consumer knows your goods are of the
highest quality.
5. Packing and Labelling: The package and the label are the first impressions your product
makes on the consumer so they are of essential importance. They are not only to protect and
identify the goods but are great marketing tools. There is proof that an attractive package
and label can go a long way in making a product a success.
6. Branding: One important decision the company has to make is whether they want the
product to have an individual identity in the market or they want it to be recognized by the
brand name.
Certain brands enjoy incredible goodwill in the market and it can benefit the product. But you
may also want the product to have a separate identity so it can flourish on its own attributes.
7. Setting up Customer Support Services: Depending on your product there may be a variety
of customer services that the company has to set up. Pre-sales service, consumer helpline,
maintenance services, technical support are just some of the services that your product may
require. These are important functions of marketing.
8. Pricing: This may be one of the most important functions of marketing. The price of a
product will largely determine its success or failure. Factors like demand, market conditions,
competition prices etc will be considered to come up with the correct pricing strategy.
One other thing the company must remember that prices of the products should not be changed
too frequently. This leads to confusion in the market.
9. Promotion: This is where you inform the customers of your product and persuade them to
buy it. There are four major promotion methods – advertising, personal selling, sales
promotion and publicity. The company must decide on its best promotion mix, a
combination involving all or some of these four methods.
10 Distribution: Here the company must ensure the correct distribution channel for its product.
It will depend on a variety of factors such as the concentration of the market, shelf life of the
product, company’s capital requirements etc. Inventory management is another important
factor the company must look into.
11. Transportation: The physical movement of the goods from its place of production to its
place of consumption is transportation. It is a very important function of marketing. The
company must analyse the geographical boundaries of its market. This will help them
choose the correct modes of transportation.
And in the global economy where we live in, there are almost no barriers to international
trade.So if a company wishes to go global transportation will be a key factor in
their marketing mix.
12. Warehousing: As we have know there is always a lag time between the production and the
consumption of most goods. Sometimes the products are seasonal or the supply is irregular
or there are production difficulties. But companies like to maintain a smooth flow of goods.
So storage and warehousing of goods are necessary.

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Keywords
Market , marketing , Value , satisfaction , need , want , demand , transportation , warehousing and
Pricing

Summary
Marketing is dynamic and all pervasive subject in business that makes the whole organization
ready to serve the customers. The emphasis is on optimum utilization of resources and converted
effort on the part of marketing manager to deliver higher value to customers and greater profit to
the organization. while selling is more about product push , marketing is about identification and
satisfaction of customer needs.
The exchange process can range from simple , economy based exchange process to complex ones.
Marketing Management is a process of identifying consumer needs, selecting target segments,
developing products and services and implementing the marketing program for generating higher
customer satisfaction and profit for the organization .

Self Assessment

1. ________________ brings out new ideas and get several opportunities in Marketing.

A. Production
B. Marketing
C. Creativity
D. Consumer

2. The main objective of marketing is__________.

A. Increasing profit
B. Increasing sales
C. Increasing prices
D. Decreasing cost of production

3. Effective Marketing requires

A. Proper pricing
B. Customized products
C. Effective procedures
D. All the above

4. Concept which deals with good and quality products providing to the consumers is:

A. Marketing concept
B. Product Concept
C. Exchange Concept
D. Production Concept

5. Function of Marketing deals with the development of goods with respect to their Color,

Design, Shape and other characteristics is called______________________

A. Production
B. Product Planning and Development
C. Packaging and Pricing
D. Standardization and Grading

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6. The Marketing Function deals with cost of the product and the capacity of consumer to pay

is called:

A. Packaging
B. Branding
C. Pricing
D. Marketing

7. The process of collecting and analyzing the information regarding consumer need and

nature of competition prevailing prices effectiveness of advertising media etc is called:

A. Product Research
B. Marketing research
C. Price Research
D. Selling Research

8. Marketing is based on the rule of buying and selling. According to this concept Marketing is

an art of:

A. Buying more
B. Selling More
C. Fulfilling consumers need
D. All the above

9. Customer deals with the same Organization for a long time is called________________

A. Customization
B. Customer Equity
C. Customers Need
D. Customer Retention

10. A person who purchase any product or service is known as_____________________

A. Customer
B. Consumer
C. Marketing staff
D. Salesperson

11. “Many people want BMW, only a few are able to buy” this is an example of _______

A. Need
B. Want
C. Demand
D. Status

12. _____ makes a service different from a product.

A. Pricing
B. Intangibility
C. Ubiquity
D. Liquidity

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13. Marketing Management is the _________ of choosing target markets and getting, keeping

and growing customers through creating, delivering and communicating superior customer

value.

A. Art
B. Science
C. Art and Science
D. None of the above

14. Marketing people market following entities:

A. Goods
B. Services
C. Experiences
D. All the above

15. At a fast-food restaurant, what is marketed?

A. Pizza
B. Goods
C. Services
D. Goods and services

Answers for Self Assessment

1. C 2. A 3. D 4. B 5. D

6. C 7. B 8. C 9. D 10. A

11. C 12. B 13. C 14. D 15. D

Review Question
1. Define marketing? what is importance of marketing to customers and organizations?
2. Why modern marketing is acknowledged over traditional one?
3. Discuss Scope and Nature of Marketing ?
4. Marketing is considered as Lifeline for the organizations, Discuss the prerequisites
required for the same.
5. Are customers and Consumers same , Discuss ?

Further Readings
1. Stanton, Etzel and Walker- Fundamentals of marketing (TMH)
2. Philip Kotler- Marketing Management (PHI)
3. Philip Kotler and Armstrong- Principles of marketing (PHI)
4. Ramaswamy and Namakumari- Marketing management (Macmillan

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Dr. Pretty Bhalla, Lovely Professional University Unit 02: Marketing Orientation

Unit 02: Marketing Orientation

CONTENTS
Objective
Introduction
2.1 SMART Marketing Goals
2.2 Evolution of Marketing Concept
2.3 Evolution of Marketing Concept
2.4 What can be marketed?
2.5 Holistic Marketing
2.6 But how does a business achieve this?
2.7 Marketing Vs Selling
Summary
Keywords
Self Assessment
Answers for Self Assessment
Review Questions
Further Readings

Objective
• Evolution of modern marketing concept
• Elaborate holistic marketing concept
• Understand importance and relevance of holistic marketing.
• Analyze new marketing orientations.

Introduction
Marketing goals are the specified aims that any company wants to achieve via its marketing
strategy and efforts. Examples of these goals include creating brand awareness, establishing
thought leadership, generating marketing qualified leads, improving brand engagement, increasing
the quality and quantity of leads, etc.
Marketing goals are defined as numerous objectives and growth-driven benchmarks that a
company aims to achieve by making marketing strategies. A marketing goal is also understood as a
marketing objective that provides clarity to a marketer to focus on what is essential and what is
unnecessary.
For example, a digital marketing campaign can have marketing goals like increasing website traffic,
growing email lists, gaining more social media followers, converting target audiences, etc. Setting
marketing goals give direction to a company’s marketing efforts. As per research, marketers who
set goals are 376% more successful than those who did not have set goals.
Goals are an essential part of the marketing plan. Marketers often opt to set SMART goals. SMART
mnemonic acts as a guide for setting smart goals.

2.1 SMART Marketing Goals

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S for Specific
The goal should be specified and defined. It eliminates confusion and increases accountability and
responsibility.

M for Measurable
Measurable goals make it easy for a company to track its progress. Marketing goals for a business
should be measurable to check if it is offering the expected results or not.

A for Attainable/Achievable
Realistic goals are always achievable. It is pointless to set unattainable goals as it demoralizes
workers as efforts do not result in rewards.

R for Relevant
Relevant goals have a real benefit attached to them. It should be in line with the vision and
objective of the company. Goals that matter to the organization are relevant to its growth
and development.

T for Time-Bound
Setting time-bound goals with clear deadlines put a clock on it. A company must achieve these
goals within a certain period. Otherwise, setting goals does not amount to much.
These SMART goals give a marketer a framework for how to plan their marketing strategies. It
allows them to maximize their successes. Without goals,people in an organization would work
aimlessly. Here is a list of different types of SMART marketing goals-

1. Increasing sales
2. Generating leads (or opportunities)
3. Acquiring new customers
4. Reducing churn (or retain customers)
5. Up-selling and cross-selling
6. Improving awareness
7. Increasing customer satisfaction
8. Launching a new product or solution
9. Re-branding or re-positioning
10. Increasing web traffic
11. Refining go-to-market strategy
12. Launching a new initiative, etc
Examples are:

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AMA
• American Marketing Association (2007) defined Marketing as “the activity , set of
institutions and processes for creating , communicating , delivering and exchanging
offerings that have value for customers, clients, partners and society at large”.

2.2 Evolution of Marketing Concept

Marketing is an act of influencing people to buy a product or service. We have been witnessing this
act of marketing since we have started commercialization and with the passage of time, we have
witnessed the evolution of marketing.Until and unless you have clearly understood the entire
concept of marketing and how its evolution took place, it is difficult for you to understand the
modern-day marketing techniques and strategies.
We can never ignore the importance of marketing in any business as it is undoubtedly the backbone
of any business.
Business will cripple down if marketing team is not able to function properly. Use the right
marketing techniques and put them at the sweet spot to get the maximum out of your campaigns.
Well, when we are talking about the marketing concept, it has always been changing for many
years and there are still some changes that are going on right now. From classical times to the
modern contemporary word, the evolution of marketing has gone through a lot of changes and
here we are going to discuss all it for sure.

The Era of Trade And Production

These are the times when things were pretty simple for sure. The main importance of marketing
and the focus was simply the exploration of the resources and trading them as well. During the mid
19th century, there is no doubt that commodities with the commercial sector where just the staple
of the economy for sure.
Everything that was created was done with the hands for sure. So, there is no doubt that making
products for trading was the main concept of marketing. However, with the industrial revolution,
trade era came to an end and gave birth to a completely new era for sure.
This was the production era where the main focus of the marketing was on the production of more
goods and hence mass production as a very important factor in here for sure. The manufacturing
was done in the most efficient and effective manner which was the main concern for the business as
well. So, the marketing conception became a lot simpler.

The Era of Sales

The competition began to arise with the sales era and there is no doubt that the businesses were not
easily able to sell the products that were mass-produced.
Hence, the companies found it more and more difficult to sell the products to the customers. So, the
concept of marketing in this era started to focus on the promotion of the products to sell them in the
best way. This is something that we do until this date.

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The Relationship Era

The sales era also gave way to the relationship era where the long term relationships were made
between companies and consumers. The businesses started to focus on the needs and requirements
of the customers more so that they could build better relationships with them.

The Era Of Social Marketing

There is no doubt that this era was the basic game changer for the businesses for sure. With the help
of the internet and social media, the evolution of digital marketing came to exist in the best way for
sure.
People could easily reach out in the best way to the companies and they could stay fully in contact
with each other as well. Different types of social media and communication are the main
components of this era and there is no doubt that there are a lot of amazing things to come in the
evolution of marketing with the change of times as well.
Let us now understand how our modern-day marketing has evolved from an ancient marketing
concept–

2.3 Evolution of Marketing Concept

The evolution of marketing started during the Industrial Revolution that took place in the 18th and
19th century. We can trace the entire evolution of marketing in four different phases-
1. Production Orientation
2. Product Orientation
3. Sales Orientation
4. Customer Orientation
5. Social Orientation and so on.

1. Production Orientation:
Under this people believed that when a product’s quality is good enough it doesn’t require any
additional efforts in promotion as people will anyhow purchase it. This was the widely used
approach during the industrial revolution.
People focused on more production under low cost so that it can fetch better returns. Before the
revolution maximum products were handmade and this entire process made the production cost of
the product go high.
Due to a high production cost, producers had no option than to sell it at higher prices.
After the introduction of machinery, this production cost came comparatively down and the
products were being sold at 1/10th of the original price.

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Customers were ready to buy this product with happiness as it was cheaper for them than ever. In
this case, there was hardly any requirement of marketing and the products were being sold with
ease.
Though when we are going through this philosophy of production orientation, we need to know
that a few assumptions were taken while framing this philosophy like; everything that was being
produced with the machinery could be sold, the production cost was kept to a minimum only and
so on.
Manufacturers during this phase of the evolution of marketing concept were eyeing for more
efficient production which is coming out of low-cost as to attain the maximum profit.
This concept dominated the business landscape in the 1900s, where organizations focused heavily
on the mass production of products. Emphasis was on streamlining the production process and
concentrating on improving efficiencies, with little focus on consumers or anything else.
The assumption was that customers valued price. For this reason, this approach focused on
maximizing efficiency while lowering production costs to meet customers’ price needs. This
business strategy dedicated its resources towards its products, and its marketing point was the
price.
Advantages of Production Orientation:
Mass production
Maximum efficiency at the lowest costs
Distribution of products inexpensively
Disadvantages of Production Orientation
This approach lacked the fundamental drive that controls the consumer market, that is, customer
needs.
The emphasis on efficiency may affect the company’s ability to produce a product that meets the
customer’s high demands.

Highlights:

Oldest concept

Believed that customers favor products that are easily available and highly
affordable.

Focus on improving production and mass distribution

This orientation makes sense in developing countries.

Efforts on reducing costs to provide inexpensive goods.

Ford’s automobiles are a very good example of production. When Ford pushed a
large number of automobiles in the market, more people bought its vehicles.

2. Product Orientation
Here, a more competitive approach was taken during the production process in order to produce
the most ideal product they can.
An assumption was made during this phase if the people are already having a product of certain
quality they will only expect you to produce a product of better quality than that.

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If they are already benefited from the core features of a product then if you want to sell your
product, you will have to create something different and better.
What was happening in this phase was, every production process was setting a standard before
itself.
Since customers were seeking for a product with more and more unique features, manufacturers
were also aiming towards producing a better and better product. They were doing their best to
solve the problem of the diverse needs of customers.
But there was a downside during this approach of production – the prices of the product were
going up at a high rate.
Since every time the product contained more and more features, this leads the manufacturers to
increase the price of the product and sometimes even the customer themselves were not in a
position to pay the prices for what they seek were seeking from the product.
Highlights:
• Focus is on making Superior Goods.
• Believed that customers prefer goods with best quality & Innovative Features
• Importance is given to improving the product
• Goods sell themselves.
This approach, which was popular during the 1950s and 1960s, mainly focused on the product that
a company intends to market. Unlike in quantity-oriented organizations where the price was the
focal point, product orientation placed emphasis on quality.
While all resources were directed towards the quality of a product (hence the production of
premium products), the approach didn’t focus on the needs of its target audience.
Advantages of Product Orientation
Mass production of products at lower costs
Focus on quality
Improved sales due to the high quality of products
Better market research
Disadvantages of Product Orientation
Narrow branding: Customers identify with brands, and if you don’t develop a brand that resonates
with their needs, they may not be interested in what you’re selling.
High risks of running out of business: Without a clear message explaining to customers the benefits
of using their products, a competitor with a better message can run you out of business.
If you haven’t established your reputation in the marketplace, consumers may not trust you to
deliver.
Your business solely depends on the strength of your product. Customers expect nothing but top-
notch quality.
Making a profit on premium products may require you to set a higher price tag than the market can
accept.
The costs of developing top-quality products are steep.

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• Apple: Apple is one of the world’s largest tech companies and it falls under the category
of top 5 tech companies of the world. iPhone, TV, Store, Music, Videos, and iPad are some
of the main products of Apple. The company also follows the product concept by the focus
on delivering a quality product. The customer market of Apple doesn’t care about the
price.
• Gucci: Gucci is one of the world’s leading luxury fashion brands. The company offers
quality makeup, handbags, ready-to-wear clothes, shoes, fragrance, home decoration, and
many other accessories. The brand also follows the product concept by offering the latest
fashionable products to the customers. The customers are willing to pay a higher price for
the Gucci products.
• Louis Vuitton: Louis Vuitton is also a French fashion brand. Luxury ready-to-wear
watches, shoes, clothes, jewelry, sunglasses, accessories, leather goods, and books are
some of the main products of Louis Vuitton. The company also provides quality products
to its customers, and they’re willing to anything to get the Louis Vuitton product. Factors
like quality, luxury, fashion, and status are more important to the customers of the brand
than price.

3. Sales Orientation
With the passage of time people started to recognize the importance of the promotion process and
why they should introduce marketing to their business.
Producers started to realize that mere production of quality products is not enough for their
business’s growth rather they will also have to invest in the promotion process.
They realized that it was extremely difficult for them to move the product out of their firm without
a proper promotion or advertising.
What we know today about marketing was realized at that period of time. They started to feel that
no matter how much quality their products contain, people won’t buy it if they are kept to mum.
During this phase, the manufacturers were only eyeing on two things – producing the best quality
product they can and convincing the people at their best to buy the products that they have
produced.
They started using different tactics to influence people to buy their products. Even high-pressure
tactics were being introduced to boost up sales.
This philosophy is being followed since the 1940s and the marketing which we are following
currently is entirely based on the same philosophy.

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A sales-oriented approach can be especially effective for a business competing for customers in a
saturated market. It can also be a valuable tool for a firm that holds dead stock and wants to
reintroduce them to the market.
The extra effort that the sales and marketing team devotes towards selling a product may tip a
consumer’s buying decision.

Advantages of Sales Orientation

It generates immediate short-term sales.
If a company’s product or service is the best in the market, selling it should be easy.
Aggressive selling tactics may influence a consumer’s purchasing power.
Broad customer reach for unsought goods. Companies can introduce products or services that
customers don’t know about or don’t even need and use aggressive sales techniques to boost sales.

Disadvantages of Sales Orientation

Customer loyalty and confidence are at risk since they are pressured to buy what they don’t want.
High risk of ‘backlash’. Running a promotion campaign is costly, and it can lead to losses if
consumers resist the product or service.
The approach is not sustainable in the long term.

4. Societal Orientation

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Due to the increase in environmental awareness, the new concept of “Societal Orientation” has
emerged. Organizations are formulating marketing strategies and production processes that
recognize the impact on the environment, within and without.
Businesses that implement this idea incline towards the ethical approach in their wider marketing
and research strategies. A good example is the pharmaceutical industry and life science sectors,
which have come under scrutiny for their unethical marketing strategies.
Advantages of Societal Orientation
Promotes ethical practices
Helps build a better image for the organization
Increases a company’s sales and market share
Economic resources are adequately utilized
Raises the standard of living of people in society
Disadvantages of Societal Orientation
The marketing message can be misleading
Budget limitations

5. Marketing Orientation
Market-oriented businesses focus on analyzing the target audience to determine their needs and
design a product to fit those needs. This business model centers everything around what the
customer wants rather than on promotions. Market orientation revolves around customer
satisfaction and reacting to the demands of the customer.
Marketing oriented organizations approach their operations from a consumer perspective and
focus on the current and future needs of customer needs. The entire firm appreciates the
significance of the customer and recognizes that the business won’t exist without them.
The marketing orientation concept is built around three pillars:
Customer focus – The customer is at the heart of corporate marketing strategies. They are
considered the most important stakeholders, and companies base their philosophies on serving the
customer to ensure his needs and wants are met.
Coordinated marketing – The success of any company depends on coordinated team efforts. It’s
a company-wide responsibility, and everyone must work together to achieve a common goal.
Profitability – In a fiercely competitive global economy, businesses are constantly under pressure
to prove their financial standing every quarter. Within the framework of marketing orientation,
companies’ profits are driven by both financial (ROI and market share), and non-financial
(behavioral patterns, attitude, and awareness) measures.
Each company strives to develop an orientation towards one of these pillars, depending on its
internal structure and culture.
The widespread adoption of Internet technology has contributed to the shift toward marketing
orientation. Customers have grown increasingly discerning, and social media has become one of
the primary sources of customer outreach.
In a market orientation concept, companies don’t just introduce products or services to customers.
It’s a long process that starts with researching the demographics and demands of the target
audience. It also involves rigorous marketing efforts to convince potential customers to make a
purchase decision.
Advantages of Market Orientation
The consumer-centric approach helps an organization to know what the customers really want,
hence avoiding wastage of resources.
It builds a strong customer relationship. In turn, customers help the company grow and thrive.
It increases customer satisfaction, confidence, and loyalty.

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It increases sales, which also leads to higher volume and market share of a business entity.
Listening to the needs of the consumers helps a business create and develop a brand that customers
can identify with.
Businesses using this concept are more resilient to change than their competitors.
The customer-focused approach fosters product innovation.
Customer satisfaction encourages buyer feedback, which in turn improves effectiveness and
efficiency.
Disadvantages of Market Orientation
Businesses must learn to quickly change direction to keep up with the constantly changing
demands of their customers.
It takes heavy investment in research to understand the ever-changing needs of consumers.
This approach may not always be innovative since it’s more concerned about meeting the desires of
consumers than creating new products.

2.4 What can be marketed?

Services:
These are intangible products that involve performing some service for the customers. This may be
service performed on the customer, like a manicure, or on customer’s possessions, like pet
grooming , As economies advance more efforts are devoted to production of Services For instance
in U.S the economy consists of a 70 – 30 services to goods mix which include hotels, car rental,
banking

Events:
Time based shows such as New Year celebration, trade shows artistic performance and company
anniversaries are promoted by marketers aggressively to both companies and consumers due to
huge financial rewards earned through sales.

Experiences:
By orchestrating several services and goods, a firm can create stage and market experiences. (Kotler
& Keller 2009) Walt Disney world magic kingdom represents experiential marketing whereby
Customers visit a fairy kingdom, a haunted house or a pirate ship and experience how it feels like.
For example the HARD ROCK café offer an experience whereby they can enjoy their meal or see a
band in a live stage.
Persons:
Involves marketing of a celebrity or of a candidate in a public election. People such as Madonna,
Michael Jordan, Oprah Winfrey and the Rolling Stones have been really successful in their careers
mainly because of how well they have marketed themselves. Management consultant guru Tom
Peters a master at self branding has advised each person’s to become a “brand”.

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Places:
Cities, states, regions and nations, compete actively to attract tourists and investment through
factories, company headquarters and new resident. (Kotler & Keller 2009) Place marketers include
economic development specialist, real estate agents, and national tourism agencies.
Properties:
This could be physical properties like real estate or intangible rights of ownership of financial
property such as stocks and bond. Properties are bought and sold on regular basis and this requires
marketing.
Organizations:
This basically refers to building positive image of organizations, such as companies, universities,
and charitable organizations to attract customers. For example Philips the Dutch electronics
company puts out ads with the tag line “sense and simplicity” to convince costumers that their
products are easy and simple to use.
Information:
Information can be produced and marketed as products Books are the most common means of
selling information, but there are many other type of information marketed. For example
educational institutions produce and distribute information at a price students and communities.
Ideas:
Every market offering includes a basic idea. (Kotler & Keller 2009) In addition ideas may be
marketed by themselves. For example Charles Revson observed “in the factory, we make cosmetics;
in the stores we sell”. Products and services are platform of delivering some idea or benefit.
Example: Apple Air Pods

2.5 Holistic Marketing

• The whole is more than the sum of its parts.” — Aristotle
Holistic marketing revolves around this philosophy of holism where the business and its parts are
considered as one interconnected entity and where all its activities are directed towards one
specified goal.
Holistic marketing is a business marketing philosophy which considers business and all its parts as
one single entity and gives a shared purpose to every activity and person related to that business.
The process of holistic marketing takes into account the considerations of stakeholders, customers,
employees, suppliers, and the community as a whole when creating and implementing marketing
strategies. Businesses realize that they can set themselves apart through a holistic marketing
approach, while at the same time creating synergy among departments in the organization.

According to Kotler identified the following 10 types of entities which may be marketed. According
to Kotler marketing management is the art and science of choosing target markets and getting,
keeping and growing customers through creating, delivering, and communicating superior
customer value
Physical goods that may be manufactured produced in farms or mined. These account for the bulk
of the marketing efforts in most of the countries. Each year companies globally market billions of
fresh canned, packed, and frozen food products and millions of automobiles and electronics. Due to
the internet individuals can also effectively market their goods.
• Example: That goal involves creating a great customer experience and building a
positive brand image.
• If a business behaved one way on social media and presented themselves in ads
differently, this would send a mixed message to the customers, which is something you
absolutely don’t want to do.

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If a business implements the holistic marketing concept correctly, it greatly contributes to four very
important things:
1. Brand building
2. Consistency
3. Efficiency
4. Effectiveness

2.6 But how does a business achieve this?

• There are 4 components, or marketing forms, to this process:
• relationship marketing
• integrated marketing
• internal marketing
• and socially responsible marketing

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1. Relationship Marketing:
The relationship marketing aspect of holistic marketing philosophy focuses on a long-term
customer relationship and engagement rather than short-term goals like customer acquisition and
individual sales.
This strategy focuses on targeting marketing activities on existing customers to create a strong,
emotional, and everlasting customer connection. These connections further help the business in
getting repeated sales, free word of mouth marketing and more leads.

Example: Do us a Flavor

Frito-Lay’s launched a campaign “Do Us a Flavor”, where they asked their loyal customers for new
chips flavors. To shortlist the flavors, customers can vote on it through social media and shortlisted
flavors gets into the Lay’s flavor lineup. The suggested customer receives a handsome cash prize.
The company did this to achieve the goals of engaging its customers and creating a long-term
relationship.

• People love relationships, and brands should focus on that in the first place. The Zappos
Call center staff spends more than average time with its customers. The goal of longer
conversation is not making a sale but building strong relationships. What is the result?
75% of the total repurchase rate comes through its call centers.
• Most businesses spend their money on advertising, but Zappos philosophy is that money
should be invested in customer service so that it will encourage the customers to do word
of mouth marketing for Zappos.

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2. Integrated marketing
This form of marketing is the second component of the holistic marketing concept and is related to
the aforementioned unified message that the business sends to its customers.
This strategy ensures that all marketing parts of a business work together, which includes
departments and employees who deal with paid media, earned media, and owned media.
Let’s see what each of these entails.
Paid media involves marketing you pay f o r , s u c h as pay-per-click marketing and influencer
marketing.
Earned media, as the namesuggests, are the things you earn from your customers, such as reviews
and comments.
Owned media presents the media you own: like your website and social media profiles.
.Example: Domino’s Helps People Order from Anywhere

The ubiquitous pizza chain named their ordering software “AnyWare” to highlight the ease of
ordering wherever a customer may be. The key to making it work was the Pizza Profile, established
to save customer information and expedite ordering. With this data, people could order online, by
text, via tweet, or even using a smartwatch. Getting the word out about AnyWare involved an
integrated marketing strategy encompassing press releases and television as well as digital and
social advertising, with a goal of one-half of all orders being made digitally (which they reached
handily).

3. Internal marketing
So far, we spoke about the relationship between the customer and the business and the unified
message the business needs to send to their customers, but what about the people who make this
happen?
Internal marketing is all about the employees and the reason for it is good customer experience.
According to this marketing form, the customer’s opinion of a business isn’t influenced only by the
products.
It is also influenced by all the interactions they have with the business, which are mostly employee-
customer interactions, hence the importance of internal marketing.
So, by providing intensive training to employees, a business ensures that they know everything
they need to when a customer has a question or needs help with something.

Apple – a great example of internal marketing

Think of Apple and its employees. If you’re having issues with your Apple product, you can take it
to their store and their highly capable employees with solving them.
If this weren’t the case and they hired just anyone and didn’t train them properly, you would think
twice before purchasing another product of theirs.
How companies adopt the same:

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• Educating employees on the company goals and values

• Encouraging employee input on corporate policies and leadership, allowing open
dialogue and accepting any criticisms
• Nurturing communication and collaboration among employees
• Ensuring employees know that their contributions matter and are essential to the success
of the company.
• Opening up the product or services to employees to use and get involved in

4. Socially responsible marketing

Even though you probably don’t know it by name, you’ve seen dozens of examples of this
marketing type.
Socially responsible marketing aims to attract customers who want to make a difference with their
purchases. Think of products where a part of the proceeds goes to a good cause or products that are
made responsibly.
There are 4 marketing-related concepts that are involved in this specific type of marketing: social
marketing, environmental marketing, cause-related marketing, as well as socially responsible
buying – all concepts that are related to the environment and well-being of the society.

Objectives of Societal Marketing:

• Changing attitude, beliefs, and expectations of the people; so that people should care
about the environment,
• Companies should adopt such marketing strategies that would make people change their
behavior.
• Societal marketers should change the traditional marketing mix (product, price, place, and
promotion) and use it in their marketing campaign, which would increase the impact of it.
• Marketing of the company’s product should also spread awareness about the environment
in which companies are operating their businesses.
• societal marketing campaign messages should be so effective that people and businesses
start taking responsibility about the environment.
• The marketing share and consumer base should increase with the societal marketing
campaign

Advantages of Societal Marketing:

• Societal marketing helps companies and businesses to send a good message that they care
about the environment.
• An eco-friendly approach would provide you a competitive edge over competitors.
• If a company provides eco-friendly products and services to its customers, then it would
increase the customer retention ratio.
• When customers are loyal to a certain brand, then the sale of products and services would
also increase.
• When the sale increases, then businesses would have the opportunity to expand and grow
their operations.
• Societal marketing system would properly use the economic resources of the company.
• The usage of economic resources would generate employment opportunities and the
living standard of the people would also rise.

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2.7 Marketing Vs Selling

Selling :The selling theory believes that if companies and customers are dropped and detached,
then the customers are not going to purchase enough commodities produced by the enterprise.
The notion can be employed argumentatively, in the case of commodities that are not solicited, i.e.
the commodities which the consumer doesn’t think of buying and when the enterprise is
functioning at more than 100% capacity, the company intends at selling what they manufacture, but
not what the market requires.
In the sales process, a salesperson sells whatever products the production department has
produced. The sales method is aggressive, and customer’s genuine needs and satisfaction is taken
for granted.

Marketing: The marketing theory is a business plan, which affirms that the enterprise’s profit lies
in growing more efficient than the opponents, in manufacturing, producing and imparting
exceptional consumer value to the target marketplace.
Marketing is a comprehensive and important activity of a company. The task generally comprises
recognising consumer needs, meeting that need and ends in customer’s feedback.
In between, activities such as production, packaging, pricing, promotion, distribution and then the
selling will take place. Consumer needs are of high priority and act as a driving force behind all
these actions. Their main focus is a long run of business ending up with profits.
It depends upon 4 elements, i.e. integrated marketing, target market, profitability customer and
needs. The idea starts with the particular market, emphasises consumer requirements, regulates
activities that impact consumers and draws gain by serving consumers.

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Summary
As stated in an earlier section, the process of marketing involves creating a market offering, to
satisfy the needs and wants of the present and potential buyers. The real question is how to create a
market offering. We can say a profitable business opportunity is seen by some firm in the field of
producing soft drinks.
To develop and market a new brand of soft drinks, a number of important decisions will have to be
taken for example whether to go for any collaboration with a foreign manufacturer of soft drinks,
whether to produce for the local market or for a wider market, what will be the features of the new
product, and so on. There are large number of factors affecting marketing decisions. These can
broadly be divided into two categories: (i) controllable factors, and (ii) non-controllable factors.
Controllable factors are those factors which can be influenced at the level of the firm. In the
previous illustration, for example, whether the drink will be packed in glass bottles or plastic cans;
what will be the name (brand name) of the drink; at what price it will be sold, (at par with the price
at which other competitive brands are sold or below it or above it); what distribution network will
be used to make the product available (e.g., hotels, restaurants, groceries shops, kiosks selling
cigarette, paan, etc.) to the buyers whether the new soft drink will be promoted by putting up
advertisements in newspaper or magazine or on radio or television; or say if newspaper, whether in
a local newspaper or a national daily; whether in a paper of regional language or an English daily,
etc. is decided at the level of marketing manager of the firm.

Keywords
Marketing, Selling, Promotion, strategies, Environment, Relationship Marketing, integrated
marketing, Societal marketing.

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Market Management

Self Assessment

1. Marketing is managing profitable customer relationships, so the goal of marketing is to :

A. Generate profit
B. Attract new customers
C. Keep and Grow current customers
D. Both B and C

2. American Marketing Association (2007) defined Marketing as “the activity , set of

institutions and processes for creating , _____________,delivering and exchanging offerings
that have value for ______,clients, partners and society at large”.
A. Communicating and customers
B. Profit and customers
C. Sales and Employees
D. Attracting and customers

3. _________concept focussed on improving production and mass distribution

A. Production Concept
B. Product Concept
C. Selling Concept
D. Marketing Concept

4. __________ concept is Used with goods which buyers usually don’t think of buying

(Unsought Goods) Such as insurance.

A. Production Concept
B. Product Concept
C. Selling Concept
D. Marketing Concept

5. __________ concept is useful when demand of product exceeds the supply.

A. Production Concept
B. Product Concept
C. Selling Concept
D. Marketing Concept

6. _________ concept focus in on creating , communicating and delivering customer value.

A. Production Concept
B. Product Concept
C. Selling Concept
D. Marketing Concept

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7. If the business environment is competitive, then you should follow the marketing concept

because it would be favorable in such an environment

A. Production Concept
B. Product Concept
C. Selling Concept
D. Marketing Concept

8. Marketing means ________ consumer needs while making profit

A. Fulfilling
B. Completing
C. Creating
D. Occupying

9. What can be marketed?

A. Goods and services

B. Events and Experience
C. People and properties
D. All the above

10. The process of holistic marketing takes into account the considerations of stakeholders,

customers, employees, suppliers, and the community as a whole when creating and

implementing marketing strategies.

A. stakeholders
B. customers
C. employees
D. all the above

11. If a business implements the holistic marketing concept correctly, it greatly contributes to

four very important things which are Consistency, _______, _________and Efficiency.

A. Need and demand

B. Brand building and consistency
C. Efficiency and Effectiveness
D. Both B and C

12. The four components of Holistic marketing are : relationship marketing, integrated

marketing, internal marketing and ………….

A. Socially responsible marketing

B. Demand based marketing
C. Price sensitive marketing
D. International marketing

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Market Management

13. ____________ marketing, targets activities on existing customers to create a strong,

emotional, and everlasting customer connections.

A. relationship marketing
B. integrated marketing
C. internal marketing
D. Socially responsible marketing

14. Activities within ____________including advertising, public relations, direct marketing,

online communications, and social media marketing, work in sync with one another to

ensure the company's customers and business partners have the same experience with and

perception of the company.

A. relationship marketing
B. integrated marketing
C. internal marketing
D. Socially responsible marketing

15. ____________is aimed at catering to the specific needs of the business's own employees and

ensures that employees are satisfied with the work they perform each day as well as the

philosophy and direction of the organization as a whole.

A. relationship marketing
B. integrated marketing
C. internal marketing
D. Socially responsible marketing

Answers for Self Assessment

1. D 2. A 3. A 4. C 5. A

6. D 7. D 8. A 9. D 10. D

11. D 12. A 13. A 14. B 15. C

Review Questions
1. Briefly explain what is marketing mix? What is the importance of marketing mix?
2. Give examples of each of the seven elements of the marketing mix
3. What promotional strategies are used by organization to promote their products?
Explain in brief any two pricing techniques?
4. What is relationship marketing, and how it is beneficial to the organisation?

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Unit 02: Marketing Orientation

5. What do you mean by Holistic Marketing? Giving example discuss its relevance.

Further Readings
Cespedes, F. V. (1991). Organizing and implementing the marketing effort: Text and
cases. Boston: Addison-Wesley. Chandy, R. K., &Tellis, G. J. (2000). The incumbent’s
curse? Incumbency, size, and radical product innovation. Journal of Marketing, 64(3), 1–
17.
Choi, S. C., & Coughlan, A. T. (2006). Private label positioning: Quality versus feature
differentiation from the national brand. Journal of Retailing, 82(2), 79–93.
Kumar, V., Sharma, A., & Gupta, S. (2017). Accessing the influence of strategic marketing
research on generating impact: Moderating roles of models, journals, and estimation
approaches. Journal of the Academy of Marketing Science, 45(2), 164–185.
Kyriakopoulos, K., & Moorman, C. (2004). Tradeoffs in marketing exploitation and
exploration strategies: The overlooked role of market orientation. International Journal of
Research in Marketing, 21(3), 219–240.
Lee, J. Y., Sridhar, S., Henderson, C. M., &Palmatier, R. W. (2014). Effect of customer-
centric structure on long-term financial performance. Marketing Science, 34(2), 250–268.
Lewis, M. (2004).

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Dr. Pretty Bhalla, Lovely Professional University Unit 03: Marketing Mix

Unit 03: Marketing Mix

CONTENTS
Objectives
Introduction
3.1 7 P’s of Marketing
3.2 Product in 7 P’s of Marketing
3.3 Price in 7 P’s of Marketing
3.4 Place in 7 P’s of Marketing Mix
3.5 Promotion in 7 P’s of Marketing
3.6 People in 7 P’s of Marketing
3.7 Purposes Served by the Marketing Organization
3.8 Customer Value
3.9 Customer Value Drivers
3.10 Measuring Customer Value
3.11 Tips For Increasing Customer Value
Summary:
Keywords
Self Assessment
Answers for Self Assessment
Review Questions
Further Readings

Objectives
• Understand importance and relevance of 7P’s and 7 C’s.
• Analyze importance of Customer value

Introduction
Marketing is the process of getting the right goods or services or ideas to the right people at the
right place, time, and price, using the right promotion techniques and utilizing the appropriate
people to provide the customer service associated with those goods, services, or ideas. This concept
is referred to as the “right” principle and is the basis of all marketing strategy. We can say
that marketing is finding out the needs and wants of potential buyers (whether organizations or
consumers) and then providing goods and services that meet or exceed the expectations of those
buyers. Marketing is about creating exchanges. An exchange takes place when two parties give
something of value to each other to satisfy their respective needs or wants. In a typical exchange, a
consumer trades money for a good or service. In some exchanges, nonmonetary things are
exchanged, such as when a person who volunteers for the company charity receives a T-shirt in
exchange for time spent. One common misconception is that some people see no difference
between marketing and sales. They are two different things that are both part of a company’s
strategy. Sales incorporates actually selling the company’s products or service to its customers,
while marketing is the process of communicating the value of a product or service to customers so
that the product or service sells.

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To encourage exchanges, marketers follow the “right” principle. If a local Avon representative
doesn’t have the right lipstick for a potential customer when the customer wants it, at the right
price, the potential customer will not exchange money for a new lipstick from Avon. Think about
the last exchange (purchase) you made: What if the price had been 30 percent higher? What if the
store or other source had been less accessible? Would you have bought anything? The “right”
principle tells us that marketers control many factors that determine marketing success.
Most successful organizations have adopted the marketing concept. The marketing concept is based
on the “right” principle. The marketing concept is the use of marketing data to focus on the needs
and wants of customers in order to develop marketing strategies that not only satisfy the needs of
the customers but also the accomplish the goals of the organization. An organization uses the
marketing concept when it identifies the buyer’s needs and then produces the goods, services, or
ideas that will satisfy them (using the “right” principle). The marketing concept is oriented toward
pleasing customers (be those customers organizations or consumers) by offering value. Specifically,
the marketing concept involves the following:
Focusing on the needs and wants of the customers so the organization can distinguish its product(s)
from competitors’ offerings. Products can be goods, services, or ideas.
Integrating all of the organization’s activities, including production and promotion, to satisfy these
wants and needs
Achieving long-term goals for the organization by satisfying customer wants and needs legally and
responsibly
Today, companies of every size in all industries are applying the marketing concept. Enterprise
Rent-A-Car found that its customers didn’t want to have to drive to its offices. Therefore, Enterprise
began delivering vehicles to customers’ homes or places of work. Disney found that some of its
patrons really disliked waiting in lines. In response, Disney began offering FastPass at a premium
price, which allows patrons to avoid standing in long lines waiting for attractions. One important
key to understanding the marketing concept is to know that using the marketing concept means the
product is created after market research is used to identify the needs and wants of the customers.
Products are not just created by production departments and then marketing departments are
expected to identify ways to sell them based on the research. An organization that truly utilizes the
marketing concept uses the data about potential customers from the very inception of the product
to create the best good, service, or idea possible, as well as other marketing strategies to support it.

Food For Thought:

The marketing function is the study of market forces, factors and the development of a company's
position to optimize its benefits from them. It is all about getting the right product or services to the
customers at right price, in the place , at the right time.

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Successful Marketing depend upon :

• What a company is going to produce
• How much it is going to charge
• How it is going to deliver its products or services to the customers
• How it is going to tell its customers about its product and services.
• These considerations are known as 7P’s of marketing and it is also known as marketing
mix.
Marketing is most successful when the philosophy, tasks and manner of implementing available
technology are coordinated and complementary.“Find and keep customers” is the main motive
of marketing.

3.1 7 P’s of Marketing

When it comes to the ideal framework for planning any marketing campaign in today’s time, 7 P’s
of marketing play a key role in sketching out Marketing Campaign
It entails a variety of strategies to promote, advertise, and market the products and services of the
company in a way that attracts the viewers and changes them into viable customers.
Marketing is an evolving principle, just like everything else in the world.
As the world advances, the methods to improve marketing in the organization also improve.
Different tactics and paths are taken up by the marketers and marketing officials.
They take into consideration the external factors and internal factors of the company to develop a
strategy. There may be a multi-fold strategy to attack different aspects. The end goal is the same,
that is, to increase the awareness of the brand and improve productivity.
It is a continually maturing discipline. Companies have to update to this constantly; otherwise, they
will be left behind in a competitive environment.
The most fundamental change that has occurred in the marketing world was the refurbishment of
the basic Marketing Mix principles. Originally there were only 4 P’s combining the marketing mix,
but now it is more accepted to have 7 P’s of the marketing mix.

History of 7 P’s
In recent years, the importance of marketing has grown manifold.
Every company or organization has a particular marketing strategy to either target a specific
audience or to gain more traffic. Thus, marketing strategy solely depends on the type of
organization, the budget, the products that need to be marketed, and many more.
Apart from creating an effective marketing strategy, it is also essential to continuously monitor and
evaluate the strategy’s effect. And this brings us to the 7 Ps of marketing.
These 7 Ps include the various fundamental factors that need to be looked into from time-to-time to
understand the full effect of your marketing strategy.

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(a) 1960
E. Jerome McCarthy introduced the concept of the 4 P’s of Marketing. It was and still is a widely
used tool for businesses to understand the products or their brand offerings. The original 4 P’s were
– Product, Place, Price, Promotion.

(b) 1981
Due to a full acknowledgment, it was accepted that the marketing mix should be updated from
only 4 P’s of Marketing to 7 P’s of Marketing.
The extended 7 p’s of service marketing included People, Processes, and Physical Evidence.
These 3 are a beacon to show that marketers are involving changes in communication such as social
networking sites, new avenues for selling the products and services, and the expectations of
customers in a constantly evolving commercial environment.

Why use the 7P’s of Marketing?

After understanding each of the seven important components of marketing, it is crucial to know
why these aspects are essential. Each element of marketing has a role to play. And all these
summed up together construct a successful marketing policy for any firm or business.
There are numerous reasons why the 7P’s of marketing are essential for every company. Some of
the rights are listed below-

1) Rise in the living standards-

The seven elements mentioned above also play a role in the standard of living, not only a
company’s employees but also the entire company. Through the recurrent selling and marketing of
goods at an affordable rate, there is a considerable increase in the standard of living of the whole
human community.

2) Increase in employment opportunities-

Marketing, in general, is a compact phenomenon involving various processes. By implementing the
7P’s in your marketing policies, the sales of the products increase. Hence, their demand increases,
which leads to employing more people. This is one of the few ways through which employment is
generated.

3) A drastic influx of income-

Marketing has become part and parcel of every company. A successful marketing policy brings in a
lot of revenue and income. This excess profit can be saved for future utilities or investments. As
mentioned above, a successful marketing policy depends entirely on how well a company
implements the seven elements. The more established a company is in implementing those 7P’s the
more profit it incurs from the business.

4) Progress in the exchange of goods and services-

As mentioned earlier, each of the seven factors helps to shape a successful marketing policy. And
invariably, a successful marketing policy significantly increases the sales of a company. And hence,
there is progress in the sales of goods and services.
The 7 p’s of marketing mix can be used in any combination to satisfy the wants of the customers.
They are affected by internal and external environmental factors. Now, we will be covering the key
details of 7 P’s of Marketing one by one, so without any further ado, let us get started-

3.2 Product in 7 P’s of Marketing

The product refers to what the company is selling and includes the features, gains, and benefits
given to the customers.
When they purchase goods and services, they will enjoy the perks. Product marketing focuses on
the key features and benefits, which include quality, accessories, style, repairs, and updates. It is a
core part of what the business offers to the customers.
If the product is not up to the mark, the marketing will not work. The attributes provided along
with the product helps to establish the competitive scenario for Digital Marketing
strategy formulation.

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The company must evaluate whether the product is suitable for the current population, whether the
product or service offered is a necessity, is it providing more than the contemporaries, and whether
the company is superior to its competitors in at least one aspect. All such factors will help you
understand the product more.

3.3 Price in 7 P’s of Marketing

It is the amount people pay and the avenue for revenue inflow into the organization.
The pricing strategy identifies the price customers are ready to pay, the mark-up for overheads,
profit margins, and other costs. It also determines the payment method.
To maintain a competitive advantage, the customers can be attracted with the help of discounts and
seasonal pricing.
The price has a direct relationship with the customer’s satisfaction level. Often, paying a higher
price satisfies the customer more. Many people consider it to be a proxy for quality.
To monetize products is more comfortable than to monetize services because they are intangible.
Price is essential for service consumption after service recognition.
A company needs to analyze whether the price range of the product is justified or not. Sometimes,
the production and the resources required to manufacture the product are too costly, but the selling
price is too low. Sometimes, a company can spread the costs over months and bring in special
discounts and offers to enhance the selling of the product.

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Types of Pricing:

1) Premium pricing
It is a type of pricing which involves establishing a price higher than your competitors to achieve a
premium positioning. You can use this kind of pricing when your product or service presents
some unique features or core advantages, or when the company has a unique competitive
advantage compared to its rivals. For example, Audi and Mercedes are premium brands of cars
because they are far above the rest in their product design as well as in their marketing
communications.

2) Penetration pricing
It is a commonly used pricing method amongst the various types of pricing is designed to
capture market share by entering the market with a low price as compared to the competition.
The penetration pricing strategy is used in order to attract more customers and to make the
customer switch from current brands existing in the market. The main target group is price
sensitive customers. Once a market share is captured, the prices are increased by the company.
However, this is a sensitive strategy to apply as the market might be penetrated by yet another new
entrant. Or the margins are so low that the company does not survive. And finally,
this strategy never creates long term brand loyalty in the mind of customers. This strategy is used
mainly to increase brand awareness and start with a small market share.

3) Economy pricing
This type of pricing takes a very low-cost approach. Just the bare minimum to keep prices low and
attract a specific segment of the market that is highly price sensitive. Examples of companies
focusing on this type of pricing include Walmart, Lidl and Aldi.

4) Skimming price
Skimming is a type of pricing used by companies that have a significant competitive advantage and
which can gain maximum revenue advantage before other competitors begin offering similar
products or substitutes. It can be the case for innovative electronics entering the marketing before
the products are copied by close competitors or Chinese manufacturers.
After being copied, the product loses its premium value and hence the price has to be dropped
immediately. Thus, to get maximum margins from their products, innovative companies keep
launching new variants so that customers are always in the discovery phase and paying the
required premium.

5) Psychological pricing
It is a type of pricing which can be translated into a small incentive that can make a huge impact
psychologically on customers. Customers are more willing to buy the necessary products at $4,99
than products costing $5. The difference in price is actually completely irrelevant. However, it
makes a great difference in the mind of the customers. This strategy can frequently be seen in the
supermarkets and small shops.

3.4 Place in 7 P’s of Marketing Mix

It is where the goods, products, services, assistance, etc. are showcased, sold, and distributed.
Unless the consumers have access to what the business deals in, they cannot purchase or rent it. It is
a crucial point to ensure that the customers find the goods and services. Marketing strategies for
this include unique designs for retail spaces and different visual merchandising techniques.
Finding the right location for the business is an essential aspect of spreading the market. The utility
is a high priority while choosing a place for the company.
If it is closer to the customer, there is a higher chance of being bought.
The organization must always be in the habit of reviewing the exact location where a product is
sold. Sometimes, a change of location can significantly increase the sales of the product. There are
many different ways of selling a product, but they all depend on the type of product that a
company is manufacturing.

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3.5 Promotion in 7 P’s of Marketing

Promotion is the process of finding a target audience, recognition of the brand, establishing the
quality of services being offered to the customers.
There has to be perfect or close to perfect between promotion and positioning. Different
promotional events are used by organizations to increase awareness of the goods and services
offered.
The tools often used are digital advertising, endorsements, and exhibitions, special events, sales
tactics, direct marketing, etc.
The promotional activities make the customers aware of the goods and services the company deals
with.
The promotion of a product includes how a company chooses to promote, market, or advertise the
product to the customers. While evaluating your marketing strategy, a firm needs to make small
changes in their advertising strategies and bring in new marketing methods.

3.6 People in 7 P’s of Marketing

People refer to those who help is making all the marketing strategies come to life.
They carry out all the procedures and ensure that the plan is actually implemented and executed
well.
When customer service offered by a company is positive, it leaves the customers feeling satisfied
and happy, and there is a higher chance that they will come back. It is a marketing technique, and
different companies have different approaches for interacting with customers.

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The customers spread the word about their positive experience and lead to brand awareness. The
customers also win referrals.
The people make the organization what it is. They are the foundation and hiring the right people,
appropriate selection and recruitment, correct training, imbibing the necessary marketing skills,
and retaining of the staff create a growing environment. It improves the chances of business
development.
The people are the crux of service delivery.
One of the most important habits of a company will always be to analyze the requirements of the
people inside and outside the firm. In simple terms, a company must always safeguard the interests
of the clients as well as the employees while devising a marketing strategy.

Processes in 7 P’s of Marketing Mix

The processes are what help to deliver the service with a certain quality.
It refers to the mechanism which is put into place to deliver the goods and services to the
customers. A standard process determined by the company ensures that the customer will receive
the same standard of quality services repeatedly.
It increases the efficiency of the organization and helps in saving time and money.
A set way of working encourages the customers of the assured benchmark set the first time.
The process mapping ensures that the target audience can be dependable on the services being
discerned.

Physical Evidence in 7 P’s of Marketing Mix

Physical evidence, as the word suggests, is what the customers see. The actions and words put
across by the company should match what they can see when they interact with the business.
It entails a few parameters such as the physical environment where the goods and services are
provided, the layout of the business, interior design, the branding, packaging, the office, staff, and
how they dress and act.
People believe what they see, and it should be convincing enough for them to invest their time and
money in it.
It affects customer satisfaction.
Now, let us go through another facet of 7 P’s of Marketing which is 7 P’s of Service Marketing and
we will understand this with their respective examples, so you can comprehend the associated
concept adeptly.

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3.7 Purposes Served by the Marketing Organization

A marketing organization is definitely created to serve certain purposes for the company. It helps
the firm serving quite a few purposes. Among the purposes served by the marketing organization
of a company, three are noteworthy. Let us now look at them in brief:

1. Marketing Organization Facilitates Effective Response to Market Needs

A firm needs to identify the changes taking place in the market and a competitive environment and
respond accordingly.
There are many ways of identifying changes and responding to them at a firm’s disposal. The firm
should decide which of the available alternatives to identifying and responding to changes should
be followed. For example, a firm may identify changes using its marketing intelligence system or by
conducting marketing research or so.
Regarding response, it may respond to changes in competitors’ strategies by developing and
launching a new product or modifying its existing product. The option that a firm will select by the
type of its marketing organization and people in it.

2. Marketing Organization Helps to Carry Out Activities with Optimum Efficiency

Specialization, along with coordination and control, helps the firm achieve internal efficiency.
Many specialization options are available to a firm, such as customer, geographic, and product
specialization. We shall discuss them in detail later in this lesson. Coordination becomes more
important as a firm becomes more flexible in its organizational structure.
Control here is related to authority and responsibility structures. If it is found that progress does
not conform to the standards set, the responsible executive must be made aware of this, and he
must have the authority to take necessary action. It is also his responsibility to monitor the progress
of his subordinates closely.

3. Marketing Organization Helps Represent Customers’ Interests within the Company

The importance of customers takes a new meaning in the firm if the management takes a marketing
approach. The marketing concept suggests that a firm’s existence depends on sensing and
satisfying customers’ needs in a way better than the competitors do.
For ensuring customer needs and problems receiving proper representation inside the corporate
domain, some parts of the organization must take this as one of the fundamental responsibilities.
Customer orientation is provided in some firms by charging every employee from the president
down to the very junior staff to maintain a customer perspective in all functions and
responsibilities.
On the contrary, other firms respond to customer interests more tangibly, but somewhat passively,
via complaint departments or attitude surveys carried out by marketing research personnel.
But when carried to its fullest, this responsibility goes beyond research or complaints departments
and includes an inhouse customer advocate with a top management position’s authority and
independence.
The overall purpose of a marketing organization is to help attain marketing objectives. The
organization is not an end in itself but rather a means to coordinate and direct many people’s
varied work to achieve a unified and successful result.

Role of Marketing Organization – Marketing’s Place in an Organization

A production-oriented company concentrates either on improving production efficiency or on

producing high-quality, technically improved products.
Here, objectives and planning are determined by the executives in the production and engineering
departments. The company emphasizes simplified and mass production and tries to keep the unit
cost low. Marketing plays no role in the true sense in such a situation.

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Price is dictated by production and finance departments, and the function of the sales department is
to sell the organization’s output. Thus, there is a notable absence of consumer consciousness.
With the expansion of the market, manufacturers recognized the importance of other marketing
functions and started changing their company structures.
In a sales-oriented organization, there is a general belief that personal selling and advertising are
the primary tools used to generate profits and that most products – regardless of consumers’ needs
– can be sold if the right quantity and quality of personal selling and advertising are employed.
Thus, the sales and advertising managers are at the same level in the company’s hierarchy: the
production, personnel, and finance managers, and all participate in top-level management.
Higher-level sales and advertising executives and other executives at the same level are involved
with setting the company’s overall policies and objectives.
The marketing concept suggests that marketing starts with the customers and works back
to producing desired products in the right amounts and with the right specifications. As the figure
below shows, the marketing manager is in a position equal to that of the personnel, production, and
finance managers in a marketing-oriented organization.

This structure allows the marketing manager to participate in top-level decision making. Note, too,
that the marketing manager is responsible for various activities (not shown in this figure), several of
which are under the jurisdiction of other functional managers in production or sales-oriented firms.
Relationships between marketing and other functional areas such as personnel, production, finance,
and marketing’s importance to management heavily depend on its basic orientation.
Marketing encompasses the greatest number of business functions in a marketing-oriented firm,
and it occupies an important position in the organization.

Relations That Exist Between Marketing and Other Departments When a Firm is
Marketing Led:
In a marketing-oriented company, the marketing department coordinates intra-department
activities and coordinates with the activities of other departments to get a synergistic result.
Becoming marketing-oriented means carrying out both internal and external marketing.
By internal marketing, we mean successfully hiring, training, and motivating employees to serve
the customers well and satisfy them. Internal marketing is to be carried out first because unless a
company is not ready to provide customer satisfaction, it cannot go for external marketing.
In a marketing-oriented firm, the focus is on customers’ needs rather than selling. The executive
responsible for marketing is named marketing manager, marketing director, or marketing vice
president.

3.8 Customer Value

Customer value is the satisfaction the customer experiences (or expects to experience) by taking a
given action relative to the cost of that action.

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Unit 03: Marketing Mix

The given action is traditionally a purchase, but could be a sign-up, a vote or a visit, while the cost
refers to anything a customer must forfeit in order to receive the desired benefit, such as money,
data, time, knowledge.
Think about the following definition of marketing:
Marketing creates, communicates, and delivers value to customers.
The internal chain of sourcing, operations, processes, sales, marketing, and customer service all
contribute to the creation of value. So do your support operations such as HR and accounting. All
of these components affect your customers directly or indirectly in some way, informing their
perception of you.
And this leads to the fundamental point: The results of your efforts to create value are measured in
the customers’ perception of that value.
People do not buy things because you like them. They buy them because they like them or need
them.
More importantly, in this world of choice:
Customers compare their perceived value of similar products when making a decision.
Whether you are deciding on a restaurant to visit, your next car, or which digital marketing agency
you want to use, there are choices available, and many factors play a part in forming that decision.

In a nutshell, customer value means:

1. A product or service’s worth in the customer’s eye.

2. A comparison of cost and benefits of a product or service.
3. The level of satisfaction a customer gets after using a product or service.

Why Is Customer Value Important? 3 Major Reasons

Obviously, customer value is crucial because you can only retain customers if you give them the
value they want or paid for. Apart from that, here are other top 3 reasons why is customer value
important:

1. Generate More Resources. If you give more and more value to your customer, you
will generate more financial resources. Then, you can use these resources for further
customer acquisition and ultimately lead to sustainable growth.
2. Better Product Assortment. Once you know who your ideal customers are, you will be
able to evaluate your best-selling products. This way, you can assort your product
according to your customers’ preferences.
3. Access to Capital. The bigger the customer value, the better the lifetime value of a
customer acquisition cost ratio is.

Components of customer value:

It is the customer’s perception that defines the value of a product or service. Customer value is a
combination of four components:

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3.9 Customer Value Drivers

The bitter truth about customer value is you cannot control it. However, there are specific ways to
influence it. Here are some customer value drivers that can help you in making your product or
service more valuable.

▪ Price. It is a monetary element, is one of the main factors that a customer considers before
buying any offering. It has a massive impact on customer’s buying decisions.
▪ Function Of the Product or Service. A customer buys an offering as a solution to a
particular problem. Therefore, a product’s functional features are an essential driver for a
customer. If your offering is giving more features than a customer’s expectation, your product
will have more perceived value.
▪ Positioning. Positioning means how unique your offering is in a customer’s mind. It
includes the sentiments, emotions, feelings, traits, etc., attached to your offering.
▪ Quality. The extent or degree to which your product or service meets the expectations and
needs of your customers. If your offering exceeds customer expectations, you are selling a
high-quality product or service.
▪ Service. Service means how do you facilitate your customer during the purchasing process. It
includes the pre-purchase and post-purchase phases as well.
▪ Current And Previous Customer Relationship . A firm’s relationship with a customer is
also a major driving factor when it comes to creating value. If your customer had a pleasing
experience, the intensity of perceived value would be higher and vice versa.
▪ Branding And Marketing. A company’s branding or marketing strategies play a vital role
in developing or influencing the perceived value in the customer’s mind. Empathetic and
problem-solving marketing campaigns get better results.
▪ Personal Attributes/Preferences. A customer’s personal, religious, or cultural believes
also drive him/her to buy a certain product. If someone’s culture doesn’t appreciate the
consumption of alcohol, he/she will devalue it.

3.10 Measuring Customer Value

There are many equations and models for measuring customer value. The simplest is this:

Perceived Value = Perceived Benefits / Cost

In other words, for a given set of benefits, as the cost rises, the perceived value drops.
• Total Customer value=Customer Benefits (Economic + Functional + psychological )
Minus
Customer Costs(Cost of evaluation + cost of obtaining +cost of using + cost of disposing)

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This is an important point. Value does not refer to price. It refers to the perceived benefits stood to
be gained in the context of price. Cost is only part of the equation. Literally.
Two identical products with identical exposure can only compete on cost. Two differentiated
products do not have to compete on cost. Products are not just differentiated by their features. They
can also be differentiated because of their brand. If Toyota brings out a car, you may presume it’s
reliable because one of its key brand features is reliability. If another carmaker releases a near-
identical car, they may struggle to compete because they do not share the same customer
perceptions.
The same applies to content marketing. For example:
Perceived Value of “The Web Marketers Guide to Reddit” = Learning / Time
The perceived value of your latest blog post can be measured by the reader’s perceived benefit of
reading the content (e.g. learning) relative to the time it took for them to gain that benefit.
The Drivers of Value
Take this list:
Product function
Points of differentiation
Quality
Service
Marketing
Branding
Price
Existing relationships or experience
Personal bias from experience and upbringing

Total customer benefits is the summation of:

These are drivers that impact a customer’s perception of value. Some you can control, some you
cannot. For any individual customer they will rank differently in importance. Some people love
brands. Some people only buy cheap. Some favor short form content. Some people treasure
personal relationships.
I’ve previously talked about audience segmentation. The fragmentation of customer value is one of
the primary reasons for segmentation. By identifying groups of people with shared values you can
start to create products and messages that resonate.

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Customer Cost:
It is the bundle of costs customers expect to incur in evaluating ,obtaining and using the product or
service”.
• Total Customer cost is the summation of:
• Monetary cost
• Time Cost
• Energy cost
• Psychic cost

Value:
• Perceived product or services attributes
• Perceived substitute or service attribute
• Perceived product or service price
• Perceived substitute product or service price value= Perceived benefits/perceived price

3.11 Tips For Increasing Customer Value

As mentioned earlier, you have no control over customer value, but you can make things better.
Here is how:

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1.Asses the Customer Experience

If you want to better the customer value, the first thing to work on is your customer experience.
You can make a customer journey map that covers all the steps from buying your product to the
point of friction/conflict. This way, you can better the process and add value to your offerings.

2.Keep Your Focus on Other Things Rather Than Just Price

Yes, prices are a vital factor when you are competing in a competitive market. Sometimes, a
business cannot lower its product prices due to static costs of production. However, you always
have the option to add some value to your product. There are non-monetary benefits that can add
value to what you are offering.

3.Be Loyal to Your Loyal Customers

You might be thinking that why work hard on a “loyal customer”? Well, if you don’t make your
loyal customers feel special, you may end up losing them. Yes, you are already serving them with
your valuable products, but you can reward their loyalty with additional steps.
For instance, you can start a customer loyalty program or greet them with gifts and warm wishes
on special occasions. This approach can help you in certain ways. A loyal customer is your most
robust marketing tool because word-of-mouth is still one of the most influential marketing
channels.
Statistically, 93 percent of consumers make their purchase decisions based on the reviews given
to a certain product or brand. So, please your customers and get new ones smoothly.

Summary:
In the past, management accounting concentrated on internal information. It put excessive
emphasis on control of production costs. The modern business idea presumes that cost reduction
must be found in the "value-added" process; that is, selling price less the cost of raw material or the
cost of work-in-process items. There are other inputs such as engineering, maintenance,
distribution and service, so purely following a value-added approach can be misleading. The
traditional value-added approach starts too late as it ignores linkages with suppliers, but it also
stops too early as it ignores linkages with customers. The modern value chain approach
incorporates external and internal data, applies appropriate cost drivers for all major value-creating
processes, exploits linkages throughout the value chain and offers continuous monitoring of a
company's strategic competitive advantage. It involves the inputs of other strategic partners, such
as material suppliers, finished goods wholesalers, and final customers. The goal is to perform value
chain activities more efficiently, and ultimately surpass industrial competitors.

Keywords
Channel , Value, Satisfaction , Loyalty, Intensity , Promotion , product value , service value

Self Assessment

1. According to nature of contact, information , process for purchasing and delivery ,

marketing is of three types Mass marketing, Direct Marketing and ______.

a. Internet marketing
b. Demand Marketing
c. Price sensitive Marketing
d. Distributive Marketing

2. According to geographic area, extent of distribution, network, marketing variation

commitment to country, marketing types are:

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a. Local and regional

b. National and International
c. Global
d. All the above

3. The perfect __________must provide value for the customer.

a. Cost
b. Demand
c. Product
d. Price

4. ___________is the way a company communicates what it does and what it can offer

customers. It includes activities such as branding , advertising , PR, corporate identity, sales

management, special offers and exhibitions.

a. Promotion
b. Marketing
c. Selling
d. Advertising

5. Out of all 7 P’s ___________ represent the business

a. Price
b. People
c. Product
d. Promotion

6. _____________ means the customers’ evaluation of the difference between all the benefits

and all the costs of the product.

a. Customer perceived value

b. Value
c. Price
d. Demand

7. Total Customer value=Customer Benefits (Economic + Functional +_____)Minus Customer

Costs(Cost of evaluation + ______+cost of using + cost of disposing)

a. Psychological and cost of obtaining

b. Demographic and cost of product
c. Demographic and cost of replacing
d. Economic and cost of owing

8. Organizations should be strong in both __________and process.

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a. Product
b. Price
c. Market share
d. Purpose

9. ______________ is the match between customer expectations of the product and the products

actual performance.

a. Customer Satisfaction
b. Performance
c. Loyalty
d. Price war

10. _____________is the activity that a selling organization undertake in order to reduce

customer dissatisfaction

a. Advertising
b. Customer Retention
c. Gift Coupons
d. Promotion

11. Porter’s Value Chain Analysis is a business management concept that was developed

by ________.

a. Henry Ford
b. Michael Porter
c. Phillip Kotler
d. Henry Ford

12. There are two types of competitive advantages i.e. cost advantage and ____________.

a. Differentiation Advantage
b. Decorative Advantage
c. Industrial Advantage
d. Customer Advantage

13. ___________have an immediate effect on the production, maintenance, sales and support of

the products or services to be supplied.

a. Primary Activities
b. Secondary activities
c. Alternate activities
d. Main activities

14. ________-Logistics are all processes that are involved in the receiving, storing, and internal

distribution of the raw materials or basic ingredients of a product or service.

a. Inbound
b. Outbound
c. External

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d. Internal

15. __________logistics are all activities that are related to delivering the products and services

to the customer. These include, for instance, storage, distribution (systems) and transport.

a. Inbound
b. Outbound
c. External
d. Internal

Answers for Self Assessment

1. A 2. D 3. C 4. A 5. B

6. A 7. A 8. D 9. A 10. B

11. A 12. A 13. A 14. A 15. B

Review Questions
1. You are shopping for food at the supermarket and go to the fruit section. While there, you
are looking at both apples and oranges. You notice that each apple that you would
purchase would be "worth" $1.00 to you while each orange would be worth $1.25 to you
(Note that what something is "worth" to you is synonymous with the value you receive
from it for purposes of this question). You then look at the prices and see that the prices of
apples and oranges are $0.50 and $0.60 each, respectively. Given this information, would
you be more likely to purchase apples or oranges? Your answer should discuss the
"customer value" that you would get from each apple and orange.
2. List and describe the three ways that a company can establish customer value to its
customer base? For each of the way, provide a real-world example of where this method
was applied and explain how it was applied. Your answer should discuss why you believe
the example you provided matches with the respective method.
3. Consider a situation where you are opening a new ice cream shop. Explain the importance
of customer value in setting the prices of the ice cream that you plan to sell.
4. Discuss 7 P’s, Elaborating importance’s of each.
5. Discuss the interrelation of 4 P’s of marketing?

Further Readings
Hoque, Z. (2003) Strategic Management Accounting, 2nd edition, Pearson Prentice Hall.
Porter, M.E. (1985) "Technology and Competitive Advantage", Journal of Business
Strategy, Vol. 5, No. 3, pp.60 – 78

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Dr. Pretty Bhalla, Lovely Professional University Unit 04: Marketing Environment

Unit 04: Marketing Environment

CONTENTS
Objective
Introduction
4.1 Types of Marketing Environment
4.2 Actors of Marketing Environment
4.3 Need for Analyzing the Marketing Environment
Summary
Key Words
Self Assessment
Answers for Self Assessment
Review Questions
Further Readings

Objective
• Significance of Scanning Marketing Environment

Introduction
The marketing environment refers to all internal and external factors, which directly or indirectly
influence the organization’s decisions related to marketing activities. Internal factors are within the
control of an organization; whereas, external factors do not fall within its control. The external
factors include government, technological, economic, social, and competitive forces; whereas,
organization’s strengths, weaknesses, and competencies form the part of internal factors. Marketers
try to predict the changes, which might take place in future, by monitoring the marketing
environment. These changes may create threats and opportunities for the business. With these
changes, marketers continue to modify their strategies and plans. Definition of Marketing
Environment:
The marketing firm operates within a complex and dynamic external environment. It is the task of
the marketing-oriented organisation to link the resources of the organisation to the requirements of
customers. This is done within the framework of opportunities and threats in the external
environment.
According to Philip Kotler:“A company’s marketing environment consists of the internal factors &
forces, which affect the company’s ability to develop & maintain successful transactions &
relationships with the company’s target customers.”

Features of Marketing Environment

Today’s marketing environment is characterized by numerous features, which are mentioned as
follows:
1. Specific and General Forces: It refers to different forces that affect the marketing
environment. Specific forces include those forces, which directly affect the activities of the
organization. Examples of specific forces are customers and investors. General forces are those
forces, which indirectly affect the organization. Examples of general forces are social, political,
legal, and technological factors.
2. Complexity: It implies that a marketing environment include number of factors, conditions,
and influences. The interaction among all these elements makes the marketing environment
complex in nature.

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3. Vibrancy: Vibrancy implies the dynamic nature of the marketing environment. A large number
of forces outline the marketing environment, which does not remain stable and changes over time.
Marketers may have the ability to control some of the forces; however, they fail to control all the
forces. However, understanding the vibrant nature of marketing environment may give an
opportunity to marketers to gain edge over competitors.
4. Uncertainty: It implies that market forces are unpredictable in nature. Every marketer tries to
predict market forces to make strategies and update their plans. It may be difficult to predict some
of the changes, which occurs frequently. For example, customer tastes for clothes change
frequently. Thus, fashion industry suffers a great uncertainty. The fashion may live for few days or
may be years.
5. Relativity: It explains the reasons for differences in demand in different countries. The product
demand of any particular industry, organization, or product may vary depending upon the
country, region, or culture.

4.1 Types of Marketing Environment

The sale of an organization depends on its marketing activities, which in turn depends on the
marketing environment. The marketing environment consists of forces that are beyond the control
of an organization but influences its marketing activities. The marketing environment is dynamic in
nature. Therefore, an organization needs to keep itself updated to modify its marketing activities as
per the requirement of the marketing environment. Any change in marketing environment brings
threats and opportunities for the organization. An analysis of these changes is essential for the
survival of the organization in the long run.
A marketing environment mostly comprises of the following types of environment:
1. Micro Environment
2. Macro Environment
The discussions of these environments are given below:

1. Micro Environment: Microenvironment consists of the actors close to the company that
affect its ability to serve the company, suppliers, marketing intermediaries, customer
markets, competitors, and publics and its customers,.
These actors are shown in diagram below:
• Company
• Suppliers
• Intermediaries
• Competition
• Publics
• Customers

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4.2 Actors of Marketing Environment

The Company In designing marketing strategies, marketing division must take other company’s
divisions into account. (R&D, Purchasing, operations, finance, production etc.). All of these
interrelated groups form the internal environment. All groups should work in harmony to provide
superior customer value and relationships.
Suppliers: Suppliers are other business organisations and individuals who provide the
organisation with raw materials, parts, components, supplies or services required to produce and
supply products to customers. Suppliers form an important link in the organisations overall
customer value delivery system. Supplier problems can seriously affect marketing. Marketing
managers must watch supply availability—supply shortages or delays, labor strikes, and other
events can cost sales in the short run and damage customer satisfaction in the long run.
Intermediaries: Many organizations rely on marketing intermediaries to ensure that their
products reach the final consumer. Marketing intermediaries help the company to promote, sell,
and distribute its products to final buyers. Some organizations supply directly to the retailer whilst
others use a complex “chain” including intermediaries such as wholesalers, agents and distributors.
Marketers recognize the importance of working with their intermediaries as partners rather than
simply as channels through which they sell their products. It must partner effectively with
marketing intermediaries to optimize the performance of the total system. Like suppliers,
marketing intermediaries form an important component of the organization overall value delivery
system
Competition: The marketing concept states that to be successful, an organization must provide
greater customer value and satisfaction than its competitors. Marketers must gain strategic
advantage by positioning their offerings strongly against competitors’ offerings in the minds of
consumers.
Publics: The organization’s micro environment also includes various publics. A public is any
group that has an actual or potential impact on an organization’s ability to achieve its objectives.
The range of public is as follows:
• Financial publics - influence the company’s ability to obtain funds. • Media publics - carry news,
features, and editorial opinion.
• Government publics - Management must take government developments into account
. • Citizen-action publics - A company’s marketing decisions may be questioned by consumer
organizations, environmental groups, etc.
• Local publics - include neighborhood residents and community organizations.
• General public - The general public’s image of the company affects its buying.
• Internal publics - include workers, managers, volunteers, and the board of directors.

Customers As discussed previously, Customers are crucial and most important actors in the
organization’s micro environment. In a commercial environment, no customers means no business.
An organisation should be concerned about the constantly changing requirements of its customers
and should keep in touch with these changing needs by designing and implementing an

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appropriate information gathering system. The organisation can only influence their decisions by
offering products and services that would delight them. Thus, identifying, anticipating and
satisfying/delighting their requirements are a crucial issue for marketers

2. Macro Environment: The macro environment includes the major societal forces that affect
not only the organisation, but also on its competitors and on elements in the micro-
environment. The macro environment tends to be harder to influence than the micro
environment, but this does not mean that organisations must simply remain passive; the
inability to control does not imply the inability to influence. Figure below shows the main
forces in the organisations macro-environment.
It is commonly denoted by the mnemonic PESTEEL forces.
• Political Environment
• Economic Environment
• Social and Cultural Environment
• Technological Environment
• Ecological Environment
• Ethical Environment
• Legal Environment

Political Environment The political environment can be one of the less predictable elements in
an organization’s marketing environment. Marketers need to monitor the changing political
environment because political changes can profoundly affect a firm’s marketing. The political
environment consists of laws, government agencies, and pressure groups that influence and limit
various organizations and individuals in a given society.
Economic Environment The economic environment consists of factors that affect consumer
purchasing power and spending patterns and is basically about the level of demand in the economy
and is the most visible aspect in the macro environment. Economic factors are of concern to
marketers because they are likely to influence, among other things, demand, costs, prices and
profits. Some of the key aspects of the economic environment are as Income distribution, Inflation
level, Economic Boom and Recession, Investment Policy, Interest Rates, saving habits etc.
a. Inflation: It influences the customers’ demand for different products. For example, higher petrol
prices lead to a fall in demand for cars.
b. Interest Rates: It determines the borrowing activities of the organization. For example, increase
in interest rates for loan may lead organizations to cut their important activities.

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c. Unemployment: It leads to a no income state, which affects the purchasing power of an
individual. d. Customer Income: It regulates the buying behavior of a customer. The change in the
customer’s income leads to changed spending patterns for the products, such as food and clothing.
e. Monetary and Fiscal Policy: It affects all the organizations. The monetary policy stabilizes the
economy by controlling the interest rates and money supply in an economy; whereas, fiscal policy
regulates the government spending in various areas by collecting the revenue from the citizens by
taxing their income

Social and Cultural Environment Of all the elements making up the macro environment,
perhaps socio-cultural factors are the most difficult to evaluate, and hence pose the greatest
challenge to the marketing organisation. Social and cultural change manifests itself in changing
tastes, purchasing behaviour and priorities of consumers and marketers need to understand and
identify these changing trends. Some of the socio-cultural forces are as follows:
Demographic forces: This refers to the structure of population in term of factors such as age,
family size, ethnicity, income distribution and wealth concentration. These variables will determine
the marketing mix strategies.
• Socio Cultural factors: are those areas that involve the shared beliefs, attitudes and behaviour
prevalent within the society in which the organisation operates. Changes in taste and fashion are
also components of the social-cultural environment.
• Social Responsibility and Ethics: Derived in part from culture, ethical, beliefs about how
marketers should operate affect the ways in which people respond to marketing initiatives.
• Changes in attitude towards health: Today, people are more concerned of health than they were a
few decades ago. An individual interest in health and physical fitness in recent years seems to have
cut across most segments of our society. Participation in fitness activities from aerobics to yoga is
on the increase and thus marketers have responded with a wide range of products and services for
the health conscious population.

Technological Environment The technological environment is perhaps the most dramatic forces
that create new technologies, creating new product and market opportunities. The pace of
technological change is becoming increasingly rapid and marketers need to understand how
technological development might affect them. Aspects to be considered:
a. Pace of Technological Change: It leads to product obsolescence at a rapid pace. If the pace of
technological change is very rapid then organizations need to modify their products as and when
required. On the other hand, if the technology is not changing at a rapid pace then there is no need
for the organization to bring constant changes in the product.
b. Research and Development: It helps in increasing growth opportunities for an organization.
Many organizations have developed a separate team for R&D to bring innovation in its products.
Pharmaceutical organizations, such as Ranbaxy and Cipla, have started putting greater force in
R&D and these efforts have led to great opportunities in global market.
c. Increased Regulation: It refers to government guidelines to ban unsafe products. Marketers
should be aware of these regulations to prevent their violation. Every pharmaceutical organization
takes the approval of the Drugs Controller of India, which lays down the standards for drugs
manufacturing.

Ecological Environment Ecological Environment is concerned of issues as to how the

organisation interacts with and affects the natural environment or the ecology.
Ecological Environment issues relevant to marketing as follows:
• Resources Depletion: the impact of the use of certain materials to develop products which would
lead to the depletion of natural resources.
• Pollution Concerns o Noise Pollution o Environmental Pollution o Eye pollution

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Ethical Environment Marketing Ethics are moral philosophies/principles that define right or
wrong behaviour in marketing. The most basic ethical issues have been formalized through laws
and regulations to conform to the standards of society. At the very least, marketers are expected to
obey these laws and regulations. However, it is important to realise that marketing ethics go
beyond legal issues; ethical marketing decisions foster mutual trust among individuals and in
marketing relationships. Ethical decisions related to marketing would be on the Product, price,
promotion and distribution issues.

Legal Environment Changes in the political environment often lead to changes in legal
environment and in the existing laws enforced. The legal environment sets the basic rules for how a
business should operate in society.
Some of the laws an organisation should be aware of are as follows:
• Protection of intellectual rights
• Consumer Protection act
• Companies Act
• Regulatory commission
• Environmental protection laws
• Code of takeovers and mergers.
• Laws with regard to media freedom and advertising
• Exchange control

4.3 Need for Analyzing the Marketing Environment

The business environment is not static. It is continuously changing with fast speed. The marketing
environmental analysis will help the marketer to:

i. Become well acquainted with the changes in the environment.

ii. Gain qualitative information about the business environment; which will help him to
develop strategies in order to cope with ever changing environment.
iii. iii. Conduct marketing analysis in order to understand the markets needs and wants
so as to modify its products to satisfy these market requirements
iv. Decide on matters related to Government-legal-regulatory policies in a particular
country so as to formulate its strategies successfully amidst these policies
v. Allocate its resources effectively and diversify either into a new market segment or
totally into a new business which is outside the scope of its existing business.
vi. Identify the threats from the environment in terms of new competitors, price wars,
competitor’s new products or services, etc.; and prepare its strategies on the basis of
that.
vii. Identify the opportunities in the environment and exploit these opportunities to
firm’s advantage. These opportunities can be in terms of emergence of new markets;
mergers, joint ventures, or alliances; market vacuum occurred due to exit of a
competitor, etc.
viii. Identify its weaknesses such as lower quality of goods or services; lack of marketing
expertise; or lack of unique products and services; and prepare strategies to convert
its weaknesses into strengths
ix. Identify its strengths and fully exploit them in firm’s advantage. These strengths can
be in terms of marketing expertise, superior product quality or services, or giving
unique innovative products or services.

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Summary
A number of forces over which it has little or no control affect a company’s marketing activities.
Taken together, they make up its external marketing environment, which includes regulatory and
political activity, economic conditions, competitive forces, changes in technology, and social and
cultural influences.
Successful marketing often hinges on understanding consumer behavior—the decision process that
individuals go through when purchasing or using products. Several psychological and social
variables influence buyers’ decisions. They go through a series of steps in reaching the decision to
buy a product: need recognition, information search, evaluation, purchase, and post purchase
evaluation.

Key Words
Environment
Macro Environment
Micro Environment
Technological
Socio -Cultural
Technological
Political.

Self Assessment

1. Which of the following is part of an organisation's marketing environment?

A. The organisation's micro-environment

B. The organisation's macro-environment
C. Any internal or external force that affects the organisation's ability to create, communicate,
deliver and exchange offerings of value
D. All of the options listed are part of an organisation's marketing environment

2. The process of breaking the marketing environment into smaller parts in order to gain a better
understanding of it is known as
a) The internal environment
b) Environmental analysis
c) The micro-environment
d) The macro-environment

3. When using the PESTL framework, marketers are investigating

a) Internal forces
b) Macro-environmental forces
c) Micro-environmental forces
d) Competitive force

4. Which of the following statements is correct?

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A. The internal environment includes those factors that are not controllable by the organisation

B. Weaknesses are internal factors that marketers seek to minimise

C. The internal environment includes factors that are controllable by the organisation

D. Both b and c

5. Choose the best answer from the options below to complete the following sentence. An

organisation chart can be a useful tool to help analyse an organisation's

a. Market perception
b. Marketing mix
c. External environment
d. Internal environment

6. An organisation that cuts its marketing budget during an economic downturn could be

more likely to view marketing as

a. Cost
b. An investment
c. Essential
d. Both b and c

7. Which of the following is not a part of an organisation's external environment?

a. Customer
b. Competitors
c. The Micro Environment
d. All of the options are apart of organizations external environment

8. Primary produces such as wheat farmers, construct dams in an attempt to influence their

businesses:

a. Internal Environment
b. External environment
c. Micro Environment
d. Macro Environment

9. Which of the following would not be part of an organisations micro environment?

a. Competitors
b. Customers
c. The economy
d. Partners such as suppliers and retailers

10. Working for the Aldi supermarket chain, you are very aware of the activities of your

company's competitors; Coles and Woolworths, and find that you frequently make changes

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to your businesses in response to actions they have taken. You also notice that they react

when you make changes to your business offering. This competition is occurring within the:

a. Internal environment
b. Micro environment
c. Macro environment
d. The competitive environment

11. In an attempt to overcome legal regulations, an industry body may attempt to influence

which aspect of its marketing environment?

a. Sociocultural
b. Political
c. Competitive
d. Economic

12. The influences in a society and/or its culture/s that affect people's attitudes, beliefs,

behaviours, preferences, customers and lifestyles are known as

a. Sociocultural
b. Political
c. Competitive
d. Economic

13. The global financial crisis was an example of what type of macro-environmental force?

a. Political
b. Sociocultural
c. Competitive
d. Economic

14. A devaluation of the Australian dollar makes exports cheaper and imports more expensive.

Within the macro-environment, this is known as a(n):

a. Political Forces
b. Economic Force
c. Sociocultural Forces
d. Technological Forces

15. A new housing estate with landscaping convenants opens in the vicinity of a garden nursery

business. In term of a SWOT analysis, this would represent

a. A Strength
b. An Opportunity
c. A threat
d. A weakness

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Answers for Self Assessment

1. D 2. B 3. D 4. A 5. D

6. A 7. D 8. B 9. C 10. B

11. B 12. A 13. D 14. B 15. B

Review Questions

1. What is the role of information in marketing and marketing planning?

2. How do changes in marketing practice change the relative importance of different types of
information to the marketing manager?
3. How can efficient management of information and knowledge lead to enhanced
performance and competitive advantage?
4. How can models be used to describe and measure the information environment?
5. What is the relationship between the Information Environment Model and the Integrated
Model of Marketing Planning?

Further Readings
Johnson, G. and K. Scholes. 1999. Exploring Corporate Strategy. Prentice Hall Europe.
London. 560 pp.
Kotler, P. 2000. Marketing Management, The Millennium Edition. Prentice-Hall
International, Inc. London.
Porter, M.E. 1980. Competitive Strategy, Techniques for Analyzing Industries and
Competitors. The Free Press. New York, New York.
Webster, F. E. Jr. 1991 Industrial Marketing Strategy. Third Edition. John Wiley & Sons, Inc.
New York, New York.
Zack, M.H. 1999. Developing a Knowledge Strategy. California Management Review.
41(3):125-145.
Bassie, L.J. 1997. Harnessing the Power of Intellectual Capital. Training and Development.
51(12):25-30.

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References

Kotler, Philip and Gray, Armstrong, (2008) “Principles of Marketing” Prentice Hall
 Kotler, Philip and Gray, Armstrong, and Y, Agnihotri, Prafulla and ul Haque, Eshan (2013)
“Principles of Marketing – A south Asian Perspective” Prentice Hall
 Sylvester, GS, (2014) “Preliminary Certificate in Marketing” Study tex

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Dr. Pretty Bhalla, Lovely Professional University Unit 05: Consumer Behavior

Unit 05: Consumer Behavior

CONTENTS
Objective
Introduction
5.1 Buying Role
5.2 Need to understand Consumer Behavior
5.3 Buying Motives
5.4 Consumer Decision making Process:
5.5 Organizational Buyer Behavior
5.6 Stages in Organizational Buying
Summary
Keywords
Self Assessment
Answers for Self Assessment
Review Questions
Further Readings

Objective
1. Understand the complex nature of consumer decision making
2. understand need to study consumer behavior
3. analyze consumer roles
4. elaboratively discuss buying motives.
5. understand consumer buying decision process and buying influencers
6. understand business buying behavior,
7. steps involved in the process,
8. analyze how it is different from consumer behavior.

Introduction
“Consumer behavior is the actions and the decision processes of people who purchase goods and
services for personal consumption” – according to Engel, Blackwell, and Mansard,
Consumer buying behavior refers to the study of customers and how they behave while deciding to
buy a product that satisfies their needs. It is a study of the actions of the consumers that drive them
to buy and use certain products.
Study of consumer buying behavior is most important for marketers as they can understand the
expectation of the consumers. It helps to understand what makes a consumer to buy a product. It is
important to assess the kind of products liked by consumers so that they can release it to the
market. Marketers can understand the likes and dislikes of consumers and design base their
marketing efforts based on the findings.
Consumer buying behavior studies about the various situations such as what do consumers buy,
why do they buy, when do they buy, how often do consumers buy, for what reason do they buy,
and much more.

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For example, consumer buying behavior is studied by consumer researchers and their aim is
to know why women buy moisturizers (to reduce skin problems), the most preferred brand (Olay,
L’Oréal), how often do they apply it (twice a day, thrice a day), where do the women prefer to buy
it (supermarkets, online) and how many times do they buy it (weekly, monthly).

Importance of Consumer Behavior

Understanding consumer behavior is essential for a company to find success for its current
products as well as new product launches. Every consumer has a different thought process and
attitude towards buying a particular product. If a company fails to understand the reaction of a
consumer towards a product, there are high chances of product failure.
Due to the changing fashion, technology, trends, living style, disposable income, and similar other
factors, consumer behavior also changes. A marketer has to understand the factors that are
changing so that the marketing efforts can be aligned accordingly. Consumer behavior is
considered the most indispensable part of organizations because of following reasons:

1. Consumer Differentiation:
In marketing, consumer differentiation is a way to distinguish a consumer from several other
consumers. This helps to make a target group of consumers with the same or similar behavior. Each
group of consumers are different and their needs and wants differ from other groups. When a
marketer is knowledgeable about differentiation of each group of consumers, he can
design separate marketing programes.
Consumer differentiation will help to tailor your strategies to the needs of varying customer
groups. When consumer differentiation is done, you can expand the width and breadth of your
services. You will be able to effectively serve a wider group of people.

2. Retention of Consumers:
“Consumer behavior is of most importance to marketers in business studies as the main aim is to
create and retain customers” says Professor Theodore Levitt (Kumar, 2004).
Consumer behavior is not just important to attract new customers, but it is very important to retain
existing customers as well. When a customer is happy about a particular product, he/she will
repeat the purchase. Therefore, marketing the product should be done in such a way that it will
convince customers to buy the product again and again.
Thus, it is very evident that creating customer and retaining them is very important. This can be
done only by understanding and paying attention towards the consumer’s buying behavior.

3. Design Relevant Marketing Program:

Understanding consumer behavior allows you to create effective marketing campaigns. Each
campaign can speak specifically to the separate group of consumers based on their behavior.
For example, while targeting kids market, you may have to look out for venues such as TV ads,
school programes and blogs targeting young mothers. You will need to take different messaging
approaches for different consumer groups.
A study of consumer behavior enables the marketers to understand what motives consumers to
make purchases. Furthermore, the same motive can be utilized in advertising media to stir the
desire to make a purchase. Moreover, marketers should take decisions regarding the brand logo,
coupons, packing and gifts on the basis of consumer behavior.

4. Predicting Market Trend:

Consumer behavior analysis will be the first to indicate a shift in market trend. For example, the
recent trend of consumers is towards environment friendliness and healthy food. This changing
market trend was observed by many brands including McDonalds. Based on the consumer
behavior, McDonald’s brought healthy food options.
By conducting consumer behavior study, a company saves a lot of resources that might otherwise be
allocated to produce a product that will not be sold in the market. For example, in summer a brand will
not waste its resources for producing a product that will not sell in summer. Based on consumer

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behavior the company decides on production strategy which will save on warehouse costs and
marketing costs.
5. Competition:
One of the most important reasons to study consumer behavior is to find out answers to some of
the questions:
Is the customer buying from your competitor?
Why is a consumer buying from your competitor?
What features attracts a consumer to your competitor products?
What gaps are your consumers identifying in your products when compared to your competitors?
Studying consumer behavior facilitates in understanding and facing competition. Based on
consumers’ expectations, your brand can offer competitive advantages.

6. Innovate New Products:

We all know some of the big names such as New Coke, Crystal Pepsi, Colgate Kitchen Entrées,
Earring Magic Ken Doll, and Wheaties Dunk-a-Balls Cereal. Can you see the similarities in these
products? Yes, they all failed!!
The sad truth is that most new products and new ideas end up in failure. There is an estimate of
new product failures – they range from 33% to 90% based on the kind of industry.
Companies consistently strive hard to improve the success rate of their new products or new ideas.
One of the most important ways is to conduct sound and thoughtful consumer behavior study.
With the help of consumer behavior analysis, Nike realized that most of its target audience is not
professional athletes, but many of them were striving to be more like them. So at the 2012 Olympics
in London, Nike introduced a campaign to encourage athletics called ‘Find Your Greatness’. It
aimed to promote the aspirations of being an athlete, not just with high-performing athletes, but
wanted to include all people regardless of their physical capability. The campaign was well
planned and was data-driven, of course, carefully analyzed before taking any action. This message
inspired many consumers and had enormous appeal for target consumers.

7. Stay Relevant in the Market

When the world is changing as rapidly as it is happening today, the biggest challenge we all face is
staying relevant to our target market. And do you know what is the main reason behind the rapid
changes? It is the ever-changing behavior of our customers.
Today’s consumers have greater choices and opportunities, which means they can easily switch to a
company that offers better products and services.
Losing relevance will only cost the company its market share. Haven’t we seen Sony
Walkman failing to stay relevant in the digital music era, and the taxi industry doom with no
preparedness to battle the UBER uprise!!

8. Improve Customer Service

Consumers require different levels of customer service, and understanding the differences within
your customer base will help you provide the most appropriate service for individual needs.

For example, if you own an electronics store, high school or college students who buy a new
laptop are more likely to understand the features they’re looking for than a person buying his first
computer. With the first demographic, your service goal will be to provide information about the
latest trends in technology, while with the second demographic, you’ll need to spend more time
educating the customer, finding out what his specific needs are, and even teaching him how to use
the features of his new electronic device.

5.1 Buying Role

Buying roles refer to the activities that one or more person(s) might perform in a buying decision.
Initiator: the person who first suggests or thinks of the idea of buying the particular product or

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service. Influencer: a person whose views influence other members of the buying center in making
the final decision.
The six main roles in a buying centre are the users, influencers, buyers, deciders, and gatekeepers.
In a generic situation, one could also consider the roles of the initiator of the buying process (who
is not always the user) and the end users of the item being purchased.
Furthermore, what are the different roles that a customer can play in service purchases? Any
marketplace transaction requires at least three customer roles :
(1) buying, that is selecting a product or service ;
(2) paying for it, and
(3) using or consuming it. Thus, a customer can be a buyer, a payer, or a user/consumer.

1. Initiator
First identifies the need to buy a particular product or service to solve an organisational problem.

2. Influencer
Their views influence the buying centre’s buyers and deciders. This can be discussed through an

Example like parents decide where small children should go and have fun .

3. Decider
Ultimately approves all or any part of the entire buying decision, whether to buy, what to buy, how

to buy and where to buy. For example, in some cases, the parents to succumb to the child’s

pressure.

4. Buyer
Holds the formal authority to select the supplier and to arrange terms of condition. The parent that

pays for the meal.

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5. User
Consumes or uses the product or service. Example, Pulses bought at the store the whole family

becomes the user.

6. Gatekeeper
Controls information or access (or both) to decision-makers and influencers.

5.2 Need to understand Consumer Behavior

The modern marketing management tries to solve the basic problems of consumers in the area of
consumption. To survive in the market, a firm has to be constantly innovating and understand the
latest consumer needs and tastes. It will be extremely useful in exploiting marketing opportunities
and in meeting the challenges that the market offers.

Need To Study Consumer Behavior

1. The study of consumer behavior for any product is of vital importance to marketers in
shaping the fortunes of their organizations.
2. It is significant for regulating consumption of goods and thereby maintaining economic
stability.
3. It is useful in developing ways for the more efficient utilisation of resources of marketing.
It also helps in solving marketing management problems in more effective manner.
4. Today consumers give more importance on environment friendly products. They are
concerned about health, hygiene and fitness. They prefer natural products. Hence detailed
study on upcoming groups of consumers is essential for any firm.
5. Consumers’ tastes and preferences are ever changing. Study of consumer behaviour gives
information regarding colour, design, size etc. which consumers want. In short, consumer
behaviour helps in formulating of production policy.
6. For effective market segmentation and target marketing, it is essential to have an
understanding of consumers and their behaviour.

5.3 Buying Motives

It is the buying motives which induce a consumer to buy a particular product.
A lady may buy a sari for physical protection or for wearing something to look beautiful or as a
status symbol.
This buying motive is a strong feeling, desire or emotion that makes the buyer to buy a
product. Buying motives are those influencers or considerations which provide the impulse to buy ,
induce action or determine choice in the purchase of goods and services.

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In short , a buying motive is the reason why buyers buy.

Types of Buying Motives:

1. Emotional and Rational Motives: When a consumer decides to buy without

much logical thinking , his decision is said to be emotional. Emotional Buying motives
are the motives which are affected by the feelings of the heart. Types of Emotional
and Rational Motives are:
A. Sex and Romance motives
B. Love of others (Affection Motive)
C. Social acceptance motive
D. Recreational or relaxation motive
E. Vanity Motive

2. Rational Motives: When a buyer decides to buy after careful consideration or

logical thinking, his decision is said to be rational. Buying with head and mind. In
making rational purchases, the consumer considers prices, durability, dependability,
efficiency, conveniences etc.
A. Monetary Motives
B. Efficiency in Operational and Use
C. Dependability Motive

3. Product and Patronage Motives: It refers to those influencers and reasons which
make the consumer buy a certain product in preference to another.
a. Primary Product Motives: Basic need like hunger, thirst, sleeps etc.
b. Selective Product Motives: determine particular brand or item

4. Patronage motives: Patronage Motives are the reasons or considerations which makes
a buyer to prefer one particular retailer, outlet or service provider over others.
Example: Certain consumers’ preference to buy Samsung Mobile phones over Apple’s
iPhone. Behind every buying decision made by the customer there is a motive. This
motive could be rational or emotional. The Buyer’s Motives are classified as below

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Emotional Patronage buying motives

When a consumer patronages a particular retailer or outlet without any reasoning then he is said to
be influenced by emotional patronage buying motives. Those motives are include
• Appearance of the store
• Display of goods inside the store
• Recommendations from Influencers
• Prestige
• Habits
• Imitation

Rational Patronage buying motives

When a consumer patronages a particular retailer by considering the possible benefits through
logical reasoning then he is said to be influenced by rational buying motives. Those motives include
• Convenience
• Low price offered at the shop
• Availability of credit facilities
• Sale person efficiency
• Availability of wide options
• Reputation of the shop
• Previous experience in dealing with same shop/retailer

5.4 Consumer Decision making Process:

Many people think that the most important stage in a sale is when a customer hands over the
money. But actually, when it comes to how to influence consumer behavior, every single step in the
consumer decision-making process plays an important role. For businesses to maximize profit, it’s
imperative that they pay attention to every stage in the buying process.
Consumers don’t just decide to buy. Their buying behavior is determined by many different
factors. And too many businesses focus on optimizing certain steps — improving checkout,
acquiring customers through SEO etc. — without looking at the big picture.
The consumer decision making process is the process by which consumers become aware of and
identify their needs; collect information on how to best solve these needs; evaluate alternative
available options; make a purchasing decision; and evaluate their purchase.
Understanding the consumer decision making process is important to any business, but
ecommerce businesses have a unique opportunity to optimize it. Because online shoppers
generate so much more data than those in brick-and-mortar stores, online retailers can use that data
to implement conversion strategies for every stage of the process.

The 5 Stages of the Consumer Decision Making Process — And How to Optimize
It’s important to note that the consumer decision making process has many different names,
including but not limited to the buyer journey, buying cycle, buyer funnel, and consumer purchase
decision process. But all the names essentially refer to the same thing: The journey a customer goes
through when making a purchase.
So, here’s a breakdown of what happens in each step:
Need recognition (awareness): The first and most important stage of the buying process, because
every sale begins when a customer becomes aware that they have a need for a product or service.

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Search for information (research): During this stage, customers want to find out their options.
Evaluation of alternatives (consideration): This is the stage when a customer is comparing options
to make the best choice.
Purchasing decision (conversion): During this stage, buying behavior turns into action – it’s time
for the consumer to buy!
Post-purchase evaluation (re-purchase): After making a purchase, consumers consider whether it
was worth it, whether they will recommend the product/service/brand to others, whether they
would buy again, and what feedback they would give.
Now, to show you how these stages of the buying decision process play out in real life, here are
consumer buying process examples that outline each of the steps and ways for your eCommerce
brand to maximize results during each stage.

1. Need recognition (awareness)

The need recognition stage of the consumer decision making process starts when a consumer
realizes a need. Needs come about because of two reasons:
Internal stimuli, normally physiological or emotional needs, such as hunger, thirst, sickness,
sleepiness, sadness, jealousy, etc.
External stimuli, like an advertisement, the smell of yummy food, etc.
Even if the core cause is vanity or convenience, at the most basic level, almost all purchases are
driven by real or perceived physiological or emotional needs. The causes for these stimuli can be
social (wanting to look cool and well dressed) or functional (needing a better computer to do work
more effectively), but they speak to the same basic drivers.
We buy groceries because without food in the house, we’ll be hungry. We buy new clothes because
we’ll be cold, or we feel like everyone else has the latest handbag of the season, and we don’t want
to be left out.

Example: Looking for a New Camera

Think about it: Why does someone start looking for a new camera? Likely, their old camera isn’t
working well anymore, or they simply want a nicer camera. Maybe they have a vacation coming
up. Or maybe they want to give the camera as a present to their sister, who just had her first child.
How in the world is this related to a physiological need? Simple. Without a camera, they won’t be
able to document special moments; therefore, they have an emotional desire to save these moments
so that they are happy and not sad.
This emotional desire is the internal stimuli in this situation. Sure, a camera isn’t a life necessity
keeping them from surviving, but it does solve a core emotional need.
What happens after someone identifies a need? They begin looking for a solution! Which brings us
to the next step in the customer journey: searching for information.

2. Search for information (research)

As soon as a consumer recognizes a need and begins to search for an answer, you must be there to
help! And where do consumers generally go to look for answers today? Google!
Now that the customer has realized a need to get a new camera, it’s time to find solutions to his
problem. In this stage, it’s imperative that you are visible to the consumer searching for an answer.
Here are some things a consumer may be searching for:
Best cameras 2020
What is the best affordable camera?
Which cameras are top-rated?
The amount of information a customer needs to search for depends on how much he already knows
about the solutions available, as well as the complexity of choices. For example, let’s say there’s
someone looking for a camera as a gift, and he has no idea which type of camera he wants, or what
features he needs.

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He will need more information than someone who already knows exactly the type of camera he
wants to buy, but just needs to find the right product and the right way to purchase it.
The amount of searching necessary is entirely dependent on the situation, and it can vary widely.
So how do customers search for information? By using internal information (their previous
knowledge of a product or brand) as well as external information (information about a product or
brand from friends or family, reviews, endorsements, press reviews, etc.).
The biggest way you can optimize your online business during the need recognition and awareness
stage is by making sure you show up in search results — and that what the consumer sees makes
an impression.

Strategies to optimize during the research stage

First, make sure you’re optimizing your ecommerce storefront to rank for the keywords that matter
to your brand. For a complete guide on ecommerce SEO, check out our guide.

Once you know how to strategize your SEO, you’ll want to make sure your results are well
optimized to convert. User-generated reviews can help you to build brand awareness during the
research stage. In fact, it’s one of the most effective ways to do it.

3. Evaluation of alternatives (consideration)

Now that the consumer has done research, it’s time to evaluate their choices and see if there are any
promising alternatives. During this phase, shoppers are aware of your brand and have been
brought to your site to consider whether to purchase from you or a competitor.
Consumers make purchase decisions based on which available options best match their needs, and
to minimize the risk of investing poorly, they will make sure there are no better options for them.
Their evaluation is influenced by two major characteristics:
Objective: Features, functionality, price, ease of use
Subjective: Feelings about a brand (based on previous experience or input from past customers)

Example: Comparison shopping for a camera

If you’re a camera seller or brand, your goal in the consideration stage is to convince customers
your camera is the best choice. And the most effective way to do that is to keep them on your site
longer and find ways to earn their trust.
Consumers will first weigh the objective characteristics of your camera. Does it have all the features
I want? Is it easy to use? Is it in my budget? Then, the subjective consideration will kick in: Do other
people think it has all the features it should? Has anyone else who bought it expressed any difficulty
with learning how to use it? Is it generally considered a good value for the money?
You only have one shot – so you need to make the most of it. Of course, it’s important that your site
is informative, your prices are competitive, your value is clear, etc. But if you’re identical to a
competitor in every single way, the word of previous customers is what will set you apart.

4. Purchasing decision (conversion)

Alright, now it’s money time. This is the stage when customers are ready to buy, have decided
where and what they want to buy, and are ready to pull out their credit cards.
But wait! Not so fast. You can still lose a customer at this stage. This is the stage when the
purchasing experience is key – it’s imperative to make it as easy as possible.

Example: Abandoning checkout for a camera

Let’s say your potential customer has gotten to the checkout stage of his purchase, and has second
thoughts: What if the recipient wants a different camera? What if this camera is missing a key
feature that the recipient would want? How difficult will it be for the recipient to return the camera
if it doesn’t meet their needs?
This shopper will likely abandon his cart, and go back to the research stage. Maybe he’ll end up
back on your site, but maybe he won’t. Your goal at this stage is to get him to complete the
purchase now, so you don’t lose him forever.

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5. Post-purchase evaluation (re-purchase)

In this stage of the consumer purchase decision process, consumers reflect on their recent purchase.
They think about how they feel about it, if it was a good investment, and most importantly, if they
will return to the brand for future purchases and recommends the brand to friends and family.
In this stage, you need to have a post-purchase strategy to increase the likelihood that customers
will engage with your brand again in the future.

Example: Getting feedback and encouraging repeat purchases

In the camera example, the customer has already bought from your brand and they’re evaluating
their purchase. This is usually when they will leave a review about their experience. This is also
when they are at their most engaged with your brand, and they can be susceptible to strategies that
encourage long term engagement.
At this stage, you want to ensure that customers buy again, and you want to encourage them to
leave UGC that helps other buyers in the future.

5.5 Organizational Buyer Behavior

Those who supply goods and services to consumer markets are themselves in need of goods and
services to lUn their business. These organizations-producers, resellers, and government-make up
vast marketing organizations that buy a large variety of products, including equipment, raw
material, and labor and other services. Some organizations sell exclusively to other organizations
and never come into contact with consumer buyers. Despite the importance of organizational
markets, far less research has been conducted on factors that influence their behavior than on
factors that influence consumers. However, we can identify characteristics that distinguish
organizational buying from consumer buying and typical steps in the organizational buying
process.

Five characteristics mark the organizational buying process:

1. In organizations, many individuals are involved in making buying decisions,
2. The organizational buyer is motivated by both rajonal and quantitative criteria dominant in
organizational decisions; the decision makers are people, subject to many of the same emotional
criteria used in personal purchases.
3. Organizational buying decisions frequently involve a range of complex technical dimensions. A
purchasing agent for Volvo Automobiles, for example, must consider a number of technical factors
before ordering a radio to go into the new model. The electronic system, the acoustics of the
interior, and the shape of the dashboard are a few of these considerations.
4. The organizational decision process frequently spans a considerable time, creating a significant
lag between the marketer's inItial contact with the customer and the purchasing decision. Since
many new factors can enter the picture during this lag time, the marketer's ability to monitor and
adjust to these changes is critical.
5. Organizations cannot be grouped into precise categories. Each organization has a characteristic
way of functioning and a personality
The first item in this list of characteristics has important implications. Unlike the consumer buying
process, organizational buying involves decision making by groups and enforces rules for making
decisions.
These two characteristics greatly complicate the task of understanding the buying process. For
example, to predict the buying behavior of an organization with certainty, it is important to know
who will take part in the buying process, what criteria each member uses in evaluating prospective
suppliers, and what influence each member has. It is also necessary to understand something not
only about the psychology of the individuals involved but also how they work as a group. Who
makes the decision to buy depends in part on the situation. Three types of buying situations have
been distinguished: the straight rebuy, the modified rebuy, and the new task. The straight rebuy is
the simplest situation: The company reorders a good or service without any modifications. The
transaction tends to be routine and may be handled totally by the purchasing department. With the
modified rebuy, the buyer is seeking to modify product specifications, prices, and so on. The

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purchaser is interested in negotiation, and several participants may take part in the buying
decision. A company faces a new task when it considers buying a product for the first time. The
number of participants and the amount of information sought tend to increase with the cost and
risks associated with the transaction. This situation represents the best opportunity for the
marketer.

The Types of product are :

1. Raw material
2. Fabrication parts &material
3. Installation of machinery
4. Accessories Equipment’s
5. Operating Suppliers

➢ Three important buying decision :

1. Authority to purchase.
2. Determine the product specification.
3. Choice of supplier.

➢ Three types of industrial buying situations:

Straight Rebuy: buying in routine e.g. : stationery, wood , energy.
Modified Rebuy: modify parts specification or price change e.g.: Spare parts, technology
New Task: Buying for the first time for a new task, highest level of uncertainty e.g.: Plant, building

5.6 Stages in Organizational Buying

The organizational buying process contains eight stages, or key phrases. Although these stages
parallel those of the consumer buying process, there are important differences that have a direct
bearing on the marketing strategy. The complete process occurs likely in the case of a new task.
Even in this situation, however, the process is far more formal for the industrial buying process
than for the consumer buying process. Most of the information an industrial buyer receives is
delivered through direct contacts such as sales representatives or information packets.
It is unlikely that an industrial buyer would use information provided through a trade ad as the
sole basis for making a decision.
1. Problem recognition. The process begins when someone in the organization recognizes a problem
or need that can be met by acquiring a good or service. Problem recognition can occur as a result of
internal or external stimuli. External stimuli can be a presentation by a salesperson, an ad, or
information picked up at a trade show.
2. General need description. Having recognized that a need exists, the buyers must add further
refinement to its description . Working with engineers, users, purchasing agents, and others, the
buyer identifies and prioritizes important product characteristics. Armed with extensive product
knowledge, this individual is capable of addressing virtually all the product-related concerns of a
typical customer. To a lesser extent, trade advertising provides valuable information to smaller or
isolated customers.
Noteworthy is the extensive use of direct marketing techniques (for example, toll-free numbers and
information cards) in co. Junction with many trade ads. Finally, public relations play a significant
role through led placement of stories in various trade journals.
3. Product specification. Technical specifications come next. '!'his is usually the responsibility of the
engineering department. Engineers design several alternatives, depending on the priority list
established earner.
4. Supplier search. The buyer now tries [0 identify the most appropriate vendor. The buyer can
examine trade directories, perform a computer search, or phone other companies for
recommendations. Marketers can participate in this stage by contacting possible opinion leaders

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and soliciting support or by contacting the buyer directly. Personal selling plays a major role at this
stage
5. Proposal solicitation. Qualified suppliers are next invited to submit proposals. Some suppliers
send only a catalog or a sales representative. Proposal development is a complex task that requires
extensive research and skilled writing and presentation. In extreme cases, such proposals are
comparable to complete marketing strategies found in the consumer sector.
6. Supplier selection. At this stage, the various proposals are screened and a choice is made. A
significant part of this selection is evaluating the vendor. One study indicated that purchasing
managers felt that the vendor was often more important than the proposal. Purchasing managers
listed the three most important characteristics of the vendor as delivery capability, consistent
quality, and fair price. Another study found that the relative importance of different attributes
varies with the type of buying situations. For example, for routine-order products, delivery,
reliability, price, and supplier reputation are highly important. These factors can serve as appeals in
sales presentations and in trade ads.
7. Order-routine specification. The buyer now writes the final order with the chosen supplier,
listing the technical specifications, the quantity needed, the warranty, and so on.
8. Performance review. In this final stage, the buyer reviews the supplier's performance. This may
be a very simple or a very complex process.

Summary
Leading companies such as The Coca-Cola Company and Barclays, have constantly improved its
existing products and focused on developing new products. The Coca-Cola Company aligns its
corporate strategy of ‘refreshing everyone who is touched by our business’, by conducting market
research to identify consumer behavior. Similarly, Barclays conducted consumer behavior study to
better understand the needs of this target market.
Consumer behavior analysis has emerged as an important tool to understand your customers. By
looking into consumer psychology and the forces behind customer buying behavior, companies can
craft new products, marketing campaigns and increase profitability.
Companies should talk to consumers, watch out for frustrations, and most importantly, identify
their needs and expectations!

Keywords
Consumer, Customer, Behavior, Stages, Awareness, Potential Customers, Marketing, Value,
Research

Self Assessment

1. All those factors particular to a time and place that do not follow from knowledge of the

stable attributes of the consumer and the stimulus and that have an effect on current

behavior are known as _____.

A) situational influence
B) motivators
C) consumption triggers
D) consumption influencers

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2. Which of the following also includes a situation-specific component?

A) personality
B) self-concept
C) involvement
D) demographics

3. At the top of Maslow's hierarchy of needs are ________ needs.

A) esteem
B) self-actualization
C) social
D) safety

4. ________ refers to a set of distinguishing human psychological traits that lead to

relatively consistent and enduring responses to environmental stimuli.

A) Image
B) Personality
C) Psychological transformation
D) Lifestyle

5. The relatively homogeneous and enduring divisions in a society, which are hierarchically

ordered and whose members share similar values, interests, and behavior constitute

________.

A) a culture
B) a subculture
C) a social class
D) a family

6. A person's ________ consist(s) of all the groups that have a direct (face-to-face) or indirect

influence on his/her attitudes or behavior.

A) subculture
B) family
C) social class
D) reference groups

7. The headline for the Rockport shoes ad reads, “I'm comfortable being the greatest that ever

was or will be. Be comfortable. Uncompromised. Start with your feet.” The ad shows a

picture of Muhammad Ali, world famous boxer. In terms of Maslow's hierarchy, this ad

was designed to appeal to the consumer's _______________.

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A) Psychological needs
B) Need for esteem
C) Safety needs
D) Self-actualization need

8. Which of the following is NOT a situation in which consumer behavior occurs?

A) communications situation
B) purchase situation
C) usage situation
D) all of the above are situations in which consumer behavior occurs

9. In terms of consumer behavior; culture, social class, and reference group influences have

been related to purchase and _______________.

A) Economic situations
B) Situational influences
C) Consumption decisions
D) Physiological influence

10. Which of the following is an example of a social influence on consumer behavior?

A) The fashion editor of Seventeen magazines writes that any teen who wants to be well-
dressed for the first day of school must wear a shirt that shows her bellybutton
B) The manufacturer of a line of aromatherapy candles markets them at very exclusive stores
C) When Arne went to the store to buy a new dress for Easter, she decided not to buy anything
because of the crowded conditions of the store
D) Billie purchased a pair of Honey brand clogs instead of the Birkenstocks she wanted because
the Birkenstocks were too expensive.

11. When preparing Thanksgiving dinner last year, Marissa worried that her parents would

hate the fact that she served bought pumpkin pies rather than making her own. In terms of

social influences on her behavior, Marissa was most concerned with_________________.

A) A primary reference group

B) A subculture influence
C) A secondary reference group
D) Cultural values

12. As the mother of the groom, Ann was willing to wear the subdued-colored, tailored suit

that the bride had selected for the wedding until the sales clerk showed Ann a red offthe-

shoulder cocktail dress. Because the sales clerk kept telling Ann how great the dress

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looked and because the price of the dress was substantially lower than the suit Ann

bought the dress to wear to the wedding. Assuming Ann really likes her son's fiancée and

does not want to do anything to damage her relationship with him or his bride, Ann's

decision to buy the red dress was a result of ________________ influences.

A) Economic
B) Marketing
C) Reference group
D) Cultural

13. As the mother of the groom, Ann was willing to wear the subdued-colored, tailored suit

that the bride had selected for the wedding until the sales clerk showed Ann a red offthe-

shoulder cocktail dress. Because the sales clerk kept telling Ann how great the dress

looked and because the price of the dress was substantially lower than the suit Ann

bought the dress to wear to the wedding. Assuming Ann really likes her son's fiancée and

does not want to do anything to damage her relationship with him or his bride, Ann's

decision to buy the red dress was a result of ________________ influences.

A) Economic
B) Marketing
C) Reference group
D) Cultural

14. Marketing strategies are often designed to influence _______________ and lead to

profitable exchanges.

A) Consumer decision making

B) Sales strategies
C) Advertising strategies
D) Export strategies

15. One of the key tasks of marketers is ____________ and to create consumer perceptions that

the product is worth purchasing.

A) To make products easily visible and available

B) To promote sales of products
C) To differentiate their products from those of competitors
D) To do marketing surveys

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16. One of the key tasks of marketers is ____________ and to create consumer perceptions that

the product is worth purchasing.

A) To make products easily visible and available

B) To promote sales of products
C) To differentiate their products from those of competitors
D) To do marketing surveys

Answers for Self Assessment

1. A 2. C 3. B 4. B 5. A

6. D 7. C 8. D 9. C 10. A

11. A 12. B 13. B 14. A 15. C

16. C

Review Questions
1. Discuss why an understanding of consumer needs is important for marketing strategy.
Explain specific ways in which an understanding of needs can be used to influence
consumers. Provide an example to illustrate your answers.
2. How does the family influence the consumer socialization of children? What role does
television play in consumer socialization?
3. Explain the scope of Consumer Behaviour.
4. What are the different applications of Consumer Behaviour in different areas?
5. Explain the basic components of consumer behaviour.

Further Readings
Cokley, K., Caldwell, L., Miller, K., & Muhammad, G. (2001). Content analysis of the
Journal of Black Psychology (1985- 1999). Journal of Black Psychology, 27, 424-438.
Furrer, O., Thomas, H., &Goussevskaia, A. (2008). The structure and evolution of the
strategic management field: A content analysis of 26 years of strategic management
research. International Journal of Management Reviews, 10, 1-23.
Hameed, M. A., Waqas, A., Aslam, M. N., Bilal, M., & Umair, M. (2014). Impact of TV
advertisement on children buying behavior. International Journal of Humanities and Social
Science, 4, 246-261.
Hawkins, D., &Mothersbaugh, D. (2009). Consumer behavior: Building marketing strategy.
New York, NY: McGraw-Hill. Helgeson, J. G., Kluge,
E. A., Mager, J., & Taylor, C. (1984). Trends in consumer behavior literature: A content
analysis. Journal of Consumer Research, 10, 449-454.
Howard, J., &Sheth, J. N. (1968). The theory of buyer behavior. New York, NY: John Wiley.
Journal Citation Reports. (2014).
Social sciences edition. New York, NY: Thomson Reuters. Kassarjian, H. H. (1977). Content
analysis in consumer research. Journal of Consumer Research, 4, 8-18

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Dr. Pretty Bhalla, Lovely Professional University Unit 06: Segmentation Decisions

Unit 06: Segmentation Decisions

CONTENTS
Objective
Introduction
6.1 Evolving Marketing Strategies
6.2 Advantages of Segmentation
6.3 Market Segmentation
6.4 Basis of Market Segmentation
6.5 Types of Market Segmentation
6.6 Segmenting Industrial Markets
6.7 Levels of Marketing Segmentation
Summary
Keywords
Self Assessment
Answers for Self Assessment
Review Questions
Further Readings

Objective
Understand characteristics, types and benefits of market Segmentation.

Introduction
The segmentation concept was first developed by Smith in 1957, and is concerned with grouping
consumers in terms of their needs. The aim of segmentation is to identify a group of people who
have a need or needs that can be met by a single product, in order to concentrate the marketing
firm’s efforts most effectively and economically. For example, if a manufacturer produces a
standardised product by a mass-production method, the firm would need to be sure that there are
sufficient people with a need for the product to make the exercise worthwhile.
The assumptions underlying segmentation are:
• Not all buyers are alike.
• Sub-groups of people with similar behaviour, backgrounds, values and needs can be identified.
• The sub-groups will be smaller and more homogeneous than the market as a whole.
• It is easier to satisfy a small group of similar customers than to try to satisfy large groups of
dissimilar customers.

Reasons for Segmenting Markers

In general, customers are willing to pay a premium for a that meets their needs more specifically
than does a competing product. Thus marketers who successfully carry out market
segmentation and adapt their products to the needs of one or more smaller segments stand to gain
in terms of increased profit margins and reduced competitive pressures. There are several
important reasons why market segmentation needs to be done carefully. Some of the reasons are
outlined below.

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Better matching of customer needs – Customer needs differ. Creating separate offers for each
segment makes sense and provides customers with a better solution.

Enhanced profits for business – Customers have different disposable income. They are,
therefore, different in how sensitive they are to price. By segmenting markets, businesses can raise
average prices and subsequently enhance profits.

Better opportunities for growth – Market segmentation can build sales. For example,
customers can be encouraged to “trade-up” after being introduced to a particular product with an
introductory, lower-priced product

Retain more customers – Customer circumstances change, for example they grow older, form
families, change jobs or get promoted, change their buying patterns. By marketing products that
appeal to customers at different stages of their life (“life-cycle”), a business can retain customers
who might otherwise switch to competing products and brands

Target marketing communications – Businesses need to deliver their marketing message to a

relevant customer audience. If the target market is too broad, there is a strong risk that
(1) the key customers are missed and
(2) the cost of communicating to customers becomes too high / unprofitable. By segmenting
markets, the target customer can be reached more often and at lower cost

Gain share of the market segment – Unless a business has a strong or leading share of a
market, it is unlikely to be maximizing its profitability. Minor brands suffer from lack of scale
economies in production and marketing, pressures from distributors and limited space on the
shelves.

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Each consumer is an individual with individual needs and wants. On the face of it, this creates a
major problem for the marketer, since it would clearly be impossible to tailor-make or customize
each product to the exact requirements of each individual. Before the Industrial Revolution most
products were individually made. This proved to be expensive, and essentially inefficient once
mass-production techniques had come into being.
Unfortunately, mass-production (taken to the extreme) means a reduction in the available choice of
product, since the best way to keep production costs low is to have long production runs, which
means standardizing the product. Every adaptation costs money in terms of re-tooling and re-
packaging the product. In some economies, particularly those in parts of Eastern Europe and in the
Third World, there is not sufficient wealth or investment in industry to allow for the production of
many different types of product. These economies still rely heavily on mass production, and mass
marketing. Mass marketing (or undifferentiated marketing) in which a standard product is
produced for all consumers will only be effective if the consumers concerned have little choice and
do not already own a product that meets the main needs.
For example, in 1930s Germany few families owned cars. Hitler promised the German people that
every family would own a car, so Porsche was commissioned to develop the Volkswagen (literally
’people’s car’) as a basic vehicle, which could be cheaply produced for the mass market. This
approach is less effective in economies where most consumers already own the core benefits of the
product. Once car ownership was widespread and the core benefit of personal transportation was
owned by most families, consumers demanded choices in features and design of their vehicles.
Segmentation deals with finding out how many people are likely to want each benefit, roughly how
much they will be willing to pay for it, and where they would like to buy it from

6.1 Evolving Marketing Strategies

Mass marketing: an attempt to appeal to an entire market with one basic marketing strategy
utilizing mass distribution and mass media. Also known as undifferentiated marketing.
Product variety: an attempt to appeal the entire market with a huge variety of products
produced in mass is made.

Target Marketing: is a market segmentation and market coverage strategy whereby a product is
developed and marketed for a very well defined, specific segment of the consumer population

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6.2 Advantages of Segmentation

6.3 Market Segmentation

Market segmentation is sub dividing of customers into homogenous sub set of customers where
any sub set may conceivably selected as market target to be reached with distinct marketing mix
Segmentation refers to a process of bifurcating or dividing a large unit into various small units
which have more or less similar or related characteristics.

Features of Market Segmentation

1. Market segmentation is a marketing concept which divides the complete market set up
into smaller subsets comprising of consumers with a similar taste, demand and preference.
2. A market segment is a small unit within a large market comprising of like minded
individuals.
3. One market segment is totally distinct from the other segment.
4. A market segment comprises of individuals who think on the same lines and have similar
interests.
5. The individuals from the same segment respond in a similar way to the fluctuations in the
market.

6.4 Basis of Market Segmentation

Gender
The marketers divide the market into smaller segments based on gender. Both men and women
have different interests and preferences, and thus the need for segmentation.
Organizations need to have different marketing strategies for men which would obviously not
work in case of females.
A woman would not purchase a product meant for males and vice a versa.
The segmentation of the market as per the gender is important in many industries like cosmetics,
footwear, jewellery and apparel industries.

Age Group
Division on the basis of age group of the target audience is also one of the ways of market
segmentation.
The products and marketing strategies for teenagers would obviously be different than kids.

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Age group (0 - 10 years) - Toys, Nappies, Baby Food, Prams

Age Group (10 - 20 years) - Toys, Apparels, Books, School Bags
Age group (20 years and above) - Cosmetics, Anti-Ageing Products, Magazines, apparels and so on

Income
Marketers divide the consumers into small segments as per their income. Individuals are classified
into segments according to their monthly earnings.
The three categories are:

• High income Group

Mid Income Group
Low Income Group
Stores catering to the higher income group would have different range of products and strategies as
compared to stores which target the lower income group.
Pantaloon, Carrefour, Shopper’s stop target the high income group as compared to Vishal Retail,
Reliance Retail or Big bazaar who cater to the individuals belonging to the lower income segment.

Marital Status
Market segmentation can also be as per the marital status of the individuals. Travel agencies would
not have similar holiday packages for bachelors and married couples.

Occupation
Office goers would have different needs as compared to school / college students.
A beach house shirt or a funky T Shirt would have no takers in a Zodiac Store as it caters
specifically to the professionals.

6.5 Types of Market Segmentation

▪ Psychographic segmentation

The basis of such segmentation is the lifestyle of the individuals. The individual’s attitude, interest,
value help the marketers to classify them into small groups. Psychographic segmentation classifies
consumers according to their personalities.

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As the reliability of measures has improved, more evidence has come to light of links between
personality and consumer behaviour,5 but psychographic segmentation remains problematical
because of the difficulties of measuring consumers’ psychological traits on a large scale. This type
of segmentation therefore often fails on the grounds of accessibility. For example, researchers might
find out that there is a group of people who relate the brand of coffee that they buy to their self-
esteem. The problem then is that there is no obvious medium in which to advertise this feature of
the coffee: if there were a magazine called Coffee Makes Me Feel Good Monthly there would be no
problem. The advertisers are therefore left with the mass media, such as TV advertising, which may
be far too expensive for the purpose. Some of the most creative ideas in marketing have revolved
around ways of gaining access to such segments.

▪ Geographic Segmentation

Geographic segmentation refers to the classification of market into various geographical areas. A
marketer can’t have similar strategies for individuals living at different places.
Nestle promotes Nescafe all through the year in cold states of the country as compared to places
which have well defined summer and winter season.
McDonald’s in India does not sell beef products as it is strictly against the religious beliefs of the
countrymen, whereas McDonald’s in US freely sells and promotes beef products.

Geographic segmentation may be carried out for a number of reasons.

• The nature of the product may be such that it applies only to people living within a specific area,
or type of area. Clothing manufacturers know that they will sell more heavy-weather clothing in
cold coastal areas than in warm inland areas.
• If the company’s resources are limited, the firm may start out in a small area and later roll out the
product nationally.

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• It might be that the product itself does not travel well. This is true of sheet glass, wedding cakes
and most personal services such as hairdressing. Markets may be segmented geographically
according to the type of housing in the area. Firms that supply products specifically aimed at
elderly people in retirement areas. Products aimed at young people might be heavily marketed in
university towns, and so forth.
Segmentation of consumer based on factors like climate zone, continents/country, region , state ,
district and urban/rural area.

Demographic Segmentation
Demographic segmentation is the most commonly used method of segmenting markets, probably
because it is easy to pick up the relevant information from Segmentation variables 79 government
statistics. Demographics is the study of how people differ in terms of factors such as age,
occupation, salary and lifestyle stage.

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Typically, demographic segmentation revolves around age. While this is relevant in many cases, it
is often difficult to see the difference between, say, a 20-year-old’s buying pattern and a 30-year-
old’s buying pattern. Equally, it cannot be said with much reliability that all 10-year-olds share the
same tastes. There are undoubtedly 10-year-olds who would not want to visit Disneyland or Luna
Park, and 10-year-olds who would prefer simple burger to a hamburger. Age is, of course, relevant
but it should be included as part of a range of measures, not relied upon on its own.
Demographic variables are shifting over time, as the birth rate falls and the average age of the
population rises. In addition, the number of single-person households is rising as people marry
later and divorce rates increase: in 2001, single-person households represented 30% of UK
households.

The implications of this one change for marketers are far-reaching; here are some of the
possibilities: • Increase in sales of individual packs of food.
• Increase in sales of recipe products and ready meals.
• Decrease in sales of gardening equipment and children’s items.
• Increase in sales of mating-game items.
• Decrease in family-sized cars, packs of breakfast cereal, cleaning products, etc.
In Australia, immigration from South-East Asia is causing major changes in eating habits, religious
observances and the linguistic structure of the country. In some cases, marketing activities have
themselves contributed to a cross-fertilization of cultural behavior, so that individuals from one
ethnic group behave in ways more usually associated with another group.
This culture swapping means that ethnic and racial segmentation is no longer possible in most
cases. Overall, demographic change means that new segments are emerging, some of which offer
greater opportunities to marketers than do the segments they replace. Marketers need to monitor
these changes in the demography if they are to remain able to segment the market effectively. Not
all segmentation variables will be appropriate to all markets. A pizza company might segment a
market geographically (locating in a town centre) but would not segment by religion; the situation
would be reversed for a wholesale kosher butcher. This is despite the fact that both firms are in the
food business. Single-variable segmentation is based on only one variable, for example size of firm.
This is the simplest way to segment, but is also the most inaccurate. To achieve multivariable
segmentation, several characteristics are taken into account. The more characteristics are used, the
greater the accuracy and effectiveness, but the smaller the resulting markets.

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▪ Behavioristic Segmentation

The loyalties of the customers towards a particular brand help the marketers to classify them into
smaller groups, each group comprising of individuals loyal towards a particular brand.Behavioural
segmentation can be a useful and reliable way of segmenting. At its most obvious, if the firm is
marketing to anglers they are not interested in how old the anglers are, what their views are on
strong drink, or where they live. All the firm cares about is that they go fishing, and might therefore
be customers for a new type of rod. Accessing the segment would be easily undertaken by
advertising in the angling magazines.
At a deeper level the firm might be interested in such issues as where they buy their fishing tackle,
how much they usually spend on a rod, what kind of fish they are after, and so forth, but this
information is easily obtained through questionnaire-type surveys. Lifestyle analysis has been
widely used for the past 30 years or so, and seeks to segment markets according to how consumers
spend their time, what their beliefs are about themselves and about specific issues, and the relative
importance of their various possessions (e.g. cars, clothes, homes). The attraction of this approach is
that it takes account of a wide range of characteristics of the segment,6 encompassing some
psychographic features and some behavioural features. The customers can be divided into certain
segments on the basis of their knowledge, use or response to a product. Such behavioural variables
are:

1. Occasion :

2. Benefit Sought:

3. User Status :

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Overall Bases of Segmentation:

6.6 Segmenting Industrial Markets

Industrial or organisational markets can be, and are, segmented by marketers according to the
following criteria:
• Geographic location. Probably the commonest method, since most organisational markets are
serviced by salespeople, and geographical segmentation enables the salesperson to make best use of
drive time. Often firms in the same industry will locate near each other, perhaps because of
availability of raw materials, or for traditional reasons to do with availability of local skilled
workers.
• Type of organisation. IBM segments its market according to the industry the customer is in. This
means that some IBM salespeople specialise in banking, others in insurance, others perhaps in local
government applications of the equipment.
• Client company size. Many companies have separate salesforces to deal with large accounts.

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• Product use. Oil companies have separate strategies (and sometimes separate subsidiaries) for
marketing household central-heating oil, for the plastics industry, for petrochemicals and for
automotive sales.
• Usage rate. Customers who use large quantities of a given product will expect (and get) different
treatment from customers who buy only in small quantities. This is partly because their needs are
different, and partly because the supplier will tend to value the large buyer over the small buyer.
For example, a glass manufacturer might begin by segmenting according to type of industry
(window glass for construction, toughened glass for cars, bottles and jars for food packaging).
Within the food packaging market the industry might break down further to pickles and sauces,
wines and beers, and soft drinks. The wine and beer bottle market may further break down into
major brewers and bottlers who buy in large quantities, and small privately owned vineyards who
buy on a once-a-year basis. Some of the brewers may buy by tender, some may prefer to use a
regular supplier, and some may have special requirements in terms of bottle shape or design.
As in consumer markets, it is not necessarily the case that buyers act from wholly rational motives
so it would be unreasonable not to Segmenting industrial markets 81 include the buyers’ personal
characteristics in the segmentation plan somewhere. This is likely to be the province of the
salesforce since they are dealing with the buyers on a day-to-day basis

6.7 Levels of Marketing Segmentation

Levels of market segmentation are;

1. Mass Marketing or Undifferentiated Marketing.

2. Product-Variety Marketing or Differentiated Marketing.
3. Concentrated Marketing or Niche Marketing.
4. Micro Marketing.
To understand market segmentation levels, we need to see what a market looks like with no, partial
and full segmentation. Let see a hypothetical six buyers the market and how they are segmented;

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1. Mass Marketing or Undifferentiated Marketing – Target the entire market with just
one marketing campaign.
Mass marketing is the process of communicating a product to the entire market with one marketing
strategy, using the power of mass distribution and mass media.
Also, know as undifferentiated marketing because this strategy does not target individual market
segments. Different market segments are marketed with the same blanket approach, usually to
maximize sales volume.
Most businesses try combining mass and niche marketing strategies.

Advantages of Mass Marketing

➢ Economies of scale can be obtained in mass markets because of enormous size. Thus, the
average cost of bringing the product to the market will be lower, and hence, profit margins
higher.
➢ Only one marketing plan is required, and no specific market segment is targeted. One
marketing campaign targets the whole market, facilitating marketing economies of scale.
➢ Providing products for a mass market enables establishing a more extensive base of
customers. This will generally increase profitability.

Limitations of Mass Marketing

➢ In mass marketing, the competition is usually broad and extreme.

➢ There are very high barriers to entry for mass markets. Often incumbent competition has
invested in capital equipment, large-scale factories, offshore centers, efficient supply chain
management processes, etc. Huge competition can make it extremely difficult to compete
in a mass-market as a new firm successfully.
➢ Mass marketing is less focussed, requires more resources.
➢ The company can suffer a high loss if the marketing strategy fails.

2. Product-Variety Marketing or Differentiated Marketing – Target the Entire market

with different products and marketing mix
In Product-Variety Marketing or Differentiated Marketing, the marketer divides the market into
different segments depending on the consumer’s buying behavior, requirements, purchasing
power, location, and age level.
In product-variety marketing, the seller produces two or more products that have different
features, styles, quality, and so on. Subsequently, Kohinoor produced several kinds of toothpaste
bearing different brands with other packages. They were designed to offer variety to consumers
rather than creating various appeals to different market segments.
Differentiated marketing helps the marketer to connect to each type of customer in the best possible
way. Most companies use different market segments for marketing its entire list of products which
caters to different market levels.
The promotional and advertising activities for a particular focus only to the target market for that
product.
For example, Unilever sells different brands of soap-like—Lux, Lifebuoy, wheel, etc.
In differentiated marketing, firms promote several products with different marketing mixes for
serving smaller market segments.
By providing increased satisfaction for each of many target markets, a company produces more
sales, increases production, inventory, and promotional costs.
A company can remain competitive and profitable despite the higher marketing costs. The
increased marketing cost actually comes back as ROI with a high number of sales and a huge loyal
customer base.

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3. Niche Marketing or Concentrated Marketing – Target a few well-defined segments

of the market
Niche marketing targets specific and well-defined market segments and concentrates all marketing
efforts on a small but specific and well-defined segment of the population.
Niches are ‘created’ by identifying needs, wants, and requirements addressed poorly or not at all
by other firms, and developing and delivering goods or services to satisfy them.
As a strategy, niche marketing aims to be a big fish in a small pond instead of being a small fish in a
big pond.
A niche may be identified by dividing a segment into sub-segments or by defining a group with a
different set of characteristics who may look for a unique combination of benefits of attributes in
the product
The main requirements or characteristics of Niche Marketing are
Customers have a distinct set of needs and want from the service or product.
The seller of the service provider needs more skill or niche skills.
Premium prices for higher quality and specialized niche services.

Advantages of Niche Marketing

When a specific market segment is targeted in a firm’s marketing, marketing tends to be more
focused and likely to have a greater appeal within the targeted segment. Mass marketing is not as
focused and, as such, tends to focus on the ‘average’ consumer.
Businesses can become highly specialized in finding out the needs and wants of a niche market
they are targeting. With needs and wants being better met, customer loyalty can ensue.
Competitive rivalry within a niche market is less than that for broader markets. Less competition
can translate into increased pricing power for a firm’s differentiated products, which, in turn, can
lead to increased profitability.

Limitations of Niche Marketing

Niche markets, by their definition, are small. The number of total potential customers in the market
is limited. Niche marketing strategies may miss potential customers and depress sales revenues.
Economies of scale may not be obtained in niche markets due to their limited size. Thus, the
average cost of bringing the product to the market will be higher, leading to higher prices and or
lower profit margins.
Profitable niche markets with low barriers to entry are likely to attract new competitors into the
industry. Niche markets are small and cannot sustain a relatively high number of competitors.
Rather than market its products separately to several segments, a firm opt for a concentrated
marketing approach.
With concentrated marketing or niche marketing, a firm focuses on profitably satisfying only one
market segment. It may be a small segment but a profitable segment.
This approach can appeal to a small firm that lacks the financial resources of its competitors and to
a company that offers highly specialized goods and services. Along with its benefits, concentrated
marketing has its dangers.
Since this approach ties a firm’s growth to a particular segment, changes in the size of that segment
or customer buying patterns may result in severe financial problems.
Sales may also drop if new competitors appeal successfully to the same segment. Niche marketing
leaves the fortunes of a firm to depend on one small target segment.

4. Micro Marketing – Target at a very basic level of the market segment

Micro-marketing looks at the activities individual in marketers in the entire economic sector. This
approach is still more narrowly focused than concentrated marketing. Micro-marketing involves
targeting potential customers at a very basic level, such as postal code, specific occupation, or
lifestyle.

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Ultimately, micromarketing may even target individuals themselves. It is referred to as marketing

to segments of one. The internet allows marketers to boost the effectiveness of micromarketing.
With the ability to customize (individualization attempts by the firm) and to personalize
(individualization attempts by the customer), the internet offers the benefit of mass customization –
by reaching the mass market with individualized offers for the customers.
Several types of micro marketing;

➢ Local Marketing.
➢ Individual Marketing

Local marketing

In Local marketing, the seller or the marketer only concentrates on the local market. The products
also have the local appeal or the local usages, and the promotional activities are planned based o
the location only with local flavor.
Here the cost remains high due to lower production, and competition is also less. Marketers can
concentrate on mom in the local market to reach all the customers in the region. The best example
would be the marketing of regional chain of hotels or restaurants, locally produced food products,
etc.
Local marketing can be studied from both the retailer and manufacturer perspective. For the
retailer, local marketing implies the optimization of the store’s marketing mix.
For the manufacturer, local marketing implies optimizing the product’s marketing mix at the store
level. We focus on the interaction between manufacturers and retailers, how manufacturers and
retailers optimize the marketing mix for a product (category) at the store level.

Individual Marketing

Individual marketing focuses on satisfying the needs and wants of individual customers it’s also
known as one-to-one marketing and customized marketing; it’s the segmentation level where the
seller offers a customized product to the consumer.
In simple words, making and selling product(s) according to the needs and preferences of the
consumer.
For example, a Fabrics company will cut your cloths according to the needs of the individual
customers.
Individual Marketing happens when several specific attributes are “fulfilled” will the personal
message be automatically triggered by one person.
The more attributes included triggering the message, the more relevant it becomes for the
person. Let’s look at the type of attributes.
Customer profile attributes: A simple message commonly used is the birthday month
promotion.

New and renewal: Sending automatic messages triggered to the person based on the new, active,
lapsing, or inactive customers (or members) group. The content will be relevant based on their
activity level.
Buying behavior: The spending history (the type of product, average spend, frequency, changing
spending patterns) is used to trigger a message.
Channel behavior: the channel interactions (web, mobile, e/m-commerce, social media, visits) is
used to trigger a message.
Customer sentiments: may include feedback forms, service cases, likes on social media.

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Location: These are often real-time messages being sent when a person is close to, outside, or
inside a particular location.
However, many triggers may be using multiple attributes across categories to send the message.

Example of individual marketing:

A person has recently bought shirts on your e-commerce site.
Based on his previous spending pattern, he usually also buys ties to go with the shirts. You have
recently launched a new set of ties in one of your stores. Three days later, as he walks down the
street outside your store, your beacon detects that he is very close by.
Based on this information, the following push message with a picture is automatically created and
sent via your mobile app to the customer: “Within the next 2 hours you have 10% off our new ties
that have just arrived”.

Summary
Because the market and its buyers are vastly diverse, most companies cannot compete in an entire
market. So a company must identify the parts of the market that it can serve profitably.
Companies, nowadays, are shifting from mass marketing and product-variety marketing and
micro-marketing toward target marketing. Target marketing is more useful to sellers in locating
their marketing opportunities.
Sellers can develop the most appropriate product for each target market and mold their prices,
distribution channels, and advertising to reach the target market efficiently.
While sellers adopt the “shotgun” approach (scattering marketing efforts) in mass marketing and
product-variety marketing, they adopt the “rifle” approach (focusing on the buyers who have
greater purchase interest) in target marketing.
With the increasing fragmentation of mass markets into many micro-markets, each with different
needs and preferences, target marketing is increasingly assuming the form of micromarketing.
Adopting micromarketing, companies develop their marketing programs to the needs and wants of
narrowly defined geographic, demographic, psychographic, or behavior segments.
Target marketing finally takes the form of customized marketing. In customized marketing, the
company adapts its product and marketing program to the needs of a specific customer or buying
organization.

Keywords
Segmentation, Mass Marketing , Individual Marketing , Niche Marketing , Geographic
Segmentation, Demographic Segmentation, psychographic Segmentation

Self Assessment

1. ___________marketing is an attempt to appeal to an entire market with one basic marketing

strategy

A. Mass marketing
B. Counterfeit Marketing
C. Direct Marketing
D. Profitable marketing

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2. ___________is sub dividing of customers into homogenous sub set of customers where any

sub set may conceivably selected as market target to be reached with distinct marketing mix

A. Mass Marketing
B. Collective marketing
C. Distributive Segmentation
D. Market Segmentation

3. Segmenting consumer based on factors like climate zone, continents/country, region , state ,

district and urban/rural area.

A. Demographic Segmentation
B. Geographic segmentation
C. Psychographic Segmentation
D. Behavioural Segmentation

4. __________ segmentation Groups customers according to their life-style and buying

psychology.

A. Demographic Segmentation
B. Geographic segmentation
C. Psychographic Segmentation
D. Behavioural Segmentation

5. The customers can be divided into certain segments on the basis of their knowledge, use or

response to a product. This type of segmentation is known as :

A. Demographic Segmentation
B. Geographic segmentation
C. Psychographic Segmentation
D. Behavioural Segmentation

6. Effective Market Segmentation is

A. Measurable and Accessible

B. Sustainable
C. Differentiable and actionable
D. All the above

7. The products are made to cater the needs and wants of all the people. This type of marketing

is known as :

A. Mass marketing
B. Segmentation
C. Niches
D. Individualized Marketing

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8. Porsche concentrates only on the sports car market. This type of marketing is known as :

A. Mass marketing
B. Segmentation
C. Niches
D. Individualized Marketing

9. Plus Size clothing is an example of which type of marketing :

A. Mass marketing
B. Segmentation
C. Niches
D. Individualized Marketing

10. A __________ is a more narrowly defined customer group. It is identified by dividing a

segment into sub segments.

A. Mass marketing
B. Segmentation
C. Niches
D. Individualized Marketing

11. The Ultimate level of segmentation leads to segments of one, also called ______.

A. Mass marketing
B. Segmentation
C. Niches
D. Individualized Marketing

12. Lenskart marketing of AI enabled social media sharing is an example of :

A. Mass marketing
B. Segmentation
C. Niches
D. Individualized Marketing
13. The companies that target market very narrowly is called:
A. mass marketing
B. segment marketing
C. Niche Marketing
D. micro marketing

14. Niche marketing helps more in

A. smaller firms
B. larger firms

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C. business giants
D. retail stores

15. Toyata corporation which produces several several different brands of cars is an example of
A. Mass marketing
B. Segmentation
C. Niches
D. Individualized Marketing

Answers for Self Assessment

1. A 2. D 3. B 4. C 5. D

6. D 7. A 8. B 9. C 10. C

11. D 12. D 13. D 14. A 15. B

Review Questions
1. What are the five key areas of segmentation?
2. What are the 6 requirements for effective segmentation?
3. How many ways of segmenting are there? elaboratively explain all
4. What criteria are used for segmenting a market? Giving examples explain all.
5. What are the benefits of segmentation in marketing?

Further Readings
Lawrence Weinstein, Marketing Management, South Western Publications.
Philip Kotler, Marketing Management, Pearson, 2007.
TevfikDalgic and Maarten Leeuw, “Niche Marketing Revisited: Concept, Applications, and
Some European Cases,” European Journal of Marketing 28, no. 4 (1994): 39–55
V S Ramaswami, S Namakumari, Marketing Management, Macmillan, 2003.

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Dr. Pretty Bhalla, Lovely Professional University Unit 07: Targeting and Positioning

Unit 07: Targeting and Positioning

CONTENTS
Objective
Introduction
7.1 Identify Target Market
7.2 Selecting Target Markets
7.3 Target-Market Strategies
7.4 Targeting Global Markets
7.5 Positioning
Summary
Self Assessment
Answers for Self Assessment
Review Questions
Further Readings

Objective
Understand importance and need of targeting
Analyze factors considered important for choice of target market.

Introduction
It is not possible for a marketer to have similar strategies for product promotion amongst all
individuals. Kids do not get attracted towards products meant for adults and vice a versa. Every
segment has a different need, interest and perception. No two segments can have the same
ideologies or require a similar product.
Target Marketing refers to a concept in marketing which helps the marketers to divide the
market into small units comprising of likeminded people. Such segmentation helps the marketers
to design specific strategies and techniques to promote a product amongst its target market. A
target market refers to a group of individuals who are inclined towards similar products and
respond to similar marketing techniques and promotional schemes.
Kellogg’s K Special mainly targets individuals who want to cut down on their calorie intake. The
target market in such a case would be individuals who are obese. The strategies designed to
promote K Special would not be the same in case of any other brand say Complan or Boost which
majorly cater to teenagers and kids to help them in their overall development. The target market for
Kellogg’s K Special would absolutely be different from Boost or Complan.
Jordan, a college student went to a nearby retail store to purchase a shirt for himself. The retailer
tried hard to sell a nice formal shirt to him, but somehow could not convince Jordan. Jordan left the
store sad and empty handed.

Where do you think is the problem?

The problem is neither with Jordon nor the shirt. The retailer in this case failed to understand that
Jordan, being a college student, was not the target audience for the formal shirt. No amount of
convincing helped as the retailer was targeting the wrong audience. The target market for a formal
shirt would be office goers or professionals. Funky T shirts, casual shirts would have worked better
for Jordon.
The target market for Zodiac Clothing Company Limited or Louis Philippe would be the office
goers whereas the target market for Levi’s would be the school and college kids.

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The target market for Cat moss or Giny and Jony would be kids.
In simpler words, target market consists of like-minded individuals for whom an organization can
afford to have similar strategies, promotional schemes and advertisements to entice them and
prompt them to purchase the product. Once a company decides on its target audience, it
implements various promotional strategies to make a brand popular amongst them.

7.1 Identify Target Market

Basis of Target Marketing

▪ Age
▪ Gender
▪ Interests
▪ Geographic location
▪ Need
▪ Occupation

ACTIVITY: Discuss the bases of Segmentation for the following Products:

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Why target marketing? (Need of Target Marketing)

• Organizations can use similar kind of strategies to promote their products within a target
market.
• They can adopt a more focused approach in case of target marketing. They know their
customers well and thus can reach out to their target audience in the most effective way.

How to create Target Market

• The organization must first decide who all individuals would fit into a particular segment.
A male and a female can’t be kept in the same segment. The first and the foremost step is
to decide on the target market.
•
• out what the target market expects from the product.
• Once the target market is decided, organizations can decide on the various strategies
helpful to promote their product.

7.2 Selecting Target Markets

After you segment buyers and develop a measure of consumer insight about them, you can begin
to see those that have more potential. Now you are hunting with a rifle instead of a shotgun. The
question is, do you want to spend all day hunting squirrels or ten-point bucks? An attractive
market has the following characteristics:

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• It’s sizeable enough to be profitable given your operating cost. Only a tiny fraction of the
consumers in China can afford to buy cars. However, because the country’s population is
so large (nearly 1.5 billion people), more cars are sold in China than in Europe (and in the
United States, depending on the month). Three billion people in the world own cell
phones. But that still leaves three billion who don’t.
• It’s growing. For example, the middle class of India is growing rapidly, making it a very
attractive market for consumer products companies. People under thirty make up the
majority of the Indian population, fueling the demand for “Bollywood” (Indian-made)
films.
• It’s not already swamped by competitors, or you have found a way to stand out in a
crowd. IBM used to make PCs. However, after the marketplace became crowded with
competitors, IBM sold the product line to a Chinese company called Lenovo.
• Either it’s accessible or you can find a find a way to reach it. Accessibility, or the lack of
it, could include geographic accessibility, political and legal barriers, technological
barriers, or social barriers. For example, to overcome geographic barriers, the consumer
products company Unilever hires women in third-world countries to distribute the
company’s products to rural consumers who lack access to stores.
• You have the resources to compete in it. You might have a great idea to compete in the
wind-power market. However, it is a business that is capital intensive. What this means is
that you will either need a lot of money or must be able to raise it.
• It “fits in” with your firm’s objectives and mission. Consider Terra Cycle, which has
made its mark by selling organic products in recycled packages. Fertilizer made from
worm excrement and sold in discarded plastic beverage bottles is just one of its products.
It wouldn’t be a good idea for Terra Cycle to open up a polluting, coal-fired power plant,
no matter how profitable the market for the service might be.

7.3 Target-Market Strategies

Choosing the Number of Markets to Target
Henry Ford proved that mass marketing can work—at least for a while. Mass marketing is also
efficient because you don’t have to tailor any part of the offering for different groups of consumers,
which is more work and costs more money. The problem is that buyers are not all alike. If a
competitor comes along and offers these groups a product (or products) that better meet their
needs, you will lose business.

Multi segment Marketing

Most firms tailor their offerings in one way or another to meet the needs of different segments of
customers. Because these organizations don’t have all their eggs in one basket, they are less
vulnerable to competition. Marriott International is an example of a company that operates in a
multi segment market. The company has fifteen different types of facilities designed to meet the
needs of different types of market segments, including the following:
Marriott Courtyard. Targeted at over-the-road travelers.
Ritz-Carlton Hotels. Targeted at luxury travelers.
Marriott Conference Centers. Targeted at businesses hosting small- and midsized meetings.
Marriott Execute Stay. Targeted at executives needing month-long accommodations.
Marriott Vacation Clubs. Targeted at travelers seeking to buy timeshares.
A multi segment marketing strategy can allow you to respond to demographic and other changes
in markets. For example, the growing number of people too old to travel have the option of moving
into one of Marriott’s “Senior Living Services” facilities, which cater to retirees who need certain
types of care. A multi segment strategy can also help you weather an economic downturn by
allowing customers to trade up or down among your brands and products. Suppose you take a pay
cut and can’t afford to stay at Marriott’s Ritz-Carlton hotels anymore. A room at a JW Marriott—the
most luxurious of the Marriott-brand hotels but cheaper than the Ritz—is available to you.

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Concentrated Marketing
Some firms—especially smaller ones with limited resources—engage in concentrated
marketing. Concentrated marketing involves targeting a very select group of customers.
Concentrated marketing can be a risky strategy because you really do have all of your eggs in one
basket. The auto parts industry is an example. Traditionally, many North American auto parts
makers have supplied parts exclusively to auto manufacturers. But when General Motors, Ford,
Chrysler, and other auto companies experienced a slump in sales following the recession that began
in 2008, the auto parts makers found themselves in trouble. Many of them began trying to make
and sell parts for wind turbines, aerospace tools, solar panels, and construction equipment. Bernad
Simon, “Alternative Routes For Survival,”
Niche marketing involves targeting an even more select group of consumers. When you’re
engaging in niche marketing, your goal is to be a big fish in a small pond instead of a small fish in a
big pond.“Niche Marketing,”
Micro targeting, or narrowcasting, is a new effort to isolate markets and target them. It was
originally used to segment voters during elections, including the 2004 U.S. presidential election.
Micro targeting involves gathering all kinds of data available on people—everything from their tax
and phone records to the catalogs they receive. Clearly, micro targeting has ethical implications.

7.4 Targeting Global Markets

Firms that compete in the global marketplace can use any combination of the segmenting strategies
we discussed or none at all. If you’re a seller of a metal like iron ore, you might sell the same
product across the entire world via a metals broker. The broker would worry about communicating
with customers around the world and devising different marketing campaigns for each of them.

Targeting Strategies Used in Global Markets:

Most companies, however, tailor their offerings to some extent to meet the needs of different buyers
around the world. For example, Mattel sells Barbie dolls all around the world—but not the same
Barbie. Mattel has created thousands of different Barbie offerings designed to appeal to all kinds of
people in different countries.

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Pizza Hut has franchises around the world, but its products, packaging, and advertising are
tailored to different markets. Squid is a popular topping in Asia, for instance. Companies tailor
products not only for different countries but also for different customers in different countries.

For example, Procter & Gamble’s China division now offers products designed for different local
market segments in that country. P&G has an advanced formulation of laundry detergent for the
premium segment, a modified product for the second (economy) segment, and a very basic,
inexpensive product created for the third (rural) segment. Dan Sewell, “P&G May Make Changes as
it Faces Challenges,”

Sellers are increasingly targeting consumers in China, Russia, India, and Brazil because of their fast-
growing middle classes. Take the cosmetics maker Avon. Avon’s largest market is no longer the
United States. It is Brazil. Brazilians are extremely looks-conscious and increasingly able to afford
cosmetic products as well as plastic surgery.

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Other strategies for targeting markets abroad include acquiring (buying) foreign companies or
companies with large market shares there. To tap the Indian market, Kraft made a bid to buy the
candy maker Cadbury, which controls about one-third of India’s chocolate market. Likewise, to
compete against Corona beer, the Dutch brewer Heineken recently purchased Mexico’s Femsa,
which makes the beer brands Dos Equis, Tecate, and Sol. Michael However, some countries don’t
allow foreign firms to buy domestic firms. They can only form partnerships with them. Other
regulatory and cultural barriers sometimes prevent foreign firms from “invading” a country. IKEA,
the Swedish home-furnishings maker, eventually left Russia because it found it too hard to do
business there. By contrast, McDonald’s efforts to expand into Russia have been quite successful.
Having saturated other markets, the hamburger chain is hoping to continue to grow by opening
hundreds of new stores in the country.

7.5 Positioning
Why should buyers purchase your offering versus another? If your product faces competition, you
will need to think about how to “position” it in the marketplace relative to competing products.
After all you don’t want the product to be just another “face in the crowd” in the minds of
consumers. Positioning involves tailoring your product so that it stands out from the competition
and people want to buy it.
One way to position your product is to plot customer survey data on a perceptual map.
A perceptual map is a two-dimensional graph that visually shows where your product stands, or
should stand, relative to your competitors, based on criteria important to buyers. The criteria can
involve any number of characteristics—price, quality, level of customer service associated with the
product, and so on. An example of a perceptual map is shown in "An Example of a Perceptual
Map". To avoid head-to-head competition with your competitors, you want to position your
product somewhere on the map where your competitors aren’t clustered.

An Example of a Perceptual Map

Many companies use taglines in their advertising to try to position their products in the minds of
the buyer—where they want them, of course. A tagline is a catchphrase designed to sum up the
essence of a product. You perhaps have heard Wendy’s tagline “It’s better than fast food.” The
tagline is designed to set Wendy’s apart from restaurants like McDonald’s and Burger King—to
plant the idea in consumers’ heads that Wendy’s offerings are less “fast foodish,” given the bad rap
fast food gets these days.
Sometimes firms find it advantageous to reposition their products—especially if they want the
product to begin appealing to different market segments. Repositioning is an effort to “move” a
product to a different place in the minds of consumers. The i-house, a prefab house built by Clayton
Homes, a mobile home manufacturer, is an example. According to the magazine Popular
Mechanics, the i-house “looks like a house you’d order from IKEA, sounds like something
designed by Apple, and consists of amenities—solar panels, tankless water heaters and rainwater
collectors—that one would expect to come from an offbeat green company out of California selling
to a high-end market

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Summary
A market worth targeting has the following characteristics:
(1) It’s sizeable enough to be profitable, given your operating costs;
(2) it’s growing;
(3) it’s not already swamped by competitors, or you have found a way to stand out in the crowd;
(4) it’s accessible, or you can find a way to reach it;
(5) you have the resources to compete in it; and
(6) it “fits in” with your firm’s mission and objectives.
Most firms tailor their offerings in one way or another to meet the needs of different segments of
customers. A multi segment marketing strategy can allow a company to respond to demographic
and other changes in markets, including economic downturns. Concentrated marketing involves
targeting a very select group of customers. Niche marketing involves targeting an even more select
group of consumers. Micro targeting, or narrowcasting, is a new, effort to “super target” consumers
by gathering all kinds of data available on people—everything from their tax and phone records to
the catalogs they receive. Firms that compete in the global marketplace can use any combination of
these segmenting strategies or none at all. Sellers are increasingly targeting consumers in China,
Russia, India, and Brazil because of their fast-growing middle classes. Firms are creating low-cost
products to capture large markets in developing countries such as these and then selling the
products in developed countries. Other strategies for targeting markets abroad include acquiring
foreign companies or forming partnerships with them.
If a product faces competition, its producer will need to think about how to “position” it in the
marketplace relative to competing products. Positioning involves tailoring a product or its
marketing so that it stands out from the competition and people want to buy it. A perceptual map
is a two-dimensional graph that visually shows where a product stands, or should stand, relative to
its competitors, based on criteria important to buyers. Sometimes firms find it advantageous to
reposition their products. Repositioning is an effort to “move” a product to a different place in the
minds of consumers.

Self Assessment

1. __________ Consists of a set of buyers who share common needs or characteristics that the

company decides to serve.

A. Target market
B. Positioning
C. Consumer
D. Customer

2. Which of the following is not the criteria for targeting :9W’s?

A. Who buys our product?

B. Who does not buy it?
C. What need or function does it serve?
D. When is your birthday?

3. What are the factors considered important in the selection of Target Market Strategy:

A. Company Resources
B. Product Homogeneity

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C. PLC
D. All the above

4. Factors that govern the attractiveness of a segment

A. Segment Size and Segment Growth

B. Profitability of the Segment
C. Current and potential Competition
D. All the above

5. ___________is the act of designing the company offering and image to occupy a distinctive

place in the target customers mind.

A. Targeting
B. Marketing
C. Advertising
D. Positioning

6. Fevi Kwick positions itself based on :

A. Features
B. Benefits
C. Usage
D. Manufacturing Process

7. __________ is what the customer believes based on his/her experiences and evidence, rather

than just the awareness created by advertising or promotion.

A. Pricing
B. Promotion
C. Product Positioning
D. Place

8. Positioning should be:

A. Simple
B. Creative
C. Unique
D. All the above

9. Self image enhancement positioning concepts are:

A. Ego identification
B. Belongingness and social meaningfulness
C. Affective fulfillment
D. All the above

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10. Setting the competitive positioning for the product and creating a detailed marketing mix is

called:

A. mass marketing.
B. target marketing.
C. market segmentation.
D. marketing positioning.

11. When companies divide large, heterogeneous markets into smaller segments that can be

reached more efficiently with products and services that match their unique needs, they are

conducting a ___________________ process.

A. marketing aggregation
B. marketing positioning
C. marketing target
D. marketing segmentation

12. Which of the following marketers epitomized the mass marketing strategy?

A. Henry Ford
B. Bill Gates
C. F.W. Woolworth
D. Thomas A. Edison

13. Individual marketing is known by a variety of names. All of the following would

appropriately be called individual marketing EXCEPT:

A. mono-marketing.
B. one-to-one marketing.
C. customized marketing.
D. markets-of-one marketing.

14. ______________ is the process through which firms interact one-to-one with

masses of customers to create customer-unique value by designing products and services

tailor-made to individual needs.

A. Mass marketing
B. Detail marketing
C. Mass globalization
D. Mass customization

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15. ______________ involves tailoring brands and promotions to the needs and wants of specific

small groups such as cities, neighborhoods, and even specific stores.

A. Niche marketing
B. Local marketing
C. Detail marketing
D. Individual marketing

Answers for Self Assessment

1. A 2. D 3. D 4. D 5. D

6. B 7. C 8. D 9. D 10. D

11. D 12. A 13. B 14. D 15. B

Review Questions
1. Why do companies position products?
2. Explain what a tagline is designed to do.
3. Why might an organization reposition a product?
4. What factors does a firm need to examine before deciding to target a market?
5. Which of the segmenting strategies discussed in this section is the broadest? Which is
the narrowest?
6. Why might it be advantageous to create low-cost products for developing countries
and then sell them in nations such as the United States? Do you see any disadvantages
of doing so?

Further Readings
1. Smith, W.R.: ’Product differentiation and market segmentation as alternative marketing
strategies’, Journal of Marketing (21 July 1957).
2. Zikmund, William G. and D’Amico, Michael: Effective Marketing: Creating and Keeping
Customers (St Paul, MN, West, 1995), p. 232
3. Kotler, P.: Marketing Management, 7th edn (Englewood Cliffs, NJ, Prentice Hall, 1991).
References 97 REFERENCES
4. Engel, J.F., Blackwell, R.D. and Miniard, P.W.: Consumer Behaviour, 8th edn (Fort
Worth, Dryden Press, 1995).
5. Lastovicka, John L. and Joachimstaler, Erich A.: ‘Improving the detection of personality–
behaviour relationships in consumer research’, Journal of Consumer Research (March
1988), pp. 583–7.
6. Plummer, Joseph T.: ‘The concept and application of life style segmentation’, Journal of
Marketing (January 1974), pp. 33–7.

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Dr. Pretty Bhalla, Lovely Professional University Unit 08: Product Decisions

Unit 08: Product Decisions

CONTENTS
Objective
Introduction
8.1 Basic Concepts
8.2 Types of Product
8.3 Features of Product
8.4 Importance of Product
8.5 Levels of Product
8.6 New Product Development:
8.7 Seven Stages of New Product Development Process
8.8 Product Design
8.9 Production Decisions
Summary
Keywords:
Self Assessment
Answers for Self Assessment
Review Questions
Further Readings

Objective
Understand product and its classification
• To examine the basic concepts of "the product" and the importance of this concept in marketing
• To give an understanding of the features of product design and the factors which shape the
"standardisation" versus "adaptation" decisions
Understand and analyze new product development.
• To describe the production process and how value can be added in the process
• To describe the major product strategies.

Introduction
Decisions regarding the product, price, promotion and distribution channels are decisions on the
elements of the "marketing mix". It can be argued that product decisions are probably the most
crucial as the product is the very epitome of marketing planning. Errors in product decisions are
legion. These can include the imposition of a global standardized product where it is inapplicable,
for example large horsepower tractors may be totally unsuitable for areas where small scale
farming exists and where incomes are low;

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devolving decisions to affiliated countries which may let quality slip; and the attempt to sell
products into a country without cognizance of cultural adaptation needs. The decision whether to
sell globally standardized or adapted products is too simplistic for today's market place. Many
product decisions lie between these two extremes. Cognizance has also to be taken of the stage in
the international life cycle, the organization’s own product portfolio, its strengths and weaknesses
and its global objectives. Unfortunately, most developing countries are in no position to compete on
the world stage with many manufactured value-added products. Quality, or lack of it, is often the
major letdown. As indicated earlier, most developing countries are likely to be exporting raw
materials or basic and high value agricultural produce for some time to come.

8.1 Basic Concepts

A product can be defined as a collection of physical, service and symbolic attributes which yield
satisfaction or benefits to a user or buyer. A product is a combination of physical attributes say, size
and shape; and subjective attributes say image or "quality". A customer purchases on both
dimensions. As cited earlier, an avocado pear is similar the world over in terms of physical
characteristics, but once the label CARMEL, for example, is put on it, the product's physical
properties are enhanced by the image CARMEL creates. In "post modernisation" it is increasingly
important that the product fulfills the image which the producer is wishing to project. This may
involve organizations producing symbolic offerings represented by meaning laden products that
chase stimulation-loving consumers who seek experience - producing situations. So, for example,
selling mineral water may not be enough. It may have to be "Antarctic" in source, and flavored.
This opens up a wealth of new marketing opportunities for producers.
Anything that can be offered to a market for attention , acquisition, use or consumption and that
might satisfy want or a need
Includes: Physical objects, services, events, persons, places, organizations, ideas or combination of
thereof.

8.2 Types of Product

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A product's physical properties are characterised the same the world over. They can be convenience
or shopping goods or durables and nondurables; however, one can classify products according to
their degree of potential for global marketing:

i) local products - seen as only suitable in one single market.

ii) international products - seen as having extension potential into other markets.

iii) multinational products - products adapted to the perceived unique characteristics of national
markets.

iv) global products - products designed to meet global segments.

Quality, method of operation or use and maintenance (if necessary) are catchwords in international
marketing. A failure to maintain these will lead to consumer dissatisfaction. This is typified by
agricultural machinery where the lack of spares and/or foreign exchange can lead to lengthy
downtimes. It is becoming increasingly important to maintain quality products based on the ISO
9000 standard, as a prerequisite to export marketing.
“Set of tangible offering made available to the consumer to satisfy his/her needs”.
“Product is cluster of psychological satisfaction”.
“A product is a bundle of utilities consisting of various features and accompanying services”.
“A product is a bundle of physical services and symbolic particulars expected to the yield
satisfaction or benefits to the buyer”.

Consumer beliefs or perceptions also affect the "world brand" concept. World brands are based on
the same strategic principles, same positioning and same marketing mix but there may be changes
in message or other image. World brands in agriculture are legion. In fertilizers, brands like Norsk
Hydro are universal; in tractors, Massey Ferguson; in soups, Heinz; in tobacco, BAT; in chemicals,
Bayer. These world brand names have been built up over the years with great investments in
marketing and production. Few world brands, however, have originated from developing
countries. This is hardly surprising given the lack of resources. In some markets product saturation
has been reached, yet surprisingly the same product may not have reached saturation in other
similar markets. Whilst France has long been saturated by avocadoes, the UK market is not yet,
hence raising the opportunity to enter deeper into this market.

8.3 Features of Product

The main characteristics or essential features of a product are as follows:
1. Tangible Attributes: The first and foremost important feature of a product is its tangibility.
It means that it may be touched, seen and its physical presence felt, like, cycle, book, pencil, table
etc

2. Intangible Attributes: Alternatively, the product may be intangible in the form of service,
such as banking, insurance or repairing services
3. Exchange value: The third characteristics of a product are that it must have exchange value.
Every product, whether tangible or intangible, should have an exchange value and should be
capable of being exchanged between the buyer and seller for a mutually agreed consideration.

4. Utility Benefits: Another important characteristic of a product is that it should have a utility
like a bundle of potential utility or benefits.
5. Differential Features: Another important feature from the marketing point of view is that the
product should have differential features, i.e., it can be differentiated from other products.
Different types of packaging and branding can help create the image of product differentiation in
the consumer.

6. Consumer Satisfaction: Another feature from the marketing viewpoint is that the products
should have the ability to deliver value satisfaction to consumers for whom they are intended.

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7. Business Need Satisfaction: The last also equally important characteristics of a product is
that in order to be a product, it should also have the attribute to satisfy a business need.

8.4 Importance of Product

Product decisions are taken first by the marketers and these decisions are the centre to all
other marketing decisions, such as price, promotion, distribution etc.
Product is the engine that pulls the rest of the marketing programmes and fills in the needs of
society. It represents a bundle of expectations to consumers and society.
It is Rightly Said , “If the first commandment in marketing is: know the customer, the second is
know the product.”

1. Product is the Centre of all Marketing Activities

Product is the pivot and all the marketing activities cluster around iIt is the product which is
purchased, sold, advertised, distributed etc.
In short, the product is the engine that pulls the marketing activities, programmes etc

2. Starting Point of Marketing Planning

To the marketer, products are the building blocks of a marketing plan.
Marketing planning is done on the basis of the nature, quality and the demand of the product.
Product policies decide other policies.

3. Product is the Key to Market Success

Product is the key to market success. That is why the marketing manager emphasizes and insists on
the need for range of product for getting success in his business.
It is said, “If the first commandment in marketing is knowing your customer, the second is know
the product.” If the product is faulty, its market will have a very short life span and will ultimately
fall.

4. Centre of Consumption and Satisfaction

From the consumers’ point of view, the product is the centre of their consumption and satisfaction.
It is the philosophy of the modern marketing concept.
Various policy decisions are taken by the marketing management so as to provide better
consumption, benefits utilities and satisfaction to the consumers in case the product fails to fulfil
this very object, it invites the intervention of the government and other agencies to safeguard the
interests of the consumers.

5. Importance from social Viewpoint

From a social viewpoint also, the product satisfies the needs of society.
On the one hand, product satisfies the need of consumers and on the other, it provides employment
and standard of living to millions of people.

6. Corporate Need Satisfaction

The basic corporate need for profits is satisfied by-products.
It is the product through which a company exploits market opportunities and generates sales
volume and revenue.
Adequate sales volume and revenue ensure corporate profitability essential for business survival
and growth.

7. A Competitive Weapon
Product is the competitive weapon of very great potential.
Whenever competitive pressures develop in the market, consumer preference changes or otherwise
there emerges a need for change in the components of the product.

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For example, competitive advantage may be gained by changing the package, colour, size, quality,
innovation or even trading terms.
In short, the product is the soul and centre of all our marketing activities.

8.5 Levels of Product

1. Basic Product Level/ Core: This core level of product explains the reason for which a
given customer has made purchase. This layer mainly includes the generic ingredients of a
product.
The core product is the core, problem solving benefits that consumers are really buying when they
obtain a product or service. It answers the question what is the buyer really buying?
Car for transportation
Mobile for communication

2. Generic Product Level: The actual product may have as many as five characteristics
that combine to deliver core product benefits. They are:
a). Quality level.
b). Features.
c). Design.
d). Brand name.
e). Packaging.

3. Expected Product: This refers to all benefits consumer expects to get when they purchase a
product.

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4. Augmented Product: It refers to the additional factors which set the product apart from
competition, that is, its brand identity and image. to augment the product means to create
the bundle of benefits that will best satisfy consumer’s desires for an experience.

• Home delivery
• Installations
• After sales service
• Customer education and training etc.

5. Potential Product: This refers to the augmentation and transformation that the product may
undergo in future.

Example: Coca Cola

1. Core Benefit
The core benefit of Coca-Cola is to quench a thirst.
2. Generic Product
The generic product is a burnt vanilla smelling, black, carbonated, and sweetened fizzy drink.
3. Expected Product
The expected product is that the customer’s Coca-Cola is cold. If this isn’t the case then expectations
won’t be met and the drink will not taste its best in the mind of the customer.

8.6 New Product Development:

Clocky (Clockie) the only bedside alarm clock that will run away, hide, roll, wheel, beep,
and jump (up to a 3 feet nightstand).
He is cool, fun, annoying, unique, a bit crazy and guaranteed to get you up on time. Moves
(on carpet or wood), shakes, runs, changes directions.
You will get up to turn Clocky off!

Examples of New Product:

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Air Charger :

Every New Product Development journey starts with an idea, which forms the foundation for
further development. These new project development journeys have the potential to cause a digital
disruption when the new product successfully meets a need in a way that is unique, untried, and
out-of-the-box. When a product solves the end user’s problems, the business achieves product-
market fit.
There are plentiful New Product Development examples for taking inspiration from, such as Trello
for task management and tracking, Zoom for video communication, Dropbox for cloud storage,
Figma for designers working remotely, Air Table for relational data management, and so on.
Beginning the New Product Development process takes tact and planning. According to Gartner,
many organizations believe in involving customers at an early stage of the New Product
Development process. These organizations give precedence to involving the customers at an early
stage of the New Product Development process to gain a better understanding of their problems
before strategizing around processes, tools, and technology.

What is New Product Development (NPD)?

New product development is the process of converting an idea into a workable software product.
The New Product Development (NPD) process is about grabbing the market opportunity that
revolves around customer needs, checking the idea’s feasibility, and delivering working software.
On the other hand, Product Development is an umbrella term that sticks to the six stages of
software development lifecycle and works on launching products that already have a Proof of
Concept (POC). The New Product Development approach revolves around working on an entirely
new idea, where the uncertainty around its development and subsequent adoption is high.
The seven stages of the New Product Development process include — idea generation, idea
screening, concept development, and testing, building a market strategy, product development,
market testing, and market commercialization.

8.7 Seven Stages of New Product Development Process

Building new products and services can be a process filled with uncertainty. However, following
the systematic New Product Development process can help businesses gain clarity and confidence
in what they are building.

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Stage 1: Idea Generation

The goal should be to generate many worthy ideas that can form the foundation for the New
Product Development strategy. The major focus for stage 1 should be to arrange brainstorming
sessions where solving customer problems is given precedence.
This phase is not about generating foolproof ideas that are ready for implementation. Instead, raw
and unproven ideas that can be shortlisted later should be discussed.
Here’s how a business can do that:

1. Emphasize on Customer Problems

The problem that is well described is a problem half-solved. Here’s how to identify the issues that
the target audience is facing:
a. Personal Problems
It is a good idea to look at problems that the business is itself facing to come up with the idea. All a
business needs to do is focus on that specific problem and build a solution that can be tagged a
“one for all” solution to the common problem.
He was associated with three business companies in the past, and all of them lacked one thing —
Productivity.
When he was driven to start again with something of his own, he knew that he needed to cover up
the communication gaps as these were, in his experience, the biggest hurdles on the path to
productivity.
That is when product innovation happened in the form of Twilio. The product building and
launching had its ups and downs, but his conviction to have this product led to a great business
idea.

Stage 2: Idea Screening

This New Product Development stage revolves around choosing the one idea that has the highest
potential for success. Put all the ideas available on the table for internal review. That is, turn to
people with industry knowledge and experience in the field for idea screening.
For a new product development idea, having a proof of concept (POC) should hold precedence as it
helps check the feasibility of the idea. There is no point in zeroing in on an idea that is not
technically feasible to build.
Consult the Agile Development team. Their expertise can help with understanding the technical
side of things, which, in turn, can assist with shortlisting ideas worth building a PoC for.
SWOT ( Strengths, Weaknesses, Opportunities, and Threats) analysis can be another good practice
to consider when shortlisting New Product Development ideas.

Stage 3: Concept Development & Testing

Before starting with the New Product Development process, building a detailed version of the idea
and the user stories should be given priority.
This value proposition evaluation is the first step towards concept development and testing. At the
very least, it ensures that problems in the approach are discovered sooner and the team can course-
correct earlier. That helps to ensure that technical debts will not accumulate.

The easy-to-follow concept development steps include:

1. Quantifying Gain/Pain Ratio

A business needs to create an insightful picture of the product from the user’s perspective. This can
be achieved by calculating the gain/pain ratio, where:
Gain = Benefits of the product for the customer. What is in it for them? Pain = The efforts made by
the customer to understand and use the product.

2. Conducting a Competitor Analysis

Knowing about existing market players is a critical strategic step to consider. Understanding the
competition makes it easier to infer:

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Where the competitor lacks

Where is the scope for improvement
Existing white space in the market

3. Enlisting the Major Product Features

The user stories involved in the New Product Development software project will make or break a
business. When creating a list of such features, it is imperative to know — how is it an innovative
feature, and how is it going to solve a problem?
4. Create a Value Proposition Chart
Even after being convinced of the wisdom & the utility of an idea, being able to state it clearly to the
end-user, in their context, is quite a different story altogether. The end-user needs to be given a
clear picture of what the new product is capable of doing.

5. Concept Testing
Once the value proposition is ready, it is time to present it to the set of selected customers. How
they perceive the idea is the test of the efforts so far. If the idea doesn’t look promising, it is wise to
repeat the idea screening steps to develop a new product.
Meaningful insight can be gained by focusing on four critical aspects:
Identification of the focus group, i.e., people who would benefit from the new product under
development.
Assessment of other alternatives that can be presented to the focus group.
Development of a foolproof plan for the New Product Development that includes all stages from
feature development, marketing, pricing, and distribution.
Positioning of the product’s unique features into the customers’ minds to enhance findability and
discoverability.

Stage 4: Market Strategy/Business Analysis

Marketing strategy is all about drafting a way to reach out to the targeted audience. Perhaps the
best and most straightforward method is to follow McCarthy’s 4Ps of marketing for a New Product
Development project.

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Stage 5: Product Development

When the New Product Development idea is in place, the market strategy is documented, and the
business analysis is completed, it is time to move on with the product development cycle.
The New Product Development starts with developing the prototype followed by MVP.

1. Prototype
This focuses on creating the UI/UX for the product, which is then shared with the stakeholders.
This helps in visualizing how the product will look and whether it complies with ergonomics best
practices.

2. Minimum Viable Product (MVP)

This focuses on working on the user stories in Agile for the New Product that will set it apart from
others. Once the design, development, and testing are done, the MVP is launched in the market
with minimal features. The future iterations depend on the initial response.
The best way to approach New Product Development is to rely on Agile Product Development that
focuses on incremental and iterative development while promoting collaboration and
communication.

Stage 6: Market Testing

This step in New Product Development aims to reduce the uncertainty revolving around
the success of the software product. In other words, this step revolves around checking
the viability of the new product or its marketing campaign.
There are two market testing strategies to follow:
1. Alpha Testing
The test engineers deployed in the organization use and judge the product based on performance.
After checking the product’s performance, the test engineers map the marketing mix results with
the product created.
If any issues are found, changes are planned and implemented before the final go-ahead.

2. Beta Testing
The target groups or customers use the product and give their unbiased feedback to the
organization.
This strategy is about listening to the voice of customers (VOC). If any issues are reported, they are
moved back to the development team for fixtures.

8.8 Product Design

Changes in design are largely dictated by whether they would improve the prospects of greater
sales, and this, over the accompanying costs. Changes in design are also subject to cultural
pressures. The more culture-bound the product is, for example food, the more adaptation is
necessary. Most products fall in between the spectrum of "standardisation" to "adaptation"
extremes. The application the product is put to also affects the design. In the UK, railway engines
were designed from the outset to be sophisticated because of the degree of competition, but in the
US this was not the case. In order to burn the abundant wood and move the prairie debris, large
smoke stacks and cowcatchers were necessary. In agricultural implements a mechanized cultivator
may be a convenience item in a UK garden, but in India and Africa it may be essential equipment.
As stated earlier "perceptions" of the product's benefits may also dictate the design. A refrigerator
in Africa is a very necessary and functional item, kept in the kitchen or the bar. In Mexico, the same
item is a status symbol and, therefore, kept in the living room.

Factors encouraging standardisation are:

i) economies of scale in production and marketing
ii) consumer mobility - the more consumers travel the more is the demand
iii) technology
iv) image, for example "Japanese", "made in".

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The latter can be a factor both to aid or to hinder global marketing development. Nagashima1 (1977)
found the "made in USA" image has lost ground to the "made in Japan" image. In some cases
"foreign made" gives advantage over domestic products. In Zimbabwe one sees many
advertisements for "imported", which gives the product advertised a perceived advantage over
domestic products. Often a price premium is charged to reinforce the "imported means quality"
image. If the foreign source is negative in effect, attempts are made to disguise or hide the fact
through, say, packaging or labelling. Mexicans are loathe to take products from Brazil. By putting a
"made in elsewhere" label on the product this can be overcome, provided the products are
manufactured elsewhere even though its company maybe Brazilian.

Factors encouraging adaptation are:

i) Differing usage conditions. These may be due to climate, skills, level of literacy, culture or
physical conditions. Maize, for example, would never sell in Europe rolled and milled as in Africa.
It is only eaten whole, on or off the cob. In Zimbabwe, kapenta fish can be used as a relish, but wilt
always be eaten as a "starter" to a meal in the developed countries.
ii) General market factors - incomes, tastes etc. Canned asparagus may be very affordable in the
developed world, but may not sell well in the developing world.
iii) Government - taxation, import quotas, non tariff barriers, labelling, health requirements. Non
tariff barriers are an attempt, despite their supposed impartiality, at restricting or eliminating
competition. A good example of this is the Florida tomato growers, cited earlier, who successfully
got the US Department of Agriculture to issue regulations establishing a minimum size of tomatoes
marketed in the United States. The effect of this was to eliminate the Mexican tomato industry
which grew a tomato that fell under the minimum size specified. Some non-tariff barriers may be
legitimate attempts to protect the consumer, for example the ever stricter restrictions on
horticultural produce insecticides and pesticides use may cause African growers a headache, but
they are deemed to be for the public good.
iv) History. Sometimes, as a result of colonialism, production facilities have been established
overseas. Eastern and Southern Africa is littered with examples. In Kenya, the tea industry is a
colonial legacy, as is the sugar industry of Zimbabwe and the coffee industry of Malawi. These
facilities have long been adapted to local conditions.
v) Financial considerations. In order to maximise sales or profits the organisation may have no
choice but to adapt its products to local conditions.
vi) Pressure. Sometimes, as in the case of the EU, suppliers are forced to adapt to the rules and
regulations imposed on them if they wish to enter into the market.

8.9 Production Decisions

In decisions on producing or providing products and services in the international market it is
essential that the production of the product or service is well planned and coordinated, both within
and with other functional area of the firm, particularly marketing. For example, in horticulture, it is
essential that any supplier or any of his "outgrower" (sub-contractor) can supply what he says he
can. This is especially vital when contracts for supply are finalised, as failure to supply could incur
large penalties. The main elements to consider are the production process itself, specifications,
culture, the physical product, packaging, labelling, branding, warranty and service.

Production process
The key question is, can we ensure continuity of supply? In manufactured products this may
include decisions on the type of manufacturing process - artisanal, job, batch, flow line or group
technology. However in many agricultural commodities factors like seasonality, perishability and
supply and demand have to be taken into consideration
These include input supplies (or lack of them), finance and credit availability, variety (choice),
sowing dates, product range and investment advice. Many of these items will be catered for in the
contract of supply.

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Specification
Specification is very important in agricultural products. Some markets will not take produce unless
it is within their specification. Specifications are often set by the customer, but agents, standard
authorities (like the EU or ITC Geneva) and trade associations can be useful sources. Quality
requirements often vary considerably. In the Middle East, red apples are preferred over green
apples. In one example French red apples, well boxed, are sold at 55 dinars per box, whilst not so
attractive Iranian greens are sold for 28 dinars per box. In export the quality standards are set by
the importer. In Africa, Maritim (1991)2, found, generally, that there are no consistent standards for
product quality and grading, making it difficult to do international trade regionally.

Culture
Product packaging, labeling, physical characteristics and marketing have to adapt to the cultural
requirements when necessary. Religion, values, aesthetics, language and material culture all affect
production decisions. Effects of culture on production decisions have been dealt with already in
chapter three.

Physical product
The physical product is made up of a variety of elements. These elements include the physical
product and the subjective image of the product. Consumers are looking for benefits and these
must be conveyed in the total product package. Physical characteristics include range, shape, size,
color, quality, quantity and compatibility. Subjective attributes are determined by advertising, self
image, labelling and packaging. In manufacturing or selling produce, cognizance has to be taken of
cost and country legal requirements.
Again a number of these characteristics is governed by the customer or agent. For example, in beef
products sold to the EU there are very strict quality requirements to be observed. In fish products,
the Japanese demand more "exotic" types than, say, would be sold in the UK. None of the dried fish
products produced by the Zambians on Lake Kariba, and sold into the Lusaka market, would ever
pass the hygiene laws if sold internationally. In sophisticated markets like seeds, the variety and
range is so large that constant watch has to be kept on the new strains and varieties in order to be
competitive.

Packaging
Packaging serves many purposes. It protects the product from damage which could be incurred in
handling and transportation and also has a promotional aspect. It can be very expensive. Size, unit
type, weight and volume are very important in packaging. For aircraft cargo the package needs to
be light but strong, for sea cargo containers are often the best form. The customer may also decide
the best form of packaging. In horticultural produce, the developed countries often demand blister
packs for mangetouts, beans, strawberries and so on, whilst for products like pineapples a sea
container may suffice. Costs of packaging have always to be weighed against the advantage gained
by it.
Increasingly, environmental aspects are coming into play. Packaging which is non-degradable -
plastic, for example - is less in demanded. Bio-degradable, recyclable, reusable packaging is now
the order of the day. This can be both expensive and demanding for many developing countries.

Labelling
Labelling not only serves to express the contents of the product, but may be promotional.The EU is
now putting very stringent regulations in force on labelling, even to the degree that the pesticides
and insecticides used on horticultural produce have to be listed. This could be very demanding for
producers, especially small scale, ones where production techniques may not be standardised.
Government labelling regulations vary from country to country. Bar codes are not widespread in
Africa, but do assist in stock control. Labels may have to be multilingual, especially if the product is
a world brand. Translation could be a problem with many words being translated with difficulty.
Again labelling is expensive, and in promotion terms non-standard labels are more expensive than
standard ones. Requirements for crate labelling, etc. for international transportation will be dealt
with later under documentation.

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Summary
The marketing mix, which is the means by which an organisation reaches its target market, is made
up of product, pricing, distribution, promotion and people decisions. These are usually shortened
to the anacronym "5P's". Product decisions revolve around decisions regarding the physical
product (size, style, specification, etc.) and product line management.
Product decisions are based on how much the organisation has to adjust the product on the
standardisation - adaptation continuum to differing market conditions. This results in the evolution
of five basic strategic alternatives - extension; extension, adaptation; adaptation, extension;
adaptation and invention. Extension is the nearest to a standardised product, communications
strategy and Invention at the other end of the continuum, that is, an adaptation strategy. The more
adaptive the policy the more costly it will be for the organisation.

Keywords
New product Development, levels, generic, Product strategies, Protype

Self Assessment

1. ____________ can be offered to a market for attention, acquisition, use or consumption and

that might satisfy want or a need

A. Product
B. Price
C. Place
D. Promotion

2. Features of Product are:

A. Tangible and intangible attributes

B. Exchange Value
C. Customer Satisfaction
D. All the above

3. _____________level of product explain the reason for which a given customer has made

purchase. This layer mainly includes the generic ingredients of a product.

A. Core Level
B. Generic Level
C. Expected Level
D. Augmented Level

4. A ________can be defined as a collection of physical, services and symbolic attributes which

yield satisfaction or benefits to a user or buyer.

A. Product
B. Goods
C. Services
D. Price

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5. Number of products in asingle product line denotes:

A. Width
B. Depth
C. Consistency
D. Product Mix

6. ___________ is defines how closely related the product lines are in end use.

A. Width
B. Depth
C. Consistency
D. Product Mix

7. Types of new product are:

A. New to the World

B. New to the Firms products
C. Repositioning
D. All the above

8. _________ stage of product development where company comes up with many different and

unique ideas based on both internal and external sources.

A. Idea Generation
B. Idea Screening
C. Concept Development
D. Test Marketing

9. ___________ stage provides an insight into how the product will be introduced into the

market, advertised, produced, packaged, distributed, and eventually sold to the customers,

and therefore any optimizations if required can be made by the company.

A. Idea Generation
B. Idea Screening
C. Concept Development
D. Test Marketing

10. _______ is the science, art and technology of enclosing or protecting products for

distribution, storage, sale, and use.

A. Packaging
B. Labelling
C. Transportation
D. Distribution

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11. __________first envelops the product and hold it.This usually is the smallest unit of

distribution or use and is the package which is in direct contact with its contents.

A. Primary Packaging
B. Secondary Packaging
C. Tertiary Packaging
D. Packaging

12. Purpose of packaging is :

A. Product protection and attraction

B. Product identification
C. Product Convenience
D. All the above

13. In ________ stage of PLC product is highest priced and high expenses beard on promotion

A. Introduction
B. Growth
C. Maturity
D. Decline

14. Decision to adopt rapid / slow Skimming or Rapid /Slow Penetration is taken in which

stage:

A. Introduction
B. Growth
C. Maturity
D. Decline

15. Services are

A. Tangible
B. Intangible
C. Constant
D. Both A and B

Answers for Self Assessment

1. A 2. D 3. A 4. A 5. B

6. C 7. D 8. A 9. D 10. A

11. A 12. D 13. A 14. A 15. B

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Review Questions
1. What factors are important in the standardisation versus adaptation product decision process?
2. Describe the principle elements of "the product". Give examples.
3. Describe, with examples, the five major product strategies available to global marketers.
4. Discuss various levels of Product?
5. Elaborate New Product Development?

Further Readings
1. Stanton, Etzel and Walker- Fundamentals of marketing (TMH)
2. Philip Kotler- Marketing Management (PHI)
3. Philip Kotler and Armstrong- Principles of marketing (PHI)
4. Ramaswamy and Namakumari- Marketing management (Macmillan

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Dr. Pretty Bhalla, Lovely Professional University Unit 09: Pricing Decisions

Unit 09: Pricing Decisions

CONTENTS
Objective
Introduction
9.1 Pricing Strategies
9.2 Pricing Strategies
9.3 Methods of Pricing
9.4 Unethical practices in HR:
Summary
Keywords
Self Assessment
Answers for Self Assessment
Review Questions
Further Readings

Objective
• understand Pricing Objectives
• analyze Price Sensitivity and factors affecting Price of a Product.
• understand Ethical and Unethical Issues in Pricing,
• analyze unethical marketing practices.

Introduction
Pricing can be defined as the process of determining an appropriate price for the product, or it is an
act of setting price for the product. Pricing involves a number of decisions related to setting price of
product. Pricing policies are aimed at achieving various objectives. Company has several objectives
to be achieved by the sound pricing policies and strategies. Pricing decisions are based on the
objectives to be achieved. Objectives are related to sales volume, profitability, market shares, or
competition. Objectives of pricing can be classified in five groups as shown in figure 1.
1. Profits-related Objectives:
Profit has remained a dominant objective of business activities.
Company’s pricing policies and strategies are aimed at following profits-related objectives:
i. Maximum Current Profit:
One of the objectives of pricing is to maximize current profits. This objective is aimed at making as
much money as possible. Company tries to set its price in a way that more current profits can be
earned. However, company cannot set its price beyond the limit. But, it concentrates on maximum
profits.

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ii. Target Return on Investment:

Most companies want to earn reasonable rate of return on investment.

Target return may be:

(1) fixed percentage of sales,
(2) return on investment, or
(3) a fixed rupee amount.
Company sets its pricing policies and strategies in a way that sales revenue ultimately yields
average return on total investment. For example, company decides to earn 20% return on total
investment of 3 crore rupees. It must set price of product in a way that it can earn 60 lakh rupees.

2. Sales-related Objectives:
The main sales-related objectives of pricing may include:
i. Sales Growth:
Company’s objective is to increase sales volume. It sets its price in such a way that more and more
sales can be achieved. It is assumed that sales growth has direct positive impact on the profits. So,
pricing decisions are taken in way that sales volume can be raised. Setting price, altering in price,
and modifying pricing policies are targeted to improve sales.

ii. Target Market Share:

A company aims its pricing policies at achieving or maintaining the target market share. Pricing
decisions are taken in such a manner that enables the company to achieve targeted market share.
Market share is a specific volume of sales determined in light of total sales in an industry. For
example, company may try to achieve 25% market shares in the relevant industry.

iii. Increase in Market Share:

Sometimes, price and pricing are taken as the tool to increase its market share. When company
assumes that its market share is below than expected, it can raise it by appropriate pricing; pricing
is aimed at improving market share.

3. Competition-related Objectives:
Competition is a powerful factor affecting marketing performance. Every company tries to react to
the competitors by appropriate business strategies.

With reference to price, following competition-related objectives may be priorized:

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i. To Face Competition:
Pricing is primarily concerns with facing competition. Today’s market is characterized by the
severe competition. Company sets and modifies its pricing policies so as to respond the competitors
strongly. Many companies use price as a powerful means to react to level and intensity of
competition.

ii. To Keep Competitors Away:

To prevent the entry of competitors can be one of the main objectives of pricing. The phase
‘prevention is better than cure’ is equally applicable here. If competitors are kept away, no need to
fight with them. To achieve the objective, a company keeps its price as low as possible to minimize
profit attractiveness of products. In some cases, a company reacts offensively to prevent entry of
competitors by selling product even at a loss.

iii. To Achieve Quality Leadership by Pricing:

Pricing is also aimed at achieving the quality leadership. The quality leadership is the image in
mind of buyers that high price is related to high quality product. In order to create a positive image
that company’s product is standard or superior than offered by the close competitors; the company
designs its pricing policies accordingly.

iv. To Remove Competitors from the Market:

The pricing policies and practices are directed to remove the competitors away from the market.
This can be done by forgoing the current profits – by keeping price as low as possible – in order to
maximize the future profits by charging a high price after removing competitors from the market.
Price competition can remove weak competitors.

4. Customer-related Objectives:
Customers are in center of every marketing decision.
Company wants to achieve following objectives by the suitable pricing policies and practices:

i. To Win Confidence of Customers:

Customers are the target to serve. Company sets and practices its pricing policies to win the
confidence of the target market. Company, by appropriate pricing policies, can establish, maintain
or even strengthen the confidence of customers that price charged for the product is reasonable one.
Customers are made feel that they are not being cheated.

ii. To Satisfy Customers:

To satisfy customers is the prime objective of the entire range of marketing efforts. And, pricing is
no exception. Company sets, adjusts, and readjusts its pricing to satisfy its target customers. In
short, a company should design pricing in such a way that results into maximum consumer
satisfaction.

5. Other Objectives:
Over and above the objectives discussed so far, there are certain objectives that company wants to
achieve by pricing.
They are as under:
i. Market Penetration:
This objective concerns with entering the deep into the market to attract maximum number of
customers. This objective calls for charging the lowest possible price to win price-sensitive buyers.

ii. Promoting a New Product:

To promote a new product successfully, the company sets low price for its products in the initial
stage to encourage for trial and repeat buying. The sound pricing can help the company introduce a
new product successfully.

iii. Maintaining Image and Reputation in the Market:

Company’s effective pricing policies have positive impact on its image and reputation in the
market. Company, by charging reasonable price, stabilizing price, or keeping fixed price can create
a good image and reputation in the mind of the target customers.

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iv. To Skim the Cream from the Market:
This objective concerns with skimming maximum profit in initial stage of product life cycle.
Because a product is new, offering new and superior advantages, the company can charge
relatively high price. Some segments will buy product even at a premium price.

v. Price Stability:
Company with stable price is ranked high in the market. Company formulates pricing policies and
strategies to eliminate seasonal and cyclical fluctuations. Stability in price has a good impression on
the buyers. Frequent changes in pricing affect adversely the prestige of company.

vi. Survival and Growth:

Finally, pricing is aimed at survival and growth of company’s business activities and operations. It
is a fundamental pricing objective. Pricing policies are set in a way that company’s existence is not
threatened.

9.1 Pricing Strategies

Pricing model is dictated by company product. The pricing strategy is based on the market of the
product. While there are some pricing models and strategies that won’t align, the two don’t have to
be related at all.
Three companies could offer similar products but use completely different pricing models and
strategies. For example, one could use a price skimming strategy with a flat rate model. Another
could use a tiered pricing model with a penetration pricing strategy, and the third could use
a freemium strategy with a pay-as-you-go model.
The pricing model should be built around the core offering of company product or service, and
market pricing strategy is based on how company’s product compares to your competitors and the
demand for it.
Price skimming is when you have a very high price that makes your product only accessible
upmarket.
Price skimming is typically associated with luxury items and only works if you have a product or
service that is highly valuable or perceived as highly valuable. Brands like Rolex, Mercedes-
Benz and Louboutin use a price skimming model, and the high price reinforces their luxury
perception.
Regardless of actual quality, a higher price can be associated with a higher value, so if you have a
unique, innovative product or a valued brand, a price skimming strategy can be used to gain a
higher profit from fewer sales.
A price skimming strategy does limit the market segments you can appeal to, so if you want to
grow and expand your business over time, you’ll probably have to eventually incorporate other
pricing strategies so you can sell down-market.
For products, you could continue to use a price skimming strategy with new releases and lower the
price of previous versions. Or product and service providers can offer “economy” versions of their
solution to appeal down-market.
However, if there is more demand for your solution than there is supply and you have brand
equity, it is possible to grow while keeping your high price. For example, the marketing
agency Ogilvy morphed a price skimming strategy into a prestige pricing strategy.

Penetration Pricing
Penetration pricing is the opposite of price skimming. Instead of going to market with a high price,
companies using a penetration pricing strategy have a low-priced solution in order to capture as
much market share as possible.
For example, expense management software Expensify uses a penetration pricing model in
combination with product-led growth. Their low price draws initial users, and then more users
within a company will adopt the tool due to its functionality.
Penetration pricing only works if the solution can achieve economies of scale since high volume has
to compensate for the low per-unit price. Or, penetration pricing can be used only as part of the go-
to-market strategy in hopes of gaining brand loyalty that’ll last when the price eventually rises.

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Freemium
Freemium is a portmanteau of “free” and “premium,” and a freemium business model involves
offering a free version of your product or service and then upselling users into a paid version.
The music streaming platform Spotify uses this model, offering a free version that allows users to
listen to music, but if they want to download files to listen to offline, skip songs unlimitedly or
adjust their audio quality, they have to upgrade to a paid account.
Freemium can be a part of your go-to-market, or it can be used to break into new markets or
introduce new products.
Slack used a freemium model from the start and has had unprecedented success with a 30%
conversion rate. Freemium worked well for Slack because they were able to delight users with their
free version while still providing additional useful features in the upgraded paid product.
Conversely, HubSpot did not start out using a freemium strategy. They started as a paid marketing
automation tool, but as they’ve expanded their product offering into the marketing, sales and
service growth suite, they’ve added freemium features like their CRM.

Price Discrimination
A price discrimination strategy is when you set a different price for the same product based on the
market status of the buyer.
For example, movie theaters sell discounted tickets for children and seniors. Even though their
tickets cost less, people in those demographics can see the same movies and sit in the same seats as
customers paying full-price for their tickets. The purchased experience is the same, but the price is
different based on their demographics.
In B2B, you typically see price discrimination used for startups. HubSpot and Drift are both
examples of software that offer their product at a heavy discount to startup companies. This enables
companies who would not otherwise be able to afford those tools access, and then as the startups
grow, they’ll have developed a loyalty to those tools and be willing to pay more.
This strategy does require having a way to segment your buyers based on market status and then
verify that status before a sale is finalized.

Value-Based Pricing
Value-based pricing is a strategy that uses the value customer’s gain from the product or service as
the basis for the cost, ignoring the cost of production.
This strategy works well when your product or service is innovative and can’t be easily swapped
with an alternative.
The early years of iPhones are a great example of this: the cost to manufacture the phones are
significantly less than the market price, but because none of the existing smartphones at the time
had a similar functionality, Apple was able to set a high price and establish what the “value” of
touch screen smartphones was.
Value-based pricing can also be used when your product or service is significantly better than
alternatives that can accomplish the same function.
For example, the true cost of production for software development is really minimum wage for the
developer plus the cost of the equipment and software involved in the development process.
However, app programmers are paid more than that because they have a highly desirable skill set
and hiring someone else to do the work is more effective and efficient than learning to code and
trying to create an app by yourself.

Time-based pricing
A time-based pricing strategy is typically used by companies whose product or service has high-
seasonality or last-minute purchases.
Airlines exemplify this: it’s more expensive to book flights during peak seasons and cheaper if
you’re traveling during off-seasons. Additionally, the closer you book to the travel date, the more
expensive the ticket will be.
For time-based pricing to work, you need to have a system in place tracking the factors at play and
adjusting prices accordingly, especially if buyers can make a purchase without talking to sales.

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For example, a transcription service can charge more for a same-day transcription than it does for
transcribing a document within a week. Because of the immediate turnaround, the price is higher.
Or, if you try to hire service during a high-demand time for that service, they can charge more even
if you hire them well in advance. An accounting firm can charge more for work done during tax
season then they can at other times because of the high demand for accounting work at that time of
year.

9.2 Pricing Strategies

The pricing of any product is extremely complex and intense as it is a result of a number of
calculations, research work, risk taking ability and understanding of the market and the consumers.
The management of the company considers everything before they price a product, this everything
includes the segment of the product, the ability of a consumer to pay for the products, the
conditions of the market, action of the competitor, the production and the raw material cost or you
can say the cost of manufacturing, and of course the margin or the profit margins.

Pricing Strategies Definition

The main aim of the management of every organization is to maximize profits by effectively getting
the products of the shelf; let’s define and explain this better.
Pricing strategy is a way of finding a competitive price of a product or a service. This strategy is
combined with the other marketing pricing strategies that are the 4P strategy (products, price, place
and promotion) economic patterns, competition, market demand and finally product characteristic.
This strategy comprises of one of the most significant ingredients of the mix of marketing as it is
focused on generating and increasing the revenue for an organization, which ultimately becomes
profit making for the company. Understanding the market conditions and the unmet desires of the
consumers along with the price that the consumer is willing to pay to fulfill his unmet desires is the
ultimate way of gaining success in the pricing strategy of a product or a service.
Do not forget the ultimate goal of the company is to maximize profit being in competition and
sustaining the competitive market. However to maximize profits along with retaining your
consumer you have to make sure you choose the right pricing strategy. The correct strategy
will help attain your objectives as an organization.

Pricing Strategies in Marketing

Following are the different pricing strategies in marketing:

1. Penetration Pricing or Pricing to Gain Market Share

A few companies adopt these strategies in order to enter the market and to gain market share. Some
companies either provide a few services for free or they keep a low price for their products for a
limited period that is for a few months. This strategy is used by the companies only in order to set
up their customer base in a particular market. For example France telecom gave away free
telephone connections to consumers in order to grab or acquire maximum consumers in a given
market. Similarly the Sky TV gave away their satellite dishes for free in order to set up a market for
them. This gives the companies a start and a consumer base.
In the similar manner there are few companies that keep their product cost low as their
introductory offer that is a way of introducing themselves in the market and creating a consumer
base. Similarly when the companies want to promote a premier product or service they do raise the
prices of the products and services for that particular time.

2. Price Skimming: Price skimming, also known as skim pricing, is a pricing strategy in which a
firm charges a high initial price and then gradually lowers the price to attract more price-sensitive
customers. The pricing strategy is usually used by a first mover who faces little to no competition.
Price skimming is not a viable long-term pricing strategy, as competitors eventually launch rival
products and put pricing pressure on the first company.

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Price skimming is used to maximize profits when a new product or service is deployed. Therefore,
the pricing strategy is largely effective with a breakthrough product, where the firm is the first to
enter the marketplace. In such a strategy, the goal is to generate the maximum profit in the shortest
time possible, rather than to generate maximum sales. This enables a firm to quickly recover
its sunk costs before increased competition and pricing pressure arise.
Consider the diffusion of innovation, a theory that explains the rate at which a product spreads
throughout a social system. Innovators are those who want to be the first to get a new product or
service. They are risk-takers and price insensitive. A price skimming strategy tries to get the highest
possible profit from innovators and early adopters. As the demand from these two consumer
segments fills up, the price of the product is reduced, to target more price-sensitive customers such
as early majorities and late majorities.

Advantages of Price Skimming

Perceived quality: Price skimming helps build a high-quality image and perception of the
product.
Cost recuperation: It helps a firm quickly recover its costs of development.
High profitability: It generates a high profit margin for the company.
Vertical supply chain benefits: It helps distributors earn a higher percentage. The markup on a
$500 product is far more substantial than on a $5 item.

Disadvantages
Deterrence: If the firm is unable to justify its high price, then consumers may not be willing to
purchase the product.
Limitation of sales volume: A firm may not be able to utilize economies of scale if a skim price
generates too few sales.
Inefficient long-term strategy: Price skimming is not a viable long-term pricing strategy, as
competitors will eventually enter the market with rival products and exert downward pricing
pressure.
Consumer loyalty: If a product that costs $1,000 at launch has a follow-on price of $200 in a
couple of months, innovators and early adopters may feel ripped off. Therefore, if the firm has a
history of price skimming, consumers may wait a couple of months before purchasing the product.

3. Economy pricing or No Frill Low Price

The pricing Strategies of these products are considered as no frill low prices where the promotion
and the marketing cost of a product are kept to a minimum. Economy pricing is set for a certain
time where the company does not spend more on promoting the product and service. For example
the first few seats of the airlines are sold very cheap in budget airlines in order to fill in the airlines
the seats sold in the middle are the economy seats where as the seats sold at the end are priced very
high as that comes under the premium price strategy. This strategy sees more economy sales
during the time of recession. Economy pricing can also be termed as or explained as budget pricing
of a product or a service.

3. Use of Psychological Pricing Strategies

Psychological pricing Strategies is an approach of gathering the consumer’s emotional respond
instead of his rational respond. For example a company will price its product at Rs 99 instead of Rs
100. The price of the product is within Rs 100 this makes the customer feel that the product is not
very expensive. For most consumers price is an indicating factor for buying or not buying a
product. They do not analyze everything else that motivates the product. Even if the market is
unknown to the consumer he will still use price as a purchase factor. For example if an ice cream
weighted 100 gms for Rs 100 and a lesser quality ice cream weighted 200 gms is available at Rs 150,
the consumer will buy the 200 gms ice cream for Rs 150 because he sees profit in buying the ice
cream at lower cost ignoring the quality of the ice cream. Consumers are not aware price is also an
indicator of quality.

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4. Pricing Strategies of Product Line
Products line pricing is defined as pricing a single product or service and pricing a range of
products. Let us take and understand this with the help of an example. When you go for a car wash
you have an option of choosing a car wash for Rs 200 or a car wash and a car wax for Rs 400 or the
entire package including a service at Rs 600. This strategy reflects a strategic cost of making a
product popular and consumed by the consumer with a fair increment over the range of the
product or the service. In another example if you buy a pack of chips and chocolate separately you
end up paying a separate price for each product; however of you buy a combo pack of the two you
end up paying comparatively less price for both and if you buy a combo of both in a higher
quantity you end up paying even lesser.
For the manufactures of the product manufacturing and marketing of larger pack is much more
expensive as it does not fetch them good amount of profit, however they do the same to attract
more consumers and keep them interest in their products. On the other hand manufacturing
smaller packs and lesser quantity is more beneficial and fetches more profit for the manufacturer of
the product.

5. Pricing Optional Products

It is a general approach, if the companies decrease the price of a product or a service they do
increase their price for their other available optional services. Let’s take a very simple and a
common example of a budget airline. The prices of their airfare are low however they will charge
you extra if you want to book a window seat, if you want to travel with your family and want to
book an entire row together you might have to end up paying extra charges as per the their
guidelines, in case you have too much of luggage to carry you will end up paying extra on the
same, in fact you will end up paying extra charges even if you need extra leg space in a budget
airlines. You can say that even if the price of the air fare is low you will end up paying more for the
extra yet mandatory services that you will require as you travel.

6. Pricing of Captive Products

Captive products have products that complement the products without which the main product is
of no use or is useless. For example, an inkjet printer is of no use without its cartridge it will not
work and have no value and a plastic razor will have no value without its blades. If the company is
manufacturing the inkjet printer it will have to manufacture its cartridges and if the company is
manufacturing a plastic razor it will have to manufacture blades for the same. For a simple reason
that any other company cartridge will not fit into the inkjet printer and neither will any other
companies blade fit into the plastic razor. The consumer has no other option but to buy the
complementary products from of the same company. This increases the sales and the profit margin
of the company anyways.

7. Pricing for promotions

Promotional pricing is very common these days. You will find it almost everywhere. Pricing for
promoting a product is another very useful and helpful strategy. These promotion offers can
include, discount offers, gift or money coupons or vouchers, buy one and get one free, etc. to
promote new and even existing products companies do adopt such strategies where they roll out
these offers to promote their products. An old strategy yet it is one of the most successful pricing
strategies till date. Reason of its success is that the consumer considers buying the product and
service for the offer that the consumer receives.

8. Pricing as Per Geographic Locations

For simple reasons such as the geographic location the companies do vary or change the price of
the product. Why does location of the market affect the price of the product? The reasons can be
many well some are scarcity of the product or the raw material of the product, the shipping cost of
the product, taxes differ in a few countries, difference in the currency rate for products, etc.
Let’s take a few pricing strategies examples, when a few fruits are not available in a country they
are imported from another country, these fruits are exotic fruits, they are also scarce this increases
their value in the country they are imported to, scarcity, the shipping cost of the imported product
along with its quality increase its price, where as it is much cheaper where it is originally grown.
Similarly the government implies heavy taxes on a few products such as petrol or petroleum
products and alcohol to increase their revenue; hence such products are expensive in a few
countries or part of the country compared to the other parts. Geographic location does create a
huge impact on the pricing strategy of a product as the company has to consider every aspect
before they price a product. Hence the price needs to be perfect and appropriate.

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9. Value Pricing a Product
Let me first be clear about what value pricing means, value pricing is reducing the price of a
product due to external factors that can affect the sales of the product for example competition and
recession; value pricing does not mean that the company has added something or increased the
value of a product. When the company is afraid of factors such as competition or recession affecting
their sales and profits the company considers value pricing.
For example McDonalds the famous food chain has started value meals for their consumer since they have
started facing competition with other fast food chains. They offer a meal or a combination of a few products as
a lower price where the consumer feels emotionally content and continues to buy their products.

10. Pricing of Premium Products

Well this strategy works just the other way round. Premium products are priced higher due to their
unique branding approach. A high price for premium products is an extensive competitive
advantage to the manufacturer as the high price for these products assures them that they are safe
in the market due to their relatively high price. Premium pricing can be charged for products and
services such as precious jewelry, precious stones, luxurious services, cruses, luxurious hotel
rooms, business air travel, etc. The higher the cost the more will be the value of the product
amongst that class of audience.

11. Marginal cost Pricing

Marginal cost –the cost of producing one extra or One fewer item of production
MC Pricing –allows flexibility
Particularly relevant in transport where fixed costs may be relatively high.MC=Total Cost/Output

9.3 Methods of Pricing

In an organisation, price is one significant factor in attaining high market share. Profit
maximization, high market share, to attain a status quo by stable price and meeting competition in
the market are the main objective of pricing objective.
So, methods of pricing and pricing strategies is one of the critical tasks for a marketer.
Majorly there are three methods of pricing determination strategy

• Cost based Pricing

• Demand Based Pricing
• Competition-based pricing
• Other popular methods

Pricing Strategies

1. Mark-up Pricing
2. Full Cost Pricing
3. Marginal Cost Pricing
4. Break-Even Concept
5. Skimming Pricing
6. Penetration Pricing
7. Charging What the Traffic Will Bear
8. Discount Pricing
9. Premium Pricing
10. Going Rate Pricing
11. Perceived Value Pricing Method
12. Value Pricing Method
13. Sealed Bid Pricing

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14. Psychological Pricing

15. Odd Pricing
16. Geographical Pricing
17. Discriminatory Pricing
Price setting is influenced by market conditions and changes as per marketing conditions and also
with changing environmental factors.
Price is the amount of money paid by the buyer for acquiring a product or service. Marketing
management is about placing the right product, at the right price, at the right place, at the right
time.

Methods of Pricing
Below is the list of all the Types of Pricing Strategy:

Cost based Pricing

• Using the cost of production as the basis for pricing a product.

• Here the selling price of product a will be the cost to produce it.
• It includes:- Direct and indirect costs & Additional amount to generate profit.
Below price method/strategies are commonly used under cost-based pricing

Mark-up Pricing
In mark-up pricing, the selling price of the product is fixed by adding a particular margin or mark up to
its cost.
Generally, distributive trade and marketing firms, who do not have any manufacturing of their own,
prefer this method. The slower the turnaround of the product, the larger is the mark-up and vice-versa.
It is also known as Cost Plus Pricing.

Full Cost Pricing

Full Cost Pricing is based on the estimated unit cost of the product with the normal level of
production and sales and usually adopted by manufacturer firms. A profit margin is added to this
unit cost.
These methods of pricing use standard costing techniques and work out the variable cost and fixed
costs involved in manufacturing, selling and administering the product. The selling price of the
product is decided by adding the required margin towards profit to such total costs. It is also
known as Absorption Cost Pricing.
The advantage of full-cost pricing is that as long as the market consume the production at the
determined price, the firm is assured of its profits.

The disadvantages of full-cost pricing is that the method does not take cognizance of the demand
factors at all and relies excessively on standard costing and normal level of production and sales.

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Marginal Cost Pricing
Marginal-cost pricing involves basing the price on the variable costs of producing a product, not on the
total costs.
Fixed costs: capital equipment repayments, factory rental, and permanent staff salaries, short or
medium term, remain unchanged regardless of the level of output achieved.
Variable costs: wages and electricity, raw material purchases which vary directly according to the
level of output achieved.

Total costs = Fixed costs + variable costs

The major difference between full cost pricing and marginal cost pricing is that the marginal gives
the flexibility not to recover a portion of the fixed costs depending upon the market situation.

Break-Even Concept
The break-even analysis concept is aimed at a level where the total costs exactly equal to the total
revenues, the result is zero profit and zero loss. At a level were the revenues exceed the costs,
profits are earned and at the other level, losses are incurred.
Many firms prefer the break-even concept in their methods of pricing. The firm uses the concept for
price fixation and also to determine the level of production which is required for achieving the
desired profits.

Demand Based Pricing

Pricing that is determined by how much customers are willing to pay for a product or service.
This method results in a high price when demand is strong and a low price when demand is weak.
May be differentiated based on considerations such as time of purchase, type of customer or
distribution channel.
Below are the methods of pricing that are commonly used under demand based pricing

Skimming Pricing
One of the most commonly used strategies is the skimming strategy. In this strategy, the firm skim
the market by selling at a premium price. Skimming method skims the market in the first instance
through high price and then settles down for a lower price.
In the introduction stage firm keep a higher price means higher profit. This method is usually
favorable for pricing of a new luxury product. It also helps the firm to get the feel of the demand of
the product and then make appropriate changes in the pricing strategy.

Penetration Pricing
Penetration Pricing keeps a low price for a new product or service during its initial offering. The
objective of penetration price strategy is to gain grip in a highly competitive market. Market share
or market penetration are the two most important objective.
The problem with this strategy is that it often heralds a price war within the industry which could,
in turn, prove fatal to all the firm’s profit.
It points out demand price. Cost of service and value of service principle are the two principles in
pricing. The second term is charging what the traffic can bear. Professionals like lawyers, doctors,
chartered accountants etc., adopt this principle. They charge their fees on the basis of ability to pay
and the cost factor comes secondary in their charges.

Competition-based pricing
Marketers will choose a brand image and desired market share as per competitive reaction. It is
necessary for the marketer to know what the rival organization is charging. Level of competitive
pricing enables the firm to price above, below, or at par and such a decision is easier in many cases
Below are the methods of pricing that are commonly used under Competition-based pricing

Discount Pricing
Traders or buyers were offered price concessions in the form of deductions from the list price of
from the amount of a bill or invoice. These are forms of indirect price competition.
The common forms of discount pricing are:

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• Trade Discount: It is given to the buyers buying for resale, for example, wholesaler or
retailer.

• Cash Discount: It is a rebate or a concession given to the trader or consumer to encourage

him to pay in full by cash or cheque within a short period of the date of the bill or invoice.

• Quantity Discount: These are given to the customer to encourage to make bulk or large
purchases at a time.

• Quantity Discount: These are given to the customer to encourage to make bulk or large
purchases at a time.

• Seasonal Discount: Additional seasonal discount for example 10%, 15% are offered to a
dealer or a customer.

Premium Pricing
Premium pricing is the practice in which a high-end product is sold at higher than that of
competing brands to give it a snob appeal through an aura of exclusivity. It also referred to
as skimming, image pricing or prestige pricing.
The firm may decide to charge a high initial price to take advantage of the fact that some buyers are
willing to pay a much higher price than others as the product is of high value to them.
The skimming pricing is followed to cover up the product development cost as early as possible
before competitors enter the market.

Going Rate Pricing

Going Rate Pricing is also known as Parity Pricing. In this method, the firm bases its price on the
average price of the product in the industry or prices charged by competitors. This method assumes
that there will be no price war within the industry. It is commonly used in the oligopolistic market.

9.4 Unethical practices in HR:

Some ethical issues are extremely easy to understand: don’t steal, treat others with respect, and
always put down the toilet seat for your lady friends. However, when it comes to the market, the
concept of what is right and wrong is a bit blurrier. Of course you can’t exploit children for a labor
force, but Is it a business’s right to price however they want? After all, if the number is too high or
the marketing too egregious, then consumers won’t buy right?
Well, not exactly. Over the years, governments have put laws on the books for the most heinous of
fraudulent pricing strategies, but even then some tactics are considered quite unethical, and you
may be committing these missteps without even knowing or starters, ethics is a critical issue in
pricing because ethics and legality are not synonyms. An unethical price is not always an illegal
price. In many cases, it’s up to you to decide where the line is—is this price strategy or that one too
far over the line? Are we pricing our products to best serve our customers? Where are the risks?
As we said, there’s a lot of grey. You need to decide what constitutes predatory and which practice
is a concern for your business, not just legally, but ethically.
You can begin by watching out for these five unethical pricing strategies.
Ethics is a critical issue in pricing because ethics and legality are not synonyms; an unethical price is
not always an illegal price.

1. Price Fixing
According to the U.S. Federal Trade Commission, price fixing is defined as “an agreement (written,
verbal, or inferred from conduct) among competitors that raises, lowers, or stabilizes prices or
competitive terms.”

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From a legal perspective, price fixing often runs afoul of antitrust laws. Your business is supposed
to set prices independently from your competitors—you shouldn’t agree to certain prices with your
competitors as a way to control the market. The goal here is to protect consumers and ensure that
prices are based on a free market, not a fixed one.
In simple terms, price fixing can be when your business and one or more competitors agree to:
Raise prices on a specific product
Keep prices on a specific product steady
Not allow retailers to discount products
And other examples
One possible sign of price fixing is collusion. Have two or more companies worked together to
price the same product in a way that is beneficial for just those businesses? If you’re setting prices
based on supply and demand, you’re likely safe from price fixing.
Price fixing is also about reducing competition. It removes the ability for consumers to go to a
competitor to find a better deal on a specific product, as those competitors have colluded to fix the
price.

2. Price Discrimination
Another common unethical pricing strategy is price discrimination. Price discrimination is when a
retailer sells the exact same product or service at different prices to different people. Instead of the
same price across all markets, retailers adjust prices based on what they think the consumer will
pay.
Price discrimination can be ethical or unethical, depending on how it is used. For example, many
goods cost more in Hawaii due to the costs of shipping and selling on islands isolated from
common supply lines. It’s typically fine—legally and ethically—to price products higher depending
on the manufacturing and distribution costs for serving a particular market.
Where price discrimination gets unethical is in how it is deployed. It is a public relations nightmare
if your business hides price discrimination from consumers. It can’t be seen as a ploy or a trick to
get unsuspecting shoppers to pay more. Price discrimination can be ethical and legal if marketing
and sales make it clear why—and to whom—prices are different.

3. False Advertising
Speaking of marketing and sales, false advertising is a similar pitfall for unethical prices. False
advertising can take many forms when it comes to pricing, including:
Labeling a price as a “discount” when it’s actually the normal price
Running a promotion when there was never any intention to sell the product at full price
Or, running a promotion where it’s actually more cost-effective to buy the product in a different
bundle
Advertising a sale or discount when the product has never been in stock
False advertising is pretty easy to spot internally. You should know if your company is misleading
shoppers. Again, not all of these are illegal. They’re just unethical.

4. Yo-Yo Pricing
What is yo-yo pricing? Yo-yo pricing is when a business prices a product higher for a limited
time—typically when supply is also low—then decreases prices and increases supply immediately
after. It’s often a tactic to drive sales at that higher price.
However, it’s not always unethical. In many cases, yo-yo pricing is just dynamic pricing: adjusting
prices automatically based on supply, demand, or other market conditions. Where it gets unethical
is in how it is used.

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Yo-yo pricing shouldn’t be used to trick shoppers into spending more money because they don’t
know a better deal is right around the corner. It shouldn’t be done artificially, as in a high price
simply to generate a higher margin when it’s already planned to roll out a lower, more steady price
soon after.
Instead, it should be done if there’s high demand, like with a new product launch, or when supply
is low, like with event tickets. For example, airplane ticket prices yo-yo all the time, typically lower
the earlier you book and higher the closer to your flight.

5. Predatory Pricing
Predatory pricing is pricing a product lower than the competition in the hopes of driving that
competition out of business. Pricing strategies don’t usually rise to the level of predatory unless
they are so low they are below the cost of manufacturing. Or, they are done with the goal to hurt
the competition. Simply offering a slightly lower price or a good deal is not predatory pricing.
This form of pricing can also be illegal, again problematic for antitrust laws. The concept is that a
business that engages in predatory pricing could force its competitors to close and thus create a
monopoly. Either way, it’s unethical in part because it is pricing to hurt competitors, not to help
consumers.

Summary
Pricing completely depends on the 4P pricing strategy in marketing which is very important and it
needs to be considered before pricing any product. The management of the company needs to price
their products and services very effectively as they do not want to enter into any situation where
their sales take a hit due to relatively high price when compared with their competitors, neither
would the company want to keep a price too low to maximize profits or enter into losses. Hence
pricing needs to be done very smartly and effectively making sure the management of the
organization considers every aspect before they price a product.
To set the price of the product , manager should put himself customers’ shoes if ever in doubt
whether a price is ethical or unethical. In most of these cases, unethical pricing occurs when pricing
is to only earn profit—either to hurt the competition, skirt a law or regulation, or discriminate
against or deceive consumers.
On the contrary, your prices are ethical when they are done with the customers’ best interests in
mind or price decisions are made based on market conditions, specifically supply and demand. The
best part? Ethical prices are a long-term solution—they set business up for extended success.
Unethical prices are a quick fix or a cheap win. They’re not worth the risk.

Keywords
Pricing , predatory pricing , skimming , penetration , cost based , target return , psychological
pricing , ethical and unethical pricing .

Self Assessment

1. A price is a value in monetary terms that one party pays to another in a transaction in

exchange for some goods or services.

A. Price
B. Pricing
C. Price Management
D. Cost

2. Pricing objectives are :

A. Long Run Profit

B. Company Growth

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C. Discourage new entrants
D. All the above

3. Find the factor that doesn’t directly impact Pricing Decision ?

A. Cost : Fixed and Variable

B. Competition
C. Company’s internal factors: Objectives
D. Customer Age

4. ___________ Strategy is suitable for the products that have short life cycle or which will face

competition at some point in future.

A. Marketing Skimming
B. Value Pricing
C. Psychological Pricing
D. Going Rate (Price Leadership)

5. According to _____________ strategy , Price charged according to the Customers Perception.

A. Marketing Skimming
B. Value Pricing
C. Psychological Pricing
D. Going Rate (Price Leadership)

6. _____________ Strategy is used when Goods/services deliberately sold below cost to

encourage sales elsewhere. Typical in supermarkets, e.g at Christmas, half rate of products.

A. Absorption Cost Pricing

B. Destroyer Pricing
C. Influence of Elasticity
D. Loss Leader Pricing

7. Cost of Product INR 999.99,which pricing strategy is used ?

A. Marketing Skimming
B. Value Pricing
C. Psychological Pricing
D. Going Rate (Price Leadership)

8. Where competition is limited, ______________pricing may be applicable-banks, petrol,

supermarkets, electrical goods-find very similar prices in all outlets.

A. Marketing Skimming
B. Value Pricing

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C. Psychological Pricing
D. Going Rate (Price Leadership)

9. In __________ the selling price of the product is fixed by adding a particular margin or mark

up to its cost.

A. Mark-up Pricing
B. Full Cost Pricing
C. Marginal Cost Pricing
D. Break-Even Concept

10. ___________is based on the estimated unit cost of the product with the normal level of

production and sales and usually adopted by manufacturer firms.

A. Mark-up Pricing
B. Full Cost Pricing
C. Marginal Cost Pricing
D. Break-Even Concept

11. __________ involves basing the price on the variable costs of producing a product, not on the

total costs.

A. Mark-up Pricing
B. Full Cost Pricing
C. Marginal Cost Pricing
D. Break-Even Concept

12. The _________ concept is aimed at a level where the total costs exactly equal to the total

revenues, the result is zero profit and zero loss.

A. Break even analysis

B. Skimming Pricing
C. Penetration Pricing
D. Charging What the Traffic Will Bear

13. Pricing that is determined by how much customers are willing to pay for a product or

service. Which method is adopted ?

A. Cost based Pricing

B. Demand Based Pricing
C. Competition-based pricing
D. Other popular methods

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14. _____________involves an agreement between a group of people on the same side of a

market to buy or sell a good or service at a fixed price.

A. Price Fixing
B. Bid Rigging : Favoritism
C. Price Discrimination : Anti Favoritism
D. Price Skimming : Discriminating Through Time

15. __________ involves promising a commercial contract to one group, even though you make

it look like multiple parties had the opportunity to submit a bid.

A. Price Fixing
B. Bid Rigging
C. Price Discrimination
D. Price Skimming

16. ___________is when the price for a product is first sold at a very high price and then

gradually lowered

A. Price Fixing
B. Bid Rigging
C. Price Discrimination
D. Price Skimming

Answers for Self Assessment

1. A 2. D 3. D 4. A 5. B

6. D 7. C 8. D 9. A 10. B

11. C 12. A 13. B 14. A 15. B

16. D

Review Questions
1. “Pricing is not an end in itself but a means to achieving certain objectives of the marketing
department of a firm.” Discuss.
2. “Economic conditions and government regulations play a vital role in determining
product price.” Comment.
3. Explain the different types of consumer products and how they are priced
4. Discuss different types of pricing strategies
5. Elaboratively discuss various methods of pricing .

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Further Readings
Nagle, T., Hogan, J., Zale, J. (2013). The Strategy and tactics of pricing: A guide to growing
more profitably (5th ed.). Pearson Education Limited.
Smith, T. (2012). Pricing strategy: Setting price levels, managing price discounts, &
establishing price structures. SouthWestern, Cengage Learning.
Wold, D., et al. (2009). NxLevel guide for entrepreneurs (5th ed.). Utah: NxLeveL
Education Association.
Zimbroff, A. (2015). Starting a new business: Pre-launch research. University of Nebraska–
Lincoln Extension publication EC495. Retrieved from http://www.ianrpubs.
unl.edu/epublic/pages/index.jsp?what=publicationD&publicationId=1692

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Dr. Pretty Bhalla, Lovely Professional University Unit 10: Distribution Planning

Unit 10: Distribution Planning

CONTENTS
Objective
Introduction
10.1 Functions of Distribution Channel
10.2 Functions of Channel of Distribution
10.3 Importance of Distribution Channel
10.4 Types of distribution channels
10.5 Factors Determining the Choice of Distribution Channels
10.6 Motivating Channel Members
Summary
Keywords
Answers for Self Assessment
Answers for Self Assessment
Review Questions
Further Readings

Objective
Understand channels of distribution, its concept and importance.

Understand different types of distribution middlemen and their functions selection.

Understand the ways and need of motivating channel members.

Introduction
A distribution channel is a path by which all goods and services must travel to arrive at the
intended consumer. Conversely, it also describes the pathway payments make from the end
consumer to the original vendor. Distribution channels can be short or long, and depend on the
number of intermediaries required to deliver a product or service.
Goods and services sometimes make their way to consumers through multiple channels—a
combination of short and long. Increasing the number of ways a consumer is able to find a good can
increase sales. But it can also create a complex system that sometimes makes distribution
management difficult. Longer distribution channels can also mean less profit each intermediary
charges a manufacturer for its service.
We can define formally the distribution channels as the set of interdependent marketing institutions
participating in the marketing activities involved in the movement the flow of goods or services
from the primary producers to ultimate consumers.
A channel of distribution is a path traced in the direct or indirect transfer of ownership of a product
as it moves from producers to consumers.
A channel is pipeline through which a flows on its way to the consumers. The manager put his
products into the pipeline marketing channels and it moves towards various marketing people and
reaches the ultimate consumer which is the other end of the channels.
A distribution channel is the set of steps it takes for a product to get in the hands of the key
customer or consumer. Distribution channels can be direct or indirect. Distribution can also be
physical or digital, depending on the kind of business and industry.

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Activity:

10.1 Functions of Distribution Channel

The functions of distribution channels can be studied under the following heads:-
1. Transactional Functions
2. Logistical Functions
3. Facilitating Functions.
Some of the functions of distribution channels are:- 1. Financing 2. Assists in Merchandising 3.
Provides Market Intelligence 4. Assortment of Products 5. Price Stability 6. Promotion 7. Provides
Salesmanship 8. Title 9. Helps in Production Function 10. Matching Demand and Supply
11. Pricing 12. Standardising Transactions 13. Matching Buyers and Sellers 14. Information Provider
15. Time and Place Utility and a Few Others.
The main function of distribution channel is to assemble the goods from different manufacturer and
make it available to the consumer. Apart from this, the channel members also perform a number of
other functions like buying, carrying inventory, selling, transporting, financing, etc. These functions
enable products and information flow from manufacturer to user in a timely and efficient manner.
The main functions performed by the distribution channels can be divided into following
categories:

1. Transactional Functions:
These functions relate to the various transactions performed for moving the goods from one
channel end to other. It includes functions like buying, selling and risk bearing. These functions are
performed by channel members. The goods are sold by the producer or manufacturer to various
intermediaries who in turn sell it to the ultimate consumer. Movement of goods also include change
in the title of goods from one to another.

2. Logistical Functions:
These include functions like assembling, storage, grading and transportation for physical
movement of the goods from one place to another. It is very necessary that the goods are properly
assorted and stored at the right place. Channel members have to ensure that stored goods are
transported at right time, so that it is made available to the consumers.

3. Facilitating Functions:
These functions facilitate the performance of different functions by the channel members. With
these functions, activities by the channel members can be performed smoothly. It includes
financing, credit facilities, after-sale services, maintenance, etc. Purchase of most of the goods these
days are accompanied by various services like loan facility, credit facilities, free servicing, etc.
which facilitates the channel members.

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To elaborate it further, the major distribution channel functions are as given below:
Function # 1. Financing:
Intermediaries usually make advance payments for goods and services, thereby, providing
necessary working capital to the manufacturers for their day-to-day operations. Though the
manufacturers may extend credit, payment is made in advance, even before the product is bought,
consumed and paid by the ultimate consumer.

Function # 2. Assists in Merchandising:

Through merchandising, they help reinforce the awareness about the product among customers.
While visiting a retail shop, customer’s attention can be allured by an attractive display of the
product/brand increasing his awareness and interest. Merchandising, especially display,
complements the selling efforts of the company and acts as a silent salesman at the retail outlet.

Function # 3. Provides Market Intelligence:

Market intelligence and feedback to the principal are rendered by channels. In the nature of things,
channels are in a good position to perform this task, since they are in constant and direct contact
with the customers. They feel the pulse of the market all the time.

Function # 4. Assortment of Products:

It leads to the customer convenience as channels of distribution help the consumers to buy goods in
convenient unit lots, packs and assorted varieties of the products. In order to use the economics of
scale and to minimise the overall production cost, goods and services are produced in bulk.
But these goods and services consumed in smaller quantity so there is essentially the need of
breaking the bulk. It is carried out by channel intermediaries.

Function # 5. Price Stability:

A middleman also works to maintain price stability in the market. Many a time the middlemen
absorb an increase in the price of the products and continue to charge the customer the same old
price. This is because of the intra-middlemen competition. He also maintains price stability by
keeping his overheads low.

Function # 6. Promotion:
Sales incentive programmes are designed by middlemen aiming to building customers traffic at the
other outlets. Channels of distribution perform promotional activities like advertising, personal
selling and sales promotion etc., so as to be useful to the producer in achieving greater market share
in sales and market coverage of the products.

Function # 7. Provides Salesmanship:

Salesmanship is provided by marketing channels. As they help in introducing and establishing new
products in the market. Under some cases, buyers go by the recommendations of the dealers. The
dealers establish the products in the market through their persuasive selling and person-to-person
communication. They also provide pre-sale and after-sale service to the buyers.

Function # 8. Title:
The title to the goods, services and trade are taken by middlemen under their own names. It helps
in eliminates the risks between the manufacturer and middlemen, also enabling middlemen to be in
physical possession of the goods, which in turn helps. Then to meet customer demand at very
moment it arises.

Function # 9. Helps in Production Function:

Leaving the marketing problem to middlemen who specialise in the profession the producer can
concentrate on the production function. Their services can best utilised for selling the product. The
finance, required for organising marketing can profitably be used in production where the rate of
return would be greater.

Function # 10. Matching Demand and Supply:

The major function of intermediaries is to assemble the goods from many producers in such a
manner that a customer can affect purchases with ease. The goal of marketing is the matching of
segments of supply and demand.

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Function # 11. Pricing:

While pricing a product, the producer should invite the suggestions from the middlemen as they
are very close to the ultimate users and know what they can pay for the product. Pricing may be
different for different markets or products depending upon the channel of distribution.

Function # 12. Standardizing Transactions:

Standardising transactions is another function of marketing channels. Like the milk delivery
system, the distribution is standardised throughout the marketing channel so that consumers do
not need to negotiate with the sellers on any aspect, whether it is price, quantity, method of
payment or location of the product. By standardising transactions, marketing channels automate
most of the stages in the flow of products from the manufacturer to the customers.

Function # 13. Matching Buyers and Sellers:

The most critical activity of the marketing channel members is to match the needs of buyers and
sellers. Usually, most sellers do not know where they can reach potential buyers and similarly,
buyers do not know where they can reach potential sellers. From this perspective, the role of the
marketing channel to match the buyer’s and seller’s needs becomes very vital. For instance, a
painter of modern art may not know where he can reach his potential customers, but an art dealer
would surely know.

Function # 14. Information Provider:

Middlemen plays an important role in providing information about the market to the
manufacturer. Changes in customer demography, psychographic, media habits and the entry of a
new competitor or a new brand and changes in customer preferences are the developments that are
the information manufacturers needed. As, these middlemen are present in the market place and
close to the customer they can provide this information at no additional cost.

Function # 15. Time and Place Utility:

They assist consumers to buy goods at the time and place they require them. They create time and
place utilities to the buyer. Thereby reducing the spatial discrepancy (distance between the
producer and the consumer) in the buying space.

10.2 Functions of Channel of Distribution

There are several reasons why companies use channels of distribution. Opposite of the distribution
strategy that employs intermediaries is direct distribution or direct selling. Imagine the difficulty
firms like HUL would encounter in selling their products like Lux toilet bar and Dove shampoo to
all customers who want to use them.
These consumers are large in number and are geographically dispersed. The company would face a
herculean task of managing customer contact, which would run into crores of transactions.
Managing these would burden the company and divert its focus towards distribution.
One of the efficient ways to reach out to a large number of customers is to use intermediaries. By
the use of intermediaries the customer also benefits because contacts required to obtain products of
their needs also stands reduced. This results in economy of efforts and saving of precious resources
such as time, energy, and money for both the producer and consumer. This is one of the reasons
why channels of distribution are commonly used to servicing consumer needs.
The use of intermediaries becomes imperative because the supply side (i.e., marketing firms) is
governed by considerations that are different from consumer priorities. It is nearly impossible for
companies to undertake all the tasks or activities that would match the service level desired by
consumers.
Consumers expect product availability at the right time, in the right quantity, at the right place, and
in the right assortment. If a company seeks to achieve all this on its own the operations would be
highly inefficient and ineffective. Intermediaries are used as they perform a number of functions
that help marketers service customer needs efficiently.

Function # 1. Information Provision:

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There are middlemen like retailers who exist in close proximity with customers. This closeness of
position allows them to get first-hand information on customer feedback and emergent changes in
tastes and preferences. Middlemen can also provide valuable information about competitor
activity.
In an international marketing scenario, a firm can get customer and competitor insights from
middlemen who operate in that market. Middlemen can influence consumer decision in favour of
certain brands simply by providing relevant product and company information.
Consider how retailers influence brand purchase by informing consumers of merits and demerits of
brands under consideration. Less informed customers trust middlemen at the end of distribution
channel to help them take the correct buying decision.

Function # 2. Match Discrepancy:

Consumers do not buy directly from product manufacturers because customer demand does not
match with what is supplied by manufacturer. Consumers typically buy products in very small
quantities but their producers produce them in large quantities. Therefore, there exists a
discrepancy between demand and supply.
For instance, a producer of cement like ACC or shoes like Nike manufactures products in large
numbers but individual buyers need them in smaller quantities. This mismatch in quantity is
synchronized by middlemen who make products available in numbers that are desired by
customers.
Second, middlemen match the discrepancy of assortment. Manufactures usually follow a
specialization model and produce one type of product. For instance, a customer who is engaged in
construction of a house needs cement, bricks, steel, and sand simultaneously.
However, ACC only produces cement. Therefore, there is a discrepancy of assortment demanded
by customer and what is supplied by ACC. In this connection, middlemen like hardware dealers
sell assortment of products that match with customer needs to solve their problem.

Function # 3. Bulk Breaking and Sorting:

Commodities such as candles and almonds are sold in large quantities to middlemen by their
producers. For instance, almonds are sold in big gunny bags to middlemen by the producers from
states such as Himachal Pradesh and Kashmir. The produce so obtained in bulk is broken down
into smaller quantities as it moves down the channel of distribution.
The producers send gunny bags filled with almonds in truck loads to their agents who divide this
quantity into bags of quintals and sell them to wholesalers. The wholesalers then further break the
big bags into smaller bags of 20 kg. These bags are further divided into packs of one and two
kilograms by the retailer.
Middlemen also sort produce into different quality categories. For instance, fruits like apples
received by a commission agent from the source are divided into different grades. These graded
fruits are further divided into different quality categories by the retailers.

Function # 4. Storing and Transportation:

Once goods are produced they need storage till the time they are sold to customers. This requires
storage and warehousing facilities. One of the most important functions of middlemen is to store
products in their facilities in order to cater to changes in customer demand.
There are specialist channel partners whose primary job is to store products. This does away with
the need to invest in creating one’s own storage system for the producers. Goods ultimately have to
move to markets where they are bought by customers. Transportation and logistics partners come
to the rescue of producers in this movement. Big e-tailers such as Flipkart and Amazon partner
with logistics companies like FedEx to make shipment of sold products to end consumers.

Function # 5. Take Risk:

Owning products and taking their custody is a risky job. Holding stocks of goods in warehouses or
while in transit involves risks linked with damage and destruction. Some of the middlemen take
the title of products in the course of their journey to consumers. Transfer of title transfers risk.
The practice of financing consumer purchases by extending credit is not uncommon. The retailers
offer credit to end consumers and wholesalers provide credit facilities to retailers. This credit ties
up working capital of the financer and exposes him to the risk of non-recovery of money.

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Function # 6. Place and Time Utility:

Place utility implies contribution made by middlemen in enhancing attractiveness of a product by
altering its point of availability. A product available at an inconvenient location has lesser value.
For instance, a bottle of Coca-Cola available at a distant store has lesser value compared to when it
is available at a kiosk at a small distance.
Imagine the place utility created by small kiosks and roadside vendor partners in distribution of
cigarettes and cold drinks. Intermediaries are prime instruments of increasing attractiveness of a
product by making them available at convenient locations.
Another way an intermediary adds value is through creation of time utility. Production time and
consumption time may not always coincide. That is, a product may be manufactured at a point in
time that is different from its consumption time. By making products available at the time when
they are needed for consumption, intermediaries create time utility. For instance, stores that offer
medicines throughout the night create time utility.

Main Functions of Distribution Channel can be clubbed under following heads:

• Sorting: Middlemen obtain the supplies of goods from various suppliers and sort them
out into similar groups on the basis of size, quality etc.
• Accumulation:In order to ensure a continuous supply of goods, middlemen maintain a
large volume of stock.
• Allocation:It involves packing of the sorted goods into small marketable lots like 1Kg,
500 gms, 250 gms etc.
• Assorting:Middlemen obtain a variety of goods from different manufacturers and
provide them to the customers in the combination desired by them. For example, rice from
Dehradun & Punjab.
• Risk Taking:Middlemen have to bear the risk of distribution like risk from damage or
spoilage of goods etc. when the goods are transported from one place to another or when
they are stored in the god-owns.

10.3 Importance of Distribution Channel

Following are the major points of importance:

1. Timely Delivery of Products: This is one of the important function of distribution

channels. Distribution channel helps in the delivery of products to customers on the right
time. If products are not available at the right time to customers, it may disappoint him. It
has removed all distance barriers for businesses while performing their operations.
Distribution channels have made it possible for businesses to serve customers even at far
distant places.
2. Maintain Stock of Products:Distribution channel has an efficient role in maintaining
sufficient stocks of goods. It helps in maintaining the supply of goods as per the demands
in the economy. Distribution channels performs functions of storing the products in
warehouses & supplying them according to demand in the market. It avoids all cases of
shortage of supply of goods in market.
3. Provide Market Information :Distribution channel is served as the medium through
which business acquire all required information from the market. It takes all information
like demand, price & nature of competition in the market from its different intermediaries
involved in its distribution channel. Also, customers provide information & various
suggestions to producers through these channels. It helps in formulating strategies
according to that.

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4. Promotion of Goods: Distribution channels helps in marketing & promotion of

products. There are several middlemen’s who are involved in the distribution system of
businesses. These intermediaries inform the customers about the product. They introduce
them with new products & explain them to its specifications. Customers are induced &
motivated to buy these products by intermediaries. Hence, the distribution channel has an
efficient role in promotion & marketing of goods.
Provide Finance: Business gets financial assistance from the distribution channel.
Intermediaries involved in distribution channel buys goods in bulk from producers. These
intermediaries give payment to producers while purchasing. Then these middlemen sell
these goods to customers in quantities demanded by them. They even provide credit
facilities to the customers. However, producers get timely payment & are saved from
blocking of their funds through credit selling. Therefore distribution channel regulation
the funds’ movement of businesses.
5. Generate Employment:Distribution channel generates employment in the economy.
There are huge number of peoples who are involved in the distribution system of
businesses. These people are wholesaler, retailers & different agents. All these people earn
their livelihood through working in these distribution channels. Therefore, distribution
channels are creating employment opportunities for peoples.
6. Distribution of Risk: Risk is something which is associated with each & every business.
Distribution channels save the producers from the risk of delivering products to customers
safely & timely. It becomes the duty of intermediaries that are involved in the channel to
deliver it to customers timely. Producers focus only on their production activities & don’t
need to consider issues about delivering products

10.4 Types of distribution channels

At a higher level, distribution channels can be broken down, in direct channels, and indirect
channels. This primarily depends on how long is a chain between who makes the product and the
final consumer.
The number of steps it takes will make the distribution channel direct or indirect. Let’s visualize a
distribution chain to understand the difference between direct and indirect strategy:

Where in a direct distribution strategy a producer can access the consumer, in an indirect
distribution strategy, the producer will meet its consumer demands via third-parties wholesalers or
retailers.
Thus, a direct approach makes the value chain shorter and at the same time allows more control by
the producer on how the final customer experiences the product or service offered.
At the same time, a direct to consumer strategy is quite expensive and not always effective enough
to allow proper distribution. Therefore, companies often use a mixture of direct and indirect
distribution strategies, which determine their marketing mix.

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Between the direct-to-consumer and entirely indirect distribution strategy (where the producer sells
to a wholesaler), there are several indirect variations, based on how many steps it takes to reach the
final consumer and how long is the value chain.
Channels of distribution can be divided into the direct channel and the indirect channels. Indirect
channels can further be divided into one-level, two-level, and three-level channels based on the
number of intermediaries between manufacturers and customers.

Direct Channel or Zero-level Channel (Manufacturer to Customer)

Direct selling is one of the oldest forms of selling products. It doesn’t involve the inclusion of an
intermediary and the manufacturer gets in direct contact with the customer at the point of sale.
Some examples of direct channels are peddling, brand retail stores, taking orders on the company’s
website, etc. Direct channels are usually used by manufacturers selling perishable goods,
expensive goods, and whose target audience is geographically concentrated. For example, bakers,
jewellers, etc.

Indirect Channels (Selling Through Intermediaries)

When a manufacturer involves a middleman/intermediary to sell its product to the end customer,
it is said to be using an indirect channel. Indirect channels can be classified into three types:

• One-level Channel (Manufacturer to Retailer to Customer): Retailers buy the

product from the manufacturer and then sell it to the customers. One level channel of
distribution works best for manufacturers dealing in shopping goods like clothes, shoes,
furniture, toys, etc.
• Two-Level Channel (Manufacturer to Wholesaler to Retailer to
Customer): Wholesalers buy the bulk from the manufacturers, breaks it down into small
packages and sells them to retailers who eventually sell it to the end customers. Goods
which are durable, standardised and somewhat inexpensive and whose target audience isn’t
limited to a confined area use two-level channel of distribution.
• Three-Level Channel (Manufacturer to Agent to Wholesaler to Retailer to
Customer): Three level channel of distribution involves an agent besides
the wholesaler and retailer who assists in selling goods. These agents come handy when
goods need to move quickly into the market soon after the order is placed. They are given
the duty to handle the product distribution of a specified area or district in return of a
certain percentage commission. The agents can be categorised into super stockists and
carrying and forwarding agents. Both these agents keep the stock on behalf of the company.
Super stockists buy the stock from manufacturers and sell them to wholesalers and retailers
of their area. Whereas, carrying and forwarding agents work on a commission basis and
provide their warehouses and shipment expertise for order processing and last mile
deliveries. Manufacturers opt for three-level marketing channel when the userbase is spread
all over the country and the demand of the product is very high.

Dual Distribution
When a manufacturer uses more than one marketing channel simultaneously to reach the end user,
he is said to be using the dual distribution strategy. They may open their own showrooms to sell
the product directly while at the same time use internet marketplaces and other retailers to attract
more customers.
A perfect example of goods sold through dual distribution is smartphones.

Distribution Channels for Services

Unlike tangible goods, services can’t be stored. But this doesn’t mean that all the services are
always delivered using the direct channels.
With the advent of the internet, online marketplaces, the aggregator business model, and the on-
demand business model, even services now use intermediaries to reach to the final customers.

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The Internet as a Distribution Channel

The internet has revolutionised the way manufacturers deliver goods. Other than the traditional
direct and indirect channels, manufacturers now use marketplaces like Amazon (Amazon also
provide warehouse services for manufacturers’ products) and other intermediaries like aggregators
(Uber, Instacart) to deliver the goods and services. The internet has also resulted in the removal of
unnecessary middlemen for products like software which are distributed directly over the internet.

10.5 Factors Determining the Choice of Distribution Channels

Selection of the perfect marketing channel is tough. It is among those few strategic decisions which
either make or break a company.
Even though direct selling eliminates the intermediary expenses and gives more control in the
hands of the manufacturer, it adds up to the internal workload and raises the fulfilment costs.
Hence these four factors should be considered before deciding whether to opt for the direct or
indirect distribution channel.

Market Characteristics
This includes the number of customers, their geographical location, buying habits, tastes and
capacity and frequency of purchase, etc.
Direct channels suit businesses whose target audience lives in a geographically confined area, who
require direct contact with the manufacturer and are not that frequent in repeating purchases.
In cases of customers being geographically dispersed or residing in a different country,
manufacturers are suggested to use indirect channels.
The buying patterns of the customers also affect the choice of distribution channels. If customers
expect to buy all their necessaries in one place, selling through retailers who use product
assortment is preferred. If delivery time is not an issue, if the demand isn’t that high, the size of
orders is large or if there’s a concern of piracy among the customers, direct channels are suited.
If the customer belongs to the consumer market, longer channels may be used whereas shorter
channels are used if he belongs to the industrial market.
Understanding consumer behavior is essential for deciding the most effective marketing channel
for the business.

Short Channels Long Channels

The offering is targeted to consumers and non-

The offering is targeted to business users.
business users.

The customers are geographically

The customers are geographically dispersed.
concentrated.

Customers require extensive technical Customers don’t require extensive technical

knowledge. knowledge.

Regular servicing is required for the offering to Regular servicing is not required for the offering to
operate. operate.

The order quantity is large. The order quantity is small.

Product Characteristics
Product cost, technicality, perishability and whether they are standardised or custom-made play a
major role in selecting the channel of distribution for them.

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Perishable goods like fruits, vegetables and dairy products can’t afford to use longer channels as
they may perish during their transit. Manufacturers of these goods often opt for direct or single
level channels of distribution. Whereas, non-perishable goods like soaps, toothpaste, etc. require
longer channels as they need to reach customers who reside in areas which are geographically
diverse.
If the nature of the product is more technical and the customer may require direct contact with the
manufacturer, direct channels are used. Whereas, if the product is fairly easy to use and direct
contact makes no difference to the number of sales, longer channels are used.
The per unit value of the product also decides whether the product is sold through a direct channel
or through an indirect channel. If the unit value is high like in the case of jewellery, direct or short
channels are used, whereas products like detergents whose unit value is low use longer channels of
distribution.

Short Channels Long Channels

Product is perishable. Product is durable.

Product is complex. Product is standardised.

Product is expensive. Product is inexpensive.

Competition Characteristics
The choice of the marketing channel is also affected by the channel selected by the competitors in
the market. Usually, the firms tend to use a similar channel as used by the competitors. But some
firms, to stand out and appeal to the consumer, use a different distribution channel than the
competitors. For example, when all the smartphones were selling in the retail market, some
companies partnered with Amazon and used the scarcity principle to launch their smartphone
as Amazon exclusive.

Short Channels Long Channels

The competitor uses the direct channels and the The competitor uses the indirect channels and the
manufacturer is satisfied with its performance. manufacturer is satisfied with its performance.

The competitor uses indirect channels and the The competitor uses the direct channel and the
manufacturer thinks choosing short channels manufacturer thinks choosing indirect or long
would be more beneficial. channels would be more beneficial.

Company Characteristics
Financial strength, management expertise, and the desire for control act as important factors while
deciding the route the product will take before being available to the end user.
A company having a large amount of funds and good management expertise (people who have
sufficient knowledge and expertise of distribution) can create the distribution channels of its own
but a company with low financial stability and management expertise has to rely on third-party
distributors.
The companies who want to have tight control over the distribution prefer direct channels.
Whereas, those companies to whom such control doesn’t matter or those who are just interested in
the sales of their products prefer indirect channels.

Short Channels Long Channels

Company believes that it’s important to control Company believes that channel control isn’t
the channels. important.

Company has a broad product line. Company has a narrow product line.

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Short Channels Long Channels

Company has adequate resources to perform Company lacks adequate resources to perform
channel functions. channel functions.

For instance, in the scenarios in which a producer sells to a wholesaler, the wholesaler sells to
retailers, who reach the final consumers. However, in some other cases, the distribution channels
might be shorter.
A manufacturer may plan to sell his/her products either directly or indirectly to the customers.
In case of indirect distribution, a manufacturer has again an option to use a short channel consisting
of few intermediaries or involve a large number of middlemen to sell his/her goods.
Therefore, there are various forms of channel networks having different number and types of
middlemen.

10.6 Motivating Channel Members

Marketing channel/trade channel/distribution channel are sets of independent organizations
involved in the process of making a product/services available for use or consumption.
They are a set of pathways a product/service follows after production culminating in purchase and
use by the final end user. Channel members are the people or intermediaries through which goods
and services go through before they reach the consumer.
Intermediaries can be –wholesalers, retailers, brokers and sales agent etc.

Finding Out the Needs and Problems of Channel Members

Before the channel manager can successfully motivate channel members, an attempt must be made
to learn what the members want for the channel relationship. Manufacturers are often unaware of
or insensitive to the needs and problems of their channel members.
Marketing Channels Approaches for Learning about Channel Member Needs and Problems All
marketing channels have a flow of information running through them as part of the formal and
informal communications systems that exist in the channel. Ideally, such systems would provide
the manufacturer with all of the information needed on channel member needs and problems.
However, most marketing channel communication systems have not been formally planned and
carefully constructed to provide a comprehensive flow of timely information. Consequently, the
channel manager should not rely solely on the regular flow of information coming from the existing
channel communication system for accurate and timely information on channel member needs and
problems.
There is a need to go beyond the regular system and make use of one or all of the following four
additional approaches.
A) Research Studies of Channel Members Most manufacturers never conduct research of
channel member needs and problems. Estimates indicate that less than one percent of
manufacturers’ research budgets are spent on channel member research.

B) Research Studies by Outside Parties Research designed and executed by a third party is
sometimes necessary if complete and unbiased data on channel member needs and problems are to
be obtained. The use of outside parties to conduct research on channel member needs and problems
provides higher assurance of objectivity.

C) Marketing Channel Audits The basic thrust of this approach should be to gather data on
how channel members perceive the manufacturer’s marketing program and its component parts,
where the relationships are strong and weak, and what is expected of the manufacturer to make the
channel relationship viable and optimal. For example, a manufacturer may want to gather data
from channel members on what their needs and problems are in areas such as:
 Pricing policies, margins, and allowances

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 Extent and nature of the product line

 New products and their marketing development through promotion
 Servicing policies and procedures such as invoicing, order dating, shipping, warehousing and
others
 Sales force performance in servicing the accounts Further, the marketing channel audit should
identify and define in detail the issues relevant to the manufacturer–wholesaler and/or
manufacturer–retailer relationship.
Whatever areas and issues are chosen, they should be cross-tabulated or correlated as to kind of
channel members, geographical location of channel members, sales volume levels achieved, and
any other variables that might be relevant. Finally, for the marketing channel audit to work
effectively, it must be done on a periodic and regular basis so as to capture trends and patterns.
Emerging issues are more likely to be spotted if the audit is performed on a regular basis.

D) Distributor Advisory Councils Three significant benefits emerge from the use of a
distributor advisory council. First, it provides recognition for the channel members. Second, it
provides a vehicle for identifying and discussing mutual needs and problems that are not
transmitted through regular channel information flows. And third, it results in an overall
improvement of channel communications, which in turn helps the manufacturer to learn more
about the needs and problems of channel members, and vice versa.

Channel Support:
Offering Support to Channel Members Support for channel members refers to the manufacturer’s
efforts in helping channel members to meet their needs and solve their problems. Such support for
channel members is all too often offered on a disorganized and ad hoc basis. The attainment of a
highly motivated cooperating “team” of channel members in an interorganizational setting requires
carefully planned programs. Such programs can generally be grouped into one of the following
three categories:
(1) cooperative,
(2) partnership or strategic alliance, and
(3) distribution programming.
1) Cooperative Arrangements Cooperative arrangements between the manufacturer and
channel members at the wholesale and retail levels have traditionally been used as the most
common means of motivating channel members in conventional, loosely aligned channels. The
underlying rationale of all such cooperative programs, from the manufacturer’s point of view, is to
provide incentives for getting extra effort from channel members in the promotion of the products.
2) Partnerships and Strategic Alliances Partnerships or strategic alliances stress a continuing
and mutually supportive relationship between the manufacturer and its channel members in an
effort to provide a more highly motivated team, network, or alliance of channel partners. Webster
points to three basic phases in the development of a “partnership” arrangement between channel
members.
 An explicit statement of policies should be made by the manufacturer in such areas as product
availability, technical support, pricing and any other relevant areas.
 An assessment should be done of all existing distributors as to their capabilities for fulfilling their
roles.
 The manufacturer should continually appraise the appropriateness of the policies that guide his
or her relationship with channel members. Webster’s basic guidelines can be used for establishing
partnerships or strategic alliances in marketing channels. 3) Distribution Programming Key Term
and Definition
 Distribution programming: “A comprehensive set of policies for the promotion of a product
through the channel.” The essence of this approach is the development of a planned, professionally
managed channel.
The first step in developing a comprehensive distribution program is an analysis by the
manufacturer of marketing objectives and the kinds and levels of support needed from channel
members to achieve these objectives.

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Further, the manufacturer must ascertain the needs and problem areas of channel members.
Nevertheless, virtually all of the policy options available can be categorized into three major
groups:
a. Those offering price concessions to channel members
b. Those offering financial assistance
c. Those offering some kind of protection for channel members Providing Leadership to Motivate
Channel Members Control must still be exercised through effective leadership on a continuing basis
to attain a well-motivated team of channel members. Seldom is it possible for the channel manager
to achieve total control, no matter how much power underlies his or her leadership attempts. For
the most part, a theoretical state, where the channel manager were able to predict all events related
to the channel with perfect accuracy, and achieve the desired outcomes at all times, does not exist
or is not achievable in the reality of an interorganizational system such as the marketing channel.

Summary
Distribution channels may vary depending on a particular manufacturer’s product type and their
sales targets. It is why it is pivotal to choose the right distribution channel.
The following factors must be looked at into detail by a company in order to determine which
distribution method would be ideal for it to maximize profit generation via sales, value addition,
and consumer reach:

• Market characteristics
• Product characteristics
• Competitor characteristics
• Company characteristics

Keywords
Distribution Channel , Retailers , wholesalers, Distributors, competitors, channel support, powers

Answers for Self Assessment

1. The ___________refers to the path or route through which product moves from producer to

ultimate customer.

A. Channel of Distribution
B. Distribution Network
C. Network
D. None of the above

2. Functions of distribution Channels are :

A. Sorting
B. Accumulation
C. Allocation
D. All the above

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3. Middlemen obtain a variety of goods from different manufacturers and provide them to the

customers in the combination desired by them. This is known as :

A. Assorting
B. Allocation
C. Accumulation
D. Sorting

4. Importance of Distribution Channel is:

A. Timely Delivery of Products

B. Maintain Stock of Products
C. Provides Market Information
D. All the above

5. All the above An Institution that buys goods from manufacturers, takes title to goods, stores

them and resells and ships them.

A. Retailer
B. Merchant Wholesaler
C. Distributor
D. Stockist

6. Retailers Role are:

A. Wide Choice to consumers

B. Availability of goods in small quantities
C. Home delivery
D. All the above

7. Factors Determining Choice of Channel of Distribution are:

A. Product Related Factors

B. Company Characteristics
C. Competitive Factors
D. All the above

8. _____________ such as economic conditions and legal regulations also play a vital role in

selecting channels of distribution.

A. Environmental factors
B. Economic Factors
C. Technological factors
D. Socio Cultural factors

9. Intermediaries can be :

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A. Wholesalers
B. Retailers
C. Brokers
D. All the above

10. Importance of Intermediaries are:

A. Information
B. Promotion
C. Contact
D. All the above

11. To stimulate channel members to bring their best company should understand their

________ and _________-.

A. Needs and Wants

B. Cost and Price
C. Demand and Cost
D. Market and suppliers

12. Intermittent interactions between manufacturer and channel members, this is which means

to motivate Channel Members.

A. Cooperative arrangements
B. Partnership and Strategic Alliances
C. Distribution Programming
D. None of the above

13. Facilities provided to retailers in cooperative arrangements are:

A. Demonstrations
B. Free Goods
C. Payment for window Display
D. All the above

14. Manufacturer should make ____ statement of policies in areas such as product availability,

technical support, pricing etc.

A. Clear
B. Strong
C. Visible
D. Vague

15. __________defined as the ability to alter channel members behavior so that they take actions

they would not have taken otherwise

A. Power
B. Position

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C. Channel Power
D. None of the above

16. ________power can be effective but its exercise produces resentment and can generate

conflict among the parties.

A. Coercive Power
B. Reward Power
C. Legitimate Power
D. Expert Power

Answers for Self Assessment

1. A 2. D 3. A 4. D 5. B

6. D 7. D 8. A 9. D 10. D

11. A 12. A 13. D 14. A 15. C

16. A

Review Questions
1. Discuss the importance and relevance of Distribution Channel
2. Elaborate main functions of Distribution channel
3. Elaborate the types of Distribution channel available in India and why the different
channels are required?
4. How are distributors and retailers motivated by organizations?
5. Discuss various types of powers used by organizations to motivate middlemen?

Further Readings
Hoque, Z. (2003) Strategic Management Accounting, 2nd edition, Pearson Prentice Hall.

Porter, M.E. (1985) "Technology and Competitive Advantage", Journal of Business

Strategy, Vol. 5, No. 3, pp.60 – 78

Cokley, K., Caldwell, L., Miller, K., & Muhammad, G. (2001). Content analysis of the
Journal of Black Psychology (1985- 1999). Journal of Black Psychology, 27, 424-438.

Furrer, O., Thomas, H., & Goussevskaia, A. (2008). The structure and evolution of the
strategic management field: A content analysis of 26 years of strategic management
research. International Journal of Management Reviews, 10, 1-23.

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Dr. Pretty Bhalla, Lovely Professional University Unit 11:Distribution Planning

Unit 11: Distribution Planning

CONTENTS
Objectives
Introduction
11.1 Basis for Channel Management Decision
11.2 Channel Management Decisions:
11.3 Evaluating Channel Members
11.4 Modifying Channel Arrangements
11.5 Logistics
11.6 Market Logistics Objectives and Decisions:
11.7 Channel Integration
Summary
Keywords
Self Assessment
Answers for Self Assessment
Review Questions
Further Readings

Objectives
• understand decisions Involved in Setting up the Channel and Strategies adopted to manage
Channel
• understand Distribution Logistics – its Concept, Importance and Major Logistics Decisions.
• understand Channel Integration and Systems,
• analyze the Ethical Issues in Distribution Decisions.

Introduction
Whether a firm be a one-person operation or one that employs thousands of people and generates
billions in sales, all are in business to serve the needs of markets. In order to do this, these firms
must be assured that their products are distributed to their intended markets. Most producing and
manufacturing firms are not in a favourable position to perform all the tasks that would be
necessary to distribute their products directly to their final user markets. In many instances, it is the
expertise and availability of other channel institutions that make it possible for a
producer/manufacturer to even participate in a particular market. Other channel members can be
useful to the producer in designing the product, packaging it, pricing it, promoting it, and
distributing it through the most effective channels.
Channel choice begins with two questions: to whom shall we sell this merchandise immediately?
And, who are our ultimate users and buyers? The immediate and ultimate customers may be
identical or quite separate, depending on the type of product, functions performed in the channel,
and location in the channel. There is a need to know what the customer needs, where they buy,
when they buy, why they buy from certain outlets, and how they buy. It is best that we first
identify the traits of the ultimate user, since the results of this evaluation might determine the other
channel institutions we would use to meet these needs. For example, the buying characteristics of
the purchaser of a high-end electronics device might be as follows:
Purchased only from a well- established, reputable dealer.

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Purchased only after considerable shopping to compare prices and merchandise characteristics.
Purchaser willing to go to some inconvenience (time and distance) to locate the most acceptable
brand.
Purchased only after extended conversations involving all interested parties – including dealer,
users, and purchasers.
Purchase may be postponed.
Purchased only from a dealer equipped to render prompt and reasonable product service.
Knowing the buying specifications of consumers, the channel planner can decide on the type or
types of wholesalers and/or retailer through which a product should be sold. This requires that a
manufacturer contemplates distribution through particular types of retailers become intimately
familiar with the precise location and performance characteristics of those being considered.
In much the same way that buying specifications of ultimate users are determined, the
manufacturers must also discover buying specifications of resellers. Of particular importance is the
question, “from whom do my retail outlets prefer to buy? ” The answer to this question determines
the type of wholesaler – if any – that the manufacturer should use. Although many retailers prefer
to buy directly from the manufacturers, this is not always the case. Often, the exchange
requirements of manufacturers – e.g., infrequent visits, large order requirements, and stringent
credit terms – are the opposite of those desired by retailers. Such retailers would rather buy from
local distributors who have lenient credit terms and offer a wide assortment of merchandise.
Channel choice is also greatly influenced by channel objectives. Channel objectives are based on the
requirements of the purchasers and users, the overall marketing strategy, and the long-run goals of
the corporation. In cases when a company is just getting started, or an older company is trying to
carve out a new market niche, the channel objectives may be the dominant force on channel choice.
The following areas encompass the major categories of channel objectives:
Growth in sales – by reaching new markets and/or increasing sales in existing markets.
Maintenance or improvement of market share – educate or assist channel components in their
efforts to increase the amount of product they handle.
Achieve a pattern of distribution – structure the channel in order to achieve certain time, place, and
form utilities.
Create an efficient channel – improve channel performance by modifying various flow
mechanisms.
After the distribution objectives are set, it is appropriate to determine the specific distribution tasks
or functions to be performed in that channel system. The channel manager must be very specific in
describing the tasks and must define how these tasks will change depending upon the situation. An
ability to do this requires the channel manager to evaluate all phases of the distribution network.
Tasks must be identified fully, and costs must be assigned to these tasks.

11.1 Basis for Channel Management Decision

Marketing channel intensity takes into account both the variance and number of channels an
organization may use to deliver goods and services to consumers.

Channel Distribution Intensity

As organizations develop their marketing channel strategies, an important question arises
regarding distribution intensity. There is some freedom in most industries for a firm to determine
which channels they will use, and how much volume each channel will receive. Weighing the pros
and cons of various channels, both in terms of the number of channels and the volume within each
channel, can have a significant strategic impact on a firm’s position in a market.
Generally, there are three ways to frame the distribution intensity decision:

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Intensive
This is the highest in both number of channels and volume within each channel. An intensive
distribution approach will take advantage of as many sales outlets, distributors, and direct selling
opportunities the organization can identify and justify (at a given volume). This is common for
goods such as soda, snacks, household items, and other common low-cost goods. In short, many
channels and high volume.

Selective
Selective distribution focuses on narrowing down the number of channels within the distribution
strategy, but not the overall volume of goods sold through those channels. This strategy focuses on
fewer channels yet retains a desire for higher volumes to capture scale economies in production.
Common channels in these circumstances are channels where the firm can maintain strategic
control of how the products are sold, at what price, and in which regions.

Exclusive
Finally, some firms opt for a low volume approach with very few channels selected. This is ideal for
differentiated organizations with a strong brand and a desire for scarcity. If everyone had the same
high fashion item, it would no longer be a high fashion item. If everyone on the road had a
beautiful, unique sports car, much of the allure and justification for a high price point would be
gone. Exclusive distribution strategies work best for firms that focus on low volume, high margin
sales.

Technology and Channels

Technology has disrupted some of the logic behind these channel decisions, as digital storefronts
have grown to be highly influential, easily accessible to global markets, and substantially cheaper
than retail space. As the rise of digital purchasing continues, and the cost of shipping decreases,
globalization will drive organizations more and more towards channel strategies that optimize
online exposure.
Considering the vastness of the internet, however, being found by consumers who are not yet
aware of your product becomes difficult. This creates an interesting relationship, similar to the
retail relationship in traditional channel marketing, whereas certain digital storefronts are highly
valuable strategic partners. Amazon, for example, sells a huge number of brands on their website.
Being highly rated and promoted on Amazon will greatly increase the efficacy of that particular
channel. Understanding how online marketplaces work, and how to build a presence in this new
digital age, is a critical skill set for a strategic marketer looking at channel strategy.

11.2 Channel Management Decisions:

Once the channel is selected after careful evaluation, the channel manager should develop channel
management strategy for the selected channels. The channel management decisions involve
selection, training, motivation, evaluation and modification of channel members

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Selection of Channel Members:

The ability to recruit and use intermediaries varies from producer to producer. Some powerful
brand owners can always go for stronger distributors and deeper distribution. New producers
often find it difficult to include their product assortments with established retailers. The marketing
managers should identify what characteristics distinguish better intermediaries. Selecting
marketing channels can be a complicated process, particularly if part of the channel is outside the
producer’s direct control. In addition, there is not an endless supply of available intermediaries
sitting around waiting for producers to give them a call. The elements that managers examine as
they define channel strategies can be grouped into market factors, product factors and producer
factors
Market Factors Analyzing and understanding the target market is the first step in selecting
marketing channels. There are several factors that an analysis of the market should explore, ranging
from customers to types of competitive presence.
1. Customer Preferences: The channel, which is more preferred by customers.
2. Organizational Customers: Organizational customers frequently have buying habits that are
different from those of other consumers.
3. Geography: Customer location is another important factor, determining the type of channel to be
used.
4. Competitors: Often a good channel choice is a channel that has been overlooked or avoided by
competitors. In some cases, the marketer may try to duplicate his competitors’ channel in order to
have his products end up on store shelves meant for competitors’ products. Product Factors Even
products that end up at the same retail location may need different intermediaries earlier in the
channel.
Following are the product related factors that influence the channel selection decision.
1. Life Cycle: A product category’s stage in the life cycle can be an important factor in selecting a
channel, and channels may have to be adjusted over time. Customers require less support once the
product has established itself.
2. Product Complexity: Some products are so complicated and require so much support that
producers need to stay closely involved. This indicates either a direct sales force or a limited
number of highly qualified intermediaries. Scientific equipments, jet aircraft, nuclear reactors,
pharmaceuticals, and computers are products whose complexity affects the way in which they are
marketed.
3. Product Value: Value of the product also affects distribution channel choices. Items with low cost
and high volume are usually distributed through large, well-established distribution networks,
such as grocery wholesalers.
4. Product Size and Weight: A product with significant size and weight can face restricted
distribution channel options, particularly if it is also of low value.
5. Consumer Perceptions: The perceptions customers have of products and producers also play a
role in channel decision.
6. Other Factors: Depending on the product in question, other factors may enter into the decision as
well. Some of these include whether a product is fragile or perishable and whether or not it requires
significant customization.
Generally all the companies advertise through newspapers and trade magazines to look out for
channel partners. If the company is known and successful, it becomes quite easy for the company to
find them. But in the case of a new company launching a new product, then finding a channel
partner can be tough. In both the cases, the parameters for choosing a channel partner should be
very clear for the company as well as the channel partner.

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Producer/Manufacturer Factor

Finally, there are several selection factors that involve the producers themselves. Following are the
producer factors influencing channel selection:
1. Company Objective: The overall objective of a company influences its marketing channel
choice.
2. Company Resources: Various distribution options require different levels of resources and
investment.

3. Desire for Control: The need to control various aspects of the marketing process influences a
producer’s selection of the channel system. This control can encompass pricing, positioning, brand
image, customer support and competitive presence.
4. Breadth of Product Line: Producer with several products in a related area faces a channel
situation that is different from those with one or two products

Training of Channel Members

The next important task is to train the channel members. This is because once appointed;
intermediaries become internal customers for the firm. Secondly, in many instances intermediaries
represent the company and its products to the consumers. The training programs can be on selling
skills, on business processes and other soft skills required to serve the end customer. The training
programs should cover customer contact and interaction management, selling skills, relationship
building skills and business development skills. The company should undertake a continuous
training calendar for its employees

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Motivation Channel Members

Channel motivation involves developing compensation management programs and also giving
non-fringe benefits for building long-term loyalty. The idea of developing a channel motivational
program is to build their capability to perform better and take additional responsibility. It should
also improvise its channel offering to provide superior value to consumers and channel members.
The marketing manager should understand his need and then design motivational programs to
stimulate peak level performance. The relationship should be developed based on mutual
cooperation, trust and scientific distribution programming. The most challenging aspect is gaining
intermediaries’ cooperation for which one needs to use positive motivational tools like higher
margins, cash discounts, quantity discounts, cooperative advertising, advertising allowances and
point of purchase displays. Many marketing managers also use negative tools, like slowing down
of distribution, reduction in cash allowance and credit period to threaten them to commit for higher
sales.
A company should make use of the following strategies for motivating intermediaries.

1. Relationship Marketing: Relationship starts on the premise that in a variety of products,

mass marketing has run its course, and those conventional methods of advertising are not
delivering the kind of results they are supposed to. Here companies like Tupperware, Avon,
Amway, Modi Care do not distribute their products through the traditional distribution
system. Relationship marketing puts stress on company’s relation with the distributor. A good
relationship with the distributor will create long-term relations and improve the sales.
2. Benefit and Costs Offered to Intermediaries: The company should offer various benefits
to a distributor. These, as well as reimbursement of expenses, will create a positive impact on
the distributor. The company can offer the following benefits to a distributor:
(a) Reduction in the amount of capital employed by the distributor.
(b) Lower operating costs
(c) Availability of specialist services
(d) Reduction of overall risk
(e) Customer finance schemes
(f) Increased sales promotion
3. Co-operative Programs: Co-operative approach is a traditional method of motivating the
intermediaries. Co-operative approach allowances, training sale people, payment for displays,
free goods, commission on extra sales, etc. These programs will help increase the sales of
intermediaries.
4. . Distributor Advisory Councils (DAC ): In this method, a council of distributors is
formed which gives the opinion of distributors to the company. Normally, in these councils,
top management discusses its problems with channel members. DAC results in an overall
improvement of channel communication and helps the manufacturer to learn more about the
needs and problems of his channel members.

11.3 Evaluating Channel Members

The next task is to evaluate the performance of channel members on periodic basis. The marketing
manager may set up standard evaluation bench marks like sales quota, market share, average
inventory carrying level, customer response and delivery time, usage and management of unused,
unusable and damaged goods and cooperation in sales promotion and channel employee training
programs organized by the company. While the company should reward the exceptions, it should
also guide, goad, re-motivate and terminate the underperformers. It should see that the
intermediaries are able to achieve the Economic Order Quantity (EOQ) in their transactions with
the company. The company should ensure that the inventory level, the accounts receivables and

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cash management is proper and there is a sustained commitment from the intermediaries towards
organization’s products and services.

11.4 Modifying Channel Arrangements

Management of distribution channel is a continuous and dynamic process. We have
mentioned in the beginning that channel structure and levels emerge as the organization
grows over a period of time. As it changes its strategies from exclusive distribution to
selective distribution and finally to intensive distribution, the structure and nature of the
distribution channel will change. This change is to take care of market expansion, new
product launch, brand extension, and addition of new products to the company’s existing
product line. The modification of the channel structure is also linked with the life cycle
stage of the product.

In the case of a new product, which has no close substitute, the marketing manager tries to
establish an exclusive distribution at the introductory stage. But as the market expands,
the manager may cover larger territories by following an intensive distribution at the
growth stage of the product life cycle. As the product moves to the maturity stage, many
managers shift the products to low cost channels and follow mass merchandise. In the
decline stage of a product, lower cost channels like mail orders, off price discounts are
followed. In markets where there is not much product differentiation between the new
product and its close substitutes, the marketing Notes manager will prefer rapid adoption
and cover a deeper and larger market through low cost channels before the competitors
start doing aggressive marketing.

In many instances, the overall channel strategy becomes obsolete due to emergence of
new paradigms and path breaking business strategies. In these situations, it is difficult to
get top management support to radically change the distribution strategy. Due to the
emergence of e-commerce, many companies had trouble in developing an ideal
distribution strategy to satisfy customer’s service expectations. The marketing manager
should follow a six-step approach to keep their distribution strategy perfect at any point of
time.

1. The marketing manager should research customer’s value perception, needs and desires
regarding service expected from the channel members
2. Compare and contrast the existing distribution system of the company, with its
competitors with respect to customer requirements
3. Find out the service output gaps that need immediate attention for correction
4. Identify the organizational and market based constraints that will limit possible
corrective actions
5. Develop a new/modified channel solution
6. Implement and monitor the modified distribution channel.

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When Intex started their operations in 1996, they had just one product – Ethernet card. Now the
product has expanded to 26 product groups with more than 300 stock keeping units. Now their
marketing channel consist of 2 mother warehouses, 2 regional offices, 28 branches, 57 service
centres, 183 service franchises and more than 2000 channel partners.
Similarly with the growing usage of Internet, all the retailers are trying to follow a brick and click
model, where they sell their merchandise in their stores and they sell it online also. Kishore Biyani’s
Future group is a good example of the same.
They target their customers through a brick model with Big Bazaar, Pantaloons, E-Zone, Home
Town etc. and follow the customers online through their click model i.e. www(dot)future
bazaar(dot)com and www(dot) ezone online(dot)com .
From time to time, a company needs to track the changes in the market and on this basis; they need
to modify their channel members.

11.5 Logistics
Logistics management is basically an integrative process that optimizes the flow of materials and
supplies through the organization and its operations to the customer.
Logistics function is to support corporate goals by delivering products to the consumer at a time
and place of his choosing.
Logistics has always been a central and essential feature of all economic activities. The concept of
logistics as an integrative activity in business has developed within the last twenty years. Logistics
management is a process of strategically managing the movement and storage of materials, parts
and finished inventory from supplier through the firm and on to customers.
Logistics is thus concerned with the management of physical distribution of material. It begins
from sources of supply and ends at the point of consumption. It is, therefore, much wider in its
reach than simply a concern with the movement of finished goods – a commonly held view of
physical distribution. Logistics deals with all activities that facilitate product flow from the point of
raw material acquisition to the point of final consumption as well as the information flow that set
the production in motion for the purpose of providing adequate levels of customer service at a
reasonable cost.
Logistics management involves two issues namely, movement of raw materials to the plant known
as physical supply or material management and second, flow of finished products from the plant to
the customers, known as physical distribution. Supply chain management starts from the supplier
of raw materials, then conversion at factory into finished products, storage at warehouses, and
finally, supply to distribution channels to meet the demand of end-user for a finished product at an
acceptable cost and service level. Physical distribution starts in a forward movement of goods from
the company’s production facility to end-user, and supply chain management starts before physical
distribution.
Some authors view logistics as the transporting, sorting, and handling of goods to match target
Notes customers’ needs with a company’s marketing mix – within individual companies and along
a channel of distribution. Thus, logistics represents the value chain of a company, the starting point
is the procurement and at the end of the chain is the customer. Logistics management includes both
materials management and physical distribution. More and more companies are realising the
importance of managing the entire supply chain rather than just transportation and warehousing
decisions alone. The focus of managing supply chain is on removing inefficiencies and hurdles in
meeting customer demand at the time when it occurs.
Physical distribution of organisation starts at the factory and ends with the customer. Supply Chain
Management (SCM), is a broader concept, which starts before physical distribution and involves
procuring the right inputs, converting them efficiently into finished products and dispatching them
to the final customers. A company works through a value network that includes suppliers, its
supplier’s supplier, its immediate customers and their end customers. Market logistics involves
planning the infrastructure to meet demand, then implementing and controlling the physical flows
of materials and final goods from point of origin to the customer points, while generating a surplus.
Market logistics planning has four steps:
1. Deciding on the company’s value proposition to its customers.

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2. Deciding on the best channel design and network strategy for reaching the customers.
3. Developing operational excellence in sales forecasting, warehouse management, transportation
management and materials management.
4. Implementing the solution with the best information systems, equipment, policies and
procedures.
Market Logistics Decisions:
Four major decisions are:
1. Order processing: How should orders be handled?
2. Warehousing: Where should stocks be located?
3. Inventorying: How much stock should be held?
4. Transportation: Where should stocks be finally sent

11.6 Market Logistics Objectives and Decisions:

Some of the major market logistics objectives of a company are as follows:
(a) Logistics Decisions
(b) Market Logistics and Cost
(c) Market Logistics Decisions.
Many companies state their market logistics objectives as “getting the right goods to the right
places at the right time for the least cost.” This means a market logistics system has to
simultaneously provide maximum customer service at the minimum distribution cost.

a) Logistics Decisions:
Market logistics activities involve strong trade-offs, decisions must be made on a total system basis.
Customers are interested in on-time delivery, suppliers desire to meet emergency needs and also
have willingness to take back defective goods and re-supply them quickly at their costs. A company
must then research the relative importance of these service outputs. For example, for a photo copier
machine, the least service-repair time is very important.
Xerox Corporation, USA, have developed a service-delivery standard that put a defective machine
anywhere in USA back into operation within 3 hours of receiving the complaint. In this case, the
company has to consider the competitors’ service standards and either match with this standard or
exceed the competitor’s service level, with the objective of maximizing profits, and not sales.

b) Market Logistics and Cost:

Let us consider, a machine manufacturer has established the following service standards:
i. To deliver at least 95 percent of the dealer’s orders within 7 days of order receipt.
ii. To fill the dealer’s orders with 99 percent accuracy.
iii. To answer dealer inquiries on orders with 99 percent accuracy.
iv. To answer that damage to merchandise in transit does not exceed one percent.

(c) Market Logistics Decisions:

Four major decisions must be made with regard to market logistics:
(i) How should orders be handled? (Order Processing).
(ii) Where should stocks be located? (Warehousing).
(iii) How much stock should be held? (Inventory).
(iv) How should goods be shipped? (Transportation).

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11.7 Channel Integration

Channel integration is essentially the idea of combining efforts across different customer
channels such as: Industry experts define channel integration as either the physical or the logical
"integration" of channels, or, in other words, the practice of creating consistent messaging and
utility across all of these channels.
Distribution channels don’t stand still. We’ll look at the recent growth of vertical, horizontal, and
multichannel marketing systems. After considering some e-commerce and m-commerce issues, we
next examine how these systems cooperate, conflict, and compete.

Horizontal Marketing Systems

The channel development is the horizontal marketing system, in which two or more unrelated
companies put together resources or programs to exploit an emerging marketing opportunity. Each
company lacks the capital, know-how, production, or marketing resources to venture alone, or it is
afraid of the risk. The companies might work together on a temporary or permanent basis or create
a joint venture company. For example, many supermarket chains have arrangements with local
banks to offer in-store banking. Citizens Bank has more than 500 branches in supermarkets, making
up roughly one-third of its branch network. Citizens’s staff members in these locations are more
sales oriented, younger, and more likely to have some retail sales background than staff in the
traditional brick-and-mortar branches.
Joining of two or more corporations on the same level for the purposes of pursuing a new
marketing opportunity.
Established to make use of combined resources . Bring synergy effect.
Ex: Nestle & coke In Europe
Collaboration under this market system takes place in following ways: –
Two or more Manufacturers- This collaboration is made with the objective of efficient
utilization of all scarce resources.
Two or more Wholesalers- It is done with the motive of covering a wider area for distributing
goods and services.
Two or more Retailers- Retails collaborates with one another for providing products in a
particular area in bulk quantities.

Fiat brand in India was earlier represented through a joint venture company called Fiat India
Automobiles Pvt Ltd., FIAPL (Name changed to Fiat India Automobiles Ltd., FIAL later) founded
in the year 1997 with Fiat S.p.A. and Tata Motors as the two partners coming together to produce
cars for both brands in a plant set up through joint investments
Johnson and Johnson, a reputed healthcare company has joined hands with Google. The
collaboration is done with the aim of having a robotic-assisted surgical platform. It will enable in
enhancing the overall quality of health-care services by integration of advanced technologies.

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Nike and Apple, both of these big brand have associated with each other for producing such as
advanced footwear of Nike+ in which apple iPod can be connected. Shoe will play music and along
with it display all information such as calories burned, distance covered and heart pace on iPod
screen.

Advantages of HMS:

✓ HMS of related business allows them to achieve economies of the scale by selling more of
the same product through geographic expansion.
✓ It includes economies of the scope through synergies achieved by sharing of resources
common to different products, reduction in the cost of international trade by operating
factories in foreign countries.

Vertical Marketing Systems

A conventional marketing channel consists of an independent producer, wholesaler(s), and
retailer(s). Each is a separate business seeking to maximize its own profits, even if this goal reduces
profit for the system as a whole. No channel member has complete or substantial control over other
members.
The concept behind vertical marketing systems is quite similar to vertical integration. In vertical
integration, a company assumes control over several of the production steps in the creation of its
product or service in a particular market. In other words, companies purchase a part of the
production or sales process that was previously outsourced to get it done in-house.
A vertical marketing system (VMS), by contrast, includes the producer, wholesaler(s), and
retailer(s) acting as a unified system. One channel member, the channel captain, sometimes called a
channel steward, owns or franchises the others or has so much power that they all cooperate.
Stewards accomplish channel coordination without issuing commands or directives by persuading
channel partners to act in the best interest of all.
A channel steward might be the maker of the product or service (Procter & Gamble or American
Airlines), the maker of a key component (microchip maker Intel), the supplier or assembler (Dell or
Arrow Electronics), or the Urban Outfitters carefully studied the European market to ensure its
blend of fashion merchandise would appeal to consumer tastes Within a company, stewardship
might rest with the CEO, a top manager, or a team of senior managers
Channel stewardship has two important outcomes. First, it expands value for the steward’s
customers, enlarging the market or increasing existing customers’ purchases through the channel.
Second, it creates a more tightly woven and yet adaptable channel in which valuable members are
rewarded and the less valuable are weeded out.
VMSs arose from strong channel members’ attempts to control channel behavior and eliminate
conflict over independent members pursuing their own objectives. These systems achieve
economies through size, bargaining power, and elimination of duplicated services. Business buyers
of complex products and systems value the extensive exchange of information they can offer.60
VMSs have become the dominant mode of distribution in the U.S. consumer marketplace, serving
70 percent to 80 percent of the market. There are three types: corporate, administered, and
contractual.

Corporate VMS A corporate VMS combines successive stages of production and distribution
under single ownership. For years, Sears obtained more than half the goods it sells from companies
it partly or wholly owned. Sherwin-Williams makes paint but also owns and operates 3,500 retail
outlets.
Administered VMS An administered VMS coordinates successive stages of production and
distribution through the size and power of one of the members. Manufacturers of dominant brands
can secure strong trade cooperation and support from resellers. Thus, Frito-Lay, Procter & Gamble,
and Campbell Soup command high levels of cooperation from their resellers in the matter of
displays, shelf space, promotions, and price policies. The most advanced supply-distributor
arrangement for administered VMSs relies on distribution programming, which builds a planned,
professionally managed, vertical marketing system that meets the needs of both manufacturer and
distributors.

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Contractual VMS A contractual VMS consists of independent firms at different levels of

production and distribution integrating their programs on a contractual basis to obtain more
economies or sales impact than they could achieve alone. Sometimes thought of as “value-adding
partnerships” (VAPs), contractual VMSs come in three types
1. Wholesaler-sponsored voluntary chains—Wholesalers organize voluntary chains of
independent retailers to help standardize their selling practices and achieve buying economies in
competing with large chain organizations.

2. Retailer cooperatives—Retailers take the initiative and organize a new business entity to carry
on wholesaling and possibly some production. Members concentrate their purchases through the
retailer co-op and plan their advertising jointly, sharing in profits in proportion to their purchases.
Nonmember retailers can also buy through the co-op but do not share in the profits.

3. Franchise organizations—A channel member called a franchisor might link several successive
stages in the production-distribution process. Franchising has been the fastest-growing retailing
development in recent years.
Although the basic idea is an old one, some forms of franchising are quite new. The traditional
system is the manufacturer-sponsored retailer franchise. Ford licenses independent businesspeople
to sell its cars who agree to meet specified conditions of sales and services. Another system is the
manufacturer-sponsored wholesaler franchise. Coca-Cola licenses bottlers (wholesalers) in various
markets that buy its syrup concentrate and then carbonate, bottle, and sell it to retailers in local
markets. A newer system is the service-firm-sponsored retailer franchise, organized by a service
firm to bring its service efficiently to consumers. We find examples in auto rental (Hertz and Avis),
fast food (McDonald’s and Burger King), and the motel business (Howard Johnson and Ramada
Inn). In a dual distribution system, firms use both vertical integration (the franchisor actually owns
and runs the units) and market governance (the franchisor licenses the units to other franchisees).

Multichannel Distribution System:

A multi-channel distribution system is a system in which a single firm sets up two or more
marketing channels to reach one or more customer segments. It is also called
a hybrid distribution system (Teltzrow et al., 2003).
The popularity of a brick-and-mortar store may also work against it. For example, a butcher shop
may frustrate customers with long lines after the workday or over weekends. Providing a second
channel like home delivery could give those same customers another, more convenient channel

Advantages of Multichannel

✓ Increase Market Coverage

✓ Lower Channel Cost
✓ More Customized Selling

Disadvantages:

✓ More channel conflict

✓ Problem in controlling
✓ Non cooperation

Summary
Companies do not sell all their products directly to consumers. There are two ways of marketing
products viz. direct marketing without using the channel and indirect marketing though a set of
intermediaries. The intermediaries who provide a link between the manufacturers and the ultimate
consumers or users are known as middlemen. Intermediaries help in different kinds of flows in the
market between the producer and the end consumer. They help in physical flow, title flow,
information flow and cash flow. The design of a channel starts with understanding the customer’s
service expectations. It should help in setting objectives and constraints for the channel. A
company may pursue exclusive, selective and intensive distribution strategy for reaching markets.
Once the channel design decisions are taken and intermediaries are decided upon, the big task is to

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manage the selected channel. The marketing manager should select appropriate channel by
evaluating product, market and producer related factors. Channel management is a dynamic
process as it involves participants not directly under the control of the organization. There are
three types of primary channel participants, namely manufacturer, wholesaler and retailer.

Keywords
Agent, Distribution System, horizontal marketing system, retailer, Middlemen, wholesaler, Vertical
Distribution system , Omni channel Distribution system .

Self Assessment

1. Major Channel management decisions are:

A. Selecting Channel Members

B. Training Channel Partners
C. Motivating Channel Members
D. All the above

2. Opening a McDonald’s franchisee, the __________becomes more important than in any

other business.
A. Location
B. Cost
C. Expected Footfalls
D. Time of the year

3. Once the channel partner is selected, they need to be _______as they are the face of the
company.
A. Motivated
B. Trained
C. Bargained
D. None of the above

4. The training tries to facilitate

A. performance
B. improve knowledge
C. skills and attitude of its dealers and sales staff
D. all the above

5. With the changing times, the company needs to ______ its channel arrangements.

A. Expand
B. Modify
C. Change
D. Limit

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6. __________is basically an integrative process that optimizes the flow of materials and

supplies through the organization and its operations to the customer.

A. Logistic Management
B. Inventory Management
C. Management
D. Programming

7. Logistics means having

A. The right thing

B. At right place
C. At right time
D. All the above

8. _______ is the process of planning, implementing and controlling the efficient , effective flow
and storage of goods, services and related information from point of origin to point of
consumption for the purpose of conforming the customer requirement.
A. Logistics
B. Training
C. Inventory
D. Warehousing

9. _______ is concerned with the smooth and cost-effective inflow of materials and other

inputs.

A. Inbound Logistics
B. Outbound Logistics
C. Both the above
D. None of the above

10. Significance Of Logistics management is :

A. Cost reduction and Profit Maximization

B. Efficient Flow of manufacturing operations
C. Competitive Edge
D. All the above

11. __________is essentially the idea of combining efforts across different customer channels

A. Channel integration
B. Channel Connection
C. Channel attachment
D. Channel interaction

12. Integrating Marketing Channel Helps in:

A. Bridge The Gap

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B. Streamline The Physical Information

C. Reduces the levels of opportunism
D. All the above

13. Joining of two or more corporations on the same level for the purposes of pursuing a new

marketing opportunity is ____________ marketing Channel.

A. Horizontal
B. Vertical
C. Multi
D. Hybrid

14. A ____________ is one in which the main members of a distribution channel—producer,

wholesaler, and retailer—work together as a unified group in order to meet consumer

needs.

A. Horizontal Marketing systems. (HMS)

B. Vertical Marketing System. (VMS)
C. Multi-channel Distribution System/Hybrid Marketing System
D. None of the above

15. A __________ is a system in which a single firm sets up two or more marketing channels to

reach one or more customer segments.

A. Horizontal Marketing systems. (HMS)

B. Vertical Marketing System. (VMS)
C. Multi-channel Distribution System/Hybrid Marketing System
D. None of the above

16. Key Decisions of Logistics Management are:

A. Network Design
B. Order Processing
C. Procurement
D. All the above

Answers for Self Assessment

1. D 2. A 3. A 4. D 5. B

6. A 7. D 8. C 9. A 10. D

11. A 12. D 13. A 14. B 15. C

16. D

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Review Questions
1. Marketing channels are critical in nature and influence all other marketing mix decisions.’
Elaborate.
2. Explain the term marketing channels. What is the difference between merchant
middlemen and agent middlemen?
3. Describe different channel systems for consumer products with examples of products that
are distributed by these channels.
4. Describe the major functions of marketing channels. Why are distribution channels more
suitable for performing these functions?
5. Under what conditions would you suggest using channels with different intensities?

Further Readings
D. J. Bowersox and M. B. Cooper, Strategic Marketing Channel Management, McGraw-Hill
1992. E.
Raymond Corey, Industrial Marketing: Cases and Concepts, Prentice-Hall, 4th ed. 1991.
SHH Kazmi,
Marketing Management – Text and Cases, Excel Books, New Delhi.
Sumit K. Majumdar and Venkatram Ramaswamy, “Going Direct to Market: The Influence
of Exchange Conditions,” Strategic Management Journal, June 1995.

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Unit 12: Distribution Decisions

CONTENTS
Objective
Introduction
12.1 Retail Theories
12.2 Types of Retailers
12.3 Discount Prices
12.4 Functions of Retailers
12.5 Classification of Retailers
12.6 Non Store Retailing
12.7 Direct Selling
12.8 Direct Marketing
12.9 Retail in India
12.10 SWOT Analysis of Indian Market
Summary
Keywords
Self Assessment
Answers for Self Assessment
Review Questions
Further Readings

Objective
understand retail theories,
elaborate retailing and wholesaling and different types of retail formats.
understand types of non-store retailing strategies.
developments in Retailing and Wholesaling in Indian Perspective

Introduction
The word retail has been derived from the French word ‘re-tailler’ which means ‘to cut, trim or
divide’. This was basically used in the context of tailoring. Thus retailing means, to sell goods in
small quantities. A retailer buys goods in large quantities from a wholesaler, divides the goods in
the smallest quantities possible and sells it to final customers.
The term retailing has a much wider scope than it seems. Retailing not only covers the sale of goods
which are tangible but also includes the sale of services to individual customers. The examples of
service retailers can be dry cleaners, beauty salons, health centres, spas, tailor’s shop, etc.
In the absence of retailers, there would be absolute confusion and it would be very difficult for the
manufacturer to make the products available to a large number of customers. Thus, retailers
facilitate smooth running of goods and services to the ultimate customers.
It is essentially the marketing concept of a customer-centered, company-wide approach to
developing and implementing a strategy. It provides the guidelines, which must be followed by all
retailers irrespective of their size, channel design, and medium of selling.
The retail concept covers four broad areas and is an essential part of the retailing strategy:

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(i) Customer Orientation – The retailer makes a careful study of the needs of the customer and
attempts to satisfy those needs.
(ii) Goal Orientation – The retailer has clear cut goals and devises strategies to achieve those
goals.
(iii) Value Driven Approach – The retailer offers good value to the consumer with merchandise
having the price and quality appropriate for the target market.
(iv) Coordinated Effort – Every activity of the firm is aligned to the goal and is designed to
maximize its efficiency and deliver value to the consumer.

The retailing concept, though simple to adopt is not followed by many retailers who neglect one or
more of the points enumerated above. There must be a proper balance of all the aspects of this
concept for the retailer to achieve success. The retailing concept, while important is limited by its
nature as it does not cover the firm’s internal capabilities or the competitiveness of the external
environment.
It however remains an important strategic guide. The retailing concept can be used to measure the
retailers’ performance through three parameters – the total retail experience, customer service, and
relationship retailing. The total retail experience refers to all the ingredients of a customer’s
interaction with the retailer. This includes all activities from parking to billing.
If some parts of the retail experience are unsatisfactory, the shopper may decide not to patronize
that particular outlet. Therefore, it is necessary for a retailer to ensure that every element in the
experience must aim at fulfilling customer expectations. This experience means different aspects for
different types of retailers — for an upper-end clothing retailer this might imply the presence of
plush interiors and air conditioning while a discount store needs to have adequate stock.
One of the biggest challenges for the retailer today is to devise new ways of attracting customer
attention to be able to position themselves differently from competitors. Many novelties in retailing,
for example, the theme restaurants, have emerged and there is a battle to snare the customer’s
attention. Sometimes though, elements of the retail experience can be beyond the control of the
retailer, like the levying of sales tax or the speed of online shopping.

12.1 Retail Theories

Like every other industry new retail firms have brought innovative approaches in retailing. Retail
development can be looked at from different theoretical perspectives, as no one theory is
universally acceptable. The reason for this unacceptability is mainly because of different market
conditions and different socio-economic conditions in the market.
The theories are:
1. Wheel of Retailing
2. Retail Accordion Theory
3. Theory of Natural Selection
4. Retail life cycle

1. Wheel of Retailing:
This theory talks about the structural changes in retailing. The theory was proposed by Professor
Malcolm P. McNair. This theory describes how retail institutions change during their life cycle. In
the first stage when new retail institutions start business they enter as low status, low price and low
margin operations.
As the retail firms achieve success they look in for increasing their customer base. They begin to
upgrade their stores, add merchandise and new services are introduced. Prices are increased and
margins are raised to support the higher costs. New retailers enter in the market place to fill the
vacuum created by these retailers who move on to second stage of life cycle and continues to move
ahead as a result of the success.
A new format emerges when the store reaches the final stage of the life cycle. When the retail store
started it started serving low and price sensitive customers but when market grew their margins
and price changed to higher side they moved on to serve upscale customers.

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The theory has been criticized because they do not advocate all the changes that happen in the retail
sector and in the present scenario not all firms start low to enter the market.

2. Retail Accordion Theory:

This theory describes how general stores move to specialized stores and then again become more of
a general store. Hollander borrowed the analogy ‘accordion’ from the orchestra.
He suggested that players either have open accordion representing the general stores or closed
accordions representing narrow range of products focusing on specialized products. This theory
was also known as the general-specific-general theory. The wheel of retailing and the accordion
theory are known as the cyclical theories of retail revolution.

3. Theory of Natural Selection:

According to this theory retail stores evolve to meet change in the microenvironment. The retailers
that successfully adapt to the technological, economic, demographic, political and legal changes are
the ones who are more likely to grow and prosper.
This theory is considered as a better one in comparison of Wheel of retailing because it talks about
the macro environmental variables as well, but the drawback of this theory is that if fails to address
the issues of customer taste, expectations and desires.

4. Retail Life Cycle:

Like products, and brands retail organizations also pass through identifiable stages of innovation,
accelerated development, maturity and decline. This is commonly known as the retail life cycle.
Any organization when in the innovation stage is nascent and has few competitors.
They try to create a distinctive advantage to the final customers. Since the concepts are new at this
stage organizations try to grow rapidly and the management tries to experiment. Profits will be
moderate and the stage may last for a couple of years. When we talk about our country’s e-buying
or online shopping it is in the innovation stage.
In the accelerated growth phase the organizations face rapid increase in sales, competitors begin to
emerge and the organizations begin to use leadership and their presence as a tool for stabilizing
their position. The investment level will be high as there are others who will be creating a lot of
competition.
This level may go up to eight years. Hypermarkets, Dollar stores are in this stage. In the maturity
stage as competition intensifies newer forms of retailing begin to emerge, the growth rate starts to
decline.
At this stage firms should start recrafting strategies and reposition themselves to survive in the
market place. Supermarkets, cooperative stores are in this stage. The final stage of the retail life
cycle is the declining phase where firms begin to loose their competitive advantage. Profitability
starts to decline further and the overheads starts to rise.
Thus we see that organizations need to adopt different strategies at each stage of life cycle in order
to sustain in the marketplace.

12.2 Types of Retailers

Retailers are important for any brand. In the 4Ps, retailers form a crucial part of the third P, i.e.
Place. If you are a traditional brand which does not have any online sales channel then its most
likely that retailers are the only touch points that you have with the customers

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The Broad Basis of classification are:

1. Amount Of service
2. Product Breadth and depth
3. Relative Price
4. Organization

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1. Amount of Service:

2. Product Breadth and Depth

Specialty Store: Supermarket:

Departmental Stores:
These types of stores usually have many subsides which house a wide range and category of
products. The departmental stores might sell jewelry, clothing, home appliances and electronics,
hardware products, sporting goods, stationery items, and many more under one roof. All these
consumer goods are categorized under different sections and are found in various divisions of the
same store.
The Departmental store was founded on the basic concept of providing the customers with a one-
stop-shop for the purchase of goods belonging to various categories. The idea of Departmental
stores flourished in the nineteenth century after the industrial revolution. The first-ever
Departmental store was opened in London in the year 1796 by the name Howell & Co. Some of the
most popular departmental stores globally are Galleries Lafayette and Le Bon Marche in Paris,
Selfridges and Harrods in London, and Isetan in Tokyo.

Supermarket:
A Supermarket is a big self-service retail market that generally sells foods and household items. It
can be called a larger version of a grocery store.

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Supermarkets typically have a more extensive selection range than that of a traditional grocery
store. The items are categorized and placed in aisles so that the customers can walk through them
and take what they want. The aisles in the Supermarket typically contain fresh fruits, dairy
products, baked items, meat, canned and packaged foods, and all sorts of non-food items such as
kitchen items, household items, pharmacy products, toiletries, etc.

Hypermarket
A hypermarket is basically a combination of a departmental store and a supermarket. It was
invented much later in the year 1931. The first one in the US is the Fred Myer chain. However, the
term came into existence at a later date. A hypermarket is generally referred to as the stores that
have the facilities of a departmental store as well as a supermarket.
They have everything for customers, such as grocery items, furniture, electronics, etc.
They have become quite common these days and can be seen in rural areas as well apart from busy,
urban regions. They are the go-to places for daily necessities. Some of the hypermarkets are large
enough to house cafes, parlors, spas, etc. People prefer to visit them as they can eat at a restaurant,
but necessary items, and even get treatments done – all under one roof.

12.3 Discount Prices

Discount stores are retailers who offer their customers prices below retail. They accomplish this in
three ways:

1. Buying in massive quantities,

2. Buying discontinued or out of season merchandise
3. Cutting out the middlemen
The two types of discount stores are full-line discount stores and off-price retailers. The value
position of discount stores comes from the perceived bargain that the customers are getting.
Full-line discount stores, such as Walmart, K-mart, and Target, carry the full range of products
that might be found in a department store plus some items that might not like electronics,
gardening supplies, and auto accessories. These stores cover large footprints with large stock areas.
Their profit counts on turning stock over fast at a high volume. While they do not offer much
customer service, they successfully fight off the online threat by being perceived as one-stop
shopping destinations, or supercentres.
Related to full-line discount stores are off-price retailers. These retailers offer familiar brand name
products at regularly discounted prices. Single-sector discount retailers include stores like TJ
Maxx or Home Goods, which focus on one sector of goods. They operate in large freestanding
stores with large stock space to accommodate moving a high volume of merchandise very quickly.
Off-price retail stores also include outlets, frequently operated by manufacturers
themselves. Outlet stores have become a profitable way to deal with merchandise that would
otherwise languish in warehouses or have gone out of season. Cutting out the middlemen allows
manufacturers to sell these products at substantial discounts. Malls featuring only outlets stores
have been popping up steadily.

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4. Organization Based:
1. Wholesalers:
Wholesalers are those who happen to be engaged in wholesaling or wholesale trade. In a broad
sense, any individual or business firm selling goods in relatively large quantities to buyers other
than the ultimate consumers may be called a wholesaler. Thus manufacturers who sell their
products directly to retailers may be regarded as wholesalers. However, in a more specific sense the
term wholesaler may be defined as a merchant middleman engaged in buying and reselling of
goods to retailers and other merchants, or to industrial or commercial users. Wholesalers do not sell
the products to ultimate consumers. The wholesalers belong to the category of merchant
middlemen who acquire title to the goods they handle. Agents or brokers may also act as wholesale
middlemen but they do not acquire the title to goods. Wholesalers act as middlemen between
producers or importers of goods on the one hand, and retailers or industrial users on the other. The
goods traded by wholesalers may include agricultural commodities, forest products, minerals as
well as manufactured goods. Manufacturing companies often do not have adequate capital to
employ salesmen to contact the large number of retailers. Many small retailers run their business in
remote areas and to contact them may be too expensive. Moreover, small retailers generally prefer
to buy products in small quantities due to their limited capital, lack of market information and
sources of supply. The wholesalers solve the problems of manufacturers as well as small retailers. A
wholesaler can place sufficiently large order with the manufacturer keeping in view the
requirements of a number of small retailers in his area. In that process, the wholesaler is in a
position to meet the small orders of retailers. From the society's point of view, distribution of goods
may be efficient because of the specialised knowledge and skill of wholesalers. On the other hand,
manufacturers can concentrate on efficient production of goods. Naturally, they do not undertake
the distribution of their products because their efficiency in manufacturing would suffer on account
of divided attention.

Classification:
Wholesalers may deal in a large or limited variety of products, restrict their activities mainly to
wholesaling or perform various functions incidental to their trade, and may operate in small or
large geographical territories. Accordingly, wholesalers may be classified on three different bases:
(1) merchandise dealt with,
(2)method of operation, and
(3) coverage of geographical area.

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Functions of Wholesaling:
In the preceding section we have learnt that wholesalers perform limited functions or undertake a
variety of functions. Actually, the functions of a wholesaler depend upon the nature of the products
dealt with and the business policy of that particular wholesaler. Of course, every wholesaler must
carry out the minimum functions of buying, storing and supplying one or more products. Besides
these primary activities, several other functions may also be performed by wholesalers.
The wholesalers perform the following important functions of marketing:
1) Assembling: The wholesaler collects varieties of products from different manufacturers and
keeps them in stock for sale to the retailers at the time when they
2) Dispersion: The products assembled and stocked by the wholesalers are supplied to the
retailers who may be widely scattered.
3) Warehousing: The goods purchased by the wholesalers from the manufacturers and producers
have to be stocked in warehouse pending their sale to the retailers. The arrangement for such
storage is the responsibility of the wholesalers.
4) Transportation: The wholesaler has to move the goods from the various factories to his own
warehouse and from there to the retail stores. He may do so either by employing his own, vans or
by hiring public carriers.
5) Financing: The wholesaler in most cases provides goods on credit to the retailers.
6) Risk-assuming: The wholesaler assumes the risk arising out of the changes in prices and
demand as also loss due to spoilage or destruction of goods in his warehouse.
7) Grading and Packaging: The wholesaler has to sort out different grades of Products
according to quality and other considerations and pack the goods

8) Price fixation: The prices of goods which consumers have to pay depend upon the prices fixed
by wholesalers and charged from retailers. This is an important function performed by wholesalers
because a number of factors including prices of competing goods, effect of prices on demand, etc.,
have to be taken into account.

2. Retailers:
In simple words retailing refers to all transactions which involve sale of goods to the ultimate
consumers for personal consumption. If the buyer uses the goods for reselling purposes it will not
be treated as a retailing transaction. Any individual or business unit or shop primarily engaged in
retail selling is known as a retailer or retail store. In a general sense, even a manufacturer or
wholesaler may sometimes engage iq sale of goods to the ultimate consumers. But they are not
called retailers as retailing is not the major activity of such a manufacturer or wholesaler. Thus a
retailer or retail store is one whose business consists primarily of sale of goods to consumers for
their own use, but not for resale in business.
Retail business may include other types of transactions also. It will be treated as a retailing business
if more than half of its total sales revenue is from A retailer is a middleman because retailing
involves procuring goods from suppliers (generally wholesalers) and selling them to consumers for
the personal use. Retailers perform the very important task of making goods available to
consumers, which after all is the objective that underlies the production of goods.
Retailers thus form a vital link in the channel of distribution of products. Since the retailers deal
with a large number of consumers of many different categories, the role of retailers in the physical
distribution of goods is clearly of vital importance. The retailers act as a link between the producers
or wholesalers on the one hand and the consumers on the other. Without retailers, neither the
products would sell in distant places, nor would it be possible for consumers to buy goods of their
choice in shops located nearby. Due to large-scale manufacture of a wide variety of consumer
goods and the necessity of making them available to individuals living in distant villages, cities and
towns. retailers are now regarded as the most important middlemen in the chain of distribution of
goods.

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12.4 Functions of Retailers
Like the wholesalers, retailers also perform a variety of functions connected with the buying and
selling of goods. They, in brief, perform the following functions.
1) Estimating the demand: All retailers -big or small -have to make an estimate of the demand
for different products and have to determine the nature of products that consumers need to be
‘supplied.
2) Procurement of goods: Most retailers dealing a variety of products. So they may ha= to
procure goods from different wholesalers. Besides, they must decide to buy from those wholesalers
who supply goods suited to the requirements of consumers as to quality and price.
3) Transportation: Usually the retailers are to arrange the transportation of goods procured from
the wholesalers' place. Sometimes delivery is also arranged by the wholesalers on the basis of
orders placed with their salesmen.
4) Storing goods: Small-scale retailers have limited space for the goods to be kept in stock. Large
retail stores often have godowns to store different varieties of goods in adequate quantities. But in
all cases, goods have to be held in stock so as to meet the customers, needs. For this purpose storage
of goods must be so arranged that customers may be searched without delay. They must be given
an opportunity to select goods of their choice. This is often done by display of goods on shelves and
in show cases.

5) Grading and packaging: Large-scale retailers have to sort out goods according to the quality
and price to be charged. They also make convenient packages of goods for the benefit of customers.
For instance, fruit vendors purchase apples in containers [boxes), sort out on the basis of size and
charge different rates for different sizes. Spices which are procured in bags, may be divided into
small packets of 100 or 200 grams each.
6) Risk-bearing: Since goods are held in stock, the retailers are to bear the risk of loss on account
of deterioration of quality, fire, theft, etc. Large retail stores are insured to cover the risks of theft or
fire. But losses due to damage or deterioration of quality caused by improper storage cannot be
insured.
7) Selling: The main function of retailers is selling the goods to ultimate consumers. They have to
satisfy the needs and preferences of different types of customers and deal with them tactfully and
politely so as to make them regular buyers.

12.5 Classification of Retailers

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12.6 Non Store Retailing

Any sale happening to the end customer which is not happening through a traditional
retail channel or through a physical retail space is known as Non-store retailing. Amazon is a
perfect example of Non-store retailing. Amazon does not have its own retail space from where it
sells the goods to customers. It directly sells from its website and does not sell via a retail space.
Hence, it is known as a Non-Store Retailer.
There are different types of Non-store retailers in the market. Some of the non-store retailers are
very popular even today whereas others have died down. Let us make it clear that non-store
retailing does not mean an average line of business. In fact, Non-store retailing is rising in
importance due to the fact that cost of establishment is very low and all expenses are variable and
not fixed. We will discuss the benefits of Non-store retailing in some time.

12.7 Direct Selling

One of the oldest forms of non-store retailing is the Direct sales type. The best way to describe this
would be Door to Door salesmen who do cold calls to homes and offices to sell their products. They
might also do other activities like Standees, promotions, and others to directly sell to the end
customer.
This type of non-store retailing involves manual involvement and might involve usage of good
selling techniques and personal selling skills. A door to door selling is used for selling technical
equipment like Air Conditioners, Vacuum cleaners, Water purifiers and others.Even religious
books are nowadays sold door to door. The advantage of this technique is that it is a quick closure
type of sale. You will close the sale in 1 or maximum two visits.
The direct sale is a type of non-store retailing which is falling in usage. There are only somewhere it
is still applicable. FMCG and Consumer durables are using it to some extent but it is almost absent
in other industries. One of the reason is the noise in the market due to continuous advertisement
because of which customers are irritated. The second is the growing sense of insecurity and the
need for privacy due to which many salesmen are not allowed to enter into societies.
Amway, Tupperware and several other multi-level marketing firms actually use direct selling to
good effect. They have chains of distributors and end sellers who sell to the end customers. Because
the end seller generally knows the end buyer very well, the sale is high and these companies are
case studies in the world of direct selling or non-store retailing.

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12.8 Direct Marketing

Unlike Direct selling, Direct marketing is on the rise especially since the adoption of the internet. It
was initially used in the form of direct mail services where letters and coupons were sent to the end
customer. Later on, once internet started, Email marketing was very successfully used where
companies spent a huge amount of designing and sending emails to a large number of customers.
After emails, it went to websites and we could see Amazon, eBay, Alibaba and other websites grow
and sell products by the truckloads. None of these sellers had a single store. All of it was online.
Finally today, we can see that even small businessmen have their online store and a website and
they sell their products not only through a physical presence but regularly take part in non-store
retailing via social media or via their own websites.
Direct marketing is a segment which is supposed to grow even more over the years. Whatsapp has
penetrated the market to a great extent and there are many “Whatsapp stores” opening up where
you can get fashion apparels at a good discount. Already Amazon has surpassed Walmart in terms
of its valuation and we see more and more online stores rising up. In fact, traditional retail is now
afraid of the powers of direct marketing via the internet.

3) Automatic Vending

Automatic vending machines are being used very smartly in the FMCG segment. We recently
wrote an article on the top coffee brands and if you look at that article, you will find brands like
Nespresso which are pushing their coffee vending machines into the market because once these
vending machines are placed, the sale of coffee to the end customer becomes easier and it is higher
in margins because there is no middleman involved.

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Similarly, Cold Drink, Newspaper, Beer, Chewing gums, chocolates and even pizza is nowadays
sold through an automatic vending machine. These are just straightforward examples of non-store
retailing where you don’t need a store of 200 square feet to sell a pizza or cold drinks. Automatic
vending has now become a prominent business model in FMCG and is being innovatively adopted
in other sectors as well.
Besides the above three type – there is also the use of buying services in the form of a non-store
retailer. The best example of this is an existing rate contract between government agencies and a
seller who can sell products of a company. Because of the rate contract, the government agencies
have to buy only from that seller and only at the given price. The seller, in turn, has to deliver the
machine to all locations of the government agency.
However, because buying services as a model of non-store retailing is used very less, and because
of the vast penetration of internet in our laptops and smartphones, buying services are now
considered almost a part of direct marketing. Because practically everything happens online now.

Benefits of Non-Store retailing

There are several benefits of Non-store retailing
The cost of establishment is less – The cost of starting a website is always lesser then starting
an offline retail outlet.
Costs are variable in nature – While traditional retail has many fixed costs like rent, salaries etc,
the costs of non-store retailing are variable and keep changing.

Scaling up Is easier – Since the usage of internet for non-store retailing, scaling up of a non-store
retailing business is easier than store retailing.

12.9 Retail in India

Retailing plays a significant role in economic system of any country. It involves selling goods and
services to the ultimate consumers. “Retailing is a part of the continuous process going in between
the farm and the factory and household in which goods are changed in form, packed, transported
and subdivided”.
Retailing is one of the oldest of all business institutions. It has developed along with various stages
of civilization, altering its form, or varying its offerings to meet the changing demands of the people
it has served.
India’s retail market is estimated to reach ~1.5 tn by 2030, from $0.793 tn in 2020, driven by socio-
demographic and economic factors such as urbanisation, income growth and rise in nuclear
families. On the other hand, the Indian e-commerce industry is expected to cross $350 bn mark by
2030, growing at a CAGR of 23%.
In first half of 2021, e-commerce accounted for nearly a third of several electronic categories, almost
half of smartphones sold, and about a fifth of all apparel sales in India. In 2020, e-commerce and
consumer internet companies raised more than $8 bn in PE/VC capital across 400 deals (excluding
investments in Jio). India will become the 3rd largest online retail market by 2030, with an
estimated annual gross merchandise value of $350 bn.
The Indian retail market is largely unorganized. However, the organised Indian retail market has
increased by ~50% between 2012-2020 to its current value of nearly 12% of total retail. The modern
Indian retail industry is expected to grow at a 15% CAGR to reach 18% by 2025. Major retail
categories (by % organised retail penetration) such as apparel & accessories (18%), consumer
electronics (6%) and home & living (6%) will drive the increase in organised retail this decade.

12.10 SWOT Analysis of Indian Market

The Indian retail sector is a growing phenomenon, and relaxation in FDI norms has generated even
more interest in the Indian retail market. As per retailers’ point of view, infrastructure, economic
growth and changing demographics, and the inherent strength of the Indian economy are the most
important drivers of retail followed by increase in FDIs and growth of real estate.

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The Indian retail sector is growing rapidly. The relaxation in FDI norms is bound to generate even
more interest in the Indian retail market. To provide a bird’s-eye view of the market dynamics, we
have given below the SWOT analysis of the sector. This will help investors approach the market
with a well-formed strategy.
Strength
The inherent strength of the Indian economy provides a boost to retail. Following are some of the
factors that strengthen the economy:

Purchasing Power
An increasing number of Indian consumers are ascending the economic pyramid to form an
emerging middle class. Though they still earn modest income between 1.70 and 5 USD per capita,
per day, in the coming decade, these consumers will collectively have around 6 trillion USD worth
of purchasing power annually.
In 2010, there were about 470 million people in the emerging middle class. As per PwC estimate,
this segment will grow to 570 million by 2021. This segment, existing between the lowest-income
group and the middle class, will constitute about 42% of India’s total population.

Population Demographics
India’s working population is expected to be 117 million over the next decade as compared to
China’s four million. In the following decade, from 2020, the former will add 98 million to its
workforce, while China will contract 51 million. This is a big positive for India.

Low Retail Penetration

The penetration of organised retail in India is still very low at 6 to 8%, especially when compared to
developed nations such as the US and the UK which have retail penetration of 85% and 80%,
respectively. With new policy reforms, increasing purchasing power, and changing spending
pattern, we are bound to see a difference in the coming years. As per the Images Retail research,
FY15 will witness a jump in the share of organised retail.

Aspiring Middle Class

With a population of 100 million, the tier II and III cities in India are larger than countries such as
Germany and the UK. Besides, the untapped rural population holds immense potential for retailers.
It is estimated that by 2021, approximately 67% of Indians will still live in rural areas.

Weakness
Despite the positives, there are certain facets of the sector that may dampen growth. Following are
the key areas to consider:

Political Uncertainty and Regulatory Requirements

The announcement of FDI in retail has stirred the political pot. The government faces stiff
opposition with its allies threatening to withdraw support. In case, this policy is finally
implemented, there is another important aspect for the companies to overcome. The way the policy
is currently drafted, a retailer can set up stores only in those states which have agreed or will agree
in the future to allow FDI in multi-brand retail.

Poor Infrastructure and Supply Chain Management

Apart from the political and regulatory scenario, infrastructure will play an important role in
deciding how this sector will evolve and retailers will manage the supply chain. While the FDI
regulation states that the retailer will have to invest a substantial amount in building the
infrastructure, this will take time. Meanwhile, due to poor infrastructure, multiplicity of taxes, high
cost of fuel, dependence largely on the road transportation, etc. logistics still remains a high
percentage of the cost of a product, in certain cases going beyond 15 to 20%.

Opportunity
Retailers in India have been experimenting to arrive at a successful formula, but there is no ‘one
size fits all’ strategy. The market is still undergoing a lot of changes, both from the regulatory as
well as demand side. Following are some of the winning factors that players could focus on:

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Innovation
During PwC’s 15th Annual Global CEO Survey, one of the questions posed to the CEOs in the R&C
sector was as follows: To what extent do you anticipate changes at your company in any of the
following areas over the next 12 months? Nearly 73% indicated that the following two areas will
change in the near-term:
• R&D and innovation capacity
• Technology investments

Digital Strategy
Going digital is not only about e-commerce but the way interaction will change in a few major areas
including changing business models (e-commerce, e-payments and mobile transactions), employee
and customer engagement and investment in technology.
Customers are demanding an improved experience in terms of how to search, browse products and
conduct transactions online. R&C organisations need to engage with customers differently, in terms
of using a range of channels. However, the overall customer experience should be the same-smooth
and seamless.
Social media is also becoming a popular tool for consumers to educate themselves about offerings,
seek advice about products and compare brands. For retail companies it is important to define how
social media can support sales activities throughout the various channels, especially e-commerce.
Social media analytics is the focus area for retailers.

Customer-centric Approach
The retailer is no longer looking at product innovation at the merchandising level only but the
entire store today is a product that needs to appeal to the customer. The following are factors that
will make a difference:
• Experience design
• Digital change
• Analytical insights

Changing the Regulatory Scenario

Recently, the Indian government made the following two significant announcements that will go a
long way in developing the Indian retail sector:
• Permitting foreign investment in multi-brand retail trading
• Simplifying the rules for single brand retail trading to make it more business-friendly

Threat
The retail sector is marred with many issues. The two most important threats are as follows:

Availability of land and real estate

Retail space and rentals are key considerations in multi-brand retail and getting a feasible rate in
the desired location is important. There are retailers who have exited cities because of the high
rentals that put more pressure on profitability.

Human Capital
With attrition still very high in the industry, human capital management continues to remain one of
the top three agenda points for the retailer. The attrition in the industry can be anywhere between
20 and 25% in non-food and grocery business to as high as 60% in the food and grocery segment.
Thus, the Indian retail sector has its own set of strengths and opportunities. However, the challenge
lies in overcoming the weaknesses and providing an environment that is conducive to the business,
not only for the national players but also the foreign retailers.

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Summary
Intermediaries play a significant role in the distribution of goods and services. They create a
number of utilities, bring in economy of effort, make shopping convenient for the buyers and help
in regulating demand for the products. There are two broad categories of intermediaries - primary
and ancillary. The primary participants are those who undertake the negotiatory functions of
selling and transferring of title of goods. The ancillary participants such as financial institutions,
public warehouses, etc., on the other hand, assist the channel members (primary participants) in
performing the distribution task.
The primary participants may again be divided into two categories:
1) merchant middlemen (retailers and wholesalers)
2) merchant agents (brokers,-commission agents, del credere agents, auctioneers, etc.).

Wholesalers are defined as merchant middlemen who are engaged in buying and reselling goods
to retailers, other merchants, industrial and commercial users, but not to ultimate consumers.
Wholesalers may be classified on the basis of merchandise dealt with methods of operation, and
geographical coverage of their dealings. The functions performed by wholesalers include
assembling, storage, grading and packaging, transportation, financing retail traders, price-fixation,
risk-bearing and making advances to manufacturers. Wholesalers render valuable services to
manufacturers as well as retail traders. A retailer is one whose business consists primarily of selling
goods to customers for their own use, not for use in their business. If manufacturers sell goods to
consumers, they are not treated as retailers as retailing is not the major activity of a manufacturer.
The retailers perform several functions such as estimating demand, procuring goods, arranging
transport, holding stocks, grading and packaging, and selling. They render valuable service to
consumers, wholesalers and indirectly also to the producers of Retailers may be divided ‘into two
broad categories: itinerant retailers and fixed-shop retailers. Itinerant retailers (hawkers, peddlers,
pavement traders, and market traders) either move from house to house or change their place of
business according to convenience. Fixed-shop retailers locate their stores at fixed places where
customers can easily come and make their purchases.
Fixed shop retail trading may consist of two types:
1) Small-scale retailing (stall-holders, general merchandise shops, specialty ' shops, and second-
hand goods sellers) who deal in a limited range of products or .
2) Large-scale retailers establish stores (departmental stores, super markets, multiple shops, mail-
order houses, consumer co-operative stores, super-bazars, hire-purchase trading, disc

Keywords
Supermarket , Hypermarket, Discount Store, Value, Retailing , wholesaling , Chain Store , Store99,
Convenience Store, Specialty Store.

Self Assessment

1. Expected high growth rate Retail industries in India are:

A. Apparel retailing
B. Luxury Retailing
C. Food and Grocery Retailing
D. All the above

2. Challenges of retailing are :

A. Poor Logistic and Infrastructure

B. Low Per Capita Income

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C. .Complicated Tax Regime
D. All the above

3. FDI stands for

A. Foreign Direct Investment

B. Free Direct Investment
C. Foreign daily Investment
D. Free Daily Investment

4. Which is not the step to promote Organized Retail

A. Understand Demographic of target market

B. Development of Infrastructure
C. Education and Training
D. Provision of Real Estate

5. Select the necessary steps to promote Organized Retail .

A. Education and Training

B. Provision of Real Estate
C. Educate People in Consumption Habits
D. All the above

6. ___________ is a form of retailing in which a firm sells its products without a physical retail

store/space.

A. E commerce
B. E Retail
C. Non store Retailing
D. Easy Day

7. Types of Non store Retailing are :

A. Direct selling
B. Telemarketing
C. Online retailing
D. All the above

8. __________allows a firm to interact directly with a customer.

A. Direct selling
B. Telemarketing
C. Online retailing
D. Automatic vending

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9. __________retailing is more of online retailing as sellers interact with the customers on

digital platforms.

A. Electricity
B. Electronic
C. E Commerce
D. None of the above

10. Disadvantages Of Non store Retailing are :

A. Lack of Customer trust

B. Huge Advertising Cost
C. Security and legal Requirements
D. All the above

11. Retail Concept is about :

A. Customer Orientation
B. Goal Orientation
C. Value Driven Approach
D. All the above

12. ___________ theory talks about the structural changes in retailing. The theory was proposed

by Professor Malcolm P. McNair.

A. Wheel of Retailing
B. Retail accordion Theory
C. Theory Of Natural selection
D. Retail Life cycle

13. ____________This theory describes how general stores move to specialized stores and then
again become more of a general store. Hollander borrowed the analogy ‘accordion’ from the
orchestra.

A. Wheel of Retailing
B. Retail accordion Theory
C. Theory Of Natural selection
D. Retail Life cycle

14. According to _________theory retail stores evolve to meet change in the microenvironment.

The retailers that successfully adapt to the technological, economic, demographic, political

and legal changes are the ones who are more likely to grow and prosper.

A. Wheel of Retailing
B. Retail accordion Theory
C. Theory Of Natural selection
D. Retail Life cycle

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15. Like products, and brands retail organizations also pass through identifiable stages of
innovation, accelerated development, maturity and decline. This is commonly known as the
____________.
A. Wheel of Retailing
B. Retail accordion Theory
C. Theory Of Natural selection
D. Retail Life cycle

Answers for Self Assessment

1. D 2. D 3. A 4. A 5. D

6. C 7. D 8. D 9. C 10. D

11. D 12. D 13. B 14. C 15. D

Review Questions
1. What do you understand by the term ‘Retail’?
2. Which activities of the retailer creates value addition or utility to the customers?
3. What are the essential requirements of a retailer?
4. List down the retailer’s services to the customer
5. Which reform in the retail sector has led to the beginning of an organised sector?
6. Departmental stores are a combination of decentralised buying and centralised selling. Explain in
detail.

Further Readings
Moharana, T. R., &Pattanaik, S. (2016). Retail sales promotion in Indian apparel industry.
Journal of Research Innovation and Management Science, 2(1), 28-34.
2. National Accounts Statistics of India (2014), website: http://mospi.nic.in/Mospi_New/
upload/nas_13.html accessed on 27 October, 2016.
3. Pradhan, Swapna (2007), Retailing Management, Text & cases”, Second Edition, Tata
McGraw Hill Publishing Companies, New Delhi.
4. PWC and Kantar Retail, (2014). Retailing 2020: Winning in a polarized world, Website:
www.pwc.com/en_US/us/retail-consumer/.../ pwc-retailing-2020.pdf Accessed on 21st
October, 2016.
5. Tuli, R., Bajaj, C. & Srivastava, N. (2006) Retail Management, Oxford University Press,
New Delhi

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Dr. Pretty Bhalla, Lovely Professional University Unit 13: Promotion Decisions

Unit 13: Promotion Decisions

CONTENTS
Objectives
Introduction
13.1 Promotion
13.2 Marketing Communication Mix
13.3 Selection of Promotional Mix
13.4 Integrated Marketing Communication Process:
13.5 Factors Effecting Choice of Promotion Mix:
13.6 Communication Process
Summary
Keywords
Self Assessment
Answer for Self Assessment
Review Questions
Further Readings

Objectives
• understand Role of Promotion in Marketing and Promotion Mix.
• understand integrated marketing communication concept.
• understand about choice of elements of promotion mix.
• interpret communication process

Introduction
The purpose of communication is to directly or indirectly influence individual groups, and
organizations, to facilitate exchanges by informing and persuading one or more audiences to accept
a company’s products and/or servicesThe marketing manager needs to communicate and promote
the final product to consumers through various channels of communication. He has to make sure
that all the channels and methods of communication present a unified message about the product
or service of the firm. Some twenty years ago, the idea of ‘integrated marketing communication’
emerged in management literature. It is necessary to develop marketing communication strategy to
obtain a competitive strategic position for the company. In this unit, you will learn how the
marketing communications programme is developed and what does integrated marketing
communication imply

Marketing Communication:
Marketing communications is one of the four major elements of the company’s marketing mix.
Marketers must know how to use advertising, sales promotion, direct marketing, public relations,
and personal selling to communicate the product’s existence and value to the target customers. The
communication process itself consists of nine elements: sender, receiver, encoding, decoding,
message, media, response, feedback, and noise. Marketers must know how to get through to the
target audience in the face of the audience’s tendencies toward selective attention, distortion, and
recall. The promotion budget should be divided among the main promotional tools, as affected by
such factors as push-versus-pull strategy, buyer readiness stage, product life-cycle stage and

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company market rank. The marketer should then monitor to see how much of the market becomes
aware of the product, tries it, and is satisfied in the process. Finally, all of the communications effort
must be managed and coordinated for consistency, good timing, and cost effectiveness.

13.1 Promotion
Modern marketing calls for more than just developing a good product, pricing it attractively, and
making it available to target customers. Companies must also communicate with their customers,
and what and how they communicate should not be left to chance. For most companies, the
question is not whether to communicate, but how much to spend and in what ways. “Promotion is
the co-ordination of seller’s aim to set up channels of information and persuasion to facilitate the
sales of goods/services or acceptance of an idea”. “It includes all those activities which are aimed at
creating and stimulating demand”. In our daily life we all are exposed to various tools of
promotion aiming at communicating one thing or the other to us.
Promotion serves three essential roles—it informs, persuades, and reminds prospective customers
about the company and its products. Ultimately, using all these three in various ways, the company
tries to modify the behaviour of the consumers to suit its objectives, viz., to buy its
products/services
Objectives of Promotion:

13.2 Marketing Communication Mix

A company’s total marketing communications mix is called its promotional mix. The promotional
mix is a specific mix of advertising, personal selling, sales promotion, public relations, and direct-
marketing tools that a company uses to pursue its marketing objectives.
Elements of the Promotional Mix The major elements of marketing communications mix (also
called promotion mix) include advertising, sales promotion, personal selling, public relations and
publicity, and direct marketing. Each element of communications mix has its own unique attributes
and associated costs.

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Advertising: Advertising is any paid form of non-personal mass communication through various
media to present and promote products, services, and ideas, etc. by an identified sponsor.
Advertising can be extremely cost effective because it can reach a large population at a low cost per
person and the message can be repeated several times. TV commercials combine movement,
visuals, sound, and colour. A company can attempt to enhance its own image and that of its brand
by including celebrity endorsers in its ads appearing in various media

. TV advertising is expensive in terms of actual target audience reached. TV commercials are

usually very brief to furnish meaningful information to audience. Advertising can rarely provide
rapid feedback, measuring its effect on sales is difficult. Advertising clutter in almost all media is
making advertising less capable of attracting consumer attention.

• It is impersonal form of promotion

• It is most Visible form of promotional tools-posters, banners, television ads, radio, internet
• Identified Sponsor-who bears the cost

Sales Promotion: More recently, the Council of Sales Promotion Agencies has offered a more
comprehensive definition, “Sales promotion is a marketing discipline that utilises a variety of
incentive techniques to structure sales-related programmes targeted to customers, trade, and/ or
sales levels that generate a specific, measurable action or response for a product or service.

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Example: Free samples, discounts, rebates, coupons, contests and sweepstakes, premiums, scratch
cards, exchange offers, early bird prizes, various trade deals, etc. All such offers generally include
specified limits, such as offer expiry date or a limited quantity of merchandise.
Sales promotions are aimed at either increasing immediate sales, to increase support among
marketer’s sales force, or gain the support of resellers of company product.
Personal Selling: Personal selling is a face-to-face paid personal communication and aims to
inform and persuade prospects and customers to purchase products, services, or accept ideas of
issues. It involves more specific communication aimed at one or several persons

Example: Insurance companies, Eureka Forbes, some cosmetics brands, etc. use personal
selling. Personal selling is most effective but also more expensive than other promotion mix
elements. It provides immediate feedback, allowing sellers to adjust their sales messages to
improve the impact on customers. Personal selling helps sales people to determine and respond to
customers’ information needs and also interpret body language.
Public Relations and Publicity: Public relations is a broad set of communication activities
employed to create and maintain favourable relationships with employees, shareholders, suppliers,
media, educators, potential investors, financial institutions, government agencies and officials, and
society in general, such as annual reports, brochures, events sponsorship, sponsorship of various
programmes beneficial for society.

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Publicity is a tool of public relations. It is non-personal mass communication, but not paid for by
the benefiting organisation for the media space or time. It appears in the form of news story about
an organisation, its products, or activities. Some common tools of publicity include news releases,
press conferences, and feature articles.
Unpleasant situations arising as a result of negative events may precipitate unfavourable public
reactions for an organisation. To minimise the negative effects of such situations leading to
unfavourable coverage, companies have policies and procedures in place to manage help any such
public relations problems

Direct Marketing: Direct marketing is vending products to customers without the use of channel
members. It is a system by which firms communicate directly with target customers to generate the
response or transaction. The response may be to generate an inquiry, a purchase, or even a vote.
Direct marketing uses a set of direct-response media, such as direct mail, telephone, interactive TV,
print, Internet, etc. Through these media, direct marketers implement the communication process.

Most companies use primarily conventional promotion mix elements to move products through
intermediaries, many companies are adopting direct marketing as well to reach customers directly
to generate immediate behavioural response
Example: Suppose you own a business that sells automobiles – cars, trucks, vans and SUV’s. You
have an active database of customers that have purchased from you in the past and you know who
your customers are – who purchased a car, who purchased a truck, and so on. You then develop
specific communications to the different segments of that database. That is one of the examples of
direct marketing.

13.3 Selection of Promotional Mix

Different organisations vary in their composition of promotion mix. No matter which element of
promotion mix or a combination they choose, they aim to inform, persuade, or move customer
closer for making a buying decision. Depending on the type of customers and the kind of product,
consumers sometimes rely to some extent on word-of-mouth communication from personal
sources.
Product Characteristics: Promotion mix for non-durable consumer products includes
advertising, sales promotion, personal selling, and public relations. Many other products used both
by personal consumers and also by industrial buyers such as computers, get advertising, sales
promotion, and personal selling. Advertising and personal selling are used for many consumer
durable products such as home appliances, autos, tractors, housing, etc. Industrial products, such
as aircraft and heavy earth-moving and construction equipment are mainly sold through personal
selling. Product life cycle stage is another consideration.
During the introductory stage, advertising and publicity are most cost-effective. Advertising and
publicity are powerful tools for creating awareness. Personal selling is very helpful in creating
comprehension among consumers and gaining distribution coverage. Sales promotion can induce
trial during introductory stage of life cycle. During growth and maturity stages of consumer
products, heavy emphasis on advertising becomes necessary and in some cases sales promotion is

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also used. Industrial products during these stages often require personal selling coupled with sales
promotion. During decline stage, firms generally decrease promotional support, particularly
advertising.

Market Characteristic: This aspect is particularly important for industrial products. Allocation of
promotional funds in order of priority goes to personal selling, advertising, sales promotion, and
public relations. If business buyers are located only in certain geographic areas, and are large
buyers then personal selling is more cost effective. Companies operating in consumer markets,
allocate more funds to sales promotion, advertising, personal selling, and public relations in order
of priority. Generally, personal selling is more appropriate for high involvement expensive,
complex, and risky products
Pull and Push Strategies: Promotion mix decisions also depend on the choice of promotion
strategy. In case of pull strategy, a marketer directs its communications to consumers to develop
strong consumer demand for the product or service. This is primarily accomplished through
advertising and sales promotion. This induces consumers to ask resellers of the product. Retailers
in turn go to wholesalers or the producer to buy the products. This strategy intends to pull the
goods down through the channel by creating demand at the consumer level. This strategy suits
strong high-involvement brands, when consumers perceive high differentiation between brands,
and the brand choice is made before going to the store. With push strategy, the manufacturer
promotes the product only to the next institution down the marketing channel. Each channel
member promotes to the next channel members down the line. This strategy usually involves using
personal selling and trade sales promotions to motivate resellers to stock the product and sell the
product to consumers. In certain cases, retailers pass on part of the benefit to consumers to clear the
stocks early. Push strategy is suitable when the brand loyalty is low, consumers are aware of brand
benefits, and purchase decisions are made in the store.

Promotion is an Act of Communication

1. The word “communication” is based on the Latin word meaning “COMMON”. Thus the term
communication has come to mean sharing something of common use.
2. Since marketing communications aim at influencing consumer behaviour in favour of the firm’s
offerings, these are persuasive in nature. These persuasive communications are more commonly
called “PROMOTION” and constitute one of the 4 Ps of the marketing mix.
3. Modern marketing calls for more than developing a good product, pricing it correctly and
making it easily available to the customer. The company that wants more than ‘walk-in’ sales must
develop an effective program of communication and promotion
. 4. Persuasive communication is said to take place when a communicator very consciously
develops his messages to have a calculated impact on the attitude and/or behaviour of a target
audience

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Objectives of Promotion
1. To increase sales
2. To increase market share
3. To build brand loyalty
4. To build product differentiation in customers’ mind

13.4 Integrated Marketing Communication Process:

For many years, the promotional function in most companies was dominated by mass media
advertising. Companies relied primarily on their advertising agencies for guidance in nearly all
areas of marketing communication. Most marketers did use additional promotional and marketing
communication tools, but sales promotion and direct marketing agencies were generally viewed as
auxiliary services, and often used on a project basis.
Public relations agencies were used to manage the organization’s publicity, image, and affairs
with the relevant publics on an ongoing basis, but were not viewed as integral participants in the
marketing communications process. These companies fails to recognise that the wide range of
marketing and promotional tools must be co-coordinated to communicate effectively and present a
consistent image to target markets.
During the 1990s, many companies came to see the need for more of a strategic integration of their
promotional tools. These firms began moving toward the process of integrated marketing
communications (IMC), which involves coordinating the various promotional elements and other
and marketing activities that communicate with a firm's customers. As marketers embraced the
concept of integrated marketing communications, they began asking their ad agencies to coordinate
the use of a variety of promotional tools rather than relying primarily on media advertising.
A number of companies also began to look beyond traditional advertising agencies and use other
types of promotional specialists to develop and implement various components of their
promotional plans. A task force from the American Association of Advertising Agencies (the
“4As”), developed one of the first definitions of integrated marketing communications: A concept
of marketing communications planning that recognizes the added value of a comprehensive plan
that evaluates the strategic roles of a variety of communication disciplines-for example, general
advertising, direct response, sales promotion, and public relations-and combines these disciplines
to provide clarity, consistency, and maximum communications impact.
The 4As’ definition focuses on the process of using all forms of promotion to achieve maximum
communication impact. It requires that firms develop a total marketing communications strategy
that recognizes how all of a firm's marketing activities, not just promotion, communicate with its
customers. Consumers’ perceptions of a company and/or its various brands are a synthesis of the
bundle of messages they receive or contacts they have, such as media advertisements, price,
package design, directmarketing efforts, publicity, sales promotions, websites, point-of-purchase
displays, and even the type of store where a product or service is sold. The integrated marketing
communications approach seeks to have a company’s entire marketing and promotional activities
project a consistent, unified image to the marketplace. It calls for a centralized messaging function
so that everything a company says and does communicates a common theme and positioning. The
IMC approach helps company identify the most appropriate and effective methods for
communicating and building relationships with their customers as well as other stakeholders such
as employees, suppliers, investors, interest groups and the general public.
Integrated marketing communications (IMC) is the strategy that takes your marketing department
from disparate functions to one interconnected approach. IMC takes your various marketing
collateral and channels — from digital, to social media, to PR, to direct mail — and merges them
with one dependable message.
Integrated marketing communications are beneficial to multiple audiences. First, it helps your
consumer better trust your company and its values. Next, it’s beneficial for the stakeholders in your
organization. Integrated marketing is an approach to creating a unified and seamless experience for
consumers to interact with the brand/enterprise; it attempts to meld all aspects of marketing
communication such as advertising, sales promotion, public relations, direct marketing, and social
media, through their respective mix of tactics, methods, channels, media, and activities, so that all
work together as a unified force.

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It is a process designed to ensure that all messaging and communications strategies are consistent
across all channels and are centered on the customer.

Examples of IMC
1. Always #LikeAGirl

Feminine care brand Always wanted to target the next generation of consumers. The company
noticed an opportunity to support girls as they transition from puberty to young women, according
to a case study from Design and Art Direction (D&AD), a British charity that promotes excellence
in design and advertising.
“We set out to champion the girls who were the future of the brand,” Judy John, CEO and chief
creative officer of advertising firm Leo Burnett Canada, told D&AD. “Girls first come in contact
with Always at puberty, a time when they are feeling awkward and unconfident-a pivotal time to
show girls the brand’s purpose and champion their confidence.”
Research discovered that more than one-half of women claimed they experienced a decline in
confidence at puberty. The Always creative team was drawn to the derogatory phrase “like a girl”
and developed an integrated marketing campaign to transform it to a phrase of empowerment. The
campaign uses television, print and social media, but the centerpiece of #LikeAGirl is a video
created by documentary filmmaker Lauren Greenfield. It led to the following results, according to
D&AD.
The film generated more than 85 million views on YouTube from more than 150 countries.
Prior to watching the film, 19 percent of 16- to 24-year-olds had a positive association toward “like
a girl.” After watching, 76 percent no longer saw the phrase negatively.
Two out of three men who watched the film said they’d now think twice before using “like a girl”
as an insult.
The campaign won D&AD awards across eight categories and generated considerable global
awareness.

2. Dominos Anyware:
Pizza restaurant chain Domino’s created the “AnyWare” campaign to help people order food in
more convenient ways. Domino’s AnyWare allows customers to order with a tweet, a text, Ford
Sync, smart televisions and smart watches.
The idea was possible because two years prior to AnyWare, Domino’s established Pizza Profiles,
which save customers’ payment information, addresses and an Easy Order. The Easy Order is a
customer’s favorite food order that includes preferred payment method, order type (delivery or
carryout) and address or favorite store.
Domino’s deployed press releases, a national television campaign and more to drive customers
to AnyWare.Dominos.com, where they can learn about new ways to order. This successful
campaign led to the following results, according to Shorty Awards, a social media awards show.

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The AnyWare campaign generated 2 billion earned media impressions, including segments on
Jimmy Fallon, Ellen and the Today Show.
The AnyWare website received more than 500,000 visits.
The AnyWare television campaign, which ran during the entire third quarter in 2015, generated
10.5 percent year-over-year sales growth.
The AnyWare campaign helped Domino’s achieve its goal of having half of all orders be made
digitally.

13.5 Factors Effecting Choice of Promotion Mix:

Everything you need to know about the factors affecting promotion mix. A business’s total
marketing communications programme is called the “promotional mix”.
It consists of a blend of advertising, personal selling, sales promotion and public relations tools. The
particular way in which a marketer combines promotional activities is known as promotion mix.
Designing a proper promotion mix is called promotional strategy. There are many factors which
influence promotion mix. These factors are called product-market factors.
The factors affecting promotion mix can be studied under the following heads:

1. Product Related Factors

2. Customer Related Factors
3. Organisation Related Factors.
The factors affecting promotion mix are:-
1. Nature of the Product 2. Nature of the Market 3. Stages in the Product Life Cycle 4. Market
Penetration 5. Market Size 6. Characteristics of Buyers 7. Distribution Strategy 8. Pricing Strategy
9. Cost of Promotion 10. Availability of Funds 11. Effectiveness of Promotional Tools 12. Nature of
Technique 13. Readiness of Buyer 14. Promotional Strategy 15. Co-Ordination with Other Elements
of Marketing Mix and a Few Others.

1. Nature of the Product:

Promotion mix will vary according to the nature of the product. Consumer goods require mass
advertisement. But industrial goods require personal selling, advertising, displays etc. Complex
and technical products like computer need personal selling.
Non-technical products require advertising as promotional device. In case where there is no brand
differentiation personal selling should be the method of promotion. Where there is brand
differentiation advertising should be emphasized.

2. Nature of the Market:

For industrial market, advertising plays an informative role, but for consumer market it plays as
informative as well as persuasive role. The promotion strategy varies with the target groups
depending on age, sex, education, income, religion etc.

3. Stages in the Product Life Cycle:

The marketing objectives and strategies are different at each stage of the product in its life cycle.
During the introductory stage intensive advertising and personal selling are required for effecting
product awareness.
During growth stage advertising should be extended to maximize the market share. During
maturity stage persuasive advertising and sales promotion techniques are beneficial. But at the
declining stage advertisement and sales promotion are reduced to the minimum.

4. Market Penetration:
A product having good market penetration is well-known to the buyers. In that situation,
middlemen are motivated to spend more an advertising.

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5. Market Size:
It there is limited number of buyers, direct selling is enough. But if the market size is large the
promotional tool is mainly advertising.

6. Characteristics of Buyers:
Experienced buyers of industrial product need personal selling. The experience of buyers, the time
available for purchase, influence of friends, retailers etc. are the factors affecting promotion mix.

7. Distribution Strategy:
If the products are directly sold by the manufacturer personal selling is the tool of promotion.
Advertising is only a supporting tool. Personal selling and advertising is required for market
penetration. If the product passes through a longer channel more importance should be given to
advertising and less importance to personal selling.

8. Pricing Strategy:
Pricing influences promotion strategy. If the brand is priced higher than the competitor’s price,
personal selling is used. If the price is comparatively low only little promotion is needed. If the
middlemen are allowed higher profit margin, sales promotion at dealer level is important.

9. Cost of Promotion:
The cost of the media of advertising and sales promotion tools should also be considered while
deciding the promotional mix.

10. Availability of Funds:

If the funds are adequate the firm can spend more for advertising and sales promotion. But small
firms with limited resources can depend on personal selling.
Designing a proper promotion mix is called promotional strategy. There are many factors which
influence promotion mix. These factors are called product-market factors.
These factors are briefly explained below:

Factor # 1. Nature of Product:

Promotion mix will vary according to the nature of the product. Consumer goods like grocery
items, drugs etc. require mass advertisement. Industrial goods like machine tools require personal
selling, advertisement, publicity, display at industrial fairs, etc. Convenience goods require
salespersons to sell. Specialty goods like refrigerators require good amount of personal selling to
dealers and retailers. Complex and technical products like computer requires personal selling.
Simple and non-technical products require advertisement. When a producer’s brand is not
differentiated from that of competitor’s (e.g., sugar), the producer has to depend on personal
selling. If the product brands are differentiated (e.g., Ponds and Lakme), the producers have to
depend upon advertising.

Factor # 2. Nature of Market:

Nature of market and customers determines, to a great extent, the promotional mix of a firm. For
instance, if the customers are concentrated in a particular locality, personal selling is likely to be
more effective. But if they are scattered widely in different parts of the country, advertising
publicity, sales promotion and personal selling—all are necessary to push up a product.
Advertisement and publicity are also important to attract the status- conscious customers.

Factor # 3. Stage of Product’s Life Cycle:

The stage of a product’s life cycle is an important determinant of promotion mix. During the
introduction stage, the customers are to be informed about the availability of the product and
educated about its benefits and uses. That is why, most of the firms make use of all kinds of
promotional activities to launch their products successfully.
After the product has been launched, advertisement and publicity are more important to create
continued patronage of the customers, to create a good image of the product and its manufacturer
and to meet competition in the market. But during the last stage of the product when its sales are
declining, it may be decided to make drastic cuts on promotional efforts.

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Factor # 4. Availability of Funds:

The allocation of funds by the top management for the promotional activities must be kept in mind
by the marketing manager while determining the promotional mix of a firm. A firm with huge
promotional budget can spend on all promotional activities.
But a firm with financial constraints will be selective in the use of promotional activities. Personal
selling is cheaper and more effective in the short-run. Advertising in reputed magazines and
journals is very costly, but can attract the status conscious customers towards the product of the
firm.

Factor # 5. Distribution Strategy:

Companies having market penetration depend on both personal selling and advertising.
Companies having market penetration directly depend heavily on personal selling and advertising
plays a supporting role. If the product passes through a longer channel of distribution, the marketer
will have to give more importance to advertising and less importance to personal selling.

Factor # 6. Pricing Strategy:

Pricing strategy influences the promotion mix in two ways. Firstly in terms of the price of the
competitor’s brand and secondly in terms of the margin allowed to the middle-men. If the brand is
priced higher than the competitors’ price, personal selling is adopted.
If the brand is priced lower than the competitors’ price, only little promotion is needed. If the
middlemen are allowed higher profit margin, the middlemen are motivated to stock and push the
brand and very little advertisement may be required. If profit margin is lower, heavy advertisement
will be required.

Factor # 7. Effectiveness of Promotional Tools:

Different promotional tools are effective at different stages of buyer readiness. At the awareness
stage, advertising and publicity are more effective. At the comprehension stage, advertising and
personal selling lay a greater role. During the conviction stage, personal selling is very effective.
Personal selling and sales promotion are highly effective at closing the sale stage. Thus, advertising
and publicity are more effective during the early stages of the customer buying decision process,
whereas personal selling and sales promotion are more effective during the later stages of the
customer buying decision process.

13.6 Communication Process

The Communication is a two-way process wherein the message in the form of ideas, thoughts,
feelings, opinions is transmitted between two or more persons with the intent of creating a shared
understanding.
Simply, an act of conveying intended information and understanding from one person to another is
called as communication. The term communication is derived from the Latin
word “Communis” which means to share. Effective communication is when the message conveyed
by the sender is understood by the receiver in exactly the same way as it was intended.

Communication Process
The communication is a dynamic process that begins with the conceptualizing of ideas by the
sender who then transmits the message through a channel to the receiver, who in turn gives the
feedback in the form of some message or signal within the given time frame. Thus, there are Seven
major elements of communication process:

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Sender: The sender or the communicator is the person who initiates the conversation and has
conceptualized the idea that he intends to convey it to others.
Encoding: The sender begins with the encoding process wherein he uses certain words or non-
verbal methods such as symbols, signs, body gestures, etc. to translate the information into a
message. The sender’s knowledge, skills, perception, background, competencies, etc. has a great
impact on the success of the message.

Message: Once the encoding is finished, the sender gets the message that he intends to convey.
The message can be written, oral, symbolic or non-verbal such as body gestures, silence, sighs,
sounds, etc. or any other signal that triggers the response of a receiver.

Communication Channel: The Sender chooses the medium through which he wants to convey his
message to the recipient. It must be selected carefully in order to make the message effective and
correctly interpreted by the recipient. The choice of medium depends on the interpersonal
relationships between the sender and the receiver and also on the urgency of the message being
sent. Oral, virtual, written, sound, gesture, etc. are some of the commonly used communication
mediums.
Receiver: The receiver is the person for whom the message is intended or targeted. He tries to
comprehend it in the best possible manner such that the communication objective is attained. The
degree to which the receiver decodes the message depends on his knowledge of the subject matter,
experience, trust and relationship with the sender.

Decoding: Here, the receiver interprets the sender’s message and tries to understand it in the best
possible manner. An effective communication occurs only if the receiver understands the message
in exactly the same way as it was intended by the sender.

Feedback: The Feedback is the final step of the process that ensures the receiver has received the
message and interpreted it correctly as it was intended by the sender. It increases the effectiveness
of the communication as it permits the sender to know the efficacy of his message. The response of
the receiver can be verbal or non-verbal.

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Summary
Advertising and other forms of promotion are an integral part of the marketing process in most
organisations. Over the past decade, the amount of money spent on advertising, sales promotion,
direct marketing, and other forms of marketing communication has increased tremendously, both
in India, and in other foreign markets. To understand the role of advertising and promotion in a
marketing program, one must understand the role and function of marketing in an organisation.
The basic task of marketing is to combine the four controllable elements, known as the marketing
mix, into a comprehensive program that facilitates exchange with a target market. The elements of
the marketing mix are the product or service, price, place (distribution), and promotion. For many
years, the promotional function in most companies was dominated by mass media advertising.
However, more and more companies are recognising the importance of integrated marketing
communications, coordinating the various marketing and promotional elements to achieve more
efficient and effective communication programs. A number of factors underlie the move toward
IMC by marketers as well as ad agencies and other promotional facilitators. Reasons for the
growing importance of the integrated marketing communications perspective include a rapidly
changing environment with respect to consumers, technology, and media. The IMC movement is
also being driven by changes in the ways companies market their products and services. Promotion
is best viewed as the communication function of marketing. It is accomplished through a
promotional mix that includes advertising, personal selling, publicity/public relations, sales
promotion, direct marketing, and interactive/Internet marketing. The inherent advantages and
disadvantages of each of these promotional mix elements influence the roles they play in the overall
marketing program. In developing the promotional program, the marketer must decide which tools
to use and how to combine them to achieve the organisation’s marketing and communication
objectives. Promotional management involves coordinating the promotional mix elements to
develop an integrated program of effective marketing communication.

Keywords
Advertising, promotion , direct selling , communication process, integrated marketing
communication ,promotion Mix, personal selling , public relations, publicity

Self Assessment

1. ___________ refers to the use of communication with the twin objectives of informing

potential customers about product and persuading them to buy it.

A. Promotion
B. Promotion Mix
C. Advertising
D. Marketing Mix

2. Promotion involves disseminating information about the __________, product line, brand or

company.

A. Rivals
B. Promotion
C. Products
D. Discounts

3. Objectives of Promotion is:

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A. Build awareness
B. Create Interest
C. Provide Information
D. All the above

4. Specific Combination Of Promotion methods such as print or broadcast advertising , direct

marketing, personal selling , point of sale display, merchandising etc used for one product

or a family of products. This is called as ____________.

A. Promotion Mix
B. Marketing Mix
C. Product Mix
D. Advertising Mix

5. _________________ is referred to the short term incentives , which are designed to encourage

the buyers to make immediate purchase of a product or service.

A. Sales Promotion
B. Advertising Promotion
C. Sales Mix
D. Market Mix

6. __________________ is an approach to creating a unified and seamless experience for

consumers to interact with the brand/enterprise; it attempts to meld all aspects of marketing

communication such as advertising, sales promotion, public relations, direct marketing, and

social media, through their respective mix of tactics, methods, channels, media, and

activities, so that all work together as a unified force.

A. Integrated marketing
B. Relationship Marketing
C. Distributive Marketing
D. Promotion Mix

7. Benefits of IMC are :

A. Effective and cost effective

B. Integrated marketing is everywhere
C. It builds a relationship
D. All the above

8. Risks of integrated marketing campaignsare :

A. Reluctance within management teams

B. Restriction of ideas
C. None of the above

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D. Both the above

9. Elements of Promotion Mix are :

A. Advertising
B. Sales Promotion
C. Personal selling
D. All the Above

10. Factors affecting choice of Promotion Mix

A. Stage in product Life Cycle

B. Type of product
C. Type of purchase Decision
D. All the Above

11. The _________ in the product life cycle also affects the type and amount of promotion used.

A. Stage
B. Product
C. Mix
D. Elements

12 .Very technical products and very expensive products also known as _____________ often

need professional selling so the customer understands how the product operates and its

different features.

A. High involvement
B. Low Involvement
C. time consuming
D. Luxury Products

13. Different types of consumers prefer different types of media. In terms of target markets,

college-aged students may prefer online, over _______ medium.

A. Offline
B. Direct
C. Indirect
D. Executive

14. Ikea Uses which all elements of Promotion:

A. Hyper Localized Campaigns

B. Guerrilla marketing
C. Freebies
D. All the above

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15. A product can be a physical commodity, a service or an experience. It plays important role

in the marketing mix, such as:

A. It plays a key role in satisfying the customer’s needs

B. Product differentiation is an important part of competitive strategy
C. Both A&B
D. None

16. Integrated marketing communications produces better communications ________ and

greater ________ impact.

A. consistency; sales
B. sales; consistency
C. marketing; competitive
D. variety; production

17. While designing the communication, how to say it part is termed as

A. Message strategy

B. Creative strategy

C. Message source

D. None of the above

Answer for Self Assessment

1. A 2. B 3. D 4. A 5. A

6. A 7. D 8. D 9. D 10. D

11. A 12. A 13. A 14. D 15. C

16 A 17 B

Review Questions
1. Discuss the role integrated marketing communications plays in relationship marketing.
Give an example of a company, which is following the strategy of integrated marketing
communication.
2. Discuss how the integrated marketing communications perspective differs from
traditional advertising and promotional. What are some of the reasons more marketers
and more companies are taking an integrated marketing communications perspective in
their advertising and promotional programs.

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3. Discuss the role of direct marketing, sales promotion, and Internet in the integrated
marketing communications program of a company.
4. Why is it important for those who work in the field of advertising and promotion to
understand and appreciate various integrated marketing communications tools, not just
the area in which they specialize?
5. Define the various tools for integrated marketing communications in brief giving their
strengths and limitations.
6. Define The following: (i) relationship marketing (ii) marketing mix (iii) promotional
management (iv) developing the integrated marketing communications program
7. Explain the various stages involved in the integrated marketing communication
process.

Further Readings
Rajan Saxena, Marketing Management, Tata McGraw Hill, 2002.
Ramasamy & Namakumari, Marketing Management, Macmillan India, 2002.
Ramphal and Gupta, Case and Simulations in Marketing, Galgotia, Delhi.
S. Jayachandran, Marketing Management, TMH, 2003. Saroj Dutta, Marketing
Sense, Excel Books, New Delhi.
SHH Kazmi, Marketing Management, Excel Books, New Delhi.

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Dr. Pretty Bhalla, Lovely Professional University Unit 14: Trends in Marketing

Unit 14: Trends in Marketing

CONTENTS
Objective
Introduction
14.1 Service Marketing
14.2 Service Marketing Mix:
14.3 Concept of Service Marketing Triangle
14.4 E-marketing
14.5 Green Marketing
14.6 Importance Of Green Marketing:
14.7 Customer Relationship Management:
14.8 Rural Marketing:
14.9 4 A Rural Marketing Approach
14.10 Ethics in marketing
14.11 Ethical Issues and 4 P’s Of marketing:
Summary
Keywords
Self Assessment
Answers for Self Assessment
Review Questions
Further Readings

Objective
understand basic concepts about service marketing, e marketing, green marketing, CRM.
Understand Rural marketing
Understand Ethics in marketing

Introduction
Sustainable marketing is way of marketing that combines the needs of the customer, the
organization and the society, in general, over a long term. It means designing and marketing
products and services that can be used unanimously by all the consumers across the globe over
long periods, without causing any harm to the consumers or the environment. It is becoming more
common for companies to achieve this status to generate favorability amongst their customers.
However, there are no strict guidelines that can categorize a company as a sustainable company.
Some authors associate sustainable marketing with concepts like social responsibility and ethical
marketing. These concepts are based on the thought that the company’s task is to determine the
needs, wants and interests of the target markets and to deliver the desired level of satisfaction in an
efficient manner. Preserving or enhancing the consumer’s and society’s well-being is the key. In this
unit, you are going to learn about the ethical and social responsibility issues in marketing

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14.1 Service Marketing

Services are a special form of product which consists of activities, benefits or satisfactions offered
for sale that are intangible and do not result in the ownership of anything. Without doubt, services
have grown dramatically in recent years, and are growing quickly in the world economy, becoming
more and more important
These characteristics of services can be arranged on a continuum similar to the tangibility spectrum.
That is, services tend to be more heterogeneous, more intangible and more difficult to evaluate than
goods, but the differences between goods and services are not black and white by any means.

1. Intangibility

The most basic distinguishing characteristic of service in intangibility. Because service are
performance or actions rather than objects, they cannot be seen, felt, tasted, or touched in the same
manner that you can sense tangible good.
For example health care service are actions performed by providers and directed towards patients
and their families. These services cannot be seen or touched by the patient, although the patient
maybe able to see and touch certain components of the service

Resulting Marketing Impact, Intangibility presents several marketing challenges. Services cannot
be inventoried and therefore fluctuations in demand are often difficult to manage.

2. Heterogeneity

Because services are performances, frequently produced by humans, no two services will be
precisely alike. The employees delivering the service frequently are the service in the customer’s
eye, and people may differ in their performance day to day. Heterogeneity occurs in the case of
customers no two customers are the same.

Resulting Marketing Impact, Because service often are produced and consumed at the same time,
mass production is difficult. The quality of service and customer satisfaction will be highly
dependent on what happens in “real time,” including actions of employees, the interactions

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between employees and customers, the interactions between employee and customers, and
interactions among customers themselves.

3. Simultaneous Product and Consumption

This is very different from a manufacturing situation. In most manufacturing operations, there are
inventories between each stage of production, and a finished goods inventory which can be
increased or decreased as demand fluctuates.
Take, for example, a production process that involves three stages. We start with our raw materials
and begin our production process. When we get to the end of stage one we have semi-finished
goods that go into an inventory.
We would then do more production of these semi-finished goods (or sub-assemblies). At the end of
this stage, they would become finished goods and would go into the finished goods inventory.
They would then go to a retail inventory, onto a shelf in a retail outlet, and finally to the consumer.
The semi-processed and finished goods might be in inventories for a considerable amount of time
(in most operations — one aspect of Lean is to minimize Inventory). There would be a considerable
lag between the time the product was produced and the time it was consumed.
In a Service operation, there are no lags as there are in Manufacturing. Indeed, there is almost a co-
creation of the product between the manufacturer and the customer.
4. Perish ability

Perish ability is used in marketing to describe the way in which a service capacity cannot be stored
for sale in the future. Services cannot be stored, saved, returned, or resold once they have been
used. Once rendered to a customer, the service is completely consumed and cannot be delivered to
another customer.
Resulting Marketing Impact, A primary issue that marketers face in relation to service perish ability
is the inability to inventory. Demand forecasting and creative planning for capacity utilization are
there for important and challenging decision areas.

5. Search, Experience and Credence Qualities

One framework for isolating differences in evaluation process between goods and services is a
classification of properties of offering proposed by economists. Economists first distinguished
between two category of properties of products: search qualities, attribute that a customer can
determine before purchasing a product, and experience qualities, attributes that can be discerned
only after purchase or during consumption.

6. Service Marketing Mix

The marketing mix concept gained popularity following an article titled “The Concept of the
Marketing Mix” by Neil Borden published in 1964. Borden explained how he started using the term
inspired by James Culliton who in the 1940s described the marketing manager as a ‘mixer of
ingredients.’ Borden’s article detailed these ingredients as product, planning, price, branding,
distribution, display, packaging, advertising, promotions, personal selling among many others. “Its
elements are the basic, tactical components of a marketing plan”. Together, elements in these four
categories help develop marketing strategies and tactics.

Tangibility Spectrum:

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In the explanation given above about the characteristics of services, we found that intangibility is a
main determinant of whether an offering is a service. Though this is a reality, we cannot neglect the
fact that very few products are purely intangible or totally tangible. On the other hand, we can say
that services tend to be more intangible than manufactured physical products, and manufactured
products tend to be more tangible than services.
For example, Domino’s, PIZZA HUT and McDonald’s belong to the fast-food industry and are
classified as services. But these also have many tangible compliments such as the pizza, burger,
French fries, soft drinks, etc., which the customer can own, touch, taste and eat. The attractive
packaging is another tangible element of fast food service. Motorcycles and cars are classified as
manufactured physical products which are tangible. Yet, they include some intangibles like
transportation, seating comfort, driving comfort, etc. The tangibility spectrum shown in Figure 1.1
captures this idea. There are very few “pure services” or “pure goods”.

14.2 Service Marketing Mix:

The service marketing mix is also different from marketing mix of tangible products. It isn’t limited
to the 4 ps. A service requires people to perform the tasks which becomes the 5th P. Physical
evidence is the 6th P, and the process of the service is the 7th P of the service marketing mix.
Marketing of products has 4 ‘P’ dimensions, viz., Product, Price, Promotion and Place. These are
used in specific combination to arrive at the marketing strategy. Services’ marketing has three
additional dimensions over and above the 4 Ps – People, Physical evidence and Process – making
the requirements as 7 ‘P’s. The different elements of services marketing mix are explained below

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Product
A product is something which satisfies the needs and wants of the customer. It is the actual item
which is held for sale in the market. Product mix constitutes the combination of all the services for
sale in the market.
For example, the product mix of a saloon will be the combination haircut service, manicure and
pedicure service, facial, shaving etc.
The life cycle of services is same as that of a product as it starts from the day it was first thought
until the time it is finally removed from the market.

Price
Price is the amount which the customer pays for the product. But unlike goods pricing, pricing of
services are a bit different and a bit difficult. Price of a service include the actual costs of goods used
(if any), process costs (labour costs + overheads) and profits.
Just like goods, businesses can decide from one of these practices for pricing
Penetration Pricing (low price kept to capture market share)
Skimming Pricing (high price initially then lowering of price)
Competition Pricing (pricing at par of competition)
Pricing decides the position of the product among the competition.

Place
Place mix is deciding where and how the services will be available to the customers at the right
time and at the right place to result in maximum advantage to the business.
Unlike goods, services cannot be separated from its provider and are provided where its provider
is. But the same services can be performed by different providers. For example, a different franchise
of the same salon provides same services.

Promotion
A business has to convey about its offering and its USP to the customer. It is what keeps it alive in
this competitive environment. The promotion mix decides the marketing communication
techniques, strategies, and mediums used. The medium includes:

• Advertising
• Branding

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• Personal Selling
• Sales Promotion
• Public Relations
• Direct Marketing, and
• Social Media Outreach

People
Services are inseparable from the provider. These providers form the people of the service
marketing mix. For example, the chef in the restaurant, a banker in the bank, an air hostess in the
flight, etc.
Companies spend much time in selecting and training their staff and every other person who
represents the company to the customer.

Physical Evidence
Services are intangible. But they are often provided along with many tangible elements. Physical
evidence includes the environment/place where the service is provided and any tangible elements
that facilitate the performance or communication of the service. It’s the tangible part which is more
or less complementary to the service. For example, a physical evidence mix of a premium saloon
will include the staff’s uniform, a good ambience created by playing nice music and spraying good
room freshener, etc

Process
The actual mechanism involved in delivering a service is the process. It’s the route of the actual
product from the provider to the user. For example, a bank has a definite process for its every
operation (to deposit a cheque, to withdraw money, to change your address, etc.).
Since services are diverse, processes involved in carrying out those services are also diverse.
Process can be involved in planning and/or in the execution. But it is always involved in carrying
out a service.
Process results in uniformity. Hence process is an essential of the services marketing mix.

14.3 Concept of Service Marketing Triangle

Services marketing is about promises – promises made and promises kept to customers. A strange
framework known as the services triangle visually reinforces the importance of people in the ability
of firms to keep their promises and succeed in building customer relationships.

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The triangle shows the three interlinked groups that work together to develop, promote and deliver
services. These key players on the points of the triangle are:
1. The Company (or SBU or department or management)
2. The Customers
3. The Providers (employees of the service company, sub-contractors, dealers or outsourced entities
who deliver the company’s services) Between these three points on the triangle, three types of
marketing must be successfully carried out for a service to succeed external marketing, interactive
marketing and internal marketing. On the right side of the triangle are the external marketing
efforts that the firm engages in to set up its customers’ expectations and make promises to
customers regarding what is to be delivered. Anything or anyone that communicates to the
customers before service delivery can be viewed as part of this external marketing function. But
external marketing is just the beginning for services marketers. Promises made must be kept. On
the bottom of the triangle is what has been termed interactive marketing or real-time marketing.
Here is where promises are kept or broken by the firm’s employees, sub-contractors, or agents.
People are critical at this stage. If promises are not kept, customers become dissatisfied and
eventually leave. The left side of the triangle suggests the critical role played by internal marketing.
The management engages in these activities to aid the providers in their ability to deliver on the
service promise: recruiting, training, motivating, rewarding and providing equipment and
technology. Unless service employees are able and willing to deliver on the promises made, the
firm will not be successful and the services triangle will collapse. All the three sides of the triangle
are essential to complete the whole, and the sides of the triangle should be aligned. What is
promised through external marketing should be the same as what is delivered. The enabling
activities inside the organization should be aligned with what is expected of service providers.
Many strategies are available for practice by service marketers for aligning the service triangle.

14.4 E-marketing
E-Marketing (Electronic Marketing), also known as Internet Marketing, Web Marketing, Digital
Marketing, or Online Marketing, is marketing done through the internet on online channels. E-
marketing is the process of marketing a product or service offering using the Internet to reach the
target audience on smartphones, devices, social media etc.. E-marketing not only includes
marketing on the Internet, but also includes marketing done via e-mail and wireless media. It uses a
range of technologies to help connect businesses to their customers.
Like many other media channels, e-marketing is also a part of integrated marketing
communications (IMC), which helps a brand grow across different channels. E-marketing has
become a pivotal tactic in the marketing strategy adopted by companies using several digital media
channels.

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Importance of E-marketing
In modern times where most of the work and transactions are happening through online channels,
it becomes every important for marketers to reach out to customers through right channels.
Smartphones, tablets, smart TVs, laptops are being used globally to run businesses and buy and sell
goods. E-marketing helps in reaching out to your audience on these channels along with traditional
offline channels as well. Sometimes for some offerings, e-marketing is the only viable option.
E-marketing is very transparent in terms of its effectiveness as compared to offline marketing. One
thing which makes e-marketing standout is the ability to measure the impact in real time.
Marketers can see the performance and tweak the messaging accordingly which can be very
effective when compared to offline marketing.
in the times of pandemic, online marketing becomes even more prominent when the offline or
traditional marketing channels cannot deliver the optimum return on value.

Advantages of E-marketing
Certain advantages of e-marketing are discussed as below:
1. Much better return on investment from than that of traditional marketing as it helps increasing
sales revenue.
2. E-marketing means reduced marketing campaign cost as the marketing is done through the
internet
3. Fast result of the campaign as it helps to target the right customers.
4. Easy monitoring through the web tracking capabilities help make e-marketing highly efficient
5. Using e-marketing, viral content can be made, which helps in viral marketing.

Types of e-marketing
There are several ways in which companies can use internet for marketing. Some ways of e-
marketing are:
1. Article marketing
2. Affiliate marketing
3. Video marketing
4. Email marketing/Newsletters
5. Blogging
6. Content marketing
7. Podcasts
8. Webinars

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All these and other methods help a company or brand in e-marketing and reaching customer
through the internet.

E-Marketing Examples
A good example would be a 360 degree campaign run by companies which include direct and
indirect marketing channels for putting across the message. e-Marketing is used in form of
newsletters, videos, podcasts and webinars which are directly positioned to the potential
customers. Along with that customers also get to know about the company and products through
social media connects, content marketing, thought leadership which are indirect marketing
channels. All these channels are completely online.
These campaigns might also have offline counterparts which also deliver the same message or may
be the entire campaign can be driven by e-marketing. Many companies are now using online
channels extensively for marketing their products.
Apple, Samsung and other major phone manufacturers stream their new product launches across
the globe showing the new features and pricing of the upcoming phones and other devices. Even
gaming industry have many online events where upcoming games are presented to the audience.

14.5 Green Marketing

Green marketing is a category of marketing where products and services are promoted on the basis
of their environmental benefits.
Or Green marketing can be defined as the marketing of eco-friendly products which are not
harmful to the environment and are also produced using eco-friendly production process.

Green marketing is a unique category of marketing in which products are promoted based on their
environmental benefits. The purpose of using the word “Green” is that the production of products
is done without causing any damage to the environment, and also ingredients and packaging of
products are environmental-friendly.
The green marketing term was first introduced in the late 1980s and early 1990s when industries
started showing concern towards the environment in order to attract customers.
And in the present times, green marketing has become one of the most popularly used methods of
marketing because of the degrading condition of environment and climate change. With green

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marketing campaigns, companies show that they are concerned about the environment and are
doing their bit to save the environment.
Green marketing is not only limited to advertising, but it consists of various things such as the
production of eco-friendly products, using sustainable business practices, using eco-friendly
packaging, and creating a marketing campaign that talks about the environment-friendly features
of the products. Making all of these changes makes green marketing an expensive type of
marketing. But green marketing can prove to be beneficial for the company and can provide a
competitive edge over competitors. Because more and more people are becoming concerned about
the environment.
Therefore, they prefer environment-friendly products, and they are even ready to pay high prices
for these products. It is the right choice of marketing for an organization and has many benefits.

14.6 Importance Of Green Marketing:

1. Improves credibility
The first and most important benefit is the improved credibility of the organization. An
organization needs to have an excellent image to draw profits in the long run.
A company with a positive vision in the market will not only attract more customers but also attract
business partners who value its credibility. If you, as an organization looking for methods to
improve the credibility of your organization, then using green marketing is the best option for you.

2. An opportunity to enter a new market

It opens a new market segment for the organization. In order to produce and sell green products,
companies are required to make changes in their production process, replace the material used in
production with eco-friendly material, and are required to opt for environmental-
friendly packaging for the products.
The green market is quite a new market with less competition. You get an opportunity to enter a
new market by adopting green marketing methods.

3. Long-term growth
Opting eco-friendly methods might be expensive initially, but it is worth for long term growth.
Green marketing is a good option for long term growth. Because in the present times, more and
more people prefer eco-friendly products, and their number is going to increase in the future.

4. Offers a Competitive edge

Not every company can offer to turn into an eco-friendly company and change their processes into
eco-friendly processes. Your organization will get a competitive advantage over all those
organizations if you decide to opt for the methods .

5. More room for innovation

When you choose to adopt green marketing, then you are required to recreate your production
process and change your raw material with eco-friendly raw material. This provides you an
opportunity to innovate your product.
Moreover, along with delivering eco-friendly benefits, you can also offer other benefits to your
customers, which will be cherry on the top of a cake.

6. More profit
Eco-friendly methods are expensive, and thus it is ok for you to increase the price of your products.
People don’t mind to pay a little extra as long as they are getting the right quality product and the
satisfaction of doing their part to protect the environment.
Your initial cost of adopting green methods can be recovered in the initial few years. You will
generate more profit than your competitors as people now prefer to buy environment-friendly
products.

7. Good for the environment

The last benefit where the money is not concerned is the benefit of satisfaction that you will get by
saving your environment. We will be leaving a better place for our coming generations to live. Our

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small effort can do huge. Therefore, if you haven’t yet adopted green methods, then it is still not too
late to do so.

14.7 Customer Relationship Management:

The art of managing the organization’s relationship with the customers and prospective clients
refer to customer relationship management.
Customer relationship management includes various strategies and techniques to maintain healthy
relationship with the organization’s existing as well as potential customers. Orgnaizations must
ensure customers are satisfied with their products and services for higher customer retention.
Remember one satisfied customer brings ten new customers with him where as one dissatisfied
customer takes away ten customers along with him.
In simpler words, customer relationship management refers to the study of needs and expectations
of the customers and providing them the right solution.

Need For CRM:

❖ Customer Relationship Management leads to satisfied customers and eventually higher

business every time.
❖ Customer Relationship Management goes a long way in retaining existing customers.
❖ Customer relationship management ensures customers return back home with a smile.
❖ Customer relationship management improves the relationship between the organization and
customers. Such activities strengthen the bond between the sales representatives and
customers.

Steps to Customer Relationship Management

✓ It is essential for the sales representatives to understand the needs, interest as well as
budget of the customers. Don’t suggest anything which would burn a hole in their
pockets.
✓ Never tell lies to the customers. Convey them only what your product offers. Don’t cook
fake stories or ever try to fool them.
✓ It is a sin to make customers waiting. Sales professionals should reach meetings on or
before time. Make sure you are there at the venue before the customer reaches.
✓ A sales professional should think from the customer’s perspective. Don’t only think about
your own targets and incentives. Suggest only what is right for the customer. Don’t sell an
expensive mobile to a customer who earns rupees five thousand per month. He would
never come back to you and your organization would lose one of its esteemed customers.
✓ Don’t oversell. Being pushy does not work in sales. It a customer needs something; he
would definitely purchase the same. Never irritate the customer or make his life hell.
Don’t call him more than twice in a single day.
✓ An individual needs time to develop trust in you and your product. Give him time to
think and decide.
✓ Never be rude to customers. Handle the customers with patience and care. One should
never ever get hyper with the customers.
✓ Attend sales meeting with a cool mind. Greet the customers with a smile and try to solve
their queries at the earliest.

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✓ Keep in touch with the customers even after the deal. Devise customer loyalty programs
for them to return to your organization. Give them bonus points or gifts on every second
purchase.
The sales manger must provide necessary training to the sales team to teach them how to interact
with the customers. Remember customers are the assets of every business and it is important to
keep them happy and satisfied for successful functioning of organization.

14.8 Rural Marketing:

Rural marketing is a process of developing, pricing, promoting, and distributing rural specific
goods and services leading to desired exchange with rural customers to satisfy their needs and
wants, and also to achieve organizational objectives.
The emergence of rural markets as highly untapped potential emphasizes the need to explore them.
Marketers over the past few decades, with innovative approaches, have attempted to understand
and tap rural markets. Some of their efforts paid off and many markets still an enigma. Rural
marketing is an evolving concept, and as a part of any economy, has untapped potential; marketers
have realized the opportunity recently. Improvement in infrastructure and reach, promise a bright
future for those intending to go rural. Rural consumers are keen on branded goods nowadays, so
the market size for products and services seems to have burgeoned.

The rural population has shown a trend of moving to a state of gradual urbanization in terms of
exposure, habits, lifestyles, and lastly, consumption patterns of goods and services. So, there are
dangers on concentrating more on the rural customers. Reducing the product features in order to
lower prices is a dangerous game to play. Rural buyers like to follow the urban pattern of living.
Astonishingly, as per the census report 2003-04, there are total 638365 villages in India in which
nearly 70% of total population resides; out of them 35 % villages have more than 1000 population.
Rural per capita consumption expenditure grew by 11.5 per cent while the urban expenditure grew
by 9.6 per cent. There is a tremendous potential for consumer durables like two-wheelers, small
cars, television sets, refrigerators, air-conditioners and household appliances in rural India.

Concept of Rural Marketing:

The concept of Rural Marketing in India Economy has always played an influential role in the lives
of people. In India, leaving out a few metropolitan cities, all the districts and industrial townships
are connected with rural markets. The rural market in India generates bigger revenues in the
country as the rural regions comprise of the maximum consumers in this country. The rural market
in Indian economy generates almost more than half of the country’s income. Rural marketing in
Indian economy can be classified under two broad categories.

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The concept of rural marketing in India is often been found to forms ambiguity in the mind of
people who think rural marketing is all about agricultural marketing. However, rural marketing
determines the carrying out of business activities bringing in the flow of goods from urban sectors
to the rural regions of the country as well as the marketing of various products manufactured by
the non-agricultural workers from rural to urban areas.
To be precise, rural marketing in India Economy covers two broad sections, namely:
i. Selling of agricultural products in the urban areas
ii. Selling of manufactured products in the rural regions
The rural market in India is not a separate entity in itself and it is highly influenced by the
sociological and behavioural factors operating in the country. The rural population in India
accounts for around 627 million, which is exactly 74.3 percent of the total population.
Conceptually, rural marketing is not significantly different to urban marketing. Marketing manager
has to perform the same tasks, but differently in rural marketing. It can be said that marketing is
not different, but markets (buyers and users).
In rural marketing, a firm has to undergo marketing efforts to satisfy rural segments, which notably
differ from urban segments in some aspects. At the same time, we must note that increasing literacy
rate, improved sources of income, awareness due to improved and increased means of
communication and transportation, high rate of mobility within and between countries due to
liberalization and globalization, and many other such reasons, some customers are likely to be
identical.

Define Rural:
The National Sample Survey Office (NSSO) defines ‘rural’ as follows: An area with a population
density of up to 400 per sq. km. Villages with clear surveyed boundaries but no municipal board. A
minimum of 75 per cent of male, working population involved in agriculture and allied activities.
The Census of India 2001defines urban India, and it is implied that rural means the areas which are
not urban. Urban India is defined as:

1. All statutory places with municipality, corporation, cantonment board or notified town
area committee.
2. Minimum population of 5,000.

Dogra and Ghuman (2008) define rural marketing as “planning and implementation of marketing
function for the rural areas.” -

✓ Distribution: Small packets over large distances where transportation are irregular or
non-existent?
✓ Promotion: How to promote goods in areas which are media dark, lacking regular
communication channels?
✓ Pricing: How to keep prices low when the costs in remote areas are extremely high?
✓ Feudal outlook: How to promote modern products in areas which see modernization as a
threat to culture?
✓ Intermediaries: How to find warehouses & intermediaries to support the activities.
✓ Purchasing power: People are desperately poor and farmers are committing suicide.
✓ Sachet marketing: How to achieve volumes and a high penetration rate to make low-
priced sachet marketing profitable?
✓ Selling effort: How to deploy, train and retain the sales force in geographically diverse
areas?
✓

Phases of Evolution of Green Marketing:

Phase I (pre-1960): Rural marketing was thought of as agriculture marketing, that is, of supplying
rural produce to urban areas and agricultural inputs to rural markets.

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Phase II (1960s–1990): The focus was on agricultural inputs. Marketing of non-farm rural produce
was considered as rural marketing. Green Revolution was underway and scientific farming
practices were adopted.
Phase III (1991–present): Focus on consumer goods. Due to saturation in cities, companies faced
lack of growth in urban areas and they turned their attention to rural areas.

14.9 4 A Rural Marketing Approach

While entering the rural market, businesses are supposed to tweak their marketing strategies as per
the 4 as of rural marketing to fulfill the specific needs of the rural customers. The 4 as of
rural marketing mix are-

1. Affordability
Rural marketing campaigns must be reaching to rural consumers by understanding and fulfilling
their specific needs. The products or services that are marketed should be in the buying capacity of
the rural consumers.

2. Availability
Ensuring consistent availability of the products in remote rural areas is another key aspect of rural
marketing. Making products available to retailers’ shelves resolves this issue by more than ninety
per cent. Reaching out with your products and services to a rural marketing environment in time is
highly crucial.

3. Acceptability
There should be acceptability for your product or service among rural consumers. Marketing
strategy should ensure that your product or service adds some value to their lives and convinces
them that you would fulfill their specific needs.

4. Awareness
While targeting a rural consumer with rural marketing campaigns, brands should understand that
their message should reach the customers’ mindset. For optimizing awareness, brands may try
commercials on media like TV, outdoor, or Radio and Outdoor. Product packaging, colors, taglines,
slogans, etc play a key role in awareness programs.

14.10 Ethics in marketing

Ethical Behaviour of Firms Notes Ethics refer to values and choices and focuses on standards, rules
and codes of moral conduct that control individual behaviour. Erik N. Berkowitz et al. maintain
that: ethics are moral principles and values that govern the actions and decisions of an individual or
group. In the marketing context, ethics is the moral evaluation of marketing activities and decisions
as right or wrong. Whether a marketing behaviour is ethical or unethical is determined on the basis
of commonly accepted principles of behaviour established by the society’s expectations of conduct,
various interest groups, competitors, company’s own management, and personal and moral values
of the individual.

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Each individual decides how to behave on the basis of these principles, and the public at large and
various interest groups evaluate if the actions are ethical or unethical. Understanding the Ethical
Conduct Among other reasons, one reason for many instances of unethical behaviour is that
businesses generally do not understand how people make decisions when they face ethical
dilemmas leading to ethical conflict and it is not clear whether to use one’s personal values or the
company’s in a particular decision situation. An understanding of how people shape their ethical
standards and what induces them to get involved in unethical conduct may be helpful in
decreasing instances of unethical conduct

Why we need Ethics in marketing?

Ethics in marketing practices is an important issue and needs developing understanding and
awareness to bring improvement in its application. Ethical issue refers to some situation, problem,
or opportunity that can be recognised and requires a person or organisation to select from among
different actions that must be evaluated as right or wrong, or ethical or unethical. For instance
when marketing managers or consumers feel manipulated or cheated, it becomes an ethical issue,
irrespective of the fact that the action happens to be legally right. Whatever the reasons for
unethical instances, what is necessary after the issue is identified is that marketing managers must
decide how to resolve it. This requires knowing most of the ethical issues related to marketing that
often arise. In general, most issues relating to unethical behaviour occur in case of products and
promotions.
Promotion of products and services, etc., often furnishes a number of instances of a variety of
situations that involve ethical issues, such as false and misleading advertising, and manipulative or
deceptive sales promotions. There have been instances of misleading ads about obesity control and
weight reduction programmes that mislead customers – and some went to the courts. Many ads are
criticised for using excessive nudity to attract an audience. Use of bribery or false promises in
personal selling situations is an ethical issue. Occasionally, media reports highlight cases of
unethical practices by organisations involved in offering bribes to procure large orders. Such
practices damage trust and fairness and ultimately harm the concerned organisation and tarnish its
image

✓ When an organization behaves ethically, customers develop more positive attitudes about
the firm, its products, and its services.
✓ To create Values or trust with key stakeholders
✓ To build good image about the organization in the minds of customer, employees,
shareholders and the society.

14.11 Ethical Issues and 4 P’s Of marketing:

Ethical concerns can arise in every element of the marketing mix. As mentioned before on this blog,
the marketing mix is a combination of the 4Ps : Product, Price, Promotion and Place

Product:
Ethical concerns can arise in the development of products/services. Marketers are supposed to
identify and satisfy needs of consumers. Products offered do not always contribute to satisfying
existing needs but sometimes create new needs through Ethical concerns can arise in
the development of products/services. Marketers are supposed to identify and satisfy needs of
consumers. Products offered do not always contribute to satisfying existing needs but sometimes

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create new needs through the promotion of materialism. It appears not to be ethical from marketers
to forget the first role of marketing at the benefit of mercantilism.

✓ Ethical concerns can also appear in the performance of products/services. Ethical

marketing activity should prevent poorly made and unsafe products. Products not made
well or products delivering little benefit or less benefit than promised are commonplace
criticism made to marketers.
✓ More questionable is the case of harmful products due to poor design or lack of quality.
Marketers should refer to the maxim ‘Do unto others, as you would have them do unto
you’ to judge whether a product is acceptable or not. The quality of a product should
always have the priority on economic concerns. Moreover, pre-tests should be conducted
to ensure the compliance of products to safety standards.

The promotion of materialism. It appears not to be ethical from marketers to forget the first role of
marketing at the benefit of mercantilism.

Ethical concerns can also appear in the performance of products/services. Ethical marketing
activity should prevent poorly made and unsafe products. Products not made well or products
delivering little benefit or less benefit than promised are commonplace criticism made to marketers.
More questionable is the case of harmful products due to poor design or lack of quality. Marketers
should refer to the maxim ‘Do unto others, as you would have them do unto you’ to judge whether
a product is acceptable or not. The quality of a product should always have the priority on
economic concerns. Moreover, pre-tests should be conducted to ensure the compliance of products
to safety standards.

Packaging:
Packaging can also be a source of ethical concerns. Exaggerating packaging (for example through
design) or misleading labels cannot be considered ethical, because they aim at deceiving consumers
by making them believe a pack contains more product than it does in reality or by giving
unclear/incomprehensible information.
A company sells a litchi/raspberry juice that claims to be a “refreshing and exotic”.
Yet, this fruit juice contains more apple than litchi plus raspberry together. The ingredient label
indicates 27% of apple juice, 15% of litchi juice and 8% of raspberry juice (plus water, sugar and
citric acid). The product is sold as a raspberry/litchi juice, while it is closer to an apple juice.

✓
Label information
✓ Packaging graphics
✓ Packaging safety
✓ Environmental implication ofpackaging

Promotion:
The most commonplace ethical concern in promotion is deception. The American Federal Trade
Commission (FTC) defines deception as “a misrepresentation, omission, or practice that is likely to
mislead the consumer acting reasonably in the circumstances, to the consumer’s detriment”.
Deception is commonplace in advertising. For example, overstating a product’s feature or
performance is contrary to the ethics. Deception in advertising can be either an exaggeration of
products’ attributes (for example, a shampoo that helps fighting dandruff in 2 weeks whereas
results are significant only after one month) or a unrealistic statement about products’ performance
(for example, a pill that would help lose 30 Lbs. in one week).
A campaign by a famous beauty brand is to be mentioned: an actress was engaged to promote a
false eye lash mascara… but the actress wore fake eyelashes in the TV commercial! The company
under came negative feedback from offended consumers.

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Pricing:
Marketers should be allowed to charge any price they want provided there is no price
discrimination among consumers and that prices are all inclusive.
However, too high prices are not ethical, when they do not reflect the existing cost structure but are
a means to take advantage of consumers. This is especially true in the case
of monopolies, oligopolies or cartels.
Besides, advertised prices should always be realistic prices that consumers will find in stores.
The odd-pricing and partitioned prices practices can also be questionable on ethical grounds. With
odd-pricing, marketers resort to odd numbers (e.g., 29.99€) instead of rounded numbers (e.g., 30€)
because consumers tend to associate 29.99 with 20 rather than 30. Partitioned prices aim at sharing
the total price in several sub prices to make consumers believe the price is lower than in reality. If
not used with sensitivity, these methods cannot be considered as ethical, because marketers
manipulate consumers’ expectancies.

Place:
Consumers can be manipulated without knowing it through subtle marketing
techniques in distribution outlets. For example, shelves at lower heights target children, and stores
can be organised in such a way that it encourages consumers to pass through more shelves. The
ethical concern of such practices is whether subliminal incentives are morally acceptable: would
consumers have bought the products even if those marketing techniques had not been used? In that
case, is it possible to talk about ‘forced purchases’? Can those techniques cause economic hardships
to shoppers by making them buy more than they can afford?
Ethical concerns are also linked with the segmenting, targeting and positioning process.
Efforts to target consumer populations can be subject to unethical attitudes (e.g.: particularly
vulnerable consumer populations, such as children, the poorest minorities, and the uneducated).
For example, the issue of higher insurance premiums to people with poor credit ratings is morally
questionable.
Marketing to children also raises ethical concerns. Wharton marketing professor Lisa Bolton asks
the question: “Can [children] really make fully-informed choices or are they being flooded with
marketing material that is going to alter their behaviour?”. That is the reason why candies have
been suppressed from the shelves before the tills in French supermarkets

Summary
Ethics refers to values and choices, and focuses on standards, rules, and choices in favour of strict
moral conduct that affect individual or group behaviour. There is need to examine the application
of the concept and support its application to marketing decisions that are acceptable and beneficial
to society. The difficulty is that what is ethical for one individual may be unethical for another.
Marketers often act in their own self-interest and certain actions may be within the law but still
unethical. Responsible marketers believe that if they do not act in the public interest, the public and
customers will strike back at them with a vengeance.
Marketing ethics go beyond just the legal issues and involve decisions generating trust in
marketing relationships at all levels. Whether a particular marketing behaviour is ethical or
unethical is determined on the basis of commonly accepted principles of behaviour dictated by
society, various interest groups, competitors, company’s own management, and an individual’s
personal and moral values. Social responsibility of business refers to the obligation of a business to
make deliberate efforts to maximise its positive contributions and minimise the negative impact on
society as a whole and on various groups of individuals within the society. Under social pressures,
central, state, and local governments promulgate laws and appoint various regulatory groups to
prohibit undesirable and unacceptable business practices. Many such laws are framed in almost all
developed and developing economies that regulate product safety, packaging, labelling, pricing,
personal selling, advertising, fair competitive practices, environmental issues, etc. Companies that
are truly conscious about their social responsibility often voluntarily undertake to improve or at
least maintain society’s wellbeing. Their actions in this regard help in building long-term
relationships of trust and respect with employees, customers, and the society within which they

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conduct their business. The Consumer Protection Act in 1986 provides for Right to Protection of
Health and Safety, Right to be Informed, Right to Be Heard, and Right to Improve the Quality of
Life (Ecological concern).

Keywords
Green marketing , Rural marketing , Customer Relationship management, Ethical marketing ,
Product , Place , Price , Promotion

Self Assessment

1.Which is not a service Firms:

A. Banking , Stock Broking

B. Restaurants, Bars, Catering
C. Insurance
D. Manufacturing

2.A ___________is an act or performance offered by one party to another. They are economic

activities that create value and provide benefits for customers at specific times and places as

a result of bringing desired change.

A. Service
B. Value
C. Relationship
D. Product

3.Characteristics Of services:

A. Intangibility
B. Perishability
C. Inseparability
D. All the above

4.Characteristics That Distinguish goods and services

A. Intangibility
B. Inseparability
C. Inconsistency
D. All the above

5._____________ also known as Internet Marketing, Web Marketing, Digital Marketing,

or Online Marketing, is marketing done through the internet on online channels.
A. E marketing
B. Direct Marketing
C. Advertising

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D. Public Relations

6.The Planning Commission of India, a town with a maximum population of __________ is

considered rural in nature.

A. 15000
B. 25000
C. 16000
D. 70000

7. Urban India is defined as:

A. All statutory places with municipality, corporation, cantonment board or notified town
area committee.
B. Minimum population of 5,000.
C. Density of population of at least 400 per sq. km. (1,000 per sq. mile).
D. All the above

8.___________ is a process that consists of developing and empowering people in rural

communities through capability enhancement and social innovation, to facilitate a two-way

marketing of economic and social goods between rural and urban areas.

A. Rural marketing
B. Comprehensive marketing
C. Two way marketing
D. None of the above

9.4A approach in Rural marketing

A. Acceptability
B. Affordability
C. Availability
D. All the above

10. _________the 4th largest sector in the Indian economy where the rural segment contributes

about 45% to the overall revenue generated by the sector.

A. FMCG
B. Service
C. Manufacturing’
D. Academics

11. ___________is the science and art of exploring, creating, and delivering value to satisfy the

needs of a target market at a profit.

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A. Marketing
B. Promotion
C. Advertising
D. Dealing

12. Which of the following is/are feature of corporate governance?

A. Non- universality
B. Accountability
C. Ambiguity
D. None of these

13. There are usually …………… key participants in corporate governance.

A. Three
B. Four
C. Five
D. Eight

14. Corporate governance is concerned with the formation of …………… term objective

A. Very short
B. Short
C. Medium
D. Long

15. What is Ethics to do with?

A. The Wider Community

B. Business
C. Right and Wrong
D. Nothing

Answers for Self Assessment

1. D 2. A 3. D 4. D 5. A

6. A 7. D 8. D 9. A 10. A

11. A 12. B 13. A 14. D 15. A

Review Questions
1. Discuss the ethical issues involved in marketing, especially advertising.
2. Take the example of ‘Fair and Lovely’ advertisements and discuss the underlying ethical issues.

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3. If you were the marketing manager of a garments manufacturing firm, what initiatives would
you take to market your product effectively without causing any harm to the environment?
4. What do you understand by ‘green marketing’? Give a few examples to make it clearer.
5. “CSR is a vehicle on which the companies can race past the profit highway towards growth”.
Comment.

Further Readings
Eric N. Berkowitz, Roger A. Kerin, Steven W. Hartley, William Rudelius, et al., 5th ed.
“Marketing,”
Irwin/MacDraw-Hill, 1997. Keith Davis and William C. Frederick, Business and Society:
Management, Public Policy, and Ethics, 1984.
Margaret A. Stroup and Ralph L. Newbert, “The Evolution of Societal Responsibility,”
Business Horizons, March-April 1987
. S H H Kazmi, Marketing Management – Text and Cases, Excel Books.

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