Marketing Management 9789350431627, 9789350243770

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DR. K. RAMACHANDRA "

M.Com.; MBA, LLB., DPM., PhD.,

HOD of Commerce & Management Gout. Boys College Kolar-563101

PROF.B.CHANDRASHEKARA M.Com., MBA, M.Phil.,

Department of Commerce & Management Maharani's Arts College for Women Bangalore-560 001

s. SHIVAKUMAR MA., DTS.,

KSTDC Bangalore-560 002

Hal Gflimalaya GJlublishingGflouse MUMBAI • DELHI • NAGPUR • BANGALORE • HYDERABAD

©

AUTHOR

ISBN

: 978-93-5024-377-0

Revised Edition :2010

Published by

Branch Offices: Delhi

Nagpur

Bangalore

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Mrs. Meena Pandey for HIMALAYA PUBLISHING HOUSE, "Ramdoot", Dr. Bhalerao Marg, Girgaon, Mumbai - 400 004. Phones: 886 01 70/386 38 63, Fax: 022-387 71 78 Email: [email protected] Website: www.himpub.com "Pooja Apartments", 4-B, Murari Lal Street, Ansari Road, Darya Ganj, New Delhi - 110002. Phone: 327 03 92, Fax: 011-325 62 86 Email: [email protected] Kundanlal Chandak Industrial Estate, Ghat Road, Nagpur - 440018. Phone: 72 12 16, Telefax: 0712-72 12 15 No. 12, 6th Cross, Opp. Hotel Annapoorna, Gandhinagar, Bangalore - 560009. Phone: 228 1541, Fax: 080-228 66 11 No. 2-2-1 167/2H, 1st Floor, Near Railway Bridge, Tilak Nagar, Main Road, Hyderabad - 500 044. Phone: 650 1745, Fax: 040-756 00 41 Printline

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CONTENTS

Chapters

Pages

1. Introduction to Marketing ......................................... 1.1-1.35 2. Marketing Environment ............... .... ......................... 2.1-2.33 3. Product Strategies .............................. ....................... 3.1-3.32 4. Pricing Strategies ...................................................... 4.1-4.17 5. Channels of Distribution and Logistics ...................... 5.1-5.22 6. Promotion Strategies ................................................ 6.1-6.41 7. Recent Trends in Marketing ....................................... 7.1-7.48

"This page is Intentionally Left Blank"

( PART-A)

"This page is Intentionally Left Blank"

1

INTRODUCTION TO MARKETING ~r' Learning Objectives After reading this chapter you should be able to I(jj"

I(jj"

I(jj"

I(jj"

I(jj"

Understand the meaning, definition, scope and importance of Marketing. Know the Approaches to the study of Marketing and Economic Development. Differenciate between traditional and modern concept of marketing. Discuss the functions of marketing. Understand the nature of marketing management, its philosophies, steps in Marketing Management Process.

1.2

INTRODUCTION TO MARKETING

1.1 CONCEPTUAL BACKDROP Marketing is as old as human civilisation. Many people see marketing only as advertising or selling. In reality, true marketing does not involve the art of selling what you make but knowing what to make. Modern organisations gain market leadership by understanding consumer needs and finding solutions that delight customers. If customer value and satisfaction are absent, no amount of advertising or selling can compensate. In nutshell, the aim of marketing is to build and manage profitable customer relationships (CRM) and that is the need ofthe hour. Marketers around the globe must study the consumer needs and wants, select target market they can serve best, and design products, services and programmes to serve these markets. They attract new customers by promising superior value, they keep and grow current customers by delivering superior satisfaction. Of late, marketing is gone beyond business function, it is considered and adjudged as a distinct philosophy, in that it guides the entire organisation toward sensing, serving, and satisfying consumer needs. The marketing department in any organisation cannot accomplish the company's customers relationship building goals by itself. What is needed is, it must forge a close partnership with other departments and with other organisation for the purpose of value delivery network. This provides superior customer value and satisfaction. In this way, marketing entiles everyone in the organisation to think of customer, and to do all they can to help, build, and manage profitable customer relationships. Marketing encompases not only manufacturing companies, wholesalers, and retailers but also covers all kinds individuals, organisations, lawyers, accountants, and doctors. They use marketing to manage the demand for their services. Even politicians in our country use marketing strategy to get votes. To quote the living example Smt. Sonia Gandhi, Chairperson of National Advisory Council and President of Congress party effectively evolved marketing strategy to garner votes in the last general election. She was acclaimed for her acumen in marketing skills. Thus no politician get the needed votes, no resort the needed tourists, without developing and carrying out marketing plans.

INTRODUCTION TO MARKETING

1.3

The organisations in this competitive era need to know how to define and segment markets, develop attractive value propositions and build strongly the brand equity. They must also know how to price their products or services to make them attractive and affordable. In addition they should know how to chose and manage intermediaries to make their products available to customers. They need to know how to advertise and promote their offerings so that customers will know about and need them. Apart from this, the marketers either be pro-active or reactive in the sense he should adopt himself to the new marketing strategies in view of a host. of new technological and global realities. Todays marketers essentially need a wide range of skills in order to build beneficial relationship with customers. Technological advancements, rapid globalisation, paradigm shift in economic system that is moving away from socialism to capitalism, cross-cultural relationships and other environmental developments are causing profound changes in the market place. The marketers can not be mute spectators in the face of rapidly changing marketing environment. These new developments and horizons signify a brand new world of opportunities for pro-active and forward thinking marketers. Today marketers must build and manage profitable customer relationships from the view point of customer orientation. They should also build and manage strong brands, harness new marketing technologies in this digital age owing to explosion of the internet resultant B2B, B2 C, C2C, and B2 G are having dramatic impact on both buyers and the marketers who serve them. Today marketers must know how to liverage new computer, information, communication and transportation technologies to connect more effectively with customers and marketing partners in this new digital age. As technological development make the world an increasingly smaller place, marketers must know and market their brands globally and in socially responsible ways. The best practices in marketing of products or services will ensure the global success, for example, Amazon.com for its established name as the best internet book seller, BPL's believe in the best, Coco-Cola's international marketing prowess, microsofts' passion for innovation

1.4

INTRODUCTION TO MARKETING

and its quest for "the'next big thing", MTV's phenominal success in international markets, Google,com's survival inspite of dot com Bubble burst, IBM's innovativeness and excell~nce.

Homegrown Hero While Mittal ventured abroad to make his mark, a postpartition refugee showed it was possible to acquire world-beating proportions right here in India. Starting off with a small cycle component manufacturing unit, Brijmohan Lallied the Hero group to becoming the world's largest manufacturer of both cycles and motor cycles. Part of the reason was the group's focus on providing valuefor-money products for the aam aadmi. But it also resolutely stayed away from scooters, long the mainstay of India's two-wheeler market. The focussed approach finally paid off, as younger consumers shifted to the moremacho fuel-efficient bikes in a big way. "A lot of it was gut-feel and instinct. We never kept sitting, waiting for destiny to decide the course of our life," says the Hero patriarch.

Power Dressing In 1985, Arvind Mills was a 66-year old textile business which made 250 different products, from handkerchiefs to sarees, and battled competition in each one. Sanjai Lalbhai fanked all 250 products and decided to focus on denim. The first metre of denim fobric was made in India that year. But the group quickly caught up with the rest of the world. Today, Arvind Mills is Asia's largest producer, and the world's largest exporter of denim.

1.2 MEANING AND DEFINITIONS OF MARKETING

What is Marketing? Most people mistakenly identify marketing with selling and promotion. Selling is only the tip of the marketing iceberg. It is only one several functions of marketing.

INTRODUCTION TO MARKETING

1.5

Definition "Marketing is human activity directed at satisfying needs and wants through exchange processes." -Philip Kotler. This definition states that marketing takes place in relation to markets to actualise potential exchanges for the purpose of satisfying human needs and wants. Exchange processes involve sellers, searching buyers, identifying their needs designing appropriate products, pronl0ting them, storage and transport, negotiation etc. Such activities as product development, communication, distribution, pricing and service constitute core marketing activities.

What is market? Marketing touches all of us everyday of our lives. The marketing system makes everything easy and simple. It delivers a standard of living a comfortabie life that would have been inconceivable to our ancestors.

Definition "Market is the set of actual and potential buyers of a product". -Philip Kotler A market grows around a product, a service or anything else of value. For example the money market emerges to meet the needs of people so that they can borrow, lend, save and safeguard money. A labour market consists of people who are willing to offer their work in return for wages or products. Various institutions will grow up around a labour market to facilitate its functioning such as employment agencies and job counselling firms.

Traditional Definitions of Marketing The goodhold definitions of marketing are that: 1. "The performance of business activities that directs the flow of goods and services from producer to consumer or user" 2. "The process in a society by which the demand structure for economic goods and services is anticipated or enlarged and satisfied through the conception, promotion and physical distribution of such goods and services."

INTRODUCTION TO MARKETING

1.6

Both the above definitions focuses only on the physical distribution and marketing channels ignoring the significance of exchange between buyers and sellers.

Modern Definitions The latest definitions of marketing are listed below: 1. "Marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchange that satisfy individual and organisational objectives."

-American Marketing Association 2. "Marketing consists of all activities by which a company adapts itself to its environment-Creatively and profitably."

-Ray Corey 3. "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 customers point of view ... Business success is not determined by the producer but by the customer." -Peter F. Drucker 4. "Marketing is a total system of business activities designed to plan, price, promote, and distribute want satisfying goods and services to present and potential customers." -William J. Stanton 5. "Marketing is the response of businessman to the need to adjust production capabilities to the requirements of consumer demands". -E. Jerome Mc Carthy Thus the above definitions do not confine themselves to physical distribution of goo-ls and services. They go beyond focusing customers needs and wants satisfaction. In other words, customer orientation is the core of all the marketing activities. An organisation accomplishes its objectives by satisfying consumers. The social nature of marketing is also included in the modern definitions.

INTRODUCTION TO MARKETING

1.7

1.3 APPROACHES TO THE STUDY OF MARKETING AND ECONOMIC DEVELOPMENT Marketing may be studied from several points of view. The following are the most popular approaches : 1. Commodity Approach: In the Commodity approach to the study of marketing, the focus of study is a specific commodity. In this approach, the subject matter of discussion centres around the specific commodity selected for the study, and includes the sources and conditions of supply, nature and extent of demand, the distribution channels used etc. performed by various agencies. By repeating such studies in case of different commodities one gets a complete picture of the entire field of marketing.

2. Institutional Approach: In this approach, the focus is on - the study of the various middlemen and facilitating agencies such as producers, wholesalers, retailers etc., The study includes their position in the distribution channels the purpose of their existence, the functions performed and services rendered by them, their operating methods, Cost involved, and the problems faced by them. In order to obtain a comprehensive view of marketing, the study is related to each type of institution. 3. Functional Approach : The focus in this approach for understanding marketing is on the different kinds of functions l~ke selling, storage, transportation and financing. In this approach studies are made as to how these functions are carried out in various product markets and by various marketing institutions. These functions are also studies in relation to given commodi~ies and marketing institutions in terms of their nature, importance, operational methods, costs and problems. 4. Managerial Approach: In this approach, the focus of marketing study is on the decision making.- Process involved in the performance of marketing functions at the level of a firm. Managerial marketers are especially interested in marketing analysis, planning, organisation, implementation and control. This approach is considered most useful way of studying and is very popular among researchers and other academicians. 5. Societal Approach: The social approach focuses on the social contributions and costs created by various marketing

1.8

INTRODUCTION TO MARKETING

activities and institutions. In its focus of study, therefore is the interactions between the various environmental factors such as sociological, cultural, political, ecological, legal and marketing decisions and their impact on the well-being of society. This approach is relatively recent and was born out of the criticism of the marketing behaviour of business observed with profit attainment. 6. Systems Approach: Systems thinking recognises the interrelations and inter-connections among the components of a marketing system in which products, services, money, equipment and information flow from marketers to consumers. The focus of systems approach is therefore, the analysis of these marketing flows and communication. This approach is also of recent origin and increasingly becoming popular.

Marketing and Economic Development All marketing activities should result in human well-being. Organisations must show concern for customer satisfaction by providing them with quality goods at reasonable prices. In the process, they should contribute to the country's Gross Domestic Product (GDP) at the same time by globalising their businesses should earn enough foreign exchanges to the country. The economic growth of any country depends on the robust and vibrant marketing environment. The country should attract MNCs to set up their units in the country in order to enhance the supply of goods and expand the choices to the consumers. Our country's economic progress is quite possible if the organisations concentrate on rural marketing since the rural India can contribute to employment generation, enhancement of production capacities and carve out path for narrowing the disparity in the distribution of income and wealth. It is pertinent to mention our world acclaimed technocrat and humane president Dr.A.P.J. Abdul Kalam's observation that India's progress is feasible provided the authorities and organisations provide "PURA" (Providing Urban Facilities to Rural Areas) facitilities to our rural part.

An effective macro marketing system is necessary for economic development. Improved and sustained marketing may act as the

INTRODUCTION TO MARKETING

1.9

key to growth in our country. To remove the vicious circle of poverty, unemployment, low standard ofliving, the marketing will provide necessary relief to our rural masses. As our country has ample potential for services sector, it is advisable to hanker upon services sectors like banking, insurance, travel and tourism, hospitals, educational institutions and the like for marketing activities. Since 52 per cent of contribution to GDP comes from services sector, we have to concentrate and capitalise on that in addition to Agricultural and Industrial marketing. These will supplement to realise the dreams as envisaged in vision 2020 A.D. There is a positive correlation between marketing and economic development. India is founder member and signatery to World Trade Organisations Agreement (WTO), this in essence means enlarged, expanded, and diversified global market for our goods and services. Marketing is panacea to penetrate into other 147 member countries of WTO. Certainly, marketing will go a long way in the attainment of socio-economic prosperity of our country.

1.4 TRADITIONAL AND MODERN CONCEPT OF MARKETING

Conceptual Backdrop The conceptual base of marketing has been evolving for a century or so, after the Industrial Revolution. This conceptual evolution born out of environmental changes. It is coextensive with the tempo of economic development in society and the consequential problems posed before businessmen in terms of the quantum of production and business risks. The following are different managerial orientations evolved at different times due to changes in environment for the understandings of the concepts in the study of Marketing Management.

Production Orientation Indqstrial Revolution removed self sufficiency in the society and in its place brought inter-dependency due to division of labour. Large scale production followed by sales and cost reduction is the situation we find today in many sectors. The present environment

1.10

INTRODUCTION TO MARKETING

due to technical expertness for mass production and expanded market the business response mainly consists of production orientation. In a production orientation set up the marketing process sets in motion only after production has taken place, and completes no sooner the product or services are delivered to the consumer or user. It reflects no consideration of consumer tastes or preferences before production is planned and no concern for his level of postpurchase satisfaction. The job of marketing is complete the moment the cash comes is exchanged for goods.

Sales Orientation As the management attention is more on increasing production, it requires more consumers and needs diversion of attention to the task of selling. Attention on selling is also required due to fast generating competition. The Managerial state of mind concerned with the problems of selling and distribution of products and attention towards sales volume attainment. In this situation, sales department will be manned by experts and a large team of sales personnel will be directed to push products onto customers.

Promotion Orientation Large scale production, tough competition, consumer resistance, all these make selling operation job tougher. Selling personnel need other modes of consumer communication namely, advertising, sales promotion, branding, packaging etc. in order to successfully meet competition and overcome consumer resistance. This sales orientation is the continuing concern for the problems of selling and distribution of products and bone to rely on different promotional medias to solve the selling problems.

Consumer Orientation Sales and promotion orientations overcome the problems of selling and distribution. But the effectiveness of such strategies are short term. Consumer resistance develops due to awareness and .nore education on the products. The managerial attention,s Therefore, fucoses on the market and consumer and the

INTRODUCTION TO MARKETING

1.11

management became consumer-oriented. Consumer orientation is also known as market orientation, it may be defined as the "tasks concerned with consumer satisfaction and profits and not sales volume alone". In it consumer becomes the focal point of all business decisions and there is an all out commitment to market considerations. Thus, in production orientation, the centre point of managerial attention is capacity creation and utilisation, cost reduction and such other methods. In sales orientation, the focal point is hard measures to sell the product with highly qualified personnel. In promotion orientation attention is given to sell products through improved advertising, branding, packaging, incentives, premiums etc. All these measures are adopted to attain the maximum sales volume. But the industry observes signs of decline due to cutthroat competition, high consumer awareness and technological improvements. However, in contrast to production, sales and promotion orientations, one can observe in consumer orientation, the consumer becomes the focal point and all business decisions are taken are rooted in the profit concept and not the volume concept. The old saying higher the sales more profit do not hold good. It is more customers, customers satisfaction and profits.

G G

Fisher- Hunter man

) Potter

) Farmer

Fisher- Hunter man

IxI

Potter

Farmer

Fisher- Hunter man

tf,

/

Potter

Farmer

The nature of a market is clearly explained in the above figure. A primitive economy with a Fisherman, a Hunter, a Potter and a Farmer in the first case they are self sufficient, they gather the needed goods for themselves. Each one spending most of the time in his own trade. One is less efficient in other field. In the second stage there is a decentralised exchange each person sees the other three as potential buyers who make up the market. Thus each one

1.12

INTRODUCTION TO MARKETING

make separate trips to trade goods with others. In the third case, centralised exchange, a new person emerges called merchant and locates in a central area called a market place. Each trades person brings goods to the merchant and trades for other needed goods. Thus the hunter transacts with one 'MARKET' to obtain all the needed goods, rather than with three other persons.

Modern Concept of Marketing The managerial awareness and desire to give importance to consumer needs is born out of consumer resistance and cutthroat competition. The modern concept is also known as marketing concept is in vogue in almost all countries. This concept holds that the key to achieving organisational goals consists in determining the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitors. According to Philip Kotler, 'the modern concept of marketing is a customer orientation backed by integrated marketing aimed at generating customer satisfaction as the key to satisfying organisational goals'. It expresses the company's commitment to consumer sovereignity by producing what consumer wants and in this way it maximises consumer satisfaction and earns profits.

Another definition given by Me Namara adequately projects the meaning of marketing concept. According to him 'Marketing concept is a philosophy of business management, based upon a company wide acceptance of the need for customer orientation, profit o!ientation and recognition of the important role of marketing in communicating the needs of the market to all major corporate departments'. Prof King has a comprehensive explanation for the marketing concept, according to him, it is a 'Managerial philosophy concerned with the mobilisation, utilisation and control of total corporate effort for the purpose of helping consumers solve selected problems in ways compatible with planned enhancement of the profit position of the firm'.

The modern concept of marketing is best described by comparing with the old concept also known as selling concept.

INTRODUCTION TO MARKETING FOCUS

MEANS

ENDS

Products

Selling an.d proII1otion

Profits through sales voluxnc

Selling Concept CustoII1er needs

Integrated rnRrkctin.g

Profits through custoIncr satisfaction

Marketing Concept Selling Concept: Focuses on the needs of the seller, selling is pre-occupied with the seller's needs to convert his product into cash. Marketing Concept : Marketing on the needs of buyer marketing with the idea of satisfying the needs of the customer by means of the product and the whole cluster of things associated with creating delivering and finally consuming it. The above figures describes the two concepts on a comparative terms. The selling concept starts with the company's existing products and calls for heavy selling and promoting to achieve profitable sales. Whereas, the marketing concept starts with the needs and wants of the company's target customers. The company integrates and co-ordinates all the activities that will affect customer satisfaction and achieves profits through creating and maintaining customer satisfaction. This philosophy of modern concept is reflected in the following statements of advertising/promotion messages company's use now-a-days. They are: 'Find wants and fill them'. 'Make what you can sell instead of trying to sell what you can make'. 'Love the customers and not the product'. 'To do all in our power to pack the customer rupee full of value, quality and satisfaction'.

1.14

INTRODUCTION TO MARKETING

Implementing the Marketing Concept The implementation of marketing concept requires some definite and tangible steps. They are: 1. Consumer Focus: The firm should focus all its attention on the consumer. It should ascertain consumer needs. The consumer should be considered 'Sovereign' whose preferences shape the business decisions. Management must think of itself not as producing products but as providing customer creating value satisfactions. 2. The Profit Focus : The consumer focus should be accompanied by the profit focus in all marketing decisions. Profit is a condition precedent for business existence, growth and stability. It is also essential to ensure continuity of managerial efforts to solve consumer problems. Sales volume is not by itself an indicator of marketing efficiency, unless it has a profit contribution to make. However, profits should not be mistaken for profiteering. Profits are the reward of managerial efforts directed towards creating and delivering value satisfactions to customers. 3. Broadened Functional Base: Under the modern concept of marketing, the functional base of marketing is to be broadened towards marketing research and product planning and posttransaction research so as to sense and monitor consumer reactions about the level of value satisfaction obtained. The marketing functions now, include research, product planning. After sale service besides the traditional functions of selling, pricing, advertising and physical distribution. 4. Integration of Marketing Functions : All the functions are to be closely synchronised to maximise influence on the market place and on the consumer. It involves total integration and coordination of all functions from the conception of a new product to its consumption by ultimate user. It is also advisable to have a marketing department for co-ordination and integration of various functions. 5. Research Based Decisions: Marketing research must be given an adequate role in the overall marketing decisions. It should be provided the base for all marketing decisions. Marketing research identifies consumer needs, opportunities and information for target setting. It also furnishes feed back from the market in respect of consumer satisfaction and social reactions.

INTRODUCTION TO MARKETING

1.15

6. Innovation: Marketing concept insists upon constant innovation. Innovation is purposeful, oganised, risk taking change introduced for the purpose of maximising economic opportuniti.es. Introducing relevant changes in different components of the marketing mix is very essential. It may take in the form of lower price, or a new or better product, the creation of a new want, new use for the old product, improvement in design or marketing technique. Thus, modern concept of marketing has aroused some controversies, it has attracted the attention of various people belonging to politics, environment, socialism etc. It is the foundation of the present day consumerism. The difference between traditional and modern concepts of marketing is shown at Table 1.1. Table 1.1. Traditional and Modem Concept of Marketing-Compared Modern

Traditional

,

1. Sellers focus is on product only.

1. Sellers focus is on customer's needs and wants.

2. The manufacturers first manufactures the goods and later chalks out how to dispose them off.

2. The manufacturers before hand assesses the needs and wants of the customer, gathers the data and makes the product. It moves automatically.

3. Short term oriented.

3. Long term oriented.

4. Profit oriented.

4. Customer satisfaction delight oriented.

5. Aims of aggressive selling.

5. Aims at establishing customer relationship (CRM).

6. No or low activities.

6. Sustained promotional activities are in existence.

7. Disintegrated phenomenon.

promotional marketing

and

7. Integrated marketing approach.

8. No Scope for professionalism.

8. Ample scope for professional approach to marketing.

9. Narrow concept.

9. Broader and comprehensive concept.

1.16

INTRODUCTION TO fv1ARKETING

1.5 FUNCTIONS OF MARKETING It can be seen from the previous pages that marketing is concerned with the journey of goods from the point of production to the point of consumption or use among other things. In this journey goods necessarily pass through certain essential processes.

Marketing is a process or system of business activities designed to plan, price, promote, and distribute want satisfying goods from potential seller to potential customers. This involves two aspects. They are (i) psychological aspects and (ii) physical aspect. Psychological aspect presupposes that sellers must know what buyers want and buyers must know what is for sale. From the sellers point of it is an offer and from the buyers perspective, it is an acceptance. Physical aspect is conserved with movement of goods from the place of production to the place of consumption. The functions of marketing are performed within the marketing framework which involves three major process called concentration, equalisation and dispersion. The details are as follows: 1. Concentration : The first phase of the journey of goods involves the process of concentrating the basic raw material and goods at central point. Raw materials needed by manufacturers are produced at different places by relatively small producers. It is essential to gather all the small surpluses from these innumerable agricultural producers before they are transported to the wholesale markets from where they can be sent to different consuming centres. Likewise, manufactured goods are collected to be made available to a large number of retail dealers so sthat they have adequate stock of products of different qualities to meet the requirements of their customers. This process is called concentration.

2. Equalisation : The activIty much occurs between the processes of concentration and dispersion has been called Equalisation by Prof. Clark. According to him "Equalisation consists of adjustments of supply to demand on the basis of time, quantity, and quality". It is the process by means of which the supply of goods ready for sale is adjusted to the demand for them.

INTRODUCTION TO MARKETING

1.17

Thus, Equalisation means the adjustment of supply to demand through storage and also by transporting goods in required quantities to the different places of demand. 3. Dispersion: Goods thus concentrated in the central market are dispersed through the various channels of trade to the ultimate consumers. According to Clark "Dispersion is the process of dispersing of those products toward the consumer or user which have been concentrated at central points". Raw materials are dispersed to manufactures. Finished goods are dispersed the either middlemen or consumer. Thus, the proc:ess of dispersion consists of (a) arranging the supply of goods in proper quantity for use by the manufacturers and (b) spitting up of the goods into smaller and smaller lots which reach the consumers through retailers.

Meaning of Marketing Functions According to Mc Garry, "the term function should be so defined as to meet the purpose for which it is used" He further explains that "the function ofthe heart is simply to beat, which is its activity, but rather to supply the body with a continuous flow of blood. In similar way functions of marketing should be used only is connection with activities that must be performed in order to accomplishes the general purpose". According to him marketing functions are contactual, merchandising, p.ricing, propaganda, physical distribution, and termination. According to Maynard, Harold and others marketing function is a major economic activity which is inherent in the marketing process, pervades it through out and which through a continuous division of labour tends to become specialised. Thus, marketing function is an act, operation, by which the original producer and the final consumer are linked together.

Classification of Marketing Functions Different marketing luminaries classified the marketing functions differently according to their own perceptions. Here we have compiled the marketing functions classifications evolved by established marketing Gurus-Pyle, Clark and Clark, Converse, Huegey, and Mitchell.

INTRODUCTION TO MARKETING

1.18

(i) Pyle's Classification The Marketing Process

I (1)

(2)

Concentrating Functions

Dispersing Functions

I

I

1. Buying or Assembling

1. Selling (Personal selling,

2. Transporting 3. Storing 4. Grading

advertising, mail order, demonstrating, installing, and packing) 2. 3. 4. 5. 6. 7.

5. Financing 6. Risk Bearing

Transporting Storing Grading Financing Risk Bearing Dividing.

(ii) Clark and Clark's Classification Marketing Functions

I

I

I (1)

(2)

(3)

Functions of Exchange

Functions of Physical Supply

Facilitation Function

I

I

1 Selling (Demand creation)

I

2 Assembling (Buying)

1

2

Financing

Risk Taking

I

I

I

1 Transportation

I

2 Storage

3

Marketing Information (Its collection and interpretation)

4

Standardisation

INTRODUCTION TO MARKETING

1.19

(iii) Converse, Huegey, and Mitchell's

Classifications Functions loassified

(1)

I

(2)

I

(3)

I

Physical Movement (Creating time and place utility)

Movement of Ownership (Creating possession utility)

Market Management

1. Transporting

1. Determining needs (Gathering information)

1. Formulating policies

2. Storiqg

2. Creating Demand

2. Financing (providing capital; accepting credit; making collections)

3. Finding buyers and sellers.

3. Providing organisation and equipment.

4. Dividing

4. Negotiating (Prices and terms)

4. Supervising

5. Grading (Inspecting, testing,s sorting)

5. Giving advice (Adjusting goods and services to needs of buyers)

5. Accounting

6. Order Assembly

6. Transporting Title

6. Securing infor!Dation, specially by research

I

3.

pacl

7. Risking

INTRODUCTION TO MARKETING

1.20

(iv) Some Other Classifications Functions Classified

1

2

Merchandising

Buying

3 Financing

6

8

9

Selling Transporting Storage Standardising and gradation

4 Communication Marketing Functions

Sharing the Risk

7

Transporting Goods

Selling (Communisation of ideas about the goods)

5 Risk-bearing

Financing the operations

Assembling (Assorting and Re-Shipping)

McGarry classifies marketing functions into six categories. (i) Contractual, whereby buyers and sellers are brought together for making transactions; (ii) merchandising, is concerned with making products acceptable to the market; (iii) Pricing, where prices are fixed so high that production may be economical and the consumers may be motivated to make purchases; (iv) Propaganda, under which the buyers are made known of the objectives of the sellers; (v) Physical distribution, consists in transportation and storage services; and (vi) termination, i.e., the end of marketing activity. Mc Innes, after saying that "market is the gap which separates producer and consumer", and "marketing is any activity which actualizes the potential market relationships between the makers and users of economic goods and services", gives the functional areas which are of primary relevance enclosing the gaps between makers and users. The particular system through which these

1.21

INTRODUCTION TO MARKETING

functions are combined, integrated, and allocated among various finns comprises a marketing channel. (i) Transportation deals with spatial separation and includes all activities directly concerned with moving goods from place of production to the place of sale or such other place as may be designated by the user. -(ii) Inventory deals with temporal separation and includes those activities directly concerned with holding goods between the time of production and the time of sale. (iii) Promotion deals with perceptional separation and includes all activities directly concerned with providing infonnation regarding the nature of goods and services and their relationship to the potential user's perceived needs. (iv) Transaction deals with separation of ownership and values. It includes all activities directly concerned with active negotiation and transfer of title. All these functions are interrelated. They involve a number of component activities-i.e., administration, coordination, financing and risk-bearing, which pervade all four functions. We adopt the following classification for our purpose. It is important to note that marketing functions are not only perfonned by middlemen, village baniyas, stockists and bankers, but also by producers and consumers. ~arketing Functions

I

Concentration

I

Dispersion

1. Assembling

1. Selling

2. Buying

2. Storage and warehousing

3. Transportation

3. Standardisation and grading

4. Storage and Warehousing

4. Transportation

5. Grading and Standardisation

5. Financing

6. Financing

6. Risk bearing

7. Risk bearing

7. Packaging 8. Advertising

According our classification marketing functions should, thus, include activities connected with concentration of produce and its dispersion. The above classification are self explanatory.

1.22

INTRODUCTION TO MARKETING 1.~

GOALS OF MARKETING

Marketing affects so many people in so many ways. Some people intensely dislike modern marketing activity, charging in with ruining the environment, creating unnecessary wants, teaching greed to youngsters, bombarding with in ana ads, etc. It is also charged that marketing consists of fast-buck culture con-men, wheeler-dealers, and shoddy goods distributors. Marketing influences to buy all sorts of things we really did not need and which we found later on we did not even want. There are others who defend marketing as aggressive marketing policies are responsible for the high material, standard of living. Through mass, low-cost marketing we enjoy products which once were considered luxuries. Marketing nourishes the consuming power of men. It creates wants for a better standard of living-better name, clothing, food etc. In the light of above discussion, let us examine what should society seek from its marketing system? What is the proper goal, of a marketing system? There are 4 alternative goals suggested. Theyare: 1. Maximise Consumption: The job of marketing should be that of facilitating and stimulating maximum consumption which will in turn create maximum production, employment and wealth. The basic assumption for this is that the more people buy and consume, the happier they are. "More is better" There are other who believe that "Less is more" and "Small is beautiful" This belief is based on "too many aflluent people leading unhappy lives".

2. Maximise Consumer Satisfaction: Maximising consumer satisfaction rather than consumption is considered a serious goal of marketing system. Although it is difficult to measure consumer satisfaction, it may be considered that meeting the needs and wants of consumers results in consumer satisfaction. 3. Maximise Choice: The system that enables consumers to find those goods which satisfy their tastes in a variety of products and choices is considered mother goal of marketing system consumers are given choices it improves their satisfaction. When choices are maximised cost of goods may increase and consumer also find it difficult to search. Another problem is that more

INTRODUCTION TO MARKETING

1.23

products may not necessarily increase the consumers real choice. When all of them taste the same. (Brand proliferation-when a product category contains many brands with few differences). At times choice also causes frustration and anxiety. 4. Maximise Life Quality : The goal of marketing also includes the improvement in "quality oflife"-the quality, quantity, range, accessibility and cost of goods. People judge marketing system not only on the amount of direct consumer satisfaction, but also on the quality of physical and cultural environment. Again, this is also not easy to measure and is subject to conflicting interpretations.

1.7 MARKETING MANAGEMENT Marketing management represents marketing concept in action. That is pre-planned demand management under customer oriented marketing philosophy.

Definitions Marketing management may be defined as "the process of management of marketing programmes for accomplishing organisational goals and objectives." According to Philip Kotler Marketing Management is "the analysis, planning, implementation and control of programs designed to create, build and maintain beneficial exchanges with target buyers for the purpose of achieving organisational objectives." Marketing management primarily consists of finding customers for the company's output and influence the level, timing and character of demand in a way that will help the organisation achieve its objectives. In simple words marketing management is demand management.

1.8 MARKETING MANAGEMENT PHILOSOPHIES The above definitions describe marketing management as the conscious effort to achieve- desired exchange outcomes with target markets. The next question is what philosophy should guide these efforts? What weight should be given to the interests of the organisation, the customers, and society?

1.24

INTRODUCTION TO MARKETING

These conflicting questions arise very often. There should be clear cut philosophies for carrying out various marketing activities. The following is the discussion on these 5 competing concepts under which business conduct its marketing activity. 1. The Production Concept: It holds that consumer will

favour those products that are available and highly affordable and therefore management should concentrate on improving production and distribution efficiency. This philosophy is an appropriate one in two types of situations. The first is where the demand for a product exceeds the supply. The second situation is where the product's cost is high and where improved productivity is needed to bring it down.

2. The Product Concept: The product concept holds that consumers will favour those products that offer the most quality, perfonnance, and features and therefore the organisation should devote its energy to making continuous product improvements. The manufacturers must take positive steps to design, package and price the new product attractively, place it in convenient distribution channels, bring it to the attention of persons who need it and convince them that it has superior qualities. 3. The Selling Concept: The selling concept holds that consumers will not buy enough of the organisations products unless the organisation undertakes a substantial selling and promotion effort. Nonnally for unsought goods like insurance, encyclopaedias etc., selling concept applies because they go for aggressive selling techniques. Even a political party may vigourously sell its candidate to the voters as being a fantastic person for the job. 4. The Marketing Concept: The marketing concept holds that the key to achieving organisational goals consists in detennining the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitors. This concept is based on find wants and fill them and have the customer and not the product. 5. The Societal Marketing Concept: It holds that the organisational task is to detennine the needs, wants and interests of target markets and to deliver the desired satisfactions more effectively and efficiently than competitors in a way that preserves

INTRODUCTION TO MARKETING

1.25

or enhances the customers and the society's well-being. This concept is an important over marketing concept and adequately emphasises in an age of environmental deterioration, resource shortages, explosive population growth, inflation and neglected social services.

1.9 THE MARKETING MANAGEMENT PROCESS The scope of this chapter is a study of how successful market oriented companies manage their marketing activities. A company to be successful must work hard and see that all its resources and products remain relevant in the market. For this purpose, it should continuously re-examine the objectives strategies and tactics. Marketing is not simply advertising and salesmanship, but rather a whole process for matching the company to its best oppOrtunities. Every company operates in a complex and changing environment. If the company is to survive, it must offer something of value to some customer group in its environment.

Definition The marketing management process consists of: (i) Organising the marketing planning process,

(ii) Analysing market opportunities, (iii) Selecting target markets, (iv) Developing the marketing mix, and (v) Managing the marketing effort.

These steps may be illustrated with their major activities in a diagram as follows :

Steps In the marketing Management Process Organising the Marketing Planning Process, Strategic Planning and Marketing Planning Marketing Research and Information Systems

INTRODUCTION TO MARKETING

1.26 A~alysing

Market Opportunities The marketing environment cosumer markets organisational markets

'"

Selecting Target Markets, Measuring and forecasting demand, market segmentation, targeting and positioning

Developing the Marketing Mix Designing Products Pricing Products Placing Products Promoting Products Managing the Marketing Effort Developing competitive marketing strategies. Implementing, Organising and controlling marketing programs.

Organising the Marketing Planning Process The company must determine two things. Firstly, where it wants to go? and secondly, How to get these? That is what is its goals and what actions are needed to achieve the goal. For this purpose companies do strategic planning and marketing planning. Strategic planning is the managerial process of developing and maintaining a strategic bit between the organisations goals and capabilities and its changing marketing opportunities. The purpose of strategic planning is to make sure the company finds and develops strong businesses and phases out its weaker businesses. The company must allocate its scarce resources to the most deserving of its current businesses. There is no point in allocating resources to prop up losing businesses while starving the more promising businesses.

INTRODUCTION TO MARKETING

1.27

Thus, strategic planning, decides what it wants to do with each business unit. Within this overall plan, the company must then prepare functional plans for each business, product or brand. Plans are to be prepared in terms of marketing, finance, production and personnel. Marketing Planning involves deciding on marketing strategies that will help the company to attain its overall strategic objectives. If the company decides to develop one product leaving some losing products. Then, a detailed plan for this product for its growth objective is to be prepared, a long range plan and an annual plan. The long range plan for 5 years describe the major factors and forces affecting this market over the next 5 years, the 5 year objectives, the major strategies that will be used to build the brand's market share and profits, the capital required and the profits expected. This 5 year plan will be reviewed and updated each year, so that there would always be a current 5 year plan. The annual plan is than prepared, and it represents a detailed version of the first year of the 5 year plan. The annual plan describes the current marketing situation, the current threats and opportunities, the objectives and issues facing the product the strategy for the year, the action program, budgets and controls. In preparing marketing plans, the managers need a plentiful supply of timely and accurate information. They need information about the past, present, and future states of the environment, target consumes, competitors, suppliers- and resellers and publics. This information is supplied by the marketing information system and marketing research.

Analysing Market Opportunities The second step in the Marketing Management Process is analysing Market Opportunities. Every Company must identify from time to time new opportunities available. If a Company heavily depends on some existing products for ever, they become outmoded and lose business. There are plenty of opportunities coming from new Products. There are companies making very good business on some Products which were not at all known to anyone some 5 or 6 years ago. How to identify and evalvate new opportunities is the scope of this step.

1.28

INTRODUCTION TO MARKETING

(a) Market Opportunity Identification

Companies can search for new opportunities casually or systematically. Many companies find new ideas simply by keeping their ears and eyes open to the changing market place. Company executives read newspapers, attend trade shows, examine competitor's Products and gather market intelligence in other ways. Many ideas can be picked up by using in formal methods.

Market Expansion Grid Other companies use formal methods of market opportunity identification. One such method is known as Productll\1arket expansion Grid.

Market Penetration Market Penetration is aiming at entering into deeper market i.e., more sales to its present customers without changing the product in any way. To do this the company might cut price, increase advertising, appoint more stores, better shelf position in the shops. All these are aimed at altrating customers of other brands without losing current customers.

Market Development Market Development is identifying new market segments. New markets may be obtained by conducting survey demographically and Geographically. It may be improvement in the internal market or export market.

Product Development Offering modified or new Products to current customers is Product Development. It may take the form of new sizes, new ingredients, new Packaging, or one more Product line like Premium Brands or the Current Product with additional values. All these represent Product Development strategies.

Diversifica tion Diversification is starting or acquiring another business entirely outside of its current Products and Markets. Completely switching over to a new line of business instead of trying to be efficient in an unattractive industry is the objective of Diversification. However, ' it requires lots of ground work to enter into a new industry.

INTRODUCTION TO MARKETING

1.29

(b) Market Opportunity Evaluation Once we identify opportunities, the next step is to determine which opportunities are right for the company. A Company Marketing Opportunity is an attractive arena for company marketing action in which the particular company would enjoy a competitive advantage. For example, we may decide computer industry as an attractive industry. But, it may not be suitable for the company for two reasons. They are : A Marketing Opportunity must fit the company's Objectives and Resources.

Company Objectives Every company will have a set of objectives based on its Philosophy and business scope. A company with its objectives focused on, say, Hair care industry can not have the some goodwill if it is to enter computer industry. Customers view custometics and computers as being incompatible, goodwill could be diluted by this move.

Company Resources Even if the Computer Industry matched the company's objectives, there is another problem that the resources necessary to succeed in the computer industry. Each industry has its own requirements. A Computer Industry require a great deal of capital, technical knowhow, and effective distribution channels, all of which a cosmetic industry lack. Therefore, entering new opportunities, require not only experience, but also resources. It may be easy to enter a new line within the &cope and resources of current business but not altogether new, unless all the required resources are available at a resonable cost.

Selecting Target Markets The Process of Identifying and evaluating market opportunities normally produces many new ideas. The real task is to choose the best ideas among several good ones that match the company's objectives and resources. Each opportunity must be further studied in terms of relevant industry's market size and market structure to narrow down choices. This involves 4 steps, they are: (i) Demand rv'::easurement and Forecasting (ii) Market Segmentation (iii) Market Targeting (iv) Market Positioning.

1.30

INTRODUCTION TO MARKETING

Demand Measurement and Forecasting The first step is to make a careful estimate of the current and future size of the market. To estimate current size of the market, the company should identify all the products of similar nature selling in the market. The next thing is what is future growth of the market for the product. The future growth will depend upon demographic, Geographics, and various other factors. Environmental aspects also play an important role, suppose the demand forecast is good, the company has to decide how to enter the market. The market consists of many types of customers products and needs. The Company should understand these things and determine which segments offer the best chance to achieve its objective.

Market Segmentation The process of classifying customers into groups exhibiting different needs, characteristics, or behaviour is called market segmentation. Consumers in a market are heterogeneous and can be grouped in various ways. On the basis of Geographic variables (regions, cities, towns) Demographic variables (sex, age, income. education), Psychographic variables (social classes, life styles) and behaviouristic variables (purchase occasions, benefits sought, usage rates) consumers can be grouped, Each of these groups should be studied thoroughly and its attractiveness as a marketing opportunity can be evaluated.

Market Targeting A company can choose to enter one or more segments of a given market. It is advisable to enter a single segment and if this proves successful, they can add segments and then spread vertically or horizontally. The Japanese Companies Provide a good example of careful planning of market entry and domination. They enter a neglected part of the market, build a name by satisfying customers, and then spread to other segments. That is how Japanese have a global market shares in autos, cameras, watches, electronics, steel and ship building. There are others who seek full market coverage. The General Moters Co., say that it makes a car for every "person, purse and personality".

Market Positioning Market positioning means arranging for an offer to occupy a clear, distinctive, and desirable place in the market and in the

INTRODUCTION TO MARKE11f'fG

1.31

minds of target customers. Once, it is decided to go after a particular product, then company is to identify all the products and brands available in the market. Normally these brands differ in . performance characteristics, prices, advertised appeals etc., Through this company is to identify consumers perception about the product. The brands are positioned according to consumer perceptions not objective characteristics.

Developing the Marketing Mix The next step after deciding on the position strategy is planning the details of marketing Mix, Marketing Mix is the set of controllable marketing variables that the firm blends to produce the response it wants in the target market. The marketing mix consists of all that a company can do to the demands for its product. These possibilities are grouped, as FOUR P's. They are: Product, Price, Place and Promotion.

Product stands for the 'goods and service' combination the company offers to the target market. Price stands for the amcunt of money customers have to pay to obtain the product. The price has to be in line with the perceived value ofthe offer, or else buyers will purchase competing products. Place stands for the various company activities that make the product availablE: to target consumers. It includes appointing wholesales and retailers, motivating them for more exposure and attention and arranging transportation and storage. Promotion stands for activities which communicate the merits of the Product and persuade target customers to buy it. Advertising, salesmanship, publicity and other activities includes in it.

Managing the Marketing Effort (1) Competitive Marketing Strategies To be successful, the company must do a better job than its competitors of satisfying target consumers. The marketing strategies must be adapted to the needs of consumers and also to the strategies of competitors. Based on the size and industry position the company must find the strategy that gives it the strongest possible competitive advantage.

1.32

INTRODUCTION TO MARKETING

(2) Implementing Marketing Programs It is easier to design good marketing strategies than to put them into action. Successful implementation depends on having right people doing right things within the right organisational structure and climate. The implementation process involves developing detailed action programs, constructing an effective organisation structure and assigning human resources and establishing a suitable organisation climate.

(3) Marketing Development Organisation The marketing development organisation provides a formal structure within which marketing analysis, planning, implementation and control are carried out. The effectiveness depends not only on how the department is constituted but also on how well its personnel are selected, trained, directed, motivated and evaluated.

(4) Marketing Control The company needs control procedures to make sure that its objectives will be achieved. Three types of marketing control can be distinguished. They are : a Annual Plan Control: Annual Plan Control is the task of making sure that the company is achieving the sales, profits, and other goals established in its plan. This comprises 4 steps. First, management must state well defined goals in the annual plan for each month, quarter or other period. Second, Management must have ways to measure ongoing performance to the market place. Third, management must determine the underlying causes of any serious gaps in performance. Fourth, management must decide on the best corrective action to take to close the gaps between goals and performance. b Profitability Control: It is the tool used to measure the profitability of different market activities. Companies need periodically to analyse the actual profitability of their different products, customer groups etc. c Strategic Control: From time to time companies must critically re-e:mmine their overall approach to the market place. This is require,l because marketing has the problem of obsolescene of objectives, policies, programs etc. Thus each company must reassess itself to changing marketing environment.

INTRODUCTION TO MARKETING

l.33

SUMMARY In the era of world trade, the horizon of Market is vast and all pervasive for any good or service. With the advent of telecommunication, fastest mode and means of transport, information technology enabled e-marketing, virtual marketing, tele-marketing, network marketing and the like bringing a wide product choice to the modern well-informed and intelligent customers. The term "market" is mis-understood by many people as a place where the sellers and buyers meet together to effect exchange process, this is incorrect. Actually, if we say the commodity has good market, it is nothing but the demand for that product. Hence, market is equal to demand for a product or service locally, nationally or globally. If demand is there for a product, it will be bought and sold either physically or through the help of electronic device popularly emarketing (use of internet), tele-marketing and network marketing. Accdrdingly, it is relevant here to quote the definition given by the famous marketing guru Philip Kotler on market as "is the set-of actual and potential buyers of a product". In short, market means the aggregate demand for a product or service-both current as well as potential. Marketing is human activity directed at satisfying needs and wants through exchange processes. The scope of marketing covers marketing research, marketing information system, product development, branding, packaging, pricing, promotional activities, channels of distributions/logistics, marketing strategies involving identifying target markets, evolving marketing mix (4P's of marketing), marketing budget. It also includes social marketing, customer relationship marketing, electronic marketing, telemarketing, virtual marketing, network marketing and ethics in marketing. The approaches to the study of marketing includes commodity approach, institutional approache, functional approach, managerial approach societal approach, and systems approach. The commodity approach focuses on a specific commodity, institutional approach harps upon the various middlemen and facilitating agencies such as producers, wholesalers, retailers and other distribution channels. The functional approach focuses on the different kinds of marketing functions such as selling, storage, transportation and financing. The managerial approach emphasises on the decision making, covering marketing analysis, planning. Organisation, implementation and control. This approach is popular among researchers and other academicians. The societal approach focuses on the social contributions and costs created by various marketing activities. It also analyses the marketing environmental ~actors such as political, legal, technological, economic, so~io-cultural, global, natural, ecological and other factors.

INTRODUCTION TO MARKETING

1.34

Systems approach recognises the interrelations and interconnections among the components of a marketing system in which products, services, money, equipment and information flow from marketers to consumers. The traditional concept of marketing also called as the "selling concept" focuses on the needs of the seller, wherein, the selling is preoccupied with the seller's needs to convert his product into cash ignoring the consumers satisfaction. The modern concept of marketing also known as "marketing concept" is the vogue in almost all countries. This concept holds that the key to achieving organisational goals consists in determining the needs and wants of t&rget markets and delivering the desired satisfactions more effectively and efficiently than competitors. This concept of marketing is a customer oriented backed by integrated marketing aimed at generating customer satisfaction as the key to satisfying organisational goals. This functions of marketing includes product development, packaging, branding, undertaking promotional activities, managing the distribution channels and logistics, pricing, marketing research, MIS, evolving marketing budget and so on. Marketing management deals with anal'ysis, planning, implementation and control of programmes designed to create, build and maintain beneficial exchanges with target buyers for the purpose of achieving organisational objectives. Market positioning means arranging for an offer to occupy a clear, distinctive, and desirable place in the market and in the mind oftarget customers.

Key Words • • • • • •

Market Marketing Marketing Management Selling concept Marketing concept Societal marketing concept

• • • • • •

Traditional concept Modern concept Marketing Functions Production concept Product concept Market positioning

( QUESTIONS) SECTION-A (Conceptual Questions) Answer any ten question, each question carries two marks, answer should not exceed 4 to 5 line 1. Define Market. 2. Define Marketing.

INTRODUCTION TO MARKETING 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19.

1.35

Defme Marketing Management. State any four approaches to marketing. What is commodity approach? What is institutional approach? What is functional approach to marketing. What is societal approach to marketing? What is systems approach to marketing? What is production concept of marketing? What is product concept of marketing ? What is selling concept of marketing? What do you mean by marketing concept? What is traditional concept of marketing ? Define modern concept of marketing. Name the functions of marketing. What is market penetration? What is market targetting ? What is market positioning?

SECTION-B (Analytical Questions) Answer any five question, each question carnes five marks, answers should not exceed 30 lines. 1. Distinguish between "market", "marketing" and "marketing

management". 2. Differenciate traditional concept of marketing with modern concept of marketing. 3. "Marketing is human activity directed at satisfying needs and wants through exchange processes".s Do you agree? Substantiate your answer. 4. Explain any two approaches to the study of marketing. 5. Explain briefly marketing management philosophies.

SECTION-C (Essay Type Questions) Answer any two questions, each question carries fifteen Marks, answers to each question should not exceed 3 pages 1. Discuss the functions of marketing. 2. Explain the production, product, selling, marketing and societal concepts of marketing. 3. Define marketing management. Briefly explain its philosophies and process.

MARKETING ENVIRONMENT ~

Learning Objectives After reading this chapter you should able to IlF

Understand the meaning, definition of marketing environment

IlF

Analyse the internal and external fadors influencing MarketingDemographic, Economic, Natural, Technological, Political-Legal, Socio-Cultural ones

IlF

Know the terms marketing mix and mega-marketing and its elements

IlF

Conceptualise the term market segmentation, and discuss bases and requisites of market segmentation

IlF

Discuss market targeting strategies, positioning, undifferenciated marketing and concentrated marketing

MARKETING ENVIRONMENT

2.2

2.1 INTRODUCTION Success and survival in marketing requires monitoring the environment and adapting the product and strategies to meet consumer needs in the fast changing market environment. The marketing environment comprises of a set of controllable and uncontrollable forces to which the company must adapt its marketing mix. Marketing environment refers to all uncontrollable factors which have bearing on the functioning of marketing department of any organization. A company is to work in a socio-economic system of a larger environmental system. It does not exist in a vacuum. It must continuously adapt and adjust to the opportunities and threats and uncertainities presented by changes in the environmental forces. lfthe company acts as a closed system-concentrating on exclusively the inner environment, it fails to keep up with changes in its outer environment. Customer demand, market conditions, degree of competition, public relations, technologies, political, legal, economic conditions, labour relations, government attitude all these go on changing. Hence, the enterprise must positively respond in time to the dynamic environmental demands. The environmental conditions affecting a company's prospects may be divided as controllable forces and uncontrollable forces.

1. The Controllable Forces The controllable environmental forces are those forces which are within the control of a company. A positive firm will simply respond to these environmental forces. These forces include developing a sound marketing mix. That is Four P's-Product, price, place and promotion. Whenever necessary a company can change product features, quality, style, packaging, sizes, services as per the need of environment. In case of price, discounts, allowances, credit terms are to be altered. In the place mix the channels of distribution, coverage, locations, transportation are to be improved from time to time. Fourth and the last P is promotion. It should include educative advertising, personal selling, sales promotion and publicity.

MARKETING ENVIRONMENT

2.3

Marketing management before formulating marketing mix must take a look at the environment in which the enterprise will be operating in future. The more a business understands its environment, the better chance it has for profitable growth.

2. The Uncontrollable Forces The uncontrollable forces are a company's outside environmental aspects. A company cannot do anything to prevent it, but only to adjust for those outside or external environment. The uncontrollable forces include Demography, customer needs and desires, competition from other companies, economic, social, political, ecological, scientific and technological conditions. A scientific study of human population and its distribution structure is demography study. It deals with various elements such as sex, age, education, occupation, income, rural urban ratio, etc. It is very essential to form marketing planning. Similarly, the other external forces of competitors strength and weaknesses, economic, social and political changes playa vital role in marketing planning. The controllable and uncontrollable forces are presented at 2.1. Competition

Demography

Price Science Technology

Product

Customer Market

Place

Ecological Cultural

Promotion

Economic

Social

Legal

Fig. 2.1 Controllable and uncontrollable forces of marketing.

The business enterprise must adopt with these changes and get along with these situations which guide the company the opportunities available and threats to be faced.

MARKETING ENVIRONMENT

2.4

Company's Micro and Macro Environment A company's marketing environment consists of the forces that are external to the marketing management function of the firm and that impinge on the marketing managements ability to develop and maintain successful transactions with its target customers. The marketing environment comprises both new opportunities and new threats. Therefore, the firm must use its marketing research and intelligence to capitalise on new opportunities and to face new threats. The environment may be grouped as Micro environment and Macro environment.

2.2 THE MICRO ENVIRONMENT It consists of the forces within the company's immediate environment. They are the company, competitors, intermediaries, customers, publics and suppliers. The company must be conscious of these forces in which it operates. The marketing management cannot simply focus its attention on the target market's needs, they must be conscious of all forces in the micro-environment in which the company operates. (See figure 2.2)

Intermediaries

Suppliers

Customers

Publics Fig. 2.2. Major Force in the Company's Micro-Environment.

Suppliers : Suppliers are the firms which provide the resources needed by the company. The company heavily depends on the resources as it depends on the product quality. Materials must suit to the design given by Research and Development Department and other aspects like cost, credit, terms and conditions, quality, delivery reliability etc. must also suit to the demands of the company. A rise in supply cost lead to rise in the sales price which may reduce the company's forecasted sales

MARKETING ENVIRONMENT

2.5

volume. Shortage of the supplies may force the company to idle the men, machine and money resources. Hence, the suppliers are to be maintained for smooth and continuous production. Company: The company consists of top management, finance, Rand D, Purchasing, Manufacturing and accounting. All these groups constitute a company micro-environment. A close coordination between these functional depts. is essential to bringout good results. Finance dept. is concerned with availability of funds allocation of funds, cost return ratio, level of risk, sales forecast etc. Similarly Rand D take care of technical problems of designing, efficient methods of production etc., purchase dept. is concerned about sufficient supplies of raw-materials. Accounting has to measure and record costs to know how well it is achieving objectives. Thus the marketing management has to co-ordinate all , these activities in the company to form and implementits plan. Competitors : Every company faces a wide range of competitors. Research is required to know the buying decisions of consumers anq the strategy adopted by competitors. A study of competitors approach help to improve product features and improve marketing of the product. Intermediaries: Those who help the company in promoting, selling and distributing the goods to final buyers are known as intermediaries. Middlemen, transporting firms, financial agents, service agencies are all intermediaries. Their co-operation and cordial relation is very much essential for smooth flow of goods from the company to ultimate consumers. Selecting and working with dependable and reliable middlemen is a difficult task. These people create place, time and possession utilities to the product. They are very important for selling the product. The functions of warehousing, advertising, insurance, consulting firms etc., can also be included in the marketing intermediaries. Customers: The company must have a thorough knowledge of customer markets. Markets may be classified as follows (See figure 2.3)

MARKETING ENVIRONMENT

2.6 Resellers Market

Industrial Markets

Government Market

International Market

Consumer Markets

Fig. 2.3 Classification of Markets.

1. Consumers market include individuals and households who buy for personal consumption.

2. Industrial market include those who buy for their production process. 3. Resellers market include those who buy in order to sell them at a profit to others. 4. Government market include those buying goods to produce to public services or transfer these goods to others who need them. 5. International market include foreign consumers, producers, resellers and Govt. who are found in abroad. Each market has particular characteristics.that call for careful study by the seller. Publics: A public is any group that has an actual or potential interests in or impact on an organisations ability to achieve its objectives. Public include financial public, media public, Govt. Public, CItizen Action Publics, Local Publics, General Public, Internal Publics. A better rapport and understanding with these publics will result in improving the corporate image and goodwill. Thus the company and its suppliers, marketing intermediaries, customers, competitors, and public all operate as internal or micro environment. These forces shape opportunities and threats to the cumpany. To give these points in brief-The micro-environment

MARKETING ENVIRONMENT

2.7

consists of 5 components. The first is its internal environment-its several depts. Which effect the decision making of marketing management. The second one is intermediaries or channels which create place, time and possession utilities. The third one is customers identified in different markets where company can sell its products. The fourth one consists of basic types of competitors facing any company offer. The fifth component is all the publics that have an actual or potential interest in on the organisation's ability to achieve its objectives.

2.3 THE COMPANY'S MACRO ENVIRONMENT The Macro environment of a company consists of six major forces-Demographic, Economic, Natural Technological, Political and Cultural forces. These are company's external and uncontrollable forces. They act as constraints on the organisation at all levels. The company must monitor and respond to these forces. The six major forces of a c,?mpany's Macro environment. (See figure 2.4)

Fig. 2.4. Macro Marketing Environmental Factors.

Demographic Forces: A scientific study of human population and its distribution structure is demography. This study is very essential for marketing management as it deals with people and their demand, wants, desires and needs. Growing population indicates growing market for baby products. Population forecasts are useful to marketing plans and policies. Demographic analysis deals with quantitative elements such as age structure, sex ratio, education, occupation, income, geographic concentration, urban and rural population etc. These informations are useful in the market segmentation and determination of target markets. Demography

2.8

MARKETING ENVIRONMEN,T \

also give infonnation about qualitative aspects of consumer demand such as personality, attitudes motivation, styles, fashion etc. These infonnations can be used to know the reaction to a new product, advertisement price changes, channels of distribution etc.

Economic Forces: The second component of a marketing macro environment is economic one. That is purchasing power and willingness to spend. Economic conditions play a significant role in the marketing system. High economic growth assures higher level of employment and income and this leads to marketing boons in certain industries. Marketing plans and policies are influenced by various economic forces such as interest rate, money supply, price level, consumer credit, etc. Income, Savings, Investments are also significant forces, economic conditions influence product planning, price fixing and promotion policies. Inflation with scarcity of supplies radically change consumer buying habits. For example, higher petrol prices created a trend in favour of small fuel efficient cars. Thus economic forces can positively or negatively effect the promotion efforts of business.

Natural Environment: Natural Environment consists of rawmaterials, energy, pollution and Govt. intervention in resource management. Everybody is concerned about resources which may go scarce or completely non-available. A careful, conservative and cautious use of resources is very important. Similarly, now-a-days public are very conscious of pollution control. Disposal of chemical and nuclear waste, littering problem, non-biodegradable bottles, plastic and other packaging materials cause greater public apathy. Due to these problems various Govt. agencies play an active role in environmental protection. Marketing Management needs to pay attention to the natural environment for both obtaining needed resources and avoiding damage to natural environment. It is possible that Govt. and citizen awareness groups may build strong pressures in opposing businesses which cause environmental problems. Hence, business should take enough care in their plans and policies regarding natural environment.

MARKETING ENVIRONMENT

2.9

Technological Environment Forces: It is a very powerful force. It has released mixed blessings with both wonders and blunders. Such as automobile, television, pencillin, open heart surgery birth control pill etc. and also Hydrogen bomb submachine gun, nerve gas etc. Every new technology is a force for "Creative destruction" Transistors hurt the vacuum tube industry. Xerography hurt the carbon paper industry Auto industry hurt railroads, television hurt moview etc. New technologies offer new products and handsome profits to businesses. Electronic industry offered a new marketing opportunities to a number of concerns. Computers and aeroplanes are entirely new industries. Digital watches are threats to traditional watches but opportunities to those who make it. Artificial fibre has almost swallowed cotton textile industries. A large number of food items available now are non-existent about 30 years back. Thus, technological forces help to shape changes in the styles of living of consumers. Marketing management with the help of technology can create and deliver standards. It has the responsibility of relating changes of technology to marketing plans and strategies.

Political Environment : Marketing decisiom; are strongly affected by developments in the political and legal environment. This environment consists of laws, Govt. Agencies, and pressure groups that influence and constrain various organisations and individuals in society. There are several laws, regulations and policies of Govt. which affect business policies. They are(a) Govt. regulations to protect consumer from unfair business

practices. (b)

Protection in the larger interest of society by passing various Acts such as Essential Services Act, Adulteration Prevention Act, MRTP, Consumer Courts etc.

(c)

Protecting companies from each other-business enterprises are not allowed to price discrimination, false and misleading advertisements, deceptive sales promotion etc.

Marketing is affected by Govt. Fiscal and Monetary Policies also. The marketing management should know all these laws.

MARKETING ENVIRONMENT

2.10

Cultural Environment: Social and cultural forces influence the business concerns in the long run. Marketing management should take new demands created due to changes in life-styles, social values etc. There are certain areas which require special attention. They are- (a) Changes in life-styles, (b) Changing role of women (c) Emphasis on quality goods (d) Greater preference for recreational activities, (e) Greater care to health, body and personality (j) Awareness of misleading advertisements and (g) Growing consumerism. Marketing now called upon not only to deliver higher material standard of living, but also assure quality of life and environment free from pollution. Thus people grow up in a particular society that shapes their basic beliefs, values and norms. Marketing Management should give positive response to these cultural values.

2.4 INDIAN MARKETING AND ITS ENVIRONMENT There are certain issues which require the attention of market0Ts and reserchers particularly in a country like India. India being a vast country with huge population has many constraints for marketing development on the lines of developed countries. An analysis of the issues not only important, but also brings out the typical roles as well as limitations of marketing.

Issues 1. In an economy of scarcity, the problem is production and not consumption. One cannot distribute anything unless one possesses it. There are more mouths to feed. than the economy can possibly produce. 2. For economic growth, production of capital goods is more important than consumption goods. 3. National needs are more important and urgent than individual consume needs. 4. Monopoly pricing and speculative profiteering are rampant. 5. Middlemen are superfluous and distribution cost escalators.

MARKETING ENVIRONMENT

2.11

6. Democratic way of life slows down development tempo but still it should be preserved. These issues, which are relevant to India, give rise to certain questions. They are1. How far may be marketing research findings in respect of consumer preferences and tastes relevant and applicable in India? 2. What should be the role of marketing based on the modem concept whose focus is consumer and his satisfaction? Nature of Marketing in India: Mar!;;:eting Management in India is still in its elementary stage.· There are several constraints coming in the way of marketing in India. The following are some of the features of nature of marketing environment in India. 1. Sellers Market: This is a major feature oflndian marketing scene. Many products have excessive demand than their availability. This has led manufacturers to concentrate more on production rather than marketing. The products are sold with little sales promotion effort and advertisement is not persusasive. It shows that there is little thinking on marketing management.

2. Agriculture Economy : India is basically an agricultural economy and there is excessive dependance on agriculture. In view of the low income, excessive dependance on agriculture and less developed industrial sector, larger markets are not available in the country. 3. Rural Domination: Nearly 70% of our population live in rural parts. Expanding markets in rural areas in a difficult task due to underdeveloped nature of rural India. 4. Middlemen Control: Most of the marketing activities are dominated by unorganised, greedy and non-professional middlemen. The consumer and producer link is permanently prevented by these middlemen. 5. Illiterate Consumers: The literacy rate is very low in India. Hence, it is very difficult to produce sound marketing management tecbniques.

2.12

MARKETING ENVIRONMENT

6. Management is not Professionalised : Due to slow process of industrialisation and predominance of middlemen in the key positions, the managf~ment is not yet professionalised in India. Narrowness of market is another impediment. 7. Poor Transportation and Communication: Development of marketing requires very effective and systematic transportation and communication facilities. But in India majority of the villages have not been provided with these facilities. S. Less Spending on Consumer Goods : The tastes and preferences are governed by tradition and social pressures in villages. Many people still believe all modern consumer durable goods are not to be used. Marketing is a tough task and it ::;hould be innovative to educate the rural mass regarding the new products.

9. Government Regulations: Government also playa significant role in Indian Marketing environment with a number of restrictive and preventive laws on production, diE-:;ribution and consumption patterns. 10. Research and Development: Rand D is not innovative and heavily concentrating in the urban markets. Rural market is almost ignored which has vast potentiality for all products. Actual needs of the rural people should be identified by conducting research studies continuously.

2.5 OPPORTUNITIES AND CHALLENGES IN INDIA 'Anything will go in the Indian Market' is it true? Is so what are the implications? In India marketing potentiality is very high due to vast size of the market, huge population, and improvements in the living standards. But these things are to be considered along with certain problems like wide spectrum of storage, handling and distribution facilities from utterly primitive to the totally modern, the problems of communication amidst vast sociological differences in matters of language and values of living. Marketing management must monitor and respond in the right time and in the right place to explore the opportunities available here. Some of the challenges and opportunities are discussed below:

MARKETING ENVIRONMENT

2.13

1. Illnovation ofNew Products: In a developing country like India the challenges are innovating new products and new markets. New products increase marketing activity and has multiplier effect. For example the invention of new small fuel efficient cars in India have brought a revolutionary change in car market. Due to low cost of maintenance even the middle income group also thinking of possessing a car. The same is true of Diesel cars.

2. Opportunities for Consumer Products: The capital goods industries consume large investments. Hence it is advisable to develop such products which develops markets easily rather than spending excessively on capital industrial goods. Consumer products are to be produced and gainfully the resources are to be employed. 3. Legislative Controls: In India there are several legislative controls on pricing, distribution and production. Government does not allow certain products to be sold at a high price and even their distribution is also done by Govt. Hence, the marketing manager should operate within these constraints and concentrate more on cost effectiveness of the marketing operation rather than keeping customer happy. 4. Effective Production Management: To add value to the products the marketing dept. should constantly instruct the production manager regarding quality. The production process should be fully engaged by finding full market for the product. Thus, marketing management has the responsibility of updating the product, producing to the full capacity and quality maintenance. 5. Effective Distribution System : In India due to lack of transportation facilities the time of production and its consumption is very large. The time and money involved in distribution is also very high. Marketing strategy in a country like India is to device quick movements and saving ~n distribution costs. 6. Other Challenges (a) There is a npf'd for better co-ordination between financial institt IOn" :::..nd marketing houses. (b)

Marke, ~ management is to explore more opportunities through banking institutions and their credit cards.

MARKETING ENVIRONMENT

2.14 (c)

Packing function should assume a new dimension of providing quality products in convenient, e~onomical and attractive units.

(d) Larger markets for every products is to be created, to offset

cost push inflation. (e)

The word 'quality control' must be practiced in shop floor and market place.

Thus, the opportunities and challenges are to be considered in terms of quality and quantity and economical products not with an idea that "any thing will go in the Indian Market.

Rural Marketing There have been two schools of thought among Indian Marketers on rural marketing. The first schools believed that products and marketing techniques which worked in urban a:reas could be transplanted with little or no modifications to rural India. But others of the view that rural marketing required radically different skills and techniques from its urban counterpart. These arguments are based on the following features of rural marketing: (a) The rural market offers a vast market for consumer goods. (b) The distribution task involves covering several lakh

villages. (c) Low-priced products should be more successful in rural

markets because of the low-per-capita income in rural India. (d) Rural consumers from one homogeneous group with

similar needs, values and aspirations. (e)

Advertising should be simple and unsophisticated and in terms of media, use local fairs, opinion leaders etc. as opposed to press, film, radio and such other urban oriented media.

Apart from these features there are several unique features about the rural buyers in India which need to be understood. They are:

MARKETING ENVIRONMENT

2.15

1. The rural buyer in India provides a tremendous range of contradictions and paradoxies which are baffling the urban born marketing people. Poor people spending lavishly on weddings and festivals, rigid caste systems, people starving to death in preference to eating meat, people refuse to eat wheat in preference to rice. Illiterate peoples shrewdness in buying are all very difficult for marketers to understand.

2. Motivating Indian farmers to change their life styles is enormously difficult. People are always content once their need is satisfied. They do not work little harder even for a lot more incentive. 3. The greatest handicap in India is the problem of huge distances ad inadequate outlets. On an average to cover one district one has to travel a minimum 100 to 150 kilometers and 1600 villages. 4. The difficulty of finding a market is surrounded by another problem of within a market many mini markets of caste, religion and language or other ethaic differences all of whom have distinctly different life styles work. 5. Rural India is still very substantially a barter economy and cash transactions are only the business which is of use to a marketing man. Thus, it is understood that the rural buyer is exactly like his counterpart in urban areas and is dominated by the human needs of status, stimulation and security as much as by the so called animal needs of food, clothing and shelter. But, the life styles, living standards and needs and wants marginally differ from the tastes of urban buyer. ,

Promising Areas of Marketing in India In the prevailing marketing environment in India, some of the promising marketing opportunities are in the following areas1. Elec~ronics and ITIITESIBPO : Today we are in the midst of an electronics and communications revolution. Electronics offers

2.16

MARKETING ENVIRONMENT

a very wide range of applications including entertainment, defence, space technology, telecommunications and major manufacturing industries. The computers occupy a key position and the range of their applications is ever increasing in all fields Banks, LIC, Railways, Industries, education and in all walks of life.

2. Tourism Industry : There is a shift in thp. preference of human life styles. More leisure and pleasure is the slogan of the day. There is a vast and increasing potential for the tourism industry. India is bestowed with natures bounty in great abundance and has a very rich cultural heritage. There is enormous scope of expansion in the tourism industry. 3. Renewable Energy Source Based Products: The traditional and non-renewable sources like coal, oil etc., are not available. Therefore, is wide opportunities for the development of technology in exploiting solar energy. India has great advantage in the abundant available solar energy. 4. Leasing: Leasing equipments is a popular business in USA and Europe. In India it is slowly progressing, leasing has a very large potential and it is estimated that about 6000 to 10000 crore rupees business is possible in this area in India.

5. Consultancy : Due to increasing sophistication of technologies and scales of Industrial operations, the projects being setup require highly specialised skills in various management and technical areas and a multidisciplinary approach. The complete package of such skills is not available in many companies. This has led to increasing demand for consultancy services. Consultancy on the market opportunity analysis (MOA) Techno-economic feasibility, designing processes, detailed engineering, plant p~ocurement, inspection assistance, project commissioning are some ofthe examples. 6. Technology Selling: The technologies developed in India are very appropriate for the developing countries. There is a growing demand for India technologies outside. In the beginning of 1980 there were 134 Indian Joint Ventures in operation in about 26 countries in a wide range of products and services. This is also another areas which has a large potential in India.

MARKETING ENVIRONMENT

2.17

7. International Business: Market for us got extended to all 148 countries in WTO arrangement. This brings a lot opportunities to our companies to go global and expand the business horizon to other shores in the global. There is free flow of capital, technology, professionialism, products and services. Marketing has a vast and ample scope in the information and knowledge era. 2.6 MARKETING MIX Marketing mix refers to the set of controllable tactical marketing tools-product, price, place and promotion-that the firm blends to produce the response it wants in the target market. The marketing mix describes the specific combination of marketing elements and used to achieve an organisations or individuals objectives and satisfy the target market. The mix depends upon a number of decisions with regard to the four major variables-product, price, place, and promotion. The term "Marketing Mix" was coined by Jerome. Mc earthy and it is popularly known as four P'S of marketing. These four elements or sub-mixes should be taken as instruments by the management while formulating marketing plans. Every marketing manager should have a thorough knowledge of 4 P's. The Marketing mix will have to be changed whenever marketing conditions like economical, technological political, legal changes.

Definitions-Marketing Mix According to N .R. Borden, "The marketing mix refers to the appointment of efforts, the combination, the designing and the integration of the elements of marketing into a programme or mix, which on the basis of an appraisal ofthe market forces (supply and demand) will best achieve an enterprise at a given time." According to William J. Stanton, "Marketing mix is the term used to describe the combination of the four inputs which constitute the core of a company's marketing system-the product,

2.18

MARKETING ENVIRONMENT

the price structure, the promotional activities and the distribution system." Thus above two definition clearly reveals that the four P's shall be considered as inputs to achieve organisational marketing objectives keeping in mind the micro and macro marketing environmental factors. A brief description of the four elements of marketing mix called four P's as follows: 1. Product: Product is the first 'P' is marketing mix components. Product means the goods and services combination the company offers to the target market. Product must satisfy consumer needs. The management must first decide the products to be manufactured to meet the needs of the customers. Thereafter the company decide upon variety, quality, design, features, brand name, packaging, services, and the like. For example Hindustan Lever Limited (HLL) products consists of toilet and detergent soaps, shampoos, face cream, and other health care products. The company offers a huge variety of toiletries and health care products for different target market at different prices hereby it ensures consumer satisfaction.

2. Price: It is the second 'P' of marketing mix components. Price is the amount of money customers have to pay to obtain the product. The marked amount of money asked from a buyer is known as basic price value placed on a product. The company decides on list price, discounts, allowances, terms of credit, payment period and so on. The price is fixed by taking into account so many internal and external factors. At last the price paid by the buyer must be worth or equalent to the product attributes and utility. For example, Bajaj two wheelers punchlive embarks on this saying "value for your money". Eventually the price determined must boost up the sales. 3. Place: Place is the third 'P' in the marketing mix. Physical distribution is the delivery of products at the right time and at the right place satisfies the concept of time and place utilities, besides providing 'convenience' to the customers. Place includes company activities that make the product available to target consumers. It is not that product manufacturing, giving a whole lot of

MARKETING ENVIRONMENT

2.19

advertisement about the product which are significant, in reality the essence is making available of the products in all outlets in real time. This is the core function of place component as well as logistics in any marketing activities. The place component addresses the factors such as channel choice, coverage, assortments, locations, inventory, transportation, and logistic. 4. Promotion,' Ifis the fourth 'P' in the marketing mix concept. Promotion means activities that communicate the merits of the product and persuade target customers to buy it. The product may be made known to the consumers. Companys must undertake promotion activities such as advertising, personal selling, sales promotion, public relations and so on. A large chunk of amO'.lnt is spent on advertisement and publicity by the orgnisations in India owing to uphill and terbulent competition.

An effective marketing programme blends all of the marketing mix elements into a coordinated programme aimed at achieving the company's marketing objectives by delivering value to consumers. The marketing mix constitutes the organisations tactical tool kit for establishing positioning in target markets. The above discussion is from the view point of sellers and not the buyers view. From the buyers view point, in the present era of customer relationships, the four P's can also be better described as four C's.

From the seller's view Four P's

From the buyer's view Four C's

Product

Customer satisfaction and delight

Price

Cost to the customer

Place

Convenience

Promotion

Communication.

Thus four P's of marketing-product, price, place and promotion for simple and better understanding of the reader, is presented diagramatically at figure 2.5.

MARKETING ENVIRONMENT

2.20 Product Variety Quality Design Features Brandname Packaging Services

Promotion Advertising Personal selling Sales promotion Public relations

Price List price Discounts Allowances Payment period Credit terms

Place Channels Coverage Assortments Locations Inventory Transportation Logistics

Fig. 2.5. The four Ps of the marketing mix. (Source : Kotler & Armstrong, "Principles of Marketing" 10e,

PearsonlEducation INC., 2004, p. 58)

Mega-MarJteting Marketing mix is coined by Jerome. E. Mc Carthy consisting of four P's, to this marketing guru Philip Kotler added two more P's- power and public relations. All six P's together called megamarketing.

MARKETING ENVIRONMENT

2.21

Philip Kotler defines mega-marketing "as the strategically coordinated application of economic, Psychological, political, and public relation skills to gain the cooperation of a number of parties in order to enter and or operate in a given market." Thus Kotler adds power and public relations to the four P'S of the marketing mix.

2.7 MARKET SEGMENTATION The buyers are too numerous, widely scattered and varied in requirements and buying practices. It is not possible for any company to appeal to all buyers of the market. Each company has to identify the most attractive, parts of markets that it can serve effectively. Hence, markets recognising the importance of heteregeneous demand are recommending for subdividing or segmenting the market. That is each segment can 'be a group of people with similar or homogeneous demand.

Definition Market segmentation is dividing a market into distinct groups of buyers who might require separate products or marketing mixes. A market segment is a meaning buyer group having similar wants. It is a customer oriented strategy and gives formal recognition to the fact that wants and desires of consumers are diverse and formulate a specific market offering to specific category or segment of the market. Thus varied and complex buyer behaviour is the root cause of market segmentation.

2.8 BENEFITS OF MARKET SEGMENTATION 1. Marketing Concept: It is based on market oriented strategy

and philosophy. It gives special emphasis on the demand side of the market. It is a more rational and precise adjustment of the product and marketing effort.

2. Market Response: Market segmentation is a method for achieving maximum market response from limited marketing resource. It is a strategy of 'Divide and Conquer', i.e., dividing markets in order to conquer them.

2.22

MARKETING ENVIRONMENT

3. Strategic Choice: It is a strategic choice concerned with "doing the right things" as opposed to tactical choice "doing things right". 4. Appropriate Mix for Chosen Segment: It enable the marketers to give better attention to the selection of customers and offers an appropriate marketing mix for each chosen segment.

S. Effectiveness of Marketing Programme : Segmentation ensures higher customer satisfaction and improve effectiveness of the marketing programme.

6. Locate and Prepare Mkt. Opportunities: Markets are in a better position to locate and compare marketing opportunities. 7. Programme Tuned to Demands of Markets : When customers needs are fully understood, markets can effectively formulate and implement marketing programmes which will be tuned to demands of the markets. 8. Rifle Approach : Marketers can make biner adjustments in their products and marketing publications. They can use rifle approach instead of shotgun approach. 9. Strength and Weakness Assessment Easy: Competitive strengths and weaknesses can be assessed effectively ad cutthroat competition can be avoided. 10. Effective Utilisation of Resources : Segmentation lead to more effective utilisation of marketing resources, because, customer is the focus of marketing effort and only target masses are served.

Market Coverage Alternatives Stages in identifying segments of a market or marketers strategic options pass through following 3 stages : 1. Ma.ss Marketing: In mass marketing, the seller mass produces, distributes and promotes one product to all buyers. The idea is that it would lead to lowest costs and create largest potential market. For example parle soft drinks produces only one drink for the whole market-LIMCA.

MARKETING ENVIRONMENT

2.23

2. Product Differentiated Marketing : In this stage seller produces more products that exhibit different features, styles quality, sizes and so on to offer variety to buyers rather than appeal to different market segments. 3. Target Marketing: In this, seller distinguishes between market segments, selects one or more of these segments and develops products and marketing mixes tailored to each segment. 2.9 BASES FOR SEGMENTING CONSUMER MARKETS Markets consist of buyers and buyers differ in one or more respects. They may differ in their wants, resources, geographical locations, buying attitudes and buying practices. Any of these variables can be used to segment a market. However, the following major facts are explained to understand the segmentation, : They are-1. Geographic

2. Demographic

3. Psychographic

4. Behaviour.

Geographic Segmentation It is dividing the market into different geographical units such as nations, states, districts, taluks, blocks, villages, cities etc., Consumer segmentation in this manner is to operate in a limited or few geographical areas to pay more attention to the needs and preferences of consumers. For example Brooke Bond Tea is nationally sold but is flavoured regionally. Segmentation of this kind is also useful when the tastes and preferences have the geographical influence like North Indians prefer lighter than South Indians who prefer stronger coffee or tea.

Demographic Segmentation It is dividing the market into groups on the basis of demographic variables such as age, sex, family life cycle, income, occupation, education, religion, race and nationality. The consumer wants and preferences and usage rates are often highly associated with demographic variables. This basis for segmentation is very popular and also easier. For example, sex segmentation as male

2.24

MARKETING ENVIRONMENT

and female in consumer markets is applied in clothing, hair dressing, cosmetics, and magazines. Recently, Ms Cigarattes is introduced in India for women with appropriate flavour, packing and advertising to develop female image.

Psychographic Segmentation In this buyers are divided into different groups on the basis of social class, life style and personality characteristics. People may be divided as lower class, middle class, upper class, lower middle class etc., who have strong influence on preferences as per the social class they belong to in buying certain products like cars, clothes, furnishings etc. People's interest in various goods are influenced by their life styles and the goods they consume express their life styles. A manufacturer of men's clothing will design a Readymade garment for a specific male life style group like Traditional, Casual, Trim, Leisure, Executive, Elegance etc. Personality variables to segment markets is also very popular. Certain products like after shave lotions are manufactured by highlighting the 'Masculine' 'Innovative' Fragrance to attract women' etc.

Behaviour Segmentation In this buyers are divided into groups on the basis of their knowledge, use or response to a product. Classifying buyers according to different benefits they seek from the products is very popular. For example, buyers of watches may seek benefits like price, durability, quality, symbols etc. classifying buyers on this basis is useful to design marketing programmes for each group. Similarly a survey made on toothpaste users revealed that consumers seek four benefits from toothpaste, they are economy, protection, cosmetic and taste. Thus each benefit seeking group has particular demographic, behaviouristic and psychographic characteristics.

2.10 REQUISITES OF SOUND MARKETING SEGMENTATION (CRITERIA FOR SUCCESSFUL MARKET SEGMENTATION) Dividing market into district groups of buyers who have distinct needs, characteristics or behaviour and who might require separate

MARKETING ENVIRONMENT

2.25

products or marketing mixes is called market segmentation. In segmenting a market a company must consider a variety of factors called prerequisites or criteria of segmentation. To optimise the benefits from market segmentation, every firm it to adopt a five point criteria. These are evolved by prof. Martin L. Bell of Washington University USA. The criterias are: 1. Identifiability and Measurability: The first prerequisite according to Martin is that the company should clearly define and group the buyers. The questions to be answered are who is in the segment and outside the segment. The inputs for this purpose is demographic, social, cultural and other data about members. This is known as identification. As for measurement is concerned, the data should permit the measurement of size, potential benefits etc.

2. Scope for Sizeable Market Potential: The markers shall forecast and estimate the actual or potential need of the segment members prior to going in for market segmentation. The factors considered are purchasing power, taste and preferences, ability to convert potential market into realities, income, savings, credit plan and so as on. 3. Easy Accessability : This involves that there is enough and free arena for easy accessability or approachability to the segment member. This criteria also involves a search for enough similarity among buyers for the purpose of availing cost-benefits. 4. Reaction of Marketing Eft orts : Segmentation should be such that we should make differential response to the marketing efforts rendered, that is, every efficient marketers should aim at equal marginal response from the last unit of the marketing applied in each market. 5. Stability: The segments must be large enough to permit a viable market effort directed towards them. The other prerequisites are:

(a) Flexibility: The market segmentation should not be static because as and when marketing environment changes, the segments need to be altered. (b) Nature of Demand/Market: The market should be segmented based on the nature of demand for a product. The

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MARKETING ENVIRONMENT

demand for a product may be elastic or inelastic. In inelastic market whatever may be the price, the segment members will buy the products. It is one of the prerequisite to understand to divide the market on the basis of elasticity of demand.

Market Targeting Strategies A successful market segmentation involves a number of steps: 1. Defining the Segmentation: To define precisely the basis of segmentation that is workable. This makes a consumer to understand a great deal of marketer and the company must have the knowledge of the market. A research of consumer motivational aspect will serve the purpose.

2. Application of Segmentation Theory : It is to do with collection and analysis of data concerning each market segment.. 3. Identification and Measurement: This step is to apply to criteria of a good segmentation namely its identification and measurement, its importance, and economic accessability that is divergence is response to marketing effort and stability. 4. Developing Action Plan: This is to deliver the benefits the consumers want. This involves the development of marketing plan and programmes for both short-run and long-run. With this background in mind let us study market targeting strategies. No two individuals are alike in all respect, they differ in their do's and dont's, likes and dislike. Hence, market should be segmented accordingly because the buyers are never all alike be a marketer, in fact three alternative market targeting strategies are available. The alternatives are that in planning its marketing mix for a product or a service, an organisation can choose either to confront the differences among the consumers or to ignore them. If it ignores such differences, it is said to follow undifferentiated marketing in which a single marketing mix is used for the entire market. This segme l1t best applies to mass marketing. On the other hand, ifthe company segments the market on the basis of consumers differences, it can choose to practice either differentiated marketing or concentrated marketing. Differentiated

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MARKETING ENVIRONMENT

.

marketing is a strategy in which a different marketing mix is used for each segment. Concentrated marketing strategy is one in which all or most of the marketing efforts are focused on one or a few: segments. For better understanding of above see Table 2.1 Table 2.1. Market Target Strategies-Undifferentiated, Differentiated and Concentrated-Distinguished

Strategies z,actors

Undifferentiated

Differentiated

Concentrated

1.

Use of marketingmix

One

Multi

All efforts and all mix

2.

Taking care of customer differences

Ignores

Takes care

Takes care very much

3.

Technically called

Mass marketing

Niche Marketing

Sophisticated as well as niche

4.

Caters to

All segments

One segment

One ora few segments

5.

Examples

Foodgrains, and other daily needs

Specialised cars

Golden ornaments made on order usually for elite class

Let us discuss the various target marketing strategies i~ detail: 1. Undifferentiated Marketing: This marketing strategy offers only one product to all type of buyers with one marketing programme, thereby ignoring the likes, dislikes, taste and preferences, suitability and compatibility. The company chooses not to recognise the different requirements of consumers that make up the market. instead, it treats market as an aggregate focusing on what is common in the needs of the people rather than on what is different. It is a marketing design that appeals to a large number of buyers. This strategy heavily relies on product differentiationsame product with different colours, design, shape, brand name etc. to protect itself from competition, mass channels, mass advertising. It aims at creating superior image of a product or service in the minds of the people. The examples could be soft drinks, toothpaste, tooth brush, cigarettes, and the like. Undifferentiated marketing is justified on

2.28

MARKETING ENVIRONMENT

the grounds of economies of scale. This strategy is criticised by many because it typically develops a product market programme I aimed at meeting the requirements of the entire market. When several firms in the industry do this, the result is hyper compitition for the largest segment and under-satisfaction of the buyers of smaller area. This strategy is more vulnerable to competition than the other targeting strategies. It creates "majority fallacy" (false beliefs) that means appealing to the largest market ignoring smaller areas. Such an approach provides huge profits but only for short term. The successful company is one that cares for buyers of both large and small proportion. Differentiated Marketing: Under this strategy, a firm decides to operate in several or all market segments but designs different marketing programmes for each segment. The differentiated strategy involves a different marketing mix for each segment. It is a tailer made offer to different segments hoping to achieve additional sales and increased consumer loyalty. For example, HLL's lifebuoy, Johnson and Johnson Baby Soap, lTC's Gold Flake cigarette, Jet Airways differentiated services, Daimler Chrysler's 'Pantem' car and the like. By offering product and marketing variations, the firm hopes to attain higher sales and deaper position within each market segment. It hopes that a deep position in several segment will strengthen the customers overall identification of the company with the wide range of product field. In otherwords it hopes for greater loyalty and repeated purchases. Many firms have switched over to differentiated marketing from undifferentiated marketing strategies. The result is multiple product offering and channels to reach consumers. Thus, Pepsi sold in different bottle sizes, ITCs different variety of lengths and filter types, Toyoto's cheverolate's, Honda Motors, General Motors' products are differentiated to meet , the different segment groups. Concentrated Marketing: An alternative to both undifferentiated and differentiated marketing is concentrated marketing. It implies that the firm goes in for whole market. This al~ernative is necessary when the company's resources are limited. Under this approach, the firm instead of going after a small share of a large market, the film goes after a large share of one or two or a few submarkets. It is popularly called "niche" marketing. This approach emphasises that instead of spreading itself thin in many parts of the markets, it concentrates its forces to gain good market position in a few areas. For example Kelvine care products, wood

MARKETING ENVIRONMENT

2.29

wards gripe water, Amruthanjan, Vicco Vajradanthi, publishers publishing specific books for specific category-children, spiritual, recipe, sports, science and technology, management and so on. The major advantage of concentrated marketing is that the organisation can become a specialist in the needs of its 'selected market segment. The company achieves a strong market position in a particular segment of segments it serves because of its greater and deeper knowledge of the segments needs and special reputation. Further, it enjoys many operating economies because of specialisation in production, distribution and promotion. The demerits of concentrated or niche marketing it that the company's future growth it depended on one segment ofthe market and it means obvious risk that is putting all the eggs in a single basket restricts the growth opportunity and makes vulnerable. Further a firm that concentrates too much may forget or neglect other segments that are otherwise profitable.

Product Positioning Once a company has decided which segments of the market it will enter it must decide what 'Positions' it wants to occupy in those segments. A product's position is the way the product is defined by consumers on important attributes i.e., the place the product occupies in consumers minds relative to competing products. As consumers are overloaded with too many products and too many varieties of a product they cannot re-evaluate everytime they make a buying decision instead they simplify the buying process by organising products into categories i.e., position products in their minds. Thus 'A product's position is a complex set of consumer perceptions, impressions and feelings consumers hold for the product compared with competing products. The position of a product with consumers are fixed by consumers themselves with or without the assistance of marketers. However marketers should not leave their products position to chance. They should plan positions that will give their products the greatest competitive advantage in selected target markets and they should design marketing mixes to establish the planned positions. For example, medimix soap has come to be regarded as ~n antiseptic soap, pears also regarded as an antiseptic soap. Amul is identified with butter and some other dairy products. Dalda symbolises vanaspati ghee and camlin is associated with stationery items. Thus, the strategy is assigning a specific role to the product.

MARKETING ENVIRONMENT

2.30

Positioning Options or Positioning Strategies Attributes Positioning: A product can be positioned on its specific product attributes such as Maruti Omni Van as a family Car with its features more suitable to more people ad for more comforts. Benefits as Basis: Products can be positioned on the needs they bill or the benefits they offer such as colgate reduces cavity, complan-a full meal. Usage Occasions: Products can be positioned according to usage occasions like Usha for a cool summer and in winter for a price reduction. Classes of Users: Positioning the product for certain classes of users like Johnson and Johnson Baby bath soap. Against Competitors : A product can be positioned directly against a competitor. Matador (Bajaj) Van is advertised by giving comparitive performance of the vehicle along with other makes. Away from Competitors: Some companies position their product as 'we are number two' or 7-up as the 'un-cola' fresh and thirst quenching alternative to coke and pepsi. Product Classes: The product can be positioned with respect to product classes also. For example sun flower cooking oil is positioned against groundnut oil. Advertisement Changes : By making an advertising claim different from that made earlier or those made by its competitors is also a strategy. For example, Bournavita advertisement claims it as a 'Health, strength and energy' drink whereas Viva is claimed as a double action drink which induces sleep during the night and energy during the day.

SUMMARY Marketing environment refers to all those uncontrollable factors which have bearing on the functioni~g of marketing such as political, legal technological, global, socio-cultural, economic, natural, competition and other factors. The controllable factors affecting the functions of marketing are quality, style, packaging, design, after-sales service, discounts, allowances, educative advertising, personal selling and other sales promotional activities. These factors are within the control of a company. Marketing mix the set of controllable marketing variables that the firm blends to produce the response it wants in the target market. The components of marketing mix also called as 4 Ps of marketing coined by Mr. McCarthy are product, price, place and promotion.

MARKETING ENVIRONMENT

2.31

Product stands for the goods and service combination offered by the company to its target market. Price stands for the amount of money customers have to pay to obtain the product. Place stands for the various activities that make the product available to target consumers. It includes appointing whole salers and retailers, middlemen motivating them for more exposure and attention and arranging transportation ad storage. Promotion stands for activities which communicate the merits of the product and persuading target customers to buy it. It includes advertising, pen·onal selling publicity, propaganda, sales promotional activities. Megamarketing refers to € Ps that is in addition to 41's, two more Ps-public relations and power are included. Together all 6 Ps constitute megamarketing. To original marketing mix (4 Ps) coined by Mr. McCarthy, the additional 2 Ps were included by the marketing GUI1l Philip Kotler. Market segmentation is dividing a market into distinct groups of buyer who might require seperate products or marketing mix. Segment can be a group of people with similar or homogeneous demand or heterogeneous demand. It is a strategy of 'divide and conquer' that is dividing markets in order to conquer them. The bases for segmenting consumer markets are-geographic, demographic, psychographic and behaviour. Geographic segmentation is dividing the market into different geographical units such as nations, states, districts, taluks, blocks, villages, cities ansd the like. Demographic segmentation is dividing the market into groups on the basis of demographic variables such as age, sex, family life cycle, income, occupation, education, religion, race ad nationality. Phychographic segmentation is a method of segmentation in which the buyers are divided into different groups on the basis of social class, life style and personality characteristics. People also may divided as lower class (LIG), middle class (MIG) upper class (HIG) and double income group (DIG). Behaviour segmentation is dividing the buyers into groups on the basis of their knowledge, use or response to a product, attitude and other behaviouristic and psychographic characteristics. The requisites of sound marketing segmentation are-cost involved, target market, nature of market or service, quality and quantity of product, frequency of purchase, promotion mix involved, stage of the product in the product life cycle, cost benefit analysis and so on. Strategies are the 'game plans' for attaining objectives. Marketing strategy refers to the marketing logic by which the business unit hopes to achieve its marketing objectives. Marketing strategies consists of specific strategies bearing on target markets, marketing mix and marketing budget.

MARKETING ENVIRONMENT

2.32

Market targetting strategies spell out the market segments on which the company will focus. The segments differ in preferences, responses and profitability. The company should allocate its efforts and energy to the segments on a point of competitive advantage. Once a company has decided which segment of the market it will enter, it must decide what 'positions' it wants to occupy in those segments. A product's position is the way product is defined by consumers on important attributes that is-the place the product occupies in consumers minds relative to competing products. The positioning strategies are based on the product or service attributes, benefits, usage occasions (winter or summer or rainy reasons), classes of users, against competitors, away from competitors, product classes, advertising claims and the like. Undifferenciated marketing refers to a strategy that offers only one product and tries to draw all the buyers with one marketing programme. It is an attempt to design a product and marketing programme that appeals to the broadest number of buyers. It is also called as mass marketing. Concentrated marketing refers to a marketing strategy in which a company instead of covering largest portion of market segment, covers a segment within segments on account of scares resources, the firm resorts to this strategy by availing economies of scale in the production, distribution and selling. In short, concentrated marketing meets the specific needs of the specific customers.

KEYWORDS • • • • • • •

Marketing Environment Controllable Forces Uncontrollable Forces Micro Environment Macro Environment Product Positioning Concentrated Marketing.

• • • • • • •

Demographic Forces Economic Forces Cultural Environment Political Environment Market Segmentation Undifferenciated Marketing Market Strategy

( QUESTIONS) SECTION-A (Conceptual Questions-2 Marks) 1. Define marketing environment.

2. 3. 4. 5. 6.

What are controllable forces? Give examples. What are uncontrollable forces? Give examples. What is micro marketing environment? What is macro marketing environment? What is healthy competition?

MARKETING ENVIRONMENT 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33.

2.33

What is unhealthy completion? Name the economic forces. What is natural environment? What is political environment? What is demography? Name the demographic forces. What is cultural environment? What is international business? Expand the terms-IT, BT, ITES and BPO. What is internationalisation or globalisation of businesses? What is market segmentation? Name the bases of market segmentation. What is geographic segmentation? What is demographic segmentation? What is psychographyic segmentation? What is behaviour segmentation? What is mass marketing? Name any two requisites of marketing segmentation. What is a strategy? What is market strategy? What is target market? What is product positioning? What is undifferenciated marketings? What is concentrated marketing? What is marketing mix? What is megamarketing? Who coined the terms "marketing mix" and megamarketing?

SECTION-B (Analytical Questions-S Marks) 1. Differenciate between controllable and uncontrollable marketing forces? 2. Distinguish between micro and macro marketing environment? 3. What is market segmentation? Briefly explain the benefits of market segmentation. 4. What are the prerequisites of sound marketing segmentation? 5. Explain market strategy for a FMCG product? 6. State market targetting strategies? 7. Explain briefly the product positioning strategies? 8. Briefly discuss the various components of marketing mix?

SECTION-C (Essay Type Questions-1S Marks) 1. What is marketing environment? Explain the micro and macro marketing environmental forces. 2. What is market segmentation? Explain the different bases of market segmentation. 3. What is product positioning? Explain with examples the different positioning strategies.

PRODUCT STRATEGIES L -_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _~

~

Learning Objectives After reading this chapter, you should able to II'li'

Know the concept of product.

II'li'

List the classification of products.

II'li'

Understand product mix decision, product line, produc.t addition, product deletion.

II'li'

Analyse the stages of product life cycle (PLC).

II'li'

Know product planning, steps involved in new product development process.

II'li'

Understand all about strategies, branding and packaging.

PRODUCT STRATEGIES

3.2

Product is one of the important component of the marketing mix in respect of which managers are required to take crucial decisions in a company. This chapter deals with 'Product' aspect of marketing mix.

3.1 NATURE OF PRODUCT

Meaning We buy foodgrains, textiles, soap, toothpastes, books and many other such items for our day-to-day consumption. In common language we name these items as products. Our decision to buy these items are influenced by tangible and certain non-tangible and psychological attribute such as service, brand, package, warranty, image, convenience etc. In order to understand more systematically the meaning of product following definitions may be considered.

Definition According to Alderson 'Product is a bundle of utilities consisting of various product features and accompanying services'. According to Schwartz 'a product is something a firm markets that will satisfy a personal want or fill a business or commercial need'. From the above definitions, it is obvious that a product is not only a tangible entity, but also includes certain intangible services and psychological attributes which consumers look for and marketers provide are also an integral part of the product.

ESSENTIAL FEATURES OF PRODUCT The essential features are ingradients of product may be described as follows : 1. Tangible Attributes-A product should have the characteristic of tangibility i.e., it may be touched, seen and its physical presence may felt. 2. Intangible Attributes-A product may be intangible in the form of a service like repairing, banking or insurance services. 3. Associated Attributes-Product may have certain peripheral or associated attributes to facilitate its identification and acceptance by buyers such as brand, package, warranty, credit, delivery terms etc.

PRODUCT STRATEGIES

3.3

4. Exchange Value-All products should have an exchange value and should be capable of being exchange between buyer and seller for a mutually agreed or acceptable consideration. 5. Consumer Satisfaction-Product should have the ability to satisfy consumers. It may be real or psychological. That is when a women buys a lakeme lipstick the not only buys a chemical scompound having some tangible features but also buys 'Beauty'. 6. Business Need Satisfaction-The basic business need obviously is to earn profit on the product sold, it may be to meet a societal need also. Thus, after having described the essential features of the term product, a product may be defined as a 'set of tangible, intangible and associated attributes capable of being exchanged for a value with ability to satisfy consumer and business needs'.

3.2 CLASSIFICATION OF PRODUCTS Based on whether, products are for immediate consumption or for further processing they are classified as : (1)

Consumer products.

(2) Industrial products. Let us know what these products are: (1) Consumer Products: Consumer products are products and services bought by final consumers for personal consumption. These are the products which are used without further commercial processing. In other words, consumer goods are meant for personal and non-business use. Consumer products include convenience products, shopping products, and speciality products. (2) Industrial Products : Industrial products are primarily purchased for further processing or for use in producing other goods. Examples include capital goods, raw materials, component parts etc., they are non-portable goods involving a high degree of consumer design making, are very expensive, last many years and do not change form.

PRODUCT STRATEGIES

3.4

Based on whether, products survive for long or immediately consumed and disappear, they are classified as: (1) Durable products (2) Non-Durable products (3) Services. The brief explanations to the above are: Both the consumer and industrial products can be further classified as durable and non-durable products. 1. Durable Products : Durable products are those tangible products that last longer or they do not get exhausted even after repeated use. For instance, the cars we drive, the refrigerators we use, the utensils we have in kitchen do not get exhausted overnight.

2. Non-Durable Products: Non-Durable products are those which get exhausted with a single of a few uses. For instance, food items we eat, our soft drinks we drink, the soaps, paper etc. 3. Services: According to Philip Kotler, "a service is any act or performance that one party can offer to another that is essentially intangible and does not result in the ownership of anything. Its production mayor may not be tied to a physical product." Services are intangible, perishable, frequently inseparable and vary in quality over time. Based on consumer buying practice products are classified as (1) Convenience goods (2) Shopping goods (3) Speciality goods. Let us discuss what these goods are: 1. Convenience Goods : Convenience products are consumer products and services that the customer usually buys frequently, immediately and with a minimum of comparison and buying effort. Examples include soap, newspapers, vegetables and fruits and other daily needs. These products are usually low priced, and are available in many locations. 2. Shopping Goods: Shopping products are less-frequently purchased consumer products and services. Consumers usually buy these items only after comparing styles, suitability, price, and quality. Example include furniture, clothing, foot wears, household appliances, fans etc. Shopping goods are more expensive than convenience goods and are found in fewer stores. 3. Speciality Goods: Speciality products are consumer products and service with unique characteristics or brand identification for which a significant group of buyers is willing to

3.5

PRODUCT STRATEGIES

make a special purchase effort. Examples include jewellary, diamonds, luxury sedan cars, designer clothes, etc. Table 3.1. Classification of Products Type

Example

Consumer products

Milk, vegetables cakes, FMCGs.

Industrial products

Lathe machine, milling machine, grinder, capital goods etc.

Durable

Furnitures, TV, radio, music system

Non-durable

All perishable goods such as vegetables, fruits greens, milk

Immediate need

Convenience goods

Daily needs, match box salt, newspaper, vegetables

Discrete

Shopping goods

Suitings, shirtings, cosmetics, footwear, etc.

Speciality goods

Golden ornaments, sedan luxury cars, diamond etc.

Bases

1. Immediate consumption

2. Further processing

3. Survival (i)

Long-run Short-run

(ii)

4. Buying practice (i)

(ii)

(iii)

StatuslSeldom

3.3 PRODUCT MIX DECISION "A product mix also called" product "assortment is the set of all product lines and items that a particular seller offers for sale to buyers". An organisation with several product lines has a product mix. JK group of companies in India has JK tyres, JK cement, JK textiles, JK shipping etc. Each product line consists of several sublines. For example, the HLL beauty line breaks down into makeup, skin care, bath, beauty, fragrance, outdoor protection products. Each line and subline has many individual items like toilet soap category-Lux, Rexona, Liril, Lifebuoy etc.

PRODUCT STRATEGIES

3.6

A company's product mix has four important dimensions, they are (1) width, (2) length (3) depth and (4) Consistency. Let us discuss the four dimensions in detail :

(i) Product Mix Width: Refers to the number of different product lines the company carries. Proctor and Gamble markets a fairly wide product mix consisting of 50 brands organized into many product lines. These line include fabric and homecare, baby care, feminine care, beauty care, health care and food and beverage product. (ii) Product Mix Length: Refers to the total number of items company carries within its product lines. P & G typically carries many brand within each line. For example, it sells seven laundry detergents, six hand soaps, five shampoos, and four dishwashing detergents.

(iii) Product Line Depth: Refers to number of versions offered of each product in the line. Thus, P & G's crest toothpaste comes in 13 varieties, Maruthi Udyog's small cars in four varieties. (iv) Consistency: The consistency of the product mix refers to how closely related the various product lines are in end use, production requirements, distribution channels or some other way. P & G's product lines are consistent in so far as they are consumer products that go through the same distribution channels, so also the soft drink giants coca-cola and pepsi companies. The lines are less consistent in so far they perform different functions for buyers. For defining the company's product strategy, the four product mix dimensions provide the bases. The company can enhance its business in four ways :

• It can add new product lines, thus, ",idening its product mix, • The company can lengthen its product lines to become a more full-line company,

• It can add more versions of each product and thus deapen its product mix, and • The company can pursue more product line consistencyor less-depending on whether it wants to have a strong reputation in a single field or in several fields.

PRODUCT STRATEGIES

3.7

3.4 PRODUCT LINE A group of products that are closely related in some way or the another. The line of products having the similar characteristics. It can be defined as "a group of products that are closely related, either because they function in a similar manner, or are sold to the same customer groups, or are marketed through the some type of outlets, or fall within given price ranges." Further, according to William J. Stanton, product line is defined as "a broad group of products, intended for essentially similar uses and possessing reasonably similar physical characteristics, constitute a product line." For example, HLL's, Godrej's, P & G's a range of toilet soaps is product line.

Product Line Decision To take decisions pertaining to the change of composition of the product line that is whether to add or delete products, from the product line depends upon a number of factors. They are: • Consumer's preference • The tactics of competitors . • The firm's cost structure • Changes in market demand • Buying habits • Marketing influences • Product influences • Objectives of the company • Product specialization, and • Dropping of obsolete products.

3.5 PRODUCT ADDITION (EXPANSION) A firm may expand its present product mix by increasing the number of product lines or increasing the number of items within the same line. New lines may be related or unrelated to the present products. For example, ITC added to its biscuit category Sun Feast similarly, a provision stores may add drugs, cosmetics, baby foods, dry fruits and the like.

3.8

PRODUCT STRATEGIES

3.6 PRODUCT DELETION/PRODUCT PRUNING Product deletion refers to the withdrawal of a product from a company's line of products. Generally because it is no longer profitable. It is also termed as simplification that is the process of avoiding or stopping the production of a particular product. Product deletion may also be defined as deleting or eliminating those product items, which are unsatisfactory or unnecessary, from the product line. The various terms are product pruning, deletion, elimination, contraction, dropping, or abandonment. For example Hindustan lever's toilet soap 'Le Sancy' has been dropped long ago due to its unacceptability by the buyers.

3.7 PRODUCT LIFE CYCLE (PLC) When a product idea is commercialised by a company, the product enters the market and competes with the existing products to secure maximum share of consumer income. Management wants the product to enjoy a long and happy life and earn a decent profit to cover all the effort and risk that went into it. However, like human beings, every product has a life span at the expiration of which it is dead, it is dead in terms of its capacity to generate sales and profits on account of its perishable distinctiveness. As a consequence, therefore, products too have their childhood, adolescence, youth and oldage. This has been described as life-cycle in human beings. When applied to products, it is termed as product life cycle.

Definition PLC has been defined as 'an attempt to recognise distinct stages in the sales history of the product'. It is also defined as 'generalised model of sales and profit trends for a product class of category over a period oftime'. Essentially there are 3 elements in PLC concept. Theyare: 1. Products move through the cycle of introduction, growth maturity, saturation and decline or obsolescence at different speeds.

2. Both sales volumes and unit profits rise correspondingly after maturity stage. However, during the maturity stage sales volume rises but unit profits fall.

PRODUCT STRATEGIES

3.9

3. The functional emphasis required for successful product management changes from stage to stage on account of changes in the economics of profitability. The following figure illustrates the stages in product life cycle: .

Introduction growth maturity saturation decline

Assumptions The figure illustrates the five distinct stages through which a product normally passes through in its life cycle. Before all these stages are explained, it is pertinent to know the following assumptions. 1. Not all products introduced in market essentially pass through all the stages of PLC. It is just possible that the product May travel to the first and second stage ang then dies out.

2. There is no definite line of demarcation between one and the subsequent stage. It is only for convenience of explanation.

PRODUCT STRATEGIES

3.10

3. A product may not be in an identical stage in all the market segments. It may be, for example, in the second stage in one segment whereas in the third stage in another segrllent at a point of time. 4. The time span of each stage in PLC in respect of each product may vary. Thus a product may stay for longer or shorter duration in a particular stage.

3.8 STAGES OF PRODUCT LIFE CYCLE

Introduction Stage This is the first stage in the life of a product. In this stage the product is new and distinctive. This stage is characterised by slow rise in sales and profit margins, few direct competitors, high income group buyers, frequent product modifications, high production and marketing costs, narrow product-line, high prices, limited distribution and primary demand cultivation. Promotional expenses are high to sales as to inform potential consumers of the new and unknown product, induce trial of the product and secure distribution in retail outlets.

Growth Stage In this stage the product achieves considerable and widespread approval in market. Sales start climbing substantially. The number of competitors increase considerably. High income group buyers continue to buy and now middle income group buyers also contribute to the sales. The increase in competitors leads to increase in distribution outlets. Prices remain same or fall only slightly in so far as demand is increasing quite rapidly. Profits increase as promotion costs are spread over a large volume and unit manufacturing costs.

Maturity Stage The maturity of product is reflected in terms of its capacity to face competition. Sales rise but at a decreasing rate, profit margins however decline. The product covers mass markets. New product models oriented towards style becomes an annual phenomenon. There is further softening of product price and shrinkage in dealer margin and profits. As a consequence dealers simplify product line.

3.11

PRODUCT STRATEGIES

Market segmentation trade discounts and brand loyalty become importants of company's marketing strategy.

Saturation Stage In this stage the market is saturated with the product and is dominated by the replacement sale. It is fully matured as measured by the ratio of replacement sale to the first time purchasers of product by buyers. During this stage the rise and fall of sale is dependent on the basic economic factors-demand and supply. Markets are highly segmented and the number of competitors also stabilises. Annual product models and competitive cost structure are conditions of survival in this stage. Profit margins all continue to decline.

Decline Stage In this siage the product loses its distinctiveness and dies out in terms of both sale and profit margins. The decline in sale is permanent and product travels back to the core markets. Product line gets narrow and primary demand cultivation again becomes important. To begin with prices soften but subsequently stabilise and then increase. As a result, profit opportunities increase in the latter phase of this stage. Those who survive this stage become product specialists. The stages arranged and shown at table 3.2. Table 3.2. PLC-Characteristics

Characteristics

Introduction Growth

Maturity

Saturation

Decline

Customers

Innovative High incHigh income ome mass market Product Brand

Mass market

Large special

Few

Brand

Specialised

Availability

Approach

Advertising Awareness

Brand sup- Lowest eriority price

Psychographic

Spares

Competitors Price Quality Capacity

Few High

Many Lower

Few High

Poor Over

Good Under

Some Rising Spotty

Many Lowest Superior Optimum

Over

Minimal Over

PRODUCT STRATEGIES

3.12

3.9 PRODUCT PLANNING Product planning is the process of determining that line of products which secure maximum profits from the potential markets. It is an 'act of marketing out and supervising the search, screening, development and commercialisation of new products, the modification uf existing lines, and the discontinuance of marginal or unprofitable items.' Product planning is the decision of Management regarding the products company should develop and sell to achieve marketing objectives. It is also the decision of whether the product deserves to be on the product line, abondoned or repositioned. This is to ensure that product line of the company is confined to logical, well designed, and justified so that company is placed in a strong competitive position.

Product Planning Process Before a product is introduced in the market, it should undergo a customer-oriented product planning process. The process of product planning starts with the conception of Product ideas. The ideas so generated are screened for their commercial and technical merits from the view point of company facilities and constraints and then are tuned for approval. The marketing executive passes them on to the Business Analysis group for their appraisal in terms of economic viability. The economically viable product ideas so approved and received back from the marketing executive are transmitted along with consumer specifications to engineering people for product development. The prototype so developed is evaluated and approved for test marketing: on a small scale so as to test the performance. The results are analysed and necessary changes if needed are made before full scale production and commercialisation of the product. Stage in product planning process: The above described product planning process involves the following six ectivities. They are: 1. Idea genl'ration

2. Screening

3. Business analysis

4. Product development

5. Test-marketing

6. Commercialisation

PRODUCT STRATEGIES

3.13

3.10 STAGES IN PRODUCT PLANNING PROCESS OR MAJOR STAGES IN NEW PRODUCT DEVELOPMENT (NPD) Product planning process consist of a sequence of six activities. Theyare: (1) Idea generation

(2) Screening

(3) Business Analysis

(4) Product Development

(5) Test-marketing

(6) Commercialisation

1. Idea Generation New product development starts with the search for new ideas. Many new ideas are to be generated in order to find a few good one. The search for new product ideas should be systematic. There is no point in finding scores of ideas, which may not be suitable and which may be refused by top management. Major sources of new product ideas include the following:

(a) Internal Source: The company can find new ideas through formal Rand D Scientists, Engineers, Manufacturing Personnel and sales people are all good sources as they are in daily contact with customers and others. (b) Customers: Consumers needs and wants can be monitored through consumer surveys. By inquiring and attending to complaints of consumers many new ideas can be discovered. Recipes given by women consumers provide lot of new ideas for manufacturers of food items. (c) Competitors: Analysing competitors products and monitoring their advertisements and other communications obtain clues about their new product interests. (d) Distributors and Suppliers: Resellers are close to market and can pass along information about new product possibilities suppliers can tell the company about new concepts, techniques, and materials that can be used to develop new products.

(e) Other Sources: Other idea sources include trade magazines shows and seminars, government agencies, new product

3.14

PRODUCT STRATEGIES

consultants, advertising agencies, marketing research firms, university and commercial laboratories and inventors.

2. Screening Screening means critical evaluation of product ideas generated by a company. The purpose is to abandon from further consideration those Product ideas that are incompatible with objectives and constraints. Every idea should conform to company's objective both ir~ terms of marketing and production. Two points should be kept in mind while screening. Firstly, the company should not dismiss an otherwise a good idea. It is known as DROP error. Secondly, the company should not permit a poor idea to move into development and commercialisation. This is known as a Go error. The company should spot and drop poor ideas as early as possible.

3. Business Analysis Once the company decides on the product by screening, the next stage is business analysis. That is evaluating the business attractiveness of the proposal. Business analysis may be defined as an evaluation of product idea in depth with a view to determining its financial, competitive, manufacturing and marketing viability in a given set of business environment. It is relatively a more expensive exercise carried out. The exercise involves projections of further demand, sales, costs, investments, and return thereon.

4. Product Developments If the product concept passes the business test, it moves to R and D to be developed into a physical product. Upto now it existed only as a word description, a drawing or a crude mockup. Whereas, this step onwards there is financial commitment and this stage will snow whether the product idea can be translated into a technically and commercially feasible product. By and large, it is a techno-commercial job done by the engineering or Rand D. The whole product development task involves six broad jobs. They are, engineering, consumer preference,

PRODUCT STRATEGIES

3.15

testing, branding, packaging, patenting and developing a communication programme.

5. Test Marketing Marketers usually do net take risk of producing a product immediately after engineering and consumer preference tests. In order to narrow down further uncertainty, companies prefer to test the product in the market and gather consumer reactions, so as to bring about necessary changes in the components of the product. Such pretesting of a product before it is mass produced and marketed is called test-marketing. Test marketing is defined as a 'research technique in which the product under study is placed on sale in one or more selected localities or areas and its reception by consumer and trade is observed, recorded and analysed.' Test marketing is useful in evaluating effectiveness of a product in terms of sales volume and profitability. Marketers also get an opportunity to ascertain the nature and dimension of consumer reactions to the new product. It also provides information on competitive reactions.

6. Commercialisation The decision to commercialise a product idea is the end result of the whole process of product planning. Only those ideas which can sustain the rigours of various tests administered during the process, reach the stage of commercialisation. Commercialisation of product idea may be defined as the process of finally deciding the product profile, building up requisite manufacturing and ancillary facilities and appropriate marketing programme in the background of the test marketing results and introducing the product in the market for sale. Thus commercialisation involves following activities. (a) Deciding product characteristics and packages. (b) Branding and trade marking. (c)

Building up/procuring manufacturing facilities.

(d) Building up an appropriate marketing mix. (e)

Introducing product in the market.

3.16

PRODUCT STRATEGIES

These activities involve enormous time and money. This job should be managed effectively and proper co-ordination and control of the operation before product enters the market is required.

3.11 BRANDING Brand and package are two associated attributes of a product. Both are important and integral attributes for the success of any product. Adequate attention on Branding is essential as it is perceived by consumers as intrinsic part of the product and add value to the product. For example a bottle of 'Parachute' hair oil as a high quality, expensive one. But the same presented in an unmarked bottle would be viewed as lower in quality even though the oil is identical.

Meaning Brand means a name, term, sign, symbol, design or a mix thereof used to identify the product of one firm and to distinguish it from the competitive products. Brand name is that part of a brand which can be vocalised. It consists of words, letters and or numbers e.g., Lux, 555 Maruti etc. Brand mark is that part of a brand which can recognised but is not utterable, such as a symbol, design or distinctive colouring or lettering. e.g., SBI's Key, Anacin's Four Fingers, Incremin Syrup's Giraffe, Murphy baby etc. Trade mark is a brand or part of a brand that is given legal protection because it is capable of exclusive appropriation, usually 'R' mark is suffixed to the brand name so as to denote its registration and legal status. In India, a brand receives such legal protection under the Trade and Merchandise Marks Act, 1958 after it fulfills the following conditions as laid down under sec. 11 and 12 ofthis Act. (i) It is not likely to deceive or cause confusion. (ii) It is not contrary to any law for the time being in force. (iii) It does not comprise or contain scandalous or obscene

matter.

PRODUCT STRATEGIES

3.17

(iv) It does not hurt the religious sentiments or feelings of any

class or section of the citizens.

It is otherwise not entitle to protection in court. (vi) It is not similar to any existing trade mark. (v)

There are several products sold without brand. With the growth of markets to national and international levels and advertising medias, today, branding has grown so strong that today hardly anything goes unbranded. Recently to bringdown, the cost of the product, some manufacturers are returning to 'No branding'. However, the issue of branding versus no branding is very much alive today. Therefore, we shall look at branding from the advantages and limitations point of view.

Advantages and Limitations to Consumers (Buyers View Point) Advantagess (a) When a product is distinguishable by its brand, consumer

has an assurance of quality and consistency in the product attributes being offered. (b) Certain brands provide status and prestige to consumers which endow them a some what conspicuous psychological satisfaction otherwise not normally available. (c) There is a considerable saving of time and energy in shopping for goods because a brand renders product identification much easier. The money value of this saving is significant for the industrial buyers. (d) It is easier to lodge complaints and claims against marketers when a branded product fails to live up to its proclaimed value satisfaction. It gives both trade and legal protection against unscrupulous trade practices.

Limitations· Consumers are often confused in product selection on account of the large number of brands and all of them carrying similar value satisfaction assurance. (b) Brand loyalty may save time and energy, but it discourages the consumer from trying out other new brands which may possibly be more satisfying.

(a)

PRODUCT STRATEGIES

3.18

(c) Popularity of brands render them out of the common man's

reach because they command a premium price.

To Sellers (Seller's View Point) Advantages: (a) Brand loyalty ensures repeat and replacement purchases

and considerably helps to overcome competitive pressure. (b) Brand has communication value and it assists in

advertising and sales promotion. (c) It discourages price competition because every product

item has a distinctive image and ensures independent in pricing decisions. (d) Brand builds up an unique reputation for its owner which

facilitates new product introduction in terms of easy and immediate recognition and favourable consumer disposition. (e)

Brand reputation ensures some kind of market control and corporate image.

(fJ Branding helps to segment markets aimed at specific

benefit seeking segments.

Limitations (a) Brand imposes responsibility for maintaining consistent

quality and delivering proclaimed value satisfactions. (b) Some products by their very nature do not lend themselves

to branding. For example, nails, rivets, pins, fruits etc. (c)

Building up brand recognition and loyalty are very expensive small business firms cannot afford it.

Society's View Point (a) Branding leads to higher and more consistent product

quality. The seller cannot be careless about quality control. (b) Branding increases the rate of innovation in society. It

results in more product variety and choice for consumers. (c) Branding increases shopper efficisency since it provides much more information about products.

PRODUCT STRATEGIES

3.19

Linlitations (a) Branding leads to false and unnecessary differenciation of

goods. (b) Branding leads to higher consumer prices due to heavy

advertisements, packaging and other costs. (c) Branding increases status consciousness of people who buy

certain brands to 'Impress' others.

Brand Classification In deciding to brand a product, the manufacturer has 3 options with 'respect to brand sponsorship. 1. Manufacturer's Brand : A brand which is owned by a manufacturer and/or registered as a trademark under the manufacturer's name is referred to as manufacturer's brand.

2. Distributor's or Private Brand : A brand owned by a distributor's name is referred to as a distributor's or private brand. It is private because the manufacturer is not identified. The manufacturer simply manufactures and brands it as per specifications of the distributor. 3. Mixed Brands : A company may opt for its own and its distributors brands in respect of its products. A company may sell some products in its own name and rest may be sold to dealers under their own brand names. Some products carry an individual brand name for each product item of the same manufacturer. e.g., Hindustan Lever's Surf Detergent Powder and Lux Toilet Soap. Products may also carry family name of the manufacturer such as Tata's trucks, Modi's tyres.

Selection of a Good Brand Name A good brand name should possess the following: 1. It should be short and simple and easy to recognise, pronounce, spell and remember e.g., Surf, Lux, Colgate, Super, Max.

PRODUCT STRATEGIES

3.20

2. It should convey the right connotation about the product. It is most appropriate if it suggests or describes the product as, for example quickfix adhesive, sanitex sanitary towels, light roof sheets. 3. It should be distinctive so that the product is easily differentiated e.g., Weston T.V., Solidaire T.V. 4. It should be versatile so that it can be applicable to any new product, added to the line. Family na~es such as Tata, Modi, Birla, Possess this characteristic. 5. It should be legally protectable i.e., it should not be similar to competitive products or prohibited by the Emblems and Names (Prevention of Improper use) Act, 1950. For example use of names like UNO, WHO. Indian National Flag, Ashok Chakra are prohibited by this Act.

Brand Strategies A company may choose anyone or a combination of brands to sell its products. Brand strategies depend upon company's policies and selling techniques. The following gives reasons for different strategies.

1. Single Brand Product Strategy It refers to use of a single brand name for all the products sold by a manufacturer. It may be the family brand name or company or individual. For example, 'Erasmic' brand name is used for shaving blades, cream, after shave lotions manufactured by Hindustan Lever Ltd. This strategy has certain acceptance is easier, for example the brand name of Tata carrier, the hall mark of quality. Hence, it is easier to sell any product in this name. Advertising on Radio, and T.V. becomes cheaper. One disadvantage is, if the quality of new product is poor its adverse consumer reaction may be reflected in other products also.

2. Multi-Brand Product Strategy It is the practice of offering more than one brand name in a product category. For example, Hindustan Levers Lux and

PRODUCT STRATEGIES

3.21

Pears in its toilet soap category. This strategy has following advantages: (a) Two or more brands commonly capture more sales and

profits because they cater to more consumer segments. (b) Multiple brand pre-empt dealers 'self space, thus depriving

competitors of dealers' patronage. (c) It leads to dominance in market position.

(d) It helps to sell new product variations in terms of colour,

flavour and taste (cola, orange, lime etc.) (e) It

is one way of keeping consumers who shift brands on the rolls by offering new brands of the same product.

(f) It also helps of exploit consumers behaviour variations by offering morethan one brand with varying appeals and motivations such as Erasmlc's cream offered in Lime, Lavender and Antiseptic classes.

Trading up and Trading down Strategy When marketers known for marketing low-priced products introduce products with high price and presumably of higher quality. It is know as Trading up. Conversely, when marketers introduce cheaper products than their original lines, it is regarded as Trading down. When this strategy is adopted it has to be blended with adequate brand differentiation.

Brand Protection Brand Names becoming Generic Names: Popularity (jf some brands may ultimately lead to certain management problems such as brand name becoming a genenc name. For example, names such as Dalda, Glucose, Formica and Bandaid, have become generic names for vanaspatighee, energy giving vitamin, decorative laminates and antiseptic adhesives respectively. When a house wife goes to buy vanaspatighee, she usually asks for Dalda, and the dealer gives her any brand of vanaspati ghee. She accepts it without any question because she fails to distinguish between the two, to her vanaspatighee means dalda. To protect from these problems, the companies must brand

3.22

PRODUCT STRATEGIES

names are to be styled distinctively and advertising copy should be shown as a registered trade mark such as Hindustan Lever (Dalda) and Johnson and Johnson (Band aid).

3.12. PACKAGING Packaging is considered as the fifth 'P' in marketing mix along with price, product, place and promotion. Some treat packaging as an element of product strategy. A large number of products offered to the market have to be packaged. In some products package play a minor role but in many products it plays a major role.

Meaning A package is a wrapper or container in which a product is enclosed, encased or sealed. Packaging, therefore, may be defined as an act of designing and producing the package for a product. According to Philip Kotler Packing is the activities of designing and producing the container or wrapper for a product. The package may include upto 3 level of material. The Primary Package is the Product's immediate container. The bottle holding old spice after shave lotion is the primary package. The secondary package refers to the materials that protects the primary package and that is discarded when the product is about to be used. The cardboard box containing the bottle of after shave lotion is a secondary package. The shipping package refers to packing necessary for storage, identification, or transportation. A corrugated box carrying six dozen old spice after shave lotions is a shipping package. Labelling is also a part of packing and consists of printed information appearing on or with the package that describes the product.

Functions A package has the following functions to perform : 1. Utilitarian Function: Package performs a utilitarian function by retaining and enhancing the product value to consumers in the following ways :

PRODUCT STRATEGIES (a)

3.23

Package protects products from deterioration, spilling, spoilage and evaporation during its transit from the manufacturer to consumer.

(b) Package enhances product use convenience by keeping it

clean and undisturbed. (c)

It helps easy brand identification.

(d) It makes product handling easier and safe on the retail

store shelves. 2. Communication Function : In communication mix, namely, advertising and sales promotion packaging performs certain useful functions. (a)

It makes product identification and differentiation easy and effective. Unique presentation of product makes products look different from competing brands.

(b)

Package features communicate product message and motivate consumers to buy.

(c)

A change in product package design and message considerably facilitates implementation of product repositioning strategy of a company.

(d)

Package repeats the selling message printed on it before consumer when it is repeatedly handled during a series of uses and influence to repeat purchases.

(e)

It promotes product at the point of purchase and triggers impulse buying.

3. Profit Function: Package performs a profit function in two ways. (a)

Consumer assigning relatively higher value to package are usually prepared to pay higher price for this product attribute. As a result higher contribution to profit flows from package.

(b) Effective package cuts costs of handling and transportation

and protects product from damage, thereby, saving a company from cuts in profits.

PRODUCT STRATEGIES

3.24

Thus package perform many sales tasks. Attract consumers describe product benefits, inspire confidence, and make a favourable over all impression. It rises consumer affluence for the convenience, appearance, dependability and prestige of better packages. Well designed packages contribute to instant consumer recognition of the company and enhance brand or company image.

Packaging Concept A packaging concept is a description of product package and the functions it is suppose to perform in respect of that particular product. That is the decision regarding-should the main functions of package be to offer superior product protection? -

introduce a novel dispensing method?

-

suggest certain qualities about the product, or company or something else?

Decisions must be made on specific elements of the package size, shape, materials, colour, text, and brand mark. These various elements must be normalised to maximise value added for consumers and support for the product's position and marketing strategy. The package must be consistent with the product's advertising, pricing, distribution, and other marketing strategies.

Considerations in Packaging Concept While developing a package according to the concept developed, the following factors should be considered:

1. Marketing Considerations All packaging decisions must be guided by marketing considerations such as the requirements of consumers and retailers.

From Consumers' Stand Point (a) Ease of product use. (b) Ease of storage. (c) Ease of handling, carrying and opening. (d) Ease of understanding directions for use.

PRODUCT STRATEGIES

3.25

(e) Ease of package disposal.

(f) Possibilities of package re-use.

From Retailers' Stand Point (a) Shelf space required per package. (b) Ease of price marking. (c) Number of packages per case.

(d) Ease of case identification. (e) Whether package does selling job.

2. Product Protection Consideration The protective factors to be considered/include water vapour protection, infestation, strength, pilferage, odour, contamination and light effects, Due to dry climate in India protection against loss of moisture is of extreme importance. Resistance against the impact of shock and protection against loss of drug potency owing to sunlight is also essential.

3. Economic Considerations Cost factor is also very important. As far as possible over and under packaging is to be avoided. Over packaging leads to increased costs and under packa~ing leads to protection depriving. Consumers should not feel that they are paying high price for packaging. Re-usable packaging is a good technique and also it brings in additional customers .

. Packaging Policies and Strategies Mter developing an appropriate package concept, a company has several options to consider in respect of product packaging. They are as follows:

Packaging Changes A company may adopt a policy of changing product package periodically in order to achieve following purposes. (a) to provide more protection and use convenience to product.

PRODUCT STRATEGIES

3.26

(b) to correct defects like leakage or difficulty in opening or

discouraging wrong usage of package etc. (c)

Innovations in Packaging material may also necessitate changes.

(d) Package change may be necessitated by the promotion

programmes or repositioning strategies.

Family Packaging It is a kind of packaging strategy in which packages of the entire product-line of a company closely resemble one another or alternatively, major features of the packages in respect ofthe entire product-line closely resemble are another. The benefits of this strategy is all the products enjoy the same market reputation and acceptance. There is an economy in packaging cost also. The draw backs are if the reputation of the old product is bad, then the new product also suffers because of package resemblance. Retailers develop psychological feeling of being over stocked with one brand! package. Consumers also feel that the dealer does not stock varieties.

Re-Use Packaging In this strategy a company offer products in such a package which may be re-used fqr other purposes. Re-use packaging stimulates repeat purchases as it offers an additional benefit for the same price. In case ofNescafe coffee, for instance, house wives had to buy four to six jars so as to develop a full complement of beverage set. if the container design undergoes periodic changes with re-usable benefit, it further stimulates sales.

Multiple Packaging In multiple packaging a number of products to be used by one consumer are placed In a single package. For example, Zodiac People offer a shirt, necktie, and kerchief in one package box. It facilitates acceptance of a new product idea by a consumer who may

PRODUCT STRATEGIES

3.27

normally not inclined to buying it. It is useful when the items in the package are in disi>imilar stages in life cycle, for example, are in the growth stage and the other in the introductory stage. Sometimes, customer may resist such buying.

Ecological Packaging In order to preserve the physical environment, a company may formulate a compatible packaging strategy. They may be: (a) Use of returnable bottles and containers. (b)

Use of container that decompose over a period of time.

(c)

use of light weight packaging material.

(d)

Use of packaging material which can be retrieved or recycled.

SUMMARY Product is a bundle of utili tics where in utility if, created through a good. It consists of various product features and accompanying serives. The ingredients of product includes tangible, intangible associated attributes as well as exchange value, all contributing to fulfilling the needs and wants of customers, eventually tendering the satisfaction to the users. Interestingly, the product can be classified on different bases. According to whether a product is used immediately or meant for further processing, the goods are grouped as consumer products and industrial products. The consumer products are for immediate consumption by the users. The ideal examples cover all fast moving consumer goods (FMCG}-be it chocolates, biscuits, hair oil,. shampoo, toiletries, personal and health care products and essentially includes all essential commodities. The industrial products actually facilitate the manufacture of other goods, say for example, lathe machine, welding machine, grinder, mixer, and the like.

328

PRODUCT STRATEGIES

According to the length or tenure of survival, the goods may be classified into durable and non-durable ones. The durable goods' life time is quite long. The examples are sofa, radio, television sets, computers and other accessories. The non-durable products lifespan is very short, may be an hour, few hours, a day. It can also be called as perishable goods, the examples are vegetables, greens, milk, fruits and the like. On the basis of consumer buying practice, products are classified as convenience goods, shopping goods and specialty goods. Convenience goods are those, which can be bought quickly and conveniently without any hazzle in a shortest period of time. The examples are, matchbox, news paper, vegetables and fruits, and other daily needs. Shopping goods are brought by the consumers infrequently. The products involved are cloths, cosmetics, shoes and chappals, etc. Speciality goods are those which are bought occasionally or once in a life time for certain occasions. The goods under this category are Jewellery, Diamonds, Luxury sedan cars, Two Wheelers, Music systems and so on. By product mix we mean number of diversified and undiversified items of products manufactured and sold by an organization. The best examples in this category are HLL, J.K. Group, Reliance, Colgate Palmolive, Dabur Group, Glaxo, Smithkline Beecham. The product to be retained, added, or excluded (dropped) by a company in its product portfolio. The decision is influenced by various external marketing forces. Product line refers to number of items of goods manufactured and sold in the same product category. Example, if a company markets soaps, it will design the products in the soap portfolio, a number of brands with differentiated prices. The best example is Mr. Karshan Bhai Patel's Nirma Detergent Ltd., which makes- different toilet and detergent so; ,p varieties but soap is soap and this is called product line. Product addition refers to inclusion of a new product line of a company. This is done with a view to meet the requirements of the

PRODUCT STRATEGIES

3.29

customers, at the same time to manage the risk arising out of competitors. Product deletion refers to the decision of a company to drop a product, whose profit earning capacity is on the decline from its product portfolio. As human beings undergo the different stages in the life as child, adolescent, youth, middle age and old age a product also undergoes different stages from its inception to decline. The stages involved in a product life cycle are introduction, growth, maturity, saturation and decline. The marketer is duty bound to evolve different marketing strategies at different stages of a product life. The life span varies from product to product. Product planning is the process of determining that line of products which secure maximum profits from the potential market. If it is a plan and decision of management regarding the product. The company should develop and sell to achieve marketing objectives. Product planning process involves six activities. They are idea generation, screening, business analysis, product development, test marketing, and commercialization. Brands means assigning a brand to a product. The classification of the brands are manufacturers brand, distributors brand, mixed brand, individual brand, multi brand, single brand, and family brand. A package is a wrapper or a container in which a product is enclosed, encased or sealed. Packaging the container or wrapper for a product. The package may include up to three level of material, the primary package is the products immediate container. The secondary package refers to the materials that protects the primary package and that is discarded when the product is about to be used. The third level of package refers to packaging necessary for storage, transportation, and the like.

PRODUCT STRATEGIES

3.30

Key Words • Product

• Product mix

• Consumer goods

• Product line

• Industrial goods

• Product addition

• Durable goods

• Product deletion

• Non-durable goods • Convenience goods

• PLC ·NPD

• Shopping goods

• Test marketing

• Speciality goods

• Branding

• Packaging

( QUESTIONS) SECTION-A

(Conceptual Questions-2 Marks) 1. Define a Product.

2. Name the essential feature of a Product. 3. What are tangible attributes of a Product? Give examples. 4. What are Intangible attributes of a Product? Give examples. 5. What are Associated attributes of a Product? Give examples. 6. What do you mean by Exchange Value? 7. Differentiate between "Customer Satisfaction and Customer Delight." 8. What are consumer Products? 9. What are Industrial Products? 10. What are Durable Products? 11. What are Non-Durable Products? 12. What are Convenience Goods? 13. What are Shopping Goods? 14. What are Specialty Goods? 15. What is a Product Mix? 16. What is a Product Line? 17. What do you mean by Product addition?

PRODUCT STRATEGIES

3.31

18. What do you understand by _product deletion '! 19. Name the stages in PLC. 20. How do you define PLC ? 21. What is Product Planning? 22. What is idea Generation in NPD ? 23. What is Test Marketing? 24. Name the Stages in New product Development. 25. What is a Brand? 26. How do you differentiate Brand and Branding? 27. What is a Manufacturer Brand? 28. What are Distributors Brand? 29. What are Mixed Brands? 30. How Single Brand differs from Multi-Brand? 31. What are Generic names? Give examples. 32. Define Packaging? 33. Name any Two Functions of a Package. 34. What is Family Packaging? 35. What is Reuse Packaging? 36. What is Multiple Packaging? 37. What is Ecological Package?

SECTION-B (Analytical Question-5 Marks) 1. Explain the nature of a product giving its features. 2. Differentiate between consumer goods and Industrial goods with examples. 3. Differentiate between durable and non-durable goods, assign relevant examples. 4. Explain convenience goods, shopping goods and speciality goods with examples. 5. Briefly explain the terms product line, product addition and product deletion. 6. Discuss the commercialization activities under new product development.

3.32

PRODUCT STRATEGIES 7. Analyse the advantages and limitations of a brand to consumers. 8. Discuss the Pros and Cons of a brand from a sellers' view point.

9. How do you classify brands? comment. 10. What are the criteria involved in the selection of a good brand name. 11. What is single and multi-brand product strategy? Explain. 12. Explain the terms family packaging, multiple packaging and ecological packaging.

SECTION-C

(Essay Type Questions-IS Marks) 1. What is a product? Discuss the different classification of products with suitable examples.

2. Discuss the stages of a product life cycle with a neat diagram and examples. 3. What is product planning? Analyse the processes or stages involved in new product development.

4. What is branding? Discuss the merits and demerits of it from consumer, seller, and societies view point. 5. What is packaging? Explain the different functions of a package. 6. What is packaging concept? Explain the considerations involved in it.

4

PRICING STRATEGIES Learning Objectives After studying this Chapter you should able to : d"

Understand the meaning of price, pricing, objectives price determination.

d"

Analyse the factors influencing pricing policy.

d"

Discuss methods of pricing policies and strategies.

of pricing,

PRICING STRATEGIES

4.2

4.1 NATURE OF PRICE AND PRICING What is price? Price may be defined as the value of product attributes expressed in monetary terms which a consumer pays or is expected to pay in exchange and anticipation of the expected or offered utility. Price goes by many names. Price is the rent paid to apartment, tuition fee for education, fee to a physician, fare to railway, taxi and bus companies. Local utilities call their price a rate, insurance company calls it premium, guest lecturer accept his charges as honorarium, even income taxes are the price we pay for the privilege of making money. However, price is not synonymous with value and utility. Value is of quantitative measure of the exchange power of a product relative to other products. Utility, on the other hand, refers to the consumer needs satisfYing attribute of a product usually expressed in qualitative terms. But both value and utility concepts are essential to the determination of price. What is pricing? Pricing is the function of determining product value in monetary terms by the marketing management of a company before it is offered to the target consumer for sale. The managerial tasks involved in product pricing include establishing the pricing objectives, identifying the price governing factors, ascertaining their relevance and relative importance, determining product value in monetary terms and formulation of price policies and strategies.

4.2 FACTORS INFLUENCING PRICING DECISION/ POLICY (OBJECTIVES/DETERMINANTS/ OF PRICING POLICY) The company's pricing decisions are influenced by a number of internal company factors and external environmental considerations. These factors are illustrated in the following figure 4.1 :

4.3

PRICING STRATEGIES INTERNAL FACTORS Marketing objectives Marketing mix Costs Organisation

PRICING DECISIONS

I-

EXTERNAL FACTORS Nature of the market and demand competition, other environmental factors Economy Resellers Govt.

Fig. 4.1. Factors affecting price decisions.

1. Internal Factors (a) Objectives of Pricing: The first step in setting price is the decision of the company with regard to what it wants to accomplish with the particular product. If the company has selected target market and market positioning. The pricing is easier. The clearer firm is about its objectives, the easier it is to set price. The common objectives may be survival, profit maximisation, market slUIIe maximisation and product quality leadership.

(i) Survival : Companies with the problems of over capacity, intense competition and changing consumer wants must set a low price because profits are less important than survival. As long as their prices cover variable costs and some fixed costs, they can stay in business. Tr(Jubled companies to keep plant going and the inventories turning over keep survival objective. (ii) Current Profit Maximisation: Some companies want to set a price that will maximise current profits. They estimate the demand and costs associated with alternative prices and choose the price that will product the maximum current profit. In this company emphasises current financial performance rather than long run performance.

(iii) Market Share Leadership: There are some companies who are interested in dominant market share. This is based on the belief that the company owing the largest market share will enjoy the lowest costs and highest long run profit. They go after market share leadership by resting prices as low as possible. (iv) Product Quality Leadership: The objectives of being the product quality leader normally calls for charging a high price to cover the high product quality and high cost of Rand D.

PRICING STRATEGIES

4.4

Other Objectives There are some other specific objectives in setting prices. They are as follows : (a) Low prices are set to prevent competition. (b) Setting prices at competitor's levels to stabilise the market. (c) Price are set to maintain loyalty and support of resellers.

(d) Prices are set to prevent government intervention. (e) Prices are temporarily reduced to create excitement for a

product. (/) One product price may be set to help the sales of other products. Thus, pricing plays an important role in helping to accomplish the company's objectives at many levels. (b) Marketing Mix Strategy: The marketer must consider the

total marketing mix when setting prices. If the product is positioned on non-price factors, then decisions about quality, promotion and distribution will strongly influence price. If price is a key positioning factor, then price will strongly influence decisions on the other marketing mix elements. Price decisions must be coordinated with product design distribution and promotion decisions to form a consistent and effective marketing program. Decisions made for other marketing mix variables may affect pricing decisions. Generally companies make their pricing decision first and then bases other marketing mix decisions on the price it wants to charge for the product. For example, IBM designed PC Tr. to sell at a price that was competitive with other moderately priced personal computers. Here, price is a key product positioning factor that defined the products market, competition and design. (c) Costs: Cost is another powerful factor. The company wants to charge a price that covers all its costs for producing, distributing and selling the product, including a fair rate of return for its effort

PRICING STRATEGIES

4.5

and risks. However, the company must carefully watch its costs. If the costs are more than the competitors, then company will have

to charge a higher price or make less profits than competitors.

(d) Organisational Considerations : Different people set prices in organisations based on the size and natur~ of organisations. In small companies, prices are set· by top management, in large organisations marketing or sales dept. set prices. In industrial markets sales people may be allowed to negotiate with consumers and fix prices within certain ranges. there are' companies where there is a pricing dept. Sales managers, production managers, finance managers and Accountants all exert influence on pricing determination.

2. External Factors (a) The market and demand: Buyers balance the price of a product against the benefits of owning it. Therefore, before setting prices the marketer must understand the relationship between price and demand for its product. This requires an understanding of methods for measuring the price-demand relationship.

1. Pricing in Different Types of Markets Pricing varies with different types of markets, economists analyse 4 types of markets each presenting a different pricing challenge. They are as follows :

(a) Pricing Under Pure Competition It is a competitive market situation characterised by : (i)

Many buyers and sellers trading a homogeneous commodity such as wheat, rice, copper etc., None of them is big enough to significantly influence the supply of goods and price.

(ii)

There is complete freedom for firms to enter and leave the industry.

In this situation a seller cannot charge more than the going price nor would sellers charge less than the market price because they can sell all they want at the market price. In these markets

4.6

PRICING STRATEGIES

buyers and sellers are Price-takers rather than price makers. To the extent that sellers cannot establish any differential features in their offer, they cannot sell their goods for any more than the market price. Sellers in these markets do not spend much time on marketing strategy, since the role of marketing research product development, pricing, advertising and sales promotion is minimal as long as the market stays purely competitive. As the price is always given, the seller has to simply make quantity adjustments to the market price in a manner that maximises his profits.

(b) Pricing Under Monopolistic Competition It is an imperfect version of both monopoly and pure competition. It is characterised by large number of buyers and sellers, each seller produces a product which is unique and differentiable from that of its competitors and there is freedom for competitors to enter the industry. The product may be physically varied such as in quality, features, style or the variation may be in the service.

In this situation buyers see different offers and will pay different amounts. Sellers try to develop differentiated offers for different segment groups. Sellers can earn above average rates of return by distinguishing their offers. Thus sellers transact over a range of prices rather than a single market price.

(c) Pricing Under Oligopolistic Competition Oligopoly is a market situation characterised by the presence of few large sellers who compete amongst themselves for the larger share of market. In this kind of market situation, differences in prices are tied to the product difference. In the absence of product differences, price has the tendency to be uniform. Each seller is alert to competitors strategies and moves. For example, a steel company slashes its price by 10% buyers quickly move to this company. Competitors will have to respond by lowering their prices or increasing their services. On the other hand, if the oligopolist raised the price, the competitors' might not follow this lead. Oligopolists, in developing their pricing and marketing strategies must pay as much attention to competitors behaviour as to customers behaviour.

PRICING STRATEGIES

4.7

(d) Pricing Under Pure Monopoly It consists of one seller. The seller may be Govt. or a private regulated monopoly (power corporation), or a private non-regulated monopoly (where there are no competitors). In this situation, the monopolist would seek to establish the combination of price and output that provides it with the maximum total profit. However, pricing is handled differently in each case. A Govt. monopoly can set a price, below cost because the product is important to buyers and they cannot afford to pay full cost or the price might be set to even quite high, to discourage consumption. In case of regulated monopoly, the Govt., may permit to set a price that is considered as a fair return. No regulated monopolies are free to price at what the market will bear. However, even in monopoly the company may not charge the full price for several reasons like fear of Govt. Regulation, desire not to attract competition desire to penetrate the market etc.

2. Consumer Perceptions of Price and Value When setting prices, the company must consider consumer perceptions of price and how these perceptions affect consumers' buying decisions. Buyer oriented pricing involves understanding what value consumers place on the benefits they receive from the product and setting a price consistent with this value. The benefits include both tangibles and intangibles. When a consumer buys a meal at a fancy restaurant it is easy to calculate the value of the meals ingradients. But it is very difficult to measure the value of other satisfactions such as taste, environment, relaxation, conversion, and status. And these values vary for different consumers and for different situations. Thus consumer consciously or subconsciously uses these values to evaluate a product's price. Marketers must try to analyse the co~sumer's motivations for buying the product and set price according to consumer perceptions of the product's value.

(3) Competitors Prices and Offers This is another external factor influencing the company's pricing decisions. Consumers evaluate a product's price and value against the prices and values of comparable products. Another

PRICING STRATEGIES

4.8

factor here is the nature of competition it faces is also important, because a high price may attract competition and low price may discourage competitors or it may dive them out of the market. The company needs to learn the price and quality of each competitors offer. The company showed also watch the change in the pricing of competitors.

(4) Other External Factors The other external conditions are economic conditions. Economic factors such as inflation, boom or recession and interest rates influence pricing decisions because they affect both the costs of production and consumer perceptions of the product's price and value. Resellers reactions are also important. The company should set prices that allow a fair profit, encourage their support and help them to sell the product effectively. Government is another important external influence on pricing decisions. Marketers need to know the laws affecting price and make sure their pricing policies are defensible.

4.3 METHODS OF PRICING/APPROACHES TO PRICING The price set by a company will be either too low to produce a profit or too high to produce any demand. The costs set a flow to the price, consumer perception about the product's value is the ceiling. The company must consider competitor's prices and other external and internal factors to find the best price between these two extremes. It may be illustrated as follows: HIGH PRICE

LOW PRICE No possible profit at this price

Products costs

Competitors prices external factors international factors

CoIlS"Cfmer No possible Percepdemand at tions of this price value

PRICING STRATEGIES

4.9

Companies solve the pricing issue by selecting a general pricing approach that includes one or more of these sets analysed below: 1. Cost based method/approach (a) Cost-plus pricing.

(b) Break-even analysis and target profit pricing.

2. Buyer based method/approach Perceived value pricing. 3. Competition based method/approach (a) Going rate pricing. (b) Sealed-bid pricing.

Cost Based Methods (1) .Cost-plus Pricing The cost based method of price determination is one in which the cost of manufacturing a product serves as the base for price fIxation. In order to cover an anticipated profIt on the product being sold, management usually adds to this cost some amount referred to as Mark-up of tences a certain percent of the cost. However, use of standard mark ups to set prices is not logical as it ignores currer..t demand and competition, aspects to get optical price. Still, markup pricing remains popular for several reasons. First, sellers have more certainty about costs than about demand. Second, where all fIrms in the industry use this pricing method, prices tend to be similar. Therefore, price competition is minimised. Third, many people feel that cost-plus pricing is fairer to both buyers and sellers as sellers do not take advantage of buyers when the demand is high and vice versa.

(2) Break-even Analysis and Target Profit Pricing This is another cost-oriented pricing approach. In this the fIrm tries to determine the price that will produce the profIt it is seeking. It is known as target pricing. Normally some companies keep 10 to 20 percent profIt on its investment. It is followed by public utilities also.

4.10

PRICING STRATEGIES

Target pricing uses the concept of break-even chart. A breakeven chart shows the total cost and total revenue expected at different sales volume levels. This pricing method requires the company to consider different prices, their impact on the volume necessary to pass the break even point and realise target profits and the likelihood that this will happen with each possible price.

Buyer Based Pricing (Buyer Perceived Value Pricing) Certain companies base their pricing on the product's perceived value. They see the buyers' perception of value, not the sellers' cost, as the key to pricing. Here, seller use the non-price variables in the marketing mix to build up perceived value in the buyer's minds. For example a cup of coffee in a self service restaurant is charged at Rs. 1/-, in a restaurant with service at Rs. 1.50, in a family restaurant at Rs. 2/-, in a posh area ale room at Rs. 3/- and in 3 star hotels at Rs. 4/- and in a 5 star hotel at Rs. 8/-. Each successive restaurant can charge more because of the value added by the atmosphere. If the seller charges more than the buyer recogaised value the company's sales will suffer relative to what they could be. Many companies overprice their products and their product sell poorly. Others underprice, these products sell extremely well, but they produce less revenue than they would if price was raised to the perce;ved value-level.

Competition Based

~ethods

(1) Going-rate Pricing In going rate pricing the company bases its price largely on competitors p. ices, with less attention paid to its own costs or demand. The company may charge the same, more or less than

PRICING STRATEGIES

4.11

its major competitors. Normally, in oligopolistic competition where the smaller firms follow the leader and change their prices when the market leaders prices change, rather than when their own demand or cost changes.

(2) Sealed-bid Pricing Pricing to bid for jobs is sealed bid pricing. The firm bases its price on expectations of how competitors will price rather than on a rigid relation to the firm's costs or demand. The purpose is to win the contract and therefore pricing. is lower than the others. However, firm cannot set its price below a certain level. It cannot price below cost without worsening its position. But, the margin of profit normally depends upon the toughness of competition. Thus, the company can select one or a combination of three general pricing approaches-cost based, buyer based or competition based approach.

4.4 PUBLIC POLICY IN RELATION TO PRICING IN INDIA The Govt. intervention in shaping prices and price policies of companies is very important. Price matters have aroused so much heat in the debates of Parliament and state Assemblies. It has resulted in SI) many Public demonstrations and has prominent place in the press. In relation to pricing the following 4 objectives have guided Govt. actions in India. 1. Protection of consumers interest from price rise. 2. Ensuring fair return on investment to those industries which are positioned at the commanding heights of the economy. 3. Protection of producers of agricultural products against vicissitudes of prices.

PRiCiNG STRATEGIES

4.12

4. Prevention of trade restrictive and anti-competitive pricing detrimental to the interests of consumers and the economy. These 4 objectives are achieved by 3 measures of price regulation. They are price control, price research and monitoring and price related prosecution.

4.5 PRICE CONTROLS Price controls refers to Governmental directives of statutory, executive and advisory to companies in respect of price determination. Price control may be exercised mainly in 3 ways, namely, by imposing statutory price control, by inducing voluntary price control and by acting as a price leader.

Statutory Price Control It is determination of product price by the Govt. itself. For this purpose, Govt. refers the pricing problem to the Bureau of Industrial cost and prices (BICP) which analyses the cost structure of the concerned industry and recommends to the Govt. the price mechanism and structure relevant to the product under question. At present, the prices of steel, cement, fertilisers, sugar and drugs to name a few are under statutory price control. The companies manufacturing these products are assured retention prices i.e., their costs and a fair return on investment. Some products are allowed to follow a dual pricing system where a manufacturer is required compulsorily sell a part of its production to Govt. at a low price called levy price. The rest of production may be sold in the open market at any price manufacturer feels fit. It is followed for sugar production in India. The statutory price control also envisages the support prices for certain agricultural products such as cotton, jute,

PRICING STRATEGIES

4.13

food grains etc. so as to protect cultivators from price fluctuations. Accordingly, the cotton corporation of India, jute corporation of India and Food Corporation of India offer to procure relevant products at these support prices and prevent price decline.

Voluntary Price Control It refers to the formulation of price control, measures by the respective industry association or some such body representing the industry's interests under the directions of and according to guidelines provided by the government. The product prices are fixed and adhered to not under any statutory obligation but under a voluntary obligation with the price monitoring and mechanism and adequate penalty provisions for breaches.

Price Leaderships The Govt. has also attempted to shape and regulate the prices of some products by asking public sector companies to act as 'Price Leaders' in their respective product areas. For example Modern Bakeries has been a 'Price Leader' and is successful in containing the rise in prices of large number of small bakeries. Similarly, the milk prices is controlled by Diary Development Corporation of India.

2. Price Research and Monitoring Govt. has set up relevant institutions which analyse and monitor prices, study cost structures of different industries and suggest control measures and schemes. These institutions include Tariff commission and the BICP. These institutions are also empowered to call for any data, record or papers pertaining to any of the industries. Govt. has appointed expert officials to provide appropriate technical and cost accounting informations.

4.14

PRICING STRATEGIES

--------------------------------------~~~~~~~

3. Price Related Prosecution Govt. in order to control prices issues certain orders for the prosecution and penalisation of those who commit breach of its provisions. Besides, to safeguard consumer interest, the monopolies and restrictive Trade Practices Act 1969 has provisions for prohibiting restrictive trade practices, discriminatory and anticompetitive prices and resale price maintenance. The packaged commodities (Regulation) Order, 1975, has provisions which prescribe every packaged product has to exhibit the maximum retail price to be charged to consumer. Thus, an analysis of price regulatory measures described above reveal that in India Govt. intervention in the price determination and administration is wide and deep. It is particularly so in respect of those products considered essential, to consumers. Therefore, Govt. attitude, parliament and assembly debates, legislative provisions, social obligations are important decision in-puts in formulating price policies.

SUMMARY Price refers to the value of product attributes expressed in monetary terms which a consumer pays or is expected to pay in exchange and anticipation ofthe expected or offered utility. Value is of Quantitative measure of the exchange power ofa product relative to other product. Utility, on the otherhand refers to the consumer needs satisfying attribute of a product usually expressed in Qualitative terms. Utility is the power of a commodity to satisfy human needs, and wants. Both value and utility concepts are essential to the determination of price. Pricing is the way or mechanism in arriving at the price of a product or service. In other words pricing is the function of determining product value in monetary terms before it is offered to the target consumers for sale.

4.15

PRICING STRATEGIES

The factors influencing pricing decisions can be grouped into internal and external factors. Internal factors include marketing objectives, marketing mix (4 Ps), costs, and the nature of organisation, external factors are nature of market, demand level competition, government policy, resellers reactions, inflation, recession, interest rates, and soon. The method of fixing price of a product or service is called pricing approach. The important are costs, competition perception and the like. Under cost based pricing the different approaches

arE~~ost

plus

or make-up, break-even, and so on. In competition based approach of pricing, the methods are-going rate pricing, sealed-bid pricing, return on investment and the like. According to buyers perception, the pricing is done on the basis of perceived value of a product.

Key Words • Price

• Price taker

• Pricing

• Price maker

• Marketing mix

• Monopolistic competition

• Cost plus pricing

• Oligopolistic competition

• Break-even pricing

• Monopoly

• Target profit pricing

• BICP

• Going rate pricing

• PDS

• Sealed bid pricing

( QUESTIONS) SECTION-A

(Conceptual Type-2 Marks) 1. Define price.

2. What is utility?

PRICING STRATEGIES

4.16 3. What do you mean by value of a product ? 4. What is pricing? 5. What are marketing objectives?

6. Name the internal factors influencing pricing decisions. 7. State the external factors influencing pricing decisions. 8. State any two objectives of pricing. 9. What do you mean by market leadership? 10. What is marketing mix strategy ? 11. Who is a price maker? 12. Who is a price Taker? 13. What is price competition? 14. What is monopolistic competition? 15. What is oligopolistic competition? 16. Who are competitors to the FMCG leader HLL ? 17. Name the competitors ofIndian Airlines. 18. Who is the leader in Texttile sector is India? 19. What is cost plus pricing? 20. What is BEP ? 21. What is going rate pricing? 22. What is sealed-bid pricing? 23. Expand BICP.

SECTION-B (Analytical Type-S Marks) 1. Explain the terms 'price' 'utility' 'value' and pricing. 2. Explain any three internal factors influencing pricing decisions. 3. Briefly discuss the pricing objective. 4. How pricing is arrived at monopolistic and oligopolistic competition? 5. Analyse cost plus, going rate, and administered pricing.

PRICING STRAfEGIES

4.17

SECTION-C

(Essay Type-1S Marks) 1. Define price. Discuss with examples of your choice of pricing

objective. 2. Briefly analyse the internal and external factors influencing pricing decisions. 3. Explain in brief the pricing under different types of markets. 4. Assume you are the marketing manager of a leading Textile industry, what factors you considered in finding the price of suitings, shirtings and dress materials. 5. What is price war ? imagine that you are the CEO of reliance inform, under the volatile competition scenario, How do you fix up the prices for different facilities that you offer? 6. What is pricing strategy? How do you evolve pricing strategy in case of Airlines. ?

CHANNELS OF DISTRIBUTION AND LOGISTICS ~

~----------------------------------------------~

Learning Objectives After reading this Chapter you should be able to : rE

Know the meaning, definition of channels of distribution and its need.

1&

Understand the channel design decision/channel management decision.

1&

Discuss the fadors affeding channels and types of marketing channels.

5.2

CHANNELS OF DISTRIBUTION AND LOGISTICS

Sales is consummated by indirect distribution channels' composed of a net work of intermediaries spread allover the market area. These intermediaries although operate independently, render a host of services and bring abut transfer of ownership and possession of goods and services from manufacturers to consumers.

5.1 NATURE, MEANING AND ROLE OF CHANNELS The American Marketing Association defines marketing or distribution channel as the 'structure of intra-company organisation units and extra-company agents and dealers, wholesale and retail, through which a commodity, product or service is marketed'. According to Philip Kotler "distribution channel is the set of firms and individuals that take title, or assist in transferring title, to the particular good or service as it moves from the producer to the consumer". Thus it may be summed up distribution channel as a pathway composed of intermediaries, also called middlemen, who perform such functions as needed to ensure smooth and sequential flow of goods and services from the manufacturing ends to the consuming ends in order to achieve marketing objectives of a company".

Meaning of Logistics It is a marketing support activity primarily concerned with the flow of goods that is the acquisition of suppliers and material, th~ distribution of finished products or the delivery of services.

Advantages of Intermediaries Producers delegates some of the selling job to intermediaries. The producer places the firm's destiny in the hands of intermediaries. Although it is possible that producer can sell directly, they use middlemen and gain the following advantages: 1. Financial Resources : Many producers lack the financial resources required to carryout the direct marketing. H~nce, they depend on middlemen's help to sell the product.

2. Complementary Products: Many products are sold in the market alongwith many other small products. If someone tries to sell his product directly with only one product consumers may not

CHANNELS OF DISTRIBUTION AND LOGISTICS

5.3

turn up as they would prefer a shop which contains a series of group of products.

3. -Specialisation : Producers can invest more money in production and concentrate on it which will be more rewarding than establish retail outlets lose control and also money. 4. Experience: The expertness, contacts, experience, specialisation and scale of operation of intermediaries offer the producers more than they can achieve on their own. 5. Assembling: From the economic system's point of view the basic role of marketing intermediaries is to transform the heterogeneous supplies found in nature into meaningful goods assortments desired by people.

5.2 MARKETING CHANNEL FUNCTIONS Channels perforn1 the moving of goods from producers to consumers. It overcomes the major time, place and possession gaps that separate goods and services from those who would use them. Intermediaries or middlemen perform a number of key functions. (i) Research

gathering of information necessary for planning and facilitating exchange.

(ii) Promotion

development and dissemination of persuasive communications about the offer.

(iii) Contact

Searchi'ng out and communicating with the prospective buyers.

(iv) Matching

Shaping and fitting the offer to the buyer's requirementsgrading, assembling and packaging.

(v) Negotiation

1

The attempt to reach final agreement on price and other terms of the offer so that transfer of ownership or possession can be effected.

CHANNELS OF DISTRIBUTION AND LOGISTICS

5.4

(vi) Physical Distribution (vii)

Financing

(viii) Risk taking

transporting and storing of the goods.

-

acquisition and dispersal of funds to cover the costs of channel work.

-

assumption of risks in connection with carrying out the channel work.

the

5.3 CLASSIFICATION OF DISTRIBUTION CHANNELSANDINTERMEDUUUES Marketing channels can be characterised by the number of channel levels. Middlemens coming in the channel perform several functions in bringing the product and its ownership closer to the final buyer. Producer and final consumer both perform some work, hence they are also part of every channel. The most commonly used channels are as follow ;-

Channel Choice 1. Zero-level channel Manufacturer ---+ Consumer 2. One-level channel Manufacturer ---+ Retailer ---+ Consumer 3. Two-level channel Manufacturer ---+ Wholesaler ---+ Retailer ---+ Consumer 4. Th:ree-Ievel channel Manufacturer ---+ Wholesaler Retailers ---+ Consumer.

-~

Jobber ---+

The Zero Level Channel Is also known as direct channel. It consists of manufacturer selling directly to consumers. The major direct channel, sel1ing are door-to-door selling, Mail order selling and manufacturer-owned

CHANNELS OF DISTRIBUTION AND LOGISTICS

5.5

stores. Cosmetics books, sewing machines, shoes etc. are sold directly. In India many companies selling industrial goods opt for this channeL Among consumer goods, the examples are 'Bull Worker' health aids are directly sold through mail order, similarly Usha sales Ltd., sells 85% of its water coolers direct to consumers. This channel is the shortest and very simple channel choices available to a manufacturer.

One Level Channel Contains only one selling intermediary in the form of retailer. In case of industrial goods normally an agent or a broker works in place of retailer. In this channel, manufacturer depends on retailer for selling his product. In India Bata India Ltd., has its own retail shops, to sell its products. It is a very convenient channel for selling consumer goods as large number of retailers are available in all places.

Two Level Channel Contains two intermediaries in the form of wholesalers and retailers through whom the manufacturer channelises his products to consumers. It is very popular methods of channel. In India many companies opt for this channel as it is very convenient in the movement of goods. Wholesalers with huge financial and other physical resources facilitate the exchange t:!onveniently to both manufacturers and retailers.

Three Level Channel Contains 3 intermediaries. the jobber is the new entrant here. He usually, intervenes between the wholesalers and retailers. that is jobber buys from wholesalers and sells to the retailers of small scale who are not serviced by the large wholesalers. The jobher is also known as semi-wholesaler. The channel choices referred above are not exclusive choices. Some companies opt for two or more than two channel choices. It may be single channel or dual channel. For example Asian Paints

.:

5.6

CHANNELS OF DISTRIBUTION AND LOGISTICS

Ltd., has two different channels for selling paints, in consumer and industrial markets. For consumer market indirect channel and for industrial market it has opted the direct channel.

Types of Intermediaries Intermediaries may be broadly divided into two categories. Namely Merchant Intermediaries and Agent Intermediaries.

I. Merchant Intermediaries These intermediaries take both title and possession of goods from the manufacturers and channelise them to the next channel members in the sequence. They are both buyers and sellers of goods. They are :

(a) Wholesalers: A merchant wholesaler may be defined as that intermediary who buys goods in bulk from manufacturers and sells them largely to subsequent intermediaries in the channel Merchant wholesalers are further divided as follows:(i) Full Function Wholesaler: A full function wholesaler is

that intermediary who buys and sells products in his own account, carries stock, organises selling, extend credit, assemble products, sells in small lots. He renders a whole lot of functions including financial assistance, warehouse etc. Thus, this intermediary practically perform all functions of a merchant wholesaler.

(ii) Convertor-Wholesaler: This intermediary buys products and sells them to subsequent channel members after having processed them for example, he buys grey fabric and sell them after having processed them. (iii) Drop-Shipper: This intermediary wholesaler neither stores products nor delivers them to buyers from his own stock, but he books orders and directs manufacturers despatch products to buyers at the places and times indicated in the orders so booked. He takes delivery of products only when buyer fails to honour his contract. (b) Semi-Wholesalers : Are those merchant intermediaries who buy products largely from wholesalers and at times from manufacturers in lots smaller relative to wholesalers and sells in

CHANNELS OF DISTRIBUTION AND LOGISTICS

5.7

assorted packs to retailers and consumers after assembling various lines of products of different manufacturers as per their requirements.

(c) Retailers : Retailers are the intermediaries who buy products from preceding channel. Members in small assorted lots and sells them to consumers in still smaller assorted lots to suit individual consumers requirements. Retailer is the final component in the channel who likes manufacturer with consumption. His contact with consumer is very constant and close. Among retailers two groups can be observed.

(i) Institutional Retailers (a)

Consumer co-operative stores.

(b) Fair price shops. (c) Departmental stores.

(d) Chain stores or multiple shops. (e)

Mail order houses.

(ii) Non-Institutional Retailers (a) Street sellers. (b) Pedlars. (c) Hawkers.

(d) Distributors and Dealers: These are the two words often used interchangeably. These intermediaries deal with manufacturer under exclusive franchise agreements which usually incorporate restrictions regarding territories and markets served and products handled and lay conditions in respect of re-sale prices, inventory and payments. Exclusive assignment is the distinguishing characteristic of these intermediaries.

II. Agent Intermediaries Agent intermediaries are those channel members who never take title to and also usually do not take possessicn of goods but merely assist manufacturers, merchant intermediaries and

5.8

CHANNELS OF DISTRIBUTION AND LOGISTICS

consumers in carrying out transactions of sale and purchase. They only bring buyers and sellers together in order to strike a transaction. They perform certain functions like soliting orders, flxing prices, detelmining terms of sale etc. for which they are paid a commission on the value of sale. Agent intermediaries may be classifled as follows :

(a) Sole Selling .4.gents : Those agents who are given exclusive franchise to channelise the whole of a manufacturers production without any territorial restriction on the basis of terms and conditions mutually agreed upon are known as sole selling agents. These sole selling agents take the complete selling job from manufacturers. (b) Selling Agents: The agents who are given exclusive franchise only for a limited market segment are known as selling agents. They work solely for the company in so far as the assigned territory or products or consumers are concerned. (c) Commission Agents: These are wholesale dropshippers who combine functions of an agents. They do not buy and sell goods in their account but work as manufacturers agents. They book orders, send indents and despatch goods and perform various functions like financial assistance, recoveries of dues and market investigations. (d) Brokers: Brokers act as contact persons for prospective sellers aIlli buyers. Normally they are referred to as Sellers Salesmen indisguise. They do not take any risk but get brokerage for the service they render.

5.4 CHOICE OF CHANNEL Factors Governing Choice of Channels and Intermediaries Choice of channels is an external factor. Selecting an appropriate channel to distribute products to consumption points requires to know the relative weights and suitability of channel. There are several objective and subjective factors which govern channel choice. They are as follows :

5.9

CHANNELS OF DISTRIBUTION AND LOGISTICS

1. Market Factors In the modern concern of marketing various market factors shape marketing decisions, more particularly the distribution channel is influenced mainly by the 3 market factors. They are sales. (a) Consumers: The number of consumers, their geographic location, and purchase pattern considerably govern the choice of a channel for example, if the number is large manufacturers opt for relatively indirect channel and where number is small direct channel is more economical. Similarly, if consumers are concentrated in a small geographic location, it is always advantageous to opt for a direet channel. Owing to the lower cost of selling them direct. If consumers purchase pattern are frequent and small size, it is advantageous to opt an indirect channel because it facilitates maximum sales exposure. (b) Intermediaries: The relative strengths and weak.'lesses of intermediaries and the differences in the types of functions performed and facilities and privileges desired by them also determine the choice of channel. For example, if the terms and conditions of wholesalers are unfavourable, a manufacturer would like to assume wholesaling functions himself and channelise his products through semi-wholesalers and retailers, thereby-by passing wholesalers.

..

(c) Competitors: The channel choice of competitors also influence of the channel choice because it may be cu&tomary channel used by all those operating in the field.

2. Product Factors ,Product it3elf is a great force in the distribution channel choice. The product features influence the channel decision in the following manner. (a) Industrial/Consumer Product: If the product is industrial in nature, direct channel is suitable as the number of customers ar ~ less and need personalised attention. Whereo:as, consumer prOG'lets require the indirect channel as the number of customers are large in number.

5.10

CHANNELS' OF DISTRIBUTION AND LOGISTICS

(b) Perishable Nature: Perishable products like milk, dairy products, bread, meat etc. are to be sold in direct channel to move them fast to the consumers. There is a need for certain facilities also along with distribution responsibilities such as refrigerator etc., in this channel. (c) Standardisation: Standardised products such as branded and lSI markings are to be sold in the indirect channel as direct contact with consumers usually irrelevant from the manufacturer's stand-point. (d) Unit Value: When the unit value ofthe product is high it is usually economical to choose direct channel because high cost of direct distribution constitutes only a small percentage of the selling price ofthe product. But when the unit value is low and the amount involved is general small direct channel is uneconomical. (e) Technicality: When a product is very technical and complex like computers, machineries etc. direct channel is relatively more useful as it requires highly skilled technician-salesman, personal solicitation and demonstration. Manufacturer alone is competent to sell the products. (/) Seasonability : When product sale is subject to seasonal variations, like woollen etc. the production and consumption do not coincide. In such cases special distribution on channels with agent middlemen and effective retailers. (g) Newness and Market Acceptance: If the product is new there is a need for aggressive selling. But interIaediaries carry a wide range of competitive. Products, it is often not possible for them to give any special treatment for such products. Exclusive franchise indirect channel is most suitable for such products. (h) Fashion Goods: There is a risk of style obsolescene in case of fashion goods. Therefore wastage of time in distribution is dang-er. Hence, direct selling is best suitable to these goods. Product Breadth: When a company's product mix is composed of a large number of product items, it has greater ability to deal directly with buyers because the breadth of the product line enhances its ability to catch sales. (i)

CHANNELS OF DISTRIBUTION AND LOGISTICS

5.11

(j) Price Stability: When a company's product is subject to frequent price changes it is useful to go for direct channel to avoid compensating loss to intermediaries arising out of price changes and resultant unsold stocks.

3. Company Factors Company's own strengths and weaknesses significantly influence and shape channel choices. The relevant factors are: (a) Financial Strength: A financially strong company can opt for direct channel as they do not need the financial support and other facilities offered by the market intermediaries. On the other hand a financially weak company has to select an indirect channel out of financial compulsion. (b) Experience: In case of an old and established company its past experience of working with certain intermediaries also condition the channel choice. Good and efficient relationship with intermediaries reinforces manufacturers choice to opt for the same channel. (c) Marketing Policies: The policies such as policies relating to advertising, delivery, after-sale-service and pricing all these influence the channel choice. (d) Reputation : Popular companies like Tata, Hindustan Lever, Bajaj Scooters etc. find easy to appoint intermediaries as their products are easily sold. In fact, wholesalers offer good bid for dealership. Therefore, it can be said that company's reputation also plays an important role in selecting intermediaries. (e) Market Control Desired: The choice of distribution channel is also influenced by the degree of market control desired by a company. That is the desire of the company to make ~ntermediaries behave and act in the manner desired by its Management. The control may be in respect of resale price, territorial restrictionB, product quotas etc.

5.12

CHANNELS OF DISTRIBUTION AND LOGISTICS

4. Environmental Factors

.

The major environmental factors influencing channel choice are economic, legal and fiscal factors.

(a) Economic: During inflation many intermediaries actively participate in the channels. Whereas, during deflation intermediaries are shy and do not participate. In the same way manufacturers also avoid intermediaries during inflation and depend on intermediaries during deflation. (b) Legal: Legislative and other restrictions imposed by the Govt. are extremely formidable and give final shape to the channel choice. Some of the laws like MRTP Act 1969 prevents channel arrangements that tend to substantially lessen competition, create monopoly and are otherwise to prejudicial to public interest. Similarly Companies Act 1956, also Firbids sole, selling agency arrangement in industries like cement, paper, vanaspati etc. (c) Fi!IJcal Structure: In India sales taxes of states vary from state to state and form a significant part of the ultimate price payable by a consumer. As a result, it becomes an important factor in evolving channel arrangements.

5.5 CHANNEL POLICIES AND STRATEGIES The distribution channels and intermediaries selected are to function within the policies of companies. They serve as instruments of implementing the company policies and strategies. Some of the strategy options are as follows, based on the intensity of distribution desired. 1. Intensive Distribution: It may be defined as the policy of maximum exposure of the product for sale in the market. There are two aspects in this policy. Firstly, the product exposure may be in terms of the market area covered by the product. that is the desire of a company to go national level and offer its products in as many markets as possible. Secondly, the product exposure may be in terms of the number of outlets through which a product is offered for sale. That is the desire of the company to sell its products through as many outlets as possible.

CHANNELS OF DISTRIBUTION AND LOGISTICS

5.13

A company following this policy desires to reach every potential buyer. The advantages of this strategy are: (i)

Greater security and stability in the sales volume since the loss of one or a few outlets does not impair the selling programme.

(ii) Overhead distribution cost spreads over a wider network of dealers and sales volume. (iii) Minimum waste of communication as it reaches a large number of buyers.

However, the limitations of this policy are: (i) It is expensive because selling through small dealers for

maximum exposure requires small and frequent orders which are relatively expensive to service. (ii)

It is incompatible for maximum market control because a large network of retailers spread over a country defies all control measures.

(iii) Monitoring regularly over stocks and prices of essential

commodities is also difficult and it may lead to black marketing as company losses its control over large number of retailers.

2. Exclusive Distribution : It is also known as franchised distribution. It is a policy of "exposing products to sale in the market through an exclusive arrangement with an intermediary". In this policy, there is a mutual agreement on the part of the manufacturer and intermediary whereby the manufacturer commits to channelise his products exclusively through intermediary in the whole market or a segment of the market. In return the intermediary commits to serve the manufacturer exclusively in terms of the products handled and the markets served. These arrangements, if arrived at with an agent middlemen, it is referred to as Sole Selling or Selling Agency. If it is an arrangement with a merchant middleman, it is referred to as Distributorship in case of wholesalers and Dealership in case of retailer.

CHANNELS OF DISTRIBUTION AND LOGISTICS

5.14

The reference to exclusivity here is only in relation to a manufacturer and his immediate outlet and not after the intermediaries.

Advantages (i) Greater loyalty of intermediary. (ii) Greater motivation for aggressive promotion and selling. (iii) More inventory carrying by intermediaries. (iv) Guaranteed and effective after sale service by

intermediaries. (v) No small and frequent orders i.e., inexpensive. (vi) Better and co-ordinated product planning.

Limitations (i) The best intermediaries are not available always as they

are already tied up with others. (ii) Consumer coverage is less on account of inadequate sales

organisation of the intermediary. (iii)

Complacent intermediaries due to assured business.

(iv) Anti-competitive and restrictive trade are the other

complaints.

3. Selective Distribution The selective exposure of product for sale in the market is known as selective distribution. In this policy, a manufacturer opts to sell his products only in a selected market area or through selected market outlets as opposed to all and sundry of the intensive distribution method. It is suitable to products having brand preference and for established companies. In this policy a manufacturer develop a good working relationship with the selected middlemen and expect better than average selling effort. Selecting distribution enables the manufacturer to gain adequate market coverage with more control and less cost than intensive distribution.

CHANNELS OF DISTRIBUTION AND LOGISTICS

5.15

4. Other Policy Options Besides the policies or strategies described above, there are other policies also which are relevant and described below: Theyare: 1. Sale or consignment. 2. Policy of reciprocity. 3. Dual or multiple distribution. 4. Full-line fl"lrcing policy.

1. Sale or ConsignmeDt This is based on conditions of transactions. A company has to take a policy decision whether to go for an outright sale or to send good£ on consignment basis. In outright sale ownership and possession of goods are immediately transferred to the intermediary. In case of consignment, the intermediary takes· possession of goods, sells them to buyers in his name and returns the unsold goods or retains consignor's name.

2. Policy of Reciprocity It may be defined as one of reciprocal selling and buying between a manufacturer and his intermediary. It makes manufacturer to channelise his products through an intermediary in return for the sale of his products. It may be contractual or on some understanding where products are standardised and prices are more or less identical, this policy is suitable.

3. Dual or Multiple Distribution This is selling the same products or brands of products through channels. That is selling simultaneously through wholesalers, retailers and even direct to large scale buyers. From a manufacturer's stand point this policy has a lot of business logic. However, it does require effective monitoring of channel behaviour so that channel conflict may be prevented. par~I1e1

4. Policy of Full Line Forcing It is/a distribution policy where by a company forces its intermediaries to buy all product items it manufacturers. This

5.16

CHANNELS ~F DISTRIBUTION AND LOGISTICS

policy is usually adopted when a company finds that some product items moves very slowly and others are fast sold. In such a case usually intermediaries are prone to buy only fast moving items. But in order to push the sale of slow moving items, intermediaries are forced to buy slow moving items along with fastmoving ones.

5.6 CHANNEL MANAGEMENT After selection of suitable channel, the next step is implementing and managing the selected channel. Channel management is the job of selecting and motivating middlemen and evaluating their performance. More than selection of an appropriate channel and good intermediaries, it is essential that, for effective implementation of channel decisions and policies, they are to be effectively managed. The management of channel intermediaries involve the following steps : 1. Selection of good intermediaries.

2. Compensating intermediaries for their services. 3. Motivating intermediaries for better results. 4. Co-ordinating the efforts of intermediaries. 5. Control measures on intermediaries.

1. Selection of Intermediaries Producers should determine what characteristics distinguish the better middlemen. They should evaluate the experience, other lines carried, growth, profit record, solvency, co-operativeness, reputation etc. of the producers to select best channel, of course, it is difficult to attract qualified middlemen.

2. Compensating Intermediaries Intermediaries provide useful services like publicity, riskbearing, storage, transportation, financing etc. For all their services producer should properly, adequately reward. Monetary and non-monetary rewards are very much essential for smooth and cordial relations.

CHANNELS OF DISTRIBUTION AND LOGISTICS

5.17

3. Motivating Intermediaries Stimulating channel members to top performance must start with manufacturer's attempting to understand the needs and wants of the particular middlemen. Producers must offer higher margins, ' special deals, advertising allowances, display allowances and sales contests. Producers should also go into deep and provide technical advice, services and market information. All these measures positively motivate dealers for better results.

4. Co-ordinating Intermediaries Often there is a problem of duplication of producers and dealers efforts. A better co-ordination is required. When sales is high producer should supply sufficient quantity and when sales is low producer should not pileup too much of stocks. when exclusive .dealership .is given, other dealers should not be allowed to compete.

5. Evaluating Intermediaries or Control on Intermediaries The producer must periodically evaluate middlemen's performance against such standards as sales quota attainment average inventory levels, customer delivery time, treatment of damaged and lost goods, co-operation in promotional and training programs. Producers should also be sensitive to their dealers. they should not treat their dealers lightly and risk of losing their support. The evaluation of channel members is useful for effective control on them.

5.7 INDIAN DISTRIBUTION SYSTEM The Indian distribution system may be characterised by its ownership pattern. There are two types of distribution systems in operation, namely, Private and P~blic distribution systems. The Private ~istribution system is owned and operated by independent Private individuals. Whereas the Public distribution system is owned by Public-Government or Co-operative societies and operated by individuals with Public accountability for the sake of equitable distribution of products.

5.18

CHANNELS OF DISTRIBUTION AND LOGISTICS

Private Distribution System The private distribution system is a non-integrated channel system. According to a census made by Operation Research Group, there are nearly 1.95 lakh wholesalers and 32.98 lakh retailers employing more than 58 lakh people with total turnover of about Rs. 15000 crores and an estimated investment of Rs. 5,000 crores. As per these statistics it is said India has one of the world's largest Private Distribution system. Large number of manufacturers in India are heavily dependent an private distribution system to channelise their products to most of the wide market spread over a large area. Private distributors perform a variety of middlemen functions efficiently for a modest reward. Certain features of private distribution system in India are, they operate for incredibly low margin of about 1 to 3% of sales value. Another feature is, manufacturers seldom lend any marketing support to their intermediaries. Poor transportation facility. irregular and non-cooperative supply position and poor after sales service are other features of manufacturer intermediary relationship. The Private distribution system is also subject to severe Public criticisms for their alleged malpractices which include, hoarding of commodities in short supply, creating artificial scarcity, speculative trade practices, adulteration, poor response to consumer complaints are other criticisms.

Public Distribution System Government in order to ensure equitable distribution of essential commodities has developed a public distribution system with its active patranage ~s an alternative'to the Private distribution system. Under public distribution system there are 3 agencies, they are Govt. owned fair price shops, Consumer Co-operative societies, and licenced members of the Private distribution system. These agencies normally deal in essential items and are sold at sale prices prescribed Govt.

CHANNELS OF DISTRIBUTION AND LOGISTICS

5.19

Due to various socio-economic and political reasons the functioning of these agencies are not satisfactory. It also includes, inadequate, infrequent, and inferior quality supplies by Procurement agencies. The product range is also limited and profit margin is low and consumers also reject the products offered by public distribution system.

SUMMARY Distribution channel is a pathway composed of intermediaries also _ called middlemen, who perform such functions as needed to ensure smooth and sequencial flow of goods and services from the manufacturing end to the consuming end in order to achieve marketing objectives of a company. The functions performed by intermediaries or middlemen includes gathering of information, promotion of the pl-oduct, liaisoning, negotiating physical distribution, financial assistance, risk taking to name a few. Distribution channels can be classified into different groups on the basis of channel choice. They are zero level, one level, two level, three level and multi-level. Zero level channel also called direct channel involves no middlemen, goods are supplied directly from manufacturer to customers. One level channel avails a retailer between manufacturer and consumer. While two-level channel utilises two middlemen that is wholesaler and retailer. As regard to three level channel three middlemen is used. They are wholesaler, jobber, and retailer. The types of intermediaries include merchant intermediariesconverter wholesalers, full function wholesalers, consumer wholesaler, drop shipper, semi-wholesaler and retailers. The other category of intermediaries called agent intermediaries includes sole selling agents, commission agents, brokers, and the like. The factors governing choice of channels and intermediaries are market factors, product factors, company factors and environmental factors. Channel policies and strategies depends on intensive distribution, exclusive distribution, selective distribution, and other policy options.

CHANNELS OF DISTRIBUTION AND LOGISTICS

5.20

Channel management is the job of selecting and motivating middlemen and eval~ating their performance. The management of channel intermediarie8 is a five step process-Selection of good intermediaries, compensating them, motivating them, coordinating their efforts and controlling them in case of discrepancies. Logistics is a marketing support activity primarily concerned with the flow of goods that is the acquisition of suppliers and material, the distribution of finished products or delivery of services.

KeyWords • • • • • • •

Distribution channel Intermediaries Logistics Channel choice Zero level channel One level channel Two level channel

• Retailer • Agent

• • • • • • • •

Hawkers Intensive distribution Franchised distribution Selective distribution Consignment Full line forcing Multiple distribution Channel management

( QUESTIONS

I

SECTION-A (Conceptual Type-2 Marks) 1. What is distribution channel? 2. What do you understand by the term 'Logistics' ? 3. Name any two advantages of intermediaries. 4. What is channel choice? S. What is zero-level channel? Give examples. 6. What is one level channel? Give examples. 7. What is two level channel? Give examples. 8. What is three-level channel? Give examples.

9. What channel choice you suggests for vegetables, fish, Bakery items.

CHANNELS OF DISTRIBUTION AND LOGISTICS

5.21

10. Who is a converter?

11. Who is a Full function wholesaler? 12. Who is a Drop shipper? 13. Who is a Semi-wholesaler? 14. Name of Institutional retailers? 15. Name the Non-institutional retailers? 16. Who are agent intermediaries? Give examples. 17. Who are commission agent? 18. Who are Brokers? 19. Name the established logistic firms in India. 20. What is channel strategies? 21. What is a channel policy? 22. What is intensive distribution? 23. What is exclusive distribution? 24. What is selective distribution? 25. What is dual or multiple distribution? 26. What is the policy of Full line forcing? 27. What is the policy of Reciprocity ? 28. What is channel management? 29. Name the steps involved in channel management.

SECTION-B

(Analytical Tvpe-5 Marks)

.

~'

1.

Exp.lai~l

the meaning and role of channels.

.

-

2• What are the advantages of intermediaries ? 3. Discuss marketing channel functions.

4. Explain zero-level, one-level, and two-level channels with examples. 5. Explain the different kinds of merchant intermediaries. 6. Explain the different kinds of agent intermediaries. 7. Discuss the merits and demerits of intensive distribution. 8. Discuss the meritf'l and demerits of exclusive distribution.

5.22

CHANNELS OF DISTRIBUTION AND LOGISTICS

SECTION-C

(Essay Type-IS Marks) 1. Define distribution channel, and explain the different classification

of distribution channels and intermediaries. 2. Explain the factors governing channel choice and intermediaries with suitable examples. 3. Briefly discuss the different channel policies and strategies. 4. What is channel management? Explain the steps involved in the management of channel intermediaries. 5. Write a note on Indian distribution system on the titles ofPDS and private distribution system.

6

PROMOTION STRATEGIES Learning Objectives After reading this chapter, you should able to : W

Understand the nature and importance of promotion.

S"

Analyse the promotional methods- Advertising decision - Sales promotion - Public relation - Direct selling

Iii'

Draw a advertising copy, evaluate adversing.

Iii'

Know all about personal selling and sales promotion.

6.2

PROMOTION STRATEGIES

6.1 NATURE OF PROMOTION Promotion is the process of marketing communication involving information, persuasion and influence. In any exchange activity communication is absolutely necessary. The best product, with attractive package and fair price cannot be sold, if the product is not communicated to consumers. The market~r must communicate to his prospective buyers and provide them adequate information in a persuasive language. People must know that the right procuct is available at the right place and at the right price. This is the job of the promotion in marketing.

6.2 IMPORTANCE OF PROMOTION The shift of focus from mass marketing to targeted marketing, and the corresponding use of a larger, richer mix of communication (promotion mix) poses a problem for marketers. Customers do not distinguish between the message sources the way marketers do .• In the consumers mind advertising messages from different media and different promotional approaches all become part of a single message about the company. Conveying effectively to the target market the product attributes, value and utility is the trumpcard of any promotional strategy. The main tasks of promotional achieves are to establish and maintain communications with large market segments. Promotion is essential in modem day marketing and is in the form of non-price competition. Promotion is the final element in the marketing mix. It is the duty of the manufacturer to take effective step in meeting the consumer in the market after taking the decision relating to the nature of products, its price, and distribution. This is the age of consumer orientation and therefore it is the responsibility of the manufacturer to know what is required by the buyers. Even the most useful and value added product will be a marketing failure, if no one knows it is available. Thus it becomes essential, rather a duty, or manufacturer to make the customers know where from, how, when, and what price the product would be available. In addition to inducing and persuading the consumers to purchase more and more products through promotional activities. In doing so, the demand for the product is created. All said and done, the

PROMOTION STRATEGIES

6.3

basic purpose of promotion is the let potential customers know about the products. The importance of promotion or promotional activities of a firm in regard to their product or services are enlisted below: 1. Promotion ensures the potential customers to know about a firm's products or services.

2. In view of stiff competition among the manufacturers, the promotional achieves are inevitable. 3. Mass production can be achieved only with the help of large scale selling which is possible only through the promotional activities. 4. In imperfect competition product cannot be easily sold on the basis of product differentiation. Hence the basic feature of monopolistic competition is "selling costs". The cost incurred on promotional activities to d~aw the attention of consumers. 5. Promotion is responsible for the creation of demand for company's product through the exercise of conveying information, persuading and influencing the buyers to buy. 6. There are many middlemen-wholesalerE:, and retailers existing between the producer and the final consumer. The information must be passed on not only to the consumers but also to the middlemen, in turn they will communicate to the consumers about the products. Thus promotional activities are significant. 7. During economic decline or recession, selling is a problem. At that time promotion is very essential to steer-up the demand for products or services.

6.3 PROMOTION MIX Marketin~

people have adopted a communication view of thei:: firm's promotional activities. The marketing communications mix or promotion mix consists of 4 major tools.

PROMOTION STRATEGIES

6.4

1. Advertising: Any paid form of non-personal presentation and promotion of ideas, goods or services by an identified sponsor.

2. Sales Promotion: Short term incentives to encourage purchase or sales of a product or services. 3. Publicity: Non-personal stimulation of demand for a product, service, or business unit by planting commercially significant news about it in a published medium or obtaining favourable presentation of it upon radio, television, or stage that is not paid for by the sponsor.

4. Personal Selling : Oral presentation in a conversation with one or more prospective purchasers for the purpose of making sales. Within each category are specific tools such as sales presentations, point of purchase displays, trade shows, fairs, demonstrations, catalogues, literature, posters, contests, premiums, coupons and trading stamps. At the same time, communication goes beyond these specific tools. The products pricing, style, package shape, colour, salespersons manner -and dress all communicate something to buyers. The whole marketing mix, not just the promotional mix, must be orchestrated for maximum communication impact.

6.4 THE CONCEPT OF COMMUNICATION MIX Steps in developing effective communication A good understanding of the working of communication is essential to marketers. The working of communication may be illustrated as follows: SENDER-- Encoding --+----+Decoding---RECElVER : !MESSAGE Media

....

"~----NOjse ----+~

Feedback--------~------·Response-------------~

PROMOTION STRATEGIES

6.S

Communication involves 9 elements as shown in the above figure. Two elements constitute the major parties in a communication-sender and receiver. Two more represent the major communication tools. They are Message and Media. Four represent major communication functions. They are encoding decoding response and feedback. The last element represent noise in the system. These elements are defined as follows : SENDER

The party sending the message to another . party. It is also called as source or communicator.

ENCODING

The process of putting thought into symbolic form.

MESSAGE

The set of symbols that the sender transmits.

MEDIA

The communication channels through which the message moves form sender to receiver.

DECODING

The process by which the receiver assigns meaning to the symbols transmitted by the sender.

RECEIVER

The party receiving the message sent by another party also called as audience or destination.

RESPONSE

The set of reactions the receiver has after being exposed to message.

FEED BACK -

The part of the receivers response that the receiver communicates back to the sender.

NOISE

The occurrence of unplanned static or distortion during the communication process resulting in the receivers receiving a different message than the sender sent.

Communication therefore, is the crux of the personal selling exercise. It is the process by which a verbal or non-verba efforts is

PROMOTION STRATEGIES

6.6

made by a source to send a message through a channel to establish a commonness with the receiver. This process is composed of 9 stages as represented in the figure shown above. In all marketing communications, the source (Or sender) is naturally the seller-the company-whereas the Receiver is the prospective target consumer. Before the source transmits any message, it is Encoded. The encoded message then passes through the Message Media which may be composed of personal and non-personal media engaged in transmitting either verbally or non-verbally the intended message. Normally salesman verbally communicates and advertising and sales promotion are non-personal. However, before a receiver can respond to the message it is Decoded in terms of relevance. It involves reversal of the encoding process. Feedback is another important element, in this the source learns about the reception of the message in terms of nature and content. The Response may be indicated by a nod, an expression of interest or a smile or by marketing research report.

6.5 ELEMENTS IN THE COMMUNICATION The marketing communicator must take the following decisions: (i) identity the target audience. (ii) determine the response Rought.

(iii) choose a message. (iv) choose the media. (v) select the source attributes and

(vi) collect feedback.

(i) Identifying the Target Audience A communicator must start with a clear target audience in mind. The audience may be potential buyers of the company's products, current users, deciders or influencers. The audience may be individuals, groups, particular publics or the general pubic. The target audience will critically influence the communicator's decisions on what is to be said, how it is to be said, when it is to be said, where it is to be said and who is to say it.

PROMOTION STRATEGIES

6.7

(ii) Determining the Response Sought Once the audience is identified, the next stage is what response is sought. The marketing communicator needs to know where the target audience now stands and to which state it needs to be moved. The target audience may be in any of the six buyer readiness states-Awareness, knowledge, liking, preference, conviction or purchase.

Awareness: Knowing how aware the audience is of the product is very important. The audience may be unaware of the entity, know only its name or know few things about it. If most of the target audience is unaware, the communicators task is to built awareness. Knowledge: The target audience might have awareness, but not know much more, to build up product knowledge is the next step after awareness. Liking: If the target audience kpows the products, how do they feel about it? It may be scaled as follows: like very much, like some what, indifferent, dislike very much, dislike somewhat etc. If the audience looks unfavourably, the communicator has to find out why and then develop communications campaign to build up favourable feeling. Preference: The target audience might like the product, but not prefer it to others. In this case, the communicator, will try to build consumer preference. Conviction : A target audience might prefer a particular product but not develop a conviction about buying it. The communicator's job is to build conviction that buying the product is the right thing to do. . Purchase: Some members of the target audience might have conviction, but not quite get around to making the purchase. They may wait for additional information or plan to act later. The communicator must lead these consumers to take the final step.

6.8

PROMOTION STRATEGIES

Among purchase-producing devices are offering product at a low price, offering a premium, offering an opportunity to try it on a limited basis. Thus buyers normally pass through six stages on their way to purchase.

(iii) Choosing the Message The next stage is developing an effective message. The message, should have following features, it should get Attention, hold Interest, arouse Desire and obtain Action. It is popularly known as the AIDA model. Formulating the message will require solving three problems. That is, what to say (message content), how to say it logically (message structure), and how to say it symbolically (message format). The message content should be in the form of an appeal or theme and it should produce the desired response. Three types of appeals can be distinguished. Rational Appeals show the products claimed benefits like product's quality, economy, value or performance. Emotional appeals attempt to stir up some negative or positive emotion that will motivate purchase. Fear, guilt, shame, love, humour, pride and joy are used to arouse interest.

Moral appeals are directed at the audience's sense of what is right and proper. Social causes like cleaner environment, equal rights for women, aid to the disadvantaged people etc., are used in the moral appeals. Message Structure is equally important. The structure should draw a conclusion and present strongest arguments to establish strong attention. Message format is another important aspect. In the format, communicator has to decide on the headline, copy, illustration and colour in a printing format. If it is radio, communicator has to choose words, voice and vocalisations. In Television all the above points plus body language have to be planned. Facial expressions, gestures, dress, posture and hair style all are to ~e considered in person presentation of a product.

PROMOTION STRATEGIE·S

6.9

(iv) Choosing Media Selecting efficient channels of communication medias is the next step. Communication channels are of two types. Personal and non-personal. In personal communication channels, two or more persons communicate directly with each other. They might communicate face to face, person to audience, over the telephone, or even through the mails on a personal correspondence basis. These channels are effective as they provide opportunities for personal addn.ssing and feedback. It carries grt:lat weight and companies can tryout by creating opinion leaders and using influential people in testimonial advertising. Non personal communication channels are medias that carry me'3sages without personal contact or feedback. It consist of print medIa, electronic media, display media, etc. These medias are aimed at large audience. It is a major way to stimulate personal communication.

(v) Selecting the Sources Attributes The impact of message depends on who gives the message. Messages given by credible persons are more persuasive. (Boost an energy drink is presented with Kapildev as a strong drink for strong people). The communicator must give considerations to factors underlying the source credibility. They are: (a) Expertise : Which the communicator appears to possess the necessary authority to back the claim. Doctors, scientists and professors rank high on expertise in their respective fields. (b) Trustworthiness: How objective and honest the source is perceived to be. (c) Likability: Describes the sources attractiveness to the audience. Humour, naturalness make a source more likable.

(vi) Collecting Feed Back This is asking the target audience whether they recognise or recall the message, how many times they saw it, what points they recall, how they felt about the message and their attitude toward the product and company. It may include even collecting behavioural measures of audience response such as how many people bought the product liked it and talked to others about it.

6.10

PROMOTION STRATEGIES

6.6 PROMOTION BUDGET AND MIX A company is to take two important decision. Firstly, how much to spend on promotion, and secondly, its division among the major promotional tools.

Establishing the Promotion rBudget How much to spend on promotion is the most difficult decisions a company is to take. Promotion spending normally comes to 20 to 30 per cent of sales in case of cosmetic industries. Whereas, it is only 5 to 10 per cent in the industrial machinery industries. Industries vary considerably in how much they spend on promotion. There are 4 common methods used to set the total budget for any component, such as advertising. They are : (i)

Affordable method.

(ii) Percentage of sales method. (iii) Competitive parity method. (iv) Objective and task method.

(i) Affordable Method Many companies set the promotion budget at what they think the company can afford. In certain companies which ignore the impact of promotion on sales volume and which to not have long range market planning, normally, promotion budget is prepared according to what is sanctioned by the finance department.

(ii)

~ercentage

of Sales Method

Many companies set their promotion budget at a specified percentage of current or forecasted sales or of the sales price. This method has the advantage of expenses bear a close relation to the sales. It also encourages management to think in terms of the relationship between promotion cost, selling price, and profit per unit. However, it discourages experimenting and aggressive spending to increase sales. It also does not encourage promotion budget according to what each product and territory deserves.

PROMOTION STRATEGIES

6.11

(fii) Competitive Parity Method In this method promotion budget is set to match competitors outlays. The argument in favour of this method is competitors expenditures represent the collective wisdom of the industry and maintaining a competitive parity helps to prevent promotion wars. However, these arguments are not correct as the company's reputations, resources, opportunities and objectives differ so much that their promotion budgets are hardly a guide.

(iv) Objective and Task Method This method calls upon marketers to develop to their promotion budget by (a) defining their specific objectives, (b) determining the tasks that must be performed to achieve these objectives and (c) estimating the costs of performing these tasks. The sum of all these costs is the proposed promotion budget. This method has the advantage of requiring management to spell out its assumptions about the relationship between money spend, exposure levels, trial rates and regular usage. Thus, how much to spend on promotion depends on where the company's products are in their life cycle, whether they are commodities of highly differentiable, whether they are routinely needed or have to be sold and other considerations.

6.7 ESTABLISHING PROMOTION MIX Designing the promotion mix is morE! complicated. Companies differ considerably in the dividing of promotion budget on various promotional activities. Some companies spend on personal selling, some heavily spend on advertising, some spend on door to door sales force, while some companies use various mixes of advertising personal selling, sales promotion and publicity. Many factors influence the marketer's choice of promotional tools. First let us try to understand the nature of each promotion tools for selecting the most appropriate ones.

6.8 NATURE OF PROMOTION TOOL 1. Advertising : The following qualities can be noticed in advertising as a promotion tool.

6.12

PROMOTION STRATEGIES

(a) Public Presentation : It is a highly public mode of communication. It confers a kind of legitimacy and suggests a standardised offering as many persons receive the same message and is publicly understood. (b) Pervasiveness: It is a pervasive medium and repeats a message many times. Allows buyers te receive and compare the messages of various competitors. It also says positively about seller's size, popularity and success. (c) Amplified Expressiveness: It provides opportunities for dramatising the company and its products through the artful use of print, sound and colour. (d) Impersonality : It is not as compelling as a sales representative. The audience does not feel obligated to pay attention or respond. Advertising is only able to carryon a monologue, not a dialogue, with the audience. Advertising builds a long term image and trigger quick sales. It is an efficient way to reach numerous geographically dispersed buyers at a low cost per exposure. TV exposure may be expensive but it is quit impressive. Whereas, newspapers magazines etc., are done on a small budget.

2. Personal Selling: When buyers preference, conviction and action is to be built it is most effective tool. It has following distinctive qualities. (a) Personal Confrontation : Personal selling involves an alive, immediate and interactive relationship between two or more persons. (b) Cultivation : It develops all kinds of relationships from a matter of fact selling relationship to a deep personal friendship. (c) Response : Buyer feel under some obligation for having listened to the sales talk. It may even a polite 'thank you'. However, personal selling is highly expensive although it has above distinctive qualities.

3. Sales Promotion: It includes a diverse collection of tools like coupons, contests, premiums, discounts etc. all these have the following characteristics.

PROMOTION STRATEGIES

6.13

(a) Communreation: Gain attention and provide information in leading consumer to the product. (b) Incentive: It incorporate some concession, inducement, or value to the consumer. (c) Invitation: It include a distinct invitation to buy the product quickly. Sales promotion tools create a stronger and quicker response. However, the effect is short lived and does not build long run brand preference.

4. Publreity : It has 3 distinctive qualities. (a) High Credibility: News stories and features are more authentic and credible to readers than advertisements. (b) Offguard : It reaches many prospects who avoid advertisements. The message as news goes to public hence reception is more. (c) Dramatisation: It has potentiality for dramatising a company or product. A well thought publicity campaign co-ordirated with other promotion mixes is extremely effective and less costly.

6.9 FACTORS IN SETTING PROMOTION MIX There are several factors in developing an effective promotion mixes. They are discussed below (what considerations are influencing, in selecting promotion tools?)

1. Type of Product or Market Promotion tools to be used between consumer and industrial markets varies. In case of consumer goods large amount of money is to be spent on advertising followed by sales promotion, personal selling and publicity. In cases of industrial goods large amount is spent in personal selling. Expensive and heavy goods are to be sold through personal selling.

2. Push Versus Pull Strategy A push strategy calls for using the salesforce and trade promotion to push the product through the channels. The producer

6.14

PROMOTION STRATEGIES

aggressively promotes the product to wholesalers, aggressively promote the product the retailers and retailers do it for consumers. A pull strategy calls for spending a lot of money on advertising and consumer promotion to build up consumer demand. If, effective, consumers will ask their retailers for the product, the retailers will ask the wholesalers Valuation > T~rmination Awareness> Comparison> Reinforcement> Advocacy Suspect > Pros~ct > Customer> Partner> Advocate> Former Customer Using the relationship marketing approach, you customize programs for individual consumer groups and the stage of the process they are going through as opposed to some forms of database marketing where everybody would get virtually the same promotions, with perhaps a change in offer. The stage in the customer Life Cycle determines the marketing approach used with the customer. A simple example of this would be sending new customers a "Welcome Kit," which might have an ince'1tive to make a second purchase. If 60 days pass and the customer has not made a second purchase, you would follow up with an e~mailed discount. You are using customer behavior over time (the customer LifeCycle) to trigger the marketing approach. Let's say a customer visits your site every day and then just stops. Something has happened. They are unhappy with the content, or they have found an alternative source. Or perhaps they're just plain not interested in the subject anymore. This inaction on their part is a trigger telling you something has happened to change the way this customer thinks about your site and perhaps your service. You should react to this and then look for feedback from the customer. If you improve the content, e-mail them a notice, and if the customer starts visiting again, the feedback has been given. The cycle is complete until the next time the data indicates a

7.16

RECENT TRENDS IN MARKETING

change in behavior, and you need to react to the change with communication. Let's say same customer then makes a first purchase. This is an enormously important piece of data, because it indicates a very significant change in behaviour. You have a new relationship now, a deeper one. You should react and look for feedback .. You send a welcome message, thank the customer for the trust they have displayed in your site, and provide a second purchase discount. Then you await feedback from the customer, in the form of a second purchase, or increased visits. Perhaps you get negative feedback, a return of the first purchase. React to this new feedback and repeat the process. . All of the marketing decisions in the examples above were triggered by customer behavior, the actions of the customer as tracked by their activity (or lack of activity). This activity tracked over time is the customer Life Cycle. If you can track customer Life Cycles, you can begin to predict them, and if you can predict them, you can target your marketing efforts at the most critical trigger points in the customer Life Cycle. This approach eliminates a lot of wasted marketing spending, and creates very high ROI marketing campaigns. You spend less money overall, and the money you spend is much more effective. All of the above is accomplished by using the data customers create through their interactions with you to build simple LifeCycle models or rules to follow. The relationship marketing approach then uses this LifeCycle model as a "timing blueprint" to follow, targeting the right customers at the right time, with the most profitable offer.

Development of Relationship Marketing The origins of modem relationship marketing can be traced back to a passage by Schneider (Schneider, B. 1980) in which he observes : "What is surprising is that researchers and business men have concentrated far more on how to attract customers to products and services than on how to retain customers". The initial research was done by Christian Gronroos at the Swedish School of Economics (Gronroos, C. 1982) who describes what he called

RECENT TRENDS IN MARKETING

7.17

"interactive marketing", by Len Berry at Texas A&M (Berry, L. 1982) who coined the term "relationship marketing", and by first generation marketing theorist Theodore Levitt at Harvard (Levitt, T. 1983) who wanted to broaden the scope of marketing beyond individual transactions. In practice, relationship marketing originated in industrial and . b-2-b markets where long-term contracts have been quite common for many years.' Academics like Barbara Bund Jackson at Harvard re-examined these industrial marketing practices and applied them to marketing proper (Jackson, B.B. 1985). Today most of the relationship marketing research is being done in services marketing. According to Evert Gummesson at the Swedish School of Economics, this is because long-term relationships are most expensive to create and most profitable to nurture in the service sector (Gummesson, E. 1987). However, there is no reason why the techniques could not be applied ubiquitously. According to Len Berry (1983), relationship marketing can be applied : when there are alternatives to choose from; when the customer makes the selection decision; and when there is an ongoing and periodic desire for the product or service.

Customer Retention At the core of relationship marketing is the notion of customer retention. According to Gronroos (1989) marketing is a mutual exchange and fulfilment of promises. It is through making promises and keeping them that trust develops, and out of trust that loneterm relationships grow. It is important to understand the economics of customer retention. Studies in several industries have shown that the cost of retaining an existing customer is only about 10% of the cost of acquiring a new customer. Researchers concluded that traditional marketers spent far too much on customer acquisition and far too little on customer retention.

7.6 RETAILING Retailing covers all achieves involved in selling goods or services directly to ultimate consumers for their personal and non-business use. Manufacturers, wholesalers and retailers do retailing. But

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among these the most retailing is done by retailers. The businesses of the wholesalers primarily comes from retailing. Although most retailing is done in retail stores, oflate, non-store retailing has been gaining momentum. It includes selling the goods, services, information, knowledge and the like to the final consumers directly through mail, VPP, catalogues, telephone, internet, mobile phones, vending machines (milk and condoms at railway stations and public toilets) door to door contacts, DTH (Direct To Home).

Classification of Retailers 1. Departmental Stores: It is a retail organisation that carries a wide range of product lines. For example clothing, home furnishings daily needs, and so on. Each line is operated as a separate department managed by specialists.

2. Super Market: It is the most frequently shopped type of retail store. It caters a large number of buyers. In this type of retailing, the buyers can avail how cost, low margin, high volume, self-service system of transactions. Super market carries a wide variety of food, textile, and daily needs. 3. Speciality Store: It is a retail store that caries a narrow product line with a deep assortment within that line. The examples are apparel stores, sports houses, furniture shops, book store, and so on. 4. Convenience Store: It is a small store located in or near a residential area, that is open long house and carries a limited line of high turnover convenience goods. 5. Super Store: It is a store much larger than a regular super market that carrier a large assortment of routinely purchased food and non-food items and offers such services as drycleaning, photo finishing, bill paying and other entertainment facilities. 6. Factory Outlet: It is an outlet owned and operated by a manufacturer to keep and sell his products or services. 7. Franchise: It is a contractual association between a manufacturer, wholesaler or service organisation (a franchiser) and independent business people (Franchises) who buy the right to own and operate one or more units in the Franchise system.

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8. Chain Stores : Two or more outlets that are owned and controlled is common, and have central buying and selling similar lines of goods.

Retailing in India : Trends and Opportunities Retailing-no marks for guessing this is the most active and attractive sector of the last decade in India. While the retailing industry itself has been present through history in our country, it is only the recent past that has witnessed so much dynamism. It's the latest bandwagon that has withessed horrIes of players leaping onto it. While international retail store chains have caught the fancy of many travellers abroad, the action was missing from the Indian business scene, at least till recently. The emergence of retailing in India has more to do with the increasing purchasing power of buyers, especially postliberalization, increase in product variety, and the increasing economies of scale, with the aid of modern supply and distribution management solutions. A definition of retailing is essential in order to be in a position to assess the impact of retailing and its future potential. The current retailing revolution has bee;;' provided an impetus from multiple sources. These 'revolutionaries' include many conventional stores upgrading themselves to modern retailing, companies in competitive environments entering the market directly to ensure exclusive visibility for their products and professional chain stores coming up to meet the need of the manufacturers who do not fall into either of the above categories. Attractiveness, accessibility and affordability seem to be the key offerings of the retailing chain.

The Emerging Sectors Retailing, one of the largest sectors in the global economy, is going through a transition phase not only in India but the world over. For a long time, the corner grocery store was the only choice available to the consumer, especially in the urban areas. This is slowly giving way to international formats of retailing. The traditional food and grocery segment has seen the emergence of supermarkets/grocery chains (Food World, Nilgiris, Bombay

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Bazaar, Apna Bazaar), convenience stores (ConveniO, HP Speedmart) and fast-food chains (McDonalds, Dominos). The emergence of new sectors has been accompanied by changes in existing formats as well as the beginning of new formats : o

Hypermarket.

o

Large supermarkets, typically 3,500-5,000 sq. ft.

o

Mini supermarkets, typically 1,000-2,000 sq. ft.

o

Convenience stores, typically 750-1,000 sq. ft.

o Discounts/shoppi~g

list grocer.

The traditional grocers, by introducing self-service formats as well as value-added services such as credit and home delivery, have tried to redefine themselves. However, the boom in retailing has been confined primarily to the urban markets in the country. Even there, large chunks are yet to feel the impact of organized retailing. There are two primary reasons for this. First, the modern retailer is yet to feel the saturation' effect in the urban market and has, therefore, probably not looked at the other markets as seriously. Second, the modern retailing trend, despite its cost-effectiveness, has come to be identified with lifestyles. In order to appeal to all classes ofthe society, retail stores would have to identify with different lifestyles. In a sense, this trend is already visible with the emergence of stores with an essentially 'value for money' image. The attractiveness of the other stores actually appeals to the existing aftluent class as well as those who aspire for to be part of this class. Hence, one can assume that the retail revolution is emerging along the lines of the economic evolution of society.

Spread of Organized Retailing Organized retailing is spreading and making its presence felt in different parts of the country. The trend in grocery retailing, however, has been slightly different with a growth concentration in the South. However, the Mecca of retailing is undoubtedly Chennai. What was considered a 'traditional', conservative' and cost-coI}.scious'

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market, proved to be the home ground for most o.f the successful retail names-Fo.od Wo.rld, Music Wo.rld, Health and Glo.w, Vitan, Subhiksha and Viveks-to name a few. The cho.ice o.f Chenani as the 'retail capital' has surprised many, but a variety offactors acted in its favour. Chennai, in spite o.fbeing a rapidly gro.wing metro.polis o.ffers reaso.nable real estate prices, o.ne of the most critical elements for the industry. Chennai has been witnessing a high industrial gro.wth and increasing presence of the MNCs, both in the IT secto.r as well as o.utside it. The industrial bo.o.m has led to. the emergence o.f new residential areas with aggregation of pro.fessionals as well as a rapid increase in the number o.f'double-inco.me' households and growth o.f the nouveau riche/upper middle class with increased purchasing po.wer. This has been co.mbined with the increasing need for touch and feel sho.pping (especially for the large migrant populatio.n). All the facto.rs have acted favo.urably in nurturing the industry.

Consumer-the Prime Over A variety o.f facto.rs seem to influence the growth :in the retailing industry. 'Co.nsumer Pull', however, seems to. be the most impo.rtant driving facto.r behind the sustenance o.f the industry. In this context, a brief survey among consumers across income segments to. understand their spending pattern. An analysis of the 'monthly purchase basket o.fthe co.nsumers surveyed indicated that the average monthly ho.usehold spend on fo.od and gro.cery related items varied acro.ss inco.me segments. Fo.r instance, in the case o.f upper income ho.useho.lds, the average spend was aro.und Rs. 4,200 per month. As against this, the average spend in the case o.f a middle-inco.me ho.useho.ld was around Rs. 2,850 and Io.wer inco.me househo.lds Rs. 1,250 per mo.nth. (This is computed fro.m a sample o.f 100 custo.mers having an average family size o.ffour). Based o.n the distributio.n o.f the mo.re than 15 lakh ho.useholds in Chennai acro.ss inco.me segments and the average spend, a co.nservative estimate o.f the gro.cery retailing Po.tential at Chennai will be aro.und Rs. 300 cro.res. Besides increasing purchasing Po.wer, a variety of o.ther facto.rs also. seem to. fuel the retailing bo.om. With increase in double-income

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households and working women, there is an increasing pressure on time with very little time being available for leisure. In this scenario, consumers are seeking the convenience of one-stop shopping, whereby they could have better utility of time. They are also seeking speed and efficiency in processing, as a result. Being more aware, consumers are on the lookout for more information, better quality and hygiene as well as increased customer service. These changes in consumer behaviour also augur well for the retailing industry However, in India there are no uniform trends with respect to consumer buying behaviour. There are visible differences in the shopping pattern of consumers across income segments. Organized retailing has definitely made headway in the upper class. However, even in this segment items, such as milk, fruits, vegetables and a significant portion of 'through-the-month' purchases seem to be done at traditional outlets. The middleincome class prefer shopping for processed food and personal care in supermarkets and fall back on traditional outlets for bu lk : shopping. Organized retail outlets seem to be associated with branded items/special purchases. Organized retailing does not seem I to have made an impact on the lower class, except for 'curiosity' shopping. The biggest question before organized retailers therefore, is whether this really means a huge untapped potential for the organized retailers and whether the conversion in mindset goicg to be easy.

Emerging Trends The single most important evolution that took place along with the retailing revolution was the rise and fall of the dotcom companies. A sudden concept of 'non-store' shopping emerged, which threatened to take away the potential of the ftore. More importantly, the very nature of the customer segment being addressed was almost the same. The computer-savvy individual was also a sub-segment of the 'store' frequenting traffic. Internationally, the concept of Net shopping is yet to be proven. And the poor financial performance of most of the companies

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offering virtual shopping has resulted in store-based retailing regaining the upper hand. Other forms of non-store shopping including various formats such as catalogue/mail order shopping, direct selling, and so on are growing rapidly. However, the size of the direct market industry is too limited to deter the retailers. For all the convenience that it offers, electronic retailing does not suit products where 'look and see' attributes are of importance, as in apparel, or where the value is very high, such as jewellery, or where the performance has to be tested, as of consumer durables. The most critical issue in electronic retailing, especially in country such as ours, relates to payments and the various security issues involved.

Retail Management Skills It is a fact that the retailling industry is in its starting phase in our country. The benefits of organized retailing will only be felt once an equitable scale is achieved. This to a large extent depends on the store size, the walkthroughs, bills per customer per year, average bill size and the revenue earned per sq. ft. But besides resources and bottom line, a variety of other aspects need to be in place for tasting success. The need for qualified and trained manpower is of utmost importance. The need for specialized skills is increasingly felt in the areas of: • Strategic management-strategizing, targeting and positioning, marketing and site selection, among others; • Merchandise management-Vendor selection, inventory management, pricing and so on; • Store management-Layout, display, relationship, inventory management, etc.;

customer

• Administrative Management-Human resource, finance, marketing and so on. With the need for specialized skill set, retailing has become a specialized area of know ledge and training. The RPG School of Retailing and the introduction of specialized retailing courses at various business schools, including the IIMs, stand testimony to this.

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Technology Impact The other important aspect of retailing relates to technology. It is widely felt that the key differentiator between the successful and not so successful retailers is primarily in the area of technology. Simultaneously, it will be technology that will help the organized retailer score over the unorganized players, giving both cost and service advantages. Retailing is a 'technology-intensive' industry. It is quoted that everyday at least 500 gigabytes of data are transmitted via satellite from the 1,200 point-of-sales counters of J.C. Penney to its corporate headquarters. Successful retailers today work closely with their vendors to predict consumer demand, shorten lead times, reduce inventory holding and thereby, save cost. Wal-Mart pioneered the concept of building a competitive advantage through distribution and information systems in the retailing industry. They introduced two innovative logistics techniques-cross-docking and electronic data interchange. Today, online systems link point-of-sales terminals to the main office where detailed analyses on sales by items, classification, stores or vendor are carried out online. Besides vendors, the focus of the retailing sector is to develop the link with the consumer. 'Data Warehousing' is an established concept in the advanced nations. With the help of 'database retailing', information on existing and potential customers is tracked. Besides knowing what was purchased and by whom, information on softer issues such as demographics and psychographics is captured. Retailing, as discussed before, is at a nascent stage in our country. Most organized players have managed to put the front ends in place, but these are relatively easy to copy. The relatively complicated information systems and underlying technologies are in the process of being established. Most grocery retailers such as Food World have started tracking consumer purchases through CRM. The life-style retailers through their 'affinity clubs' and 'reward clubs' are establishing their processes. The traditional retailers will always continue to exist but organized retailers are working towards revamping their business to obtain strategic advantages at various levels-market, cost knowledge and customer.

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With differentiating strategies-value for money, shopping experience, variety, quality, discounts and advanced systems and technology in the ba-::k-end, change in the equilibrium with manufacturers and a thorough understanding of the consumer behaviour, the ground is all set for the organized retailers. The bottom line could look brighter, after all!

It would be important to note, however, that the retailing industry in India is still a 'protected industry'. It is one of the few sectors, which still has restrictions on FDI. Given the current trend in liberalization, it will not be long before the retailing sector is also thrown open to international competition. This will see a further segregation of the international retailing brand!" and the domestic retailers, thereby injecting much greater dynamism into the market. That will be when the real action will begin. We uncover a model for retailers to handle the emerging scenario. • Even though India has well over 5 million retail outlets of all sizes and styles (or non-styles), the country sorely lacks anything that can resemble a retailing industry in the modern sense of the term. This presents international retailing specialists with a great opportunity. • It was only in the year 2000 that the global management consultancy AT Kearney put a figure to it : Rs. 400,000 crore (1 crore = 10 million) which will increase to Rs. 800,000 crore by the year 2005-an annual ~llcrease of 20 per cent.

• Retailing in India is thoroughly unorganized. There is no supply chain management perspective. According to a survey by A.T. Kearney, an overwhelming proportion of the Rs. 400,000 crore retail market IS UNORGANISED. In fact, only a Rs. 20,000 crore segment of the market is organized. • As much as 96 per cent of the 5 million-plus outlets are smaller than 500 square feet in area. This means that India per capita retailing space is about 2 square feet (compared to 16 square feet in the United States). India's per capita retailing space is thus the lowest in the world

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(Source : KSA Technopak (1) Pvt Ltd, the India operation of the US-based Kurt Salmon Associates). • Just over 8 per cent of India's population is engaged in retailing (compared to 20 per cent in the United States). 'There is no data on this sector's contribution to the GDP. • From a size of only Rs. 20,000 crore, the ORGANISED retail industry will grow to Rs. 160,000 crore by 2005. The TOTAL retail market, however, as indicated above will grow 20 per cent annually from Rs. 400,000 crore in 2000 to Rs. 800,000 crore by 2005 (Source: survey by A. T. Kearney) • Given the size, and the geographical, cultural and socioeconomic diversity of India, there is no role model for Indian suppliers and retailers to adapt or expand in the Indian context. • The first challenge facing the organized retail industry in India is competition -from the unorganized sector. Traditional retailing has established in India for some centuries. It is a low cost structure, mostly owner-operated, has negligible real estate and labour costs and little or no taxes to pay. Consumer familiarity that runs from generation to generation is one big advantage for the traditional retailing sector. • In contrast, players in the organized sector have big expenses to meet, and yet have to keep prices low enough to be able to compete with the traditional sector. High costs for the organized sector arises from : higher labour costs, social security to employees, high quality real estate, much bigger premises, comfort facilities such as air-conditioning back-up power supply, taxes etc. Organized retailing also has to cope with the middle class psychology that the bigger and brighter a sales outlet is, the more expensive it will be. • The above should not be seen as a gloomy foreboding from global retail operators. International retail majors such as Benelon, Dairy Farm and Levis have already entered the roarke. Lifestyles in India are changing and the concept of "value of money" is picking up.

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• India's first true shopping mall-complete with food courts, recreation facilities and large car parking space-was inaugurated as lately as in 1999 in Mumbai. (This mall is called "Crossroads"). • Local companies and local-foreign joint ventures are expected to more advantageously positioned than the purely foreign ones in the fledgling organized India's retailing industry. • These drawbacks present opportunity to international and! or professionally managed Indian corporations to pioneer a modern retaling industry in India and benefit from it. • The prospects are very encouraging. The first steps towards sophisticated retailing are being taken, and "Crossroads" is the best example of this awakening. More such malls have been planned in the other big cities of India. II

An FDI Confidence Index survey done by A.T. Kearney, retail industry is one of the most attractive sectors for FDI (foreign direct investment) in India and foreign retail chains would make an impact circa 2003.

• India has registered a very impressive growth of its middle class - a class that was virtually non-existent in 1947 when India became a politically sovereign nation. • At the start of 199~, the size of the middle class was unofficially estimated at 300 million people. • The middle class comprises three sub-classes : the upper middle, middle and lower middle. • The upper middle lass comprises an estimated 40 million people. They have annual incomes ofU8$600,000 each in terms of Purchasing Power Parity (PPP). (Please note that the calculation of PPP is complicated, but suffice it to say that it is based on what a unit of currency can Purchase in one country compared to w hat the same currency can purchase ia another country. It is also known as the "law of one price" that governs the price level of general goods and services between the two countries).

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RECENT TRENDS IN MARKETING • The middle class comprises an estimated 150 million people, each with PPP incomes ofUS$20,000 per year each. • The lower middle class comprises an estimated 110 million people. An estimate of their annual income is not available, but they are mostly the relatively affluent people in the rural areas of India. • The middle classes ON THE WHOLE (i.e. upper middle + middle + lower middle classes) is expected to grow by 5 to 10 percent annually.

FMCG refers to consumer non-durable goods required for daily or fre'1uent use. Typically, a consumer buys these goods at least once a month. The sector covers a wide gamut of products such as detergents, toilet soaps, toothpaste, shampoos, creams, powders, food products, confectioneries, beverages, and cigarettes. Typical characteristics of FMCG products. Individual items are of small value. But all FMCG products put together account for a significant part of the consumer's budget. The consumer keeps limited inventory of these products and prefers to purchase them frequently, as and when required. Many of these products are perishable.

7.7 CONCEPT MARKETING The term concept can be understood as that which exists in the mind as the product of careful mental activity: conception, idea, image, notion, perception, thought about something-object, people, things, phenomenon. Concept marketing involves the creation of concepts and brands, and thereby building brand image for a product or service. The sale of products is largely attributed to the concept devised rather than product itself. What is bought and sold is 'concept'. The leading concept creater is one Mr. Janardan who had gone riches from rags, who could not cross seventh standard. He is the man and brain behind coining the term "Darshini" hotels in

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Bangalore. The concept 'Darshini' grained rapid name and fame in Bangalore. Like hurricane the concept Darshini swirled away' the 'Kamat' hotels. Kudos to Mr. Janardan for his creativity and innovativeness. He owns D.C. Cantean at Bangalore Taluk office compound, "Upahara Darshini" at DVG road, Basavanagudi, Bangalore. In the similar fashion we have our own "MTR food products". From a tiny venture, this group has gone 'global' such is the capacity of concept marketing. The other examples are ITCs lifestyle, shopperstop, the Forum, Kids Kemp, Ganjam (known for Jewellery and Diamonds marketing), eco-tourism, spa, medical tourism, Mayura Group of hotels ofKSTDC, Raheja, Puravankara (Apartment people), Thomas cook (money exchanger).

7.8 VIRTUAL MARKETING It was not until the 1990s that the word ''virtual" made it into the headlines on a regular basis. As a word, virtual has the same Latin root as virtue, an intimately personal quality of goodness and power. Its archaic meaning is "effective because of certain inherent virtues or powers", an apt expression for successful virtual teams. More recent use brings newer meanings: • Virtual as in "not in actual fact "in essence," "almost like"; and • Virtual as in "virtual reality." The "almost like" part of the definition, as in "they act virtually like a team," is on target. "Virtual" is used in the same way in the terms "virtual corporation," "virtual organization," and "virtual office." When we use the term virtual, we do not mean it as another dictionary definition puts it : something that is "not real" but "appears to exist," something "that appears real to the senses" but is not in fact. It is a bit like the old TV commercial about a brand of videotape: "Is it live or is it Memorex? With Memorex, you can hardly tell." The newest meaning of ''virtual'' attests to forces that are fast moving teams into an altogether different rtalm of existence--

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virtual reality--or more precisely, digital reality. Electronic media together with computers enable the creation of spaces that are real to the groups that inhabit them yet are not the same as physical places. The eruption of the World Wide Web in the last decade of the mille'1nium has allowed virtual teams to create private electronic homes. These interactive intranets--protected membersonly islands within the Internet--signal a sharp up-tick in the human capability to function in teams.

What is Electronic Marketing Or Virtual Marketing? Electronic markets ordinarily refer to online trading and auctions, such as online stock trading markets, online auctions for computers and other goods. The electronic marketplace refers to the emerging market economy where producers, intermediaries and consumers interact electronically or digitally in some way. The electronic marketplace is a virtual representative of physical markets. The economic activities undertaken by this electronic marketplace collectively represent the digital economy. Electronic business, broadly defined, is concerned with the electronic marketplace. The electronic marketplace resembles physical markets (the one we know) in many aspects. As in physical markets, components of the digital economy include: • players (market agents such as firms, suppliers, brokers, shops and consumers); • products (goods and services); and • processes (supply, production, marketing, competition, distribution, consumption, etc.). The difference is that, in the electronic marketplace, at least some of these components are electronic, digital, virtual or online (whichever term you may prefer). For example, a digital player is someone with an email or a Web page. Purely "physical" sellers may be selling a digital product, e.g., digital CD-ROM. One that sells physical products at a physical store may offer product information online (thereby allowing consumers to "search online"), while production, ordering, payment and delivery are done conventionally. Currently, the emphasis is on the core of the electronic marketplace where everything (i.e., all value chains or business activities) is online. But, if any aspect of your business of consumption dwells upon the digital process you are already part

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of the electronic marketplace. That is, almost all of us are already players in the electronic marketplace. Thus virtual marketing portrays all goods and services for sale on the internet. The virtual shop is created on the web. This enables the consumers across the globe to buy goods and services online.

7.9 EMERGING E-BASED MARKETING CONCEPTS B2 B (Business-to-Business) e-Commerce Using B2B trading networks, auction sites, spot exchanges, online product catalogs, barter sites, and other online resources to reach new customers, serve current customers more effectively, and obtaining buying efficiencies and better prices.

B2 C (Business-to-Consumer) e-Commerce The online selling of goods and services to final consumers.

C2 B (Consumer-to-Business) e-Commerce On line exchanges in which consumers search out sellers, learn about their offers, and initiate purchases, some times even driving transactions terms.

C2 C (Consumer-to-Consumer) e-Commerce Online exchanges of goods and information between final consumers.

Chick-and-Mortar Companies Traditional brick-and-mortar companies that have added emarketing to their operations.

Click-only Companies The so-called dotcoms, which operate only online without any brick-mortar market presence.

Corporate Web Site A web site designed to build customer goodwill and to supplement other sales channels, rather than to sell the company's product directly.

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Customer Database An organised collection of comprehensive data about individual customers or prospects, including geographic, demographic, psychographic, and behavioural data.

Direct-Mail Marketing Direct marketing through single mailings that include letters, ads, f.,amples, foldouts, and other "salespeople with wings" sent to prospects on mailing lists.

Direct-Response Television Marketing Direct marketing via television, including direct-response television adY"rtising and home shopping channels.

E-Bl.:.siness The use of electron platforms-intranets, and the internet to conduct a company's business.

E-Commerce Buying and selling process supported by electronic means, primarily the internet.

E-Marketing The marketing side of e-commerce-company efforts to communicate about, promote, and sell products and services over the Internet.

Extranet A network that connects a company with its suppliers and distributors.

Internet Database Electronic collections of information obtained from data sources within the company.

Internet The vast and burgeoning global web of computer networks with no central management ownership; A vast public web of computer

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networks, which connects users of all types all around the world to each other and to an amazingly large "information repository". The internet makes up one big "information high way" that can dispatch bits at incredible speeds from one location to another.

Intranet A network that connects people within a company to each other and do the company network.

Online Advertising Advertising that appears while consumers are surfing the web, including banner and ticker ads, interstitials, skyscrapers, and other forms.

Online Database Computerised collections of information available from online commercial sources or via the Internet.

Online (Internet) Marketing Research Collecting primary data through Internet surveys and online focus groups.

Open Trading Networks Huge e-market-spaces in which B2 B buyers and sellers find each other online, hare information, and complete transactions efficiently.

Viral Marketing The Internet vision of word-of-mouth marketing-e-mail messages or other marketing events that are so infections that customers will want to pass them along to friends.

Web Communities web sites upon which numbers can congregate online and exchange views on issues of common interest.

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Web Casting The automatic downloading of customised information of interest to recipients' PCs, affording an attractive channel for delivering Internet advertising or other information content.

7.10 EMERGING GENERAL CONCEPTS IN MARKETING Adapted Marketing Mix An international marketing strategy for adjusting the marketing-mix elements to each international target market, bearing more costs but hoping for a larger market share and return.

Benchmarking The process of comparing the company's products and processes to those of competitors or leading firms in other industries to find ways to improve quality and performance.

Benefit Segmentation Dividing the market into groups according to the different benefits that consumers seek from the product.

Brand Equity The positive differential effect that knowing the brand name has on customer response to the product or service.

Brand Personality The specific mix of human traits that may be attributed to a particular brand.

Buzz Marketing Cultivating opinion leaders and getting them to spread information about a product or service to others in their communities.

Competitive Advantage An advantage over competitors gained by offering consumers greater value, either through lower prices or by providing more

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benefits that justify higher prices; An advantage over competitors gained by offering consumers greater value than competitors offer.

Competitive Marketing Strategies Strategies that strongly position the company against competitors and that give the company the strongest possible strategic advantage.

Concentrated (Niche) Marketing A market-coverage strategy in which a firm goes after a large share of one or a few segments or niches.

Consumerism An organised movement of citizens and government agencies to improve the rights and power of buyers in relation to sellers.

Corporate VMS A verticle marketing system that combing successive stages of production and distribution under single ownership-channel leadership is established through common ownership.

Customer Relationship Management (CRM) Managing detailed infonnation about individual customers and carfully managing customer "touch points" in order to maximise customer loyalty.

Customerisation Leaving it to individual customers to design the marketing offering allowing customers to be prosumers rather than only consumers.

Demarketing Marketing to reduce demand temporarily or permanently, the aim is not to destroy demand but only to reduce or shift it.

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Differentiated (Segmented) Marketing A market-coverage strategy in which a firm decides to target several market segments and designs separate offers for each.

Engel's Laws Difference noted over a century ago by Evnst Engel in how people shift their spending across food, housing, transportation, healthcare, and other goods and services categories as family income rises.

Enlightened Marketing A marketing philosophy holding that a companies marketing should support the best long-run performance of the marketing system, its five principles include consumer-oriented marketing, innovative marketing, value marketing, sense of mission marketing, and societal marketing.

Environmental Sustainability A management approach that involves developing strategies that both sustain the environment and produce profits for the company.

Institutional Market Schools, hospitals, nursing homes, prisons, and other institutions that provide goods and services to people in their care.

Interactive Marketing Marketing by a service firm that recognises that perceived service quality depends heavily on the quality of buyer-seller interaction.

Market Follower A runner-up firm that wants to hold its share in an industry without rocking the boat.

Market Leader The firm with the largest market share in an industry.

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Market Nicher A finn that serves small segments that the other finns in its industry overlook or ignore.

Micromarketing The practice of tailoring products and marketing programs to the needs and wants of specific individuals and local customer groups-includes local marketing and individual marketing.

Mission Statement A statement of the organisations purpose what it wants to accomplish in the larger environment.

Motive (Drive) A need that is sufficiently pressing to direct the person to seek satisfaction of the need.

Private Trading Networks (PTNs) B2B trading networks that link a particular seller with its own trading partners.

Social Marketing The design, implementation and control of programs seeking to increase the acceptability of a social idea cause or practice among a target group.

Societal Marketing A principle of enlightened marketing that holds that a company should make marketing decisions by considering consumers wants, the company's requirements, consumer's long-run interest and society's long-run interest.

Target Market A set of buyers sharing common needs or characteristics that the company decides to serve.

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Target Marketing The process of evaluating each market segment's attractiveness and selecting one or more segments to enter.

Undifferentiated (Mass) Marketing A market-coverage strategy in which a firm decides to ignore market segment differences and go after the whole market with one offer.

Vertical Marketing System (VMS) A distribution channel structure in which producers, wholesalers, and retailers act as a unified system. One channel members owns the others has contracts with them, or has so much power that they all cooperate.

Word-of-Mouth Influence Personal communication about a product between target buyers and neighbours, friends, family members, and associates.

Zone Pricing A geographical pricing strategy in which the company sets up two or more zones. All customers within a zone pay the same total price; The more distant the zone, the higher the price.

Remarketing It is a strategy through which a product with losing demand is brought back to life or rejuvenated. A repositioning of the product or modification is the marketing mix is the route through which it is achieved.

Synchromarketing - There are certain products due to seasonal variations, demand fluctuates. As a result, the firm experiences either idle capacity or over capacity. Synchormarketing is the technique to alter the demand and keep it as before through flexible pricing, promotion, and other benefits.

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Multiplex Marketing It happens when the marketer manage to simultaneously serve multiple market segments in a cost effective and competitively superior way. Several intermediaries add new market segments to their already existing segments, hoping to achieve high economies of scale and competitive edge. For example, in Bangalore we have Phantalons, and Biryanis. Big Bazaar, The Forum, Life Style, Family mart, Food world, Sunday to Monday etc.

Maxi Marketing It was coined by Rapp and Collins. It is ,the technique to use direct marketing as the main strategy in marketing process to reach to the customer. It is like Zero Level channel. Maxi marketing is a 8 step process : 1. Maximised Targeting: Requires the marketer to define the

best target prospects for the offer.

2. Maximised Media: Takes to the direct marketer to examine and verify the various media available and how to utilise it most effectively. 3. Maximised Accountability: It entitles for evaluating the promotional campaign on the basis of per or single individual. 4. Maximised Awareness: Requires developing those messages which will install in the minds and heart of the potential customers. 4. Maximised Activation : Calls for conviction and purchase through promotional messages.

6. 'Maximised Synergy: An effort to find out how to get the synergistic effect with the combination of various elements. 4. Maximised Sales : By way of building a proper information system. 4. Maximised Distribution: Requires the marketer to build the additional and new channels to reach the potential and current customers.

Marketing Myopia It was first identified and developed by Prof. Theodore Levitt in 1960, in his land mark research topic entitled "Marketing

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Myopia". It traces the rise and fall of giant American Rail Road Corporation. According to Prof. Levitt, Marketing Myopia is a short sighted narrow minded view of marketing and its environments and must be avoided at all cost. In other words, Marketing Myopia is an inefficient, complacent marketing approach. Prof. says the business must be viewed as a customer satisfying process rather than a goods producing process. He encouraged companies to shift their business arena definition from a product to a market focus. In developing the market based business definition, the management should avoid the definition which is too narrow and too broad. Prof. P.K. Agarwal in his book "Marketing Management-An Indian Perspective", distinguishes the Myopic description with marketed description which is shown at table 7.2.

Table 7.2. Avoiding Marketing Myopia by Focusing on Benefits Provided by the Organisation Myopic Description 1. "We are a telephone company".

Marketing oriented Description 1. "We are a communications

company". 2. "We are in the railroad business".

2. "We are in the transportation business".

3. "We a~e in the petroleum business".

3. "We are in the energy business".

4. "We are in the animated-film business".

4. "We are in the entertainment business".

Prof. Levitt has cajoled and persuaded many business enterprises stating that vast business enterprises collapsed and dismantled because of extreme short-signtedness on the part of the enterprises. The facts of the case as to the Amerial Rail road company is that, it was in the business of railways. Had they, instead, seen themselves in the business of transporting people. Things would have turned out quite differently.

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In India the organisations such as TVS Suzuki have profited immensely by listening to the market. ITC is upgrading the 'bidi' smokers by offering them, for the first time, a cigarette they can switch over to called "Hero".

7.11 NETWORK MARKETING

What is Network Marketing Network marketing is a method of retailing products by using independent distributors. The distributors are allowed to build and manage their own sales force (downline) by recruiting, motivating, supplying, and training other people to sell products. The rewards here come from not just one's own sales but include a percentage of the sales of the entire downline. Thus, this is a form of direct selling where distributors are compensated in both selling the products and the business opportunity.

How Does It Work? This kind of marketing requires a strong network of people and relies on their competence to duplicate the network's business. Once a person becomes a member of the network, he works towards not just selling the product but also expanding the network of people. For instance, X becomes a member and sells product to a and b. Then a and b, each in turn recruit and sell the product to ro-n and p-q respectively who in turn will sell it to more people. X will continue to get a certain percentage of the sales made by m, nand p, q and other recruits who become members. Thus on a wide scale, the network broadens from one person recruiting 10 and those 10 recruiting further 10 each and so on selling out to an extensive market. And the distributor is compensated in two ways : 1. By selli.."lg the product. 2. Through the products sold by his recruits (residual marketing). As a network marketer one is independent and not an employee of the company and will act as the firm's customer base and the marketing/sales arm for its business (services/products. Here you should also remember that merely recruiting new distributors (recruits) into the network gives no compensation, and it is the sales

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made by them that will prove beneficial. Usually, in this type of marketing, distributors are also the consumers, i.e. as a distributor, you must also purchase and use the product yourself. This becomes more evident as this type of marketing depends completely upon word-mouth/referrals, and you may not be able to speak about the product unless you use it yourselfl Most often the products sold through network marketing are different and unique as compared to conventioI).al retail and need to be explained to the consumer, Hence they can never be sold 'offthe-shelf'

Advantages •

Most network marketing business are designed so that they can be full-time, or part time. Thus it offers flexibility of work hours.

•

Network marketing can be done by people of all ages as they can easily operate from home : students, old people, housewives and disabledlhandicapped people can find employment here.

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Most network marketing businesses can be started with a minimal investment: usually, the cost to purchase a sample kit (at cost) and some business supplies to start the business.

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Most network marketing companies give good incentives to their recruits for achieving a certain level of sales.

Other Benefits • This type of business is simple and easy to follow by anyone. • It gives an individual the right to control his destiny.

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• It offers an equal chance to leverage time and efforts through others.

• There are no specific educational qualifications to become, a network marketer. • It follows an easy and low-risk entrepreneurial opportunity. • This business has the potential of strong credibility and goodwill as its key driver of sustenance is 'word-of-mouth' referrals. The system encourages distributors to duplicate their network business by building and maintaining their own network of distributors (called down lines), each with their own retail customers. This way, the distributor's downline base expands and the company's distributor's base expands with it.

Disadvantages • Network marketing may be eroded by other companies offering equivalent products at the SEime price. • Network marketing products face competition from equivalent products in traditional retail markets. • Often, network marketing organisations lay too much emphasis on motivating their affiliates to sell, while they are not trained for the job. So there are chances of the syndicate failing. • Unlike conventional retail, network marketing tends to ignore advertising because the affiliates don't have the means to advertise. Though there is an expansion in the company's distributors' base, these companies barely manage to break even due to residual incomes. • There are also fears of people moving out of the network causing breakage and losses.

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• As the key driver of this business is 'word-of-mouth' it takes a long time to build its goodwill and recognition in the market (almost 3-5 years). • Building a strong retail customer base is critical to this business, as one must recruit others to duplicate your efforts.

Essential Qualities As a network marketer your primary task will be to gather customers for your products or services. You should be able to invest time to train the people you recruit. So one should be outgoing, smart, self-motivated and a go-getter. You should be able to help the new recruits to get started in their own business partnered with you, as your success lies in theirs.

SUMMARY The recent trends in marketing are-E-Marketing, Global market, expanded consumer choice, large scale retailing, brand equity, MBusiness, Relationship Marketing (CRM), Concept marketing, Presence ofMNCs and intense competition huge spend on promotional activities, services marketing and so on. E-Business refers to using internet or ralated technologies for any of normal business operations. It is doing business on-line, focusing in customer centric. Traditional market involves creation of physical shop where as E-Market involves a virtual shop on the internet. E-commerce is a branch of E-Business and includes buying and seIling of goods online. Telemarkding is the practice of selling goods or services to customers by n,eans of the telephone. It is synonymous with tele seIling.

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M-Business means using a mobile phone or any other mobile device, to make business practice easier, more efficient or more profitable. The tools and technology that can be used in M-Business are Bluetooth technology, 3 G Networks, wireless enable Personal Digital Assistants (PDAs), Laptops, SMS, MMS, Wi-Fi (Wireless Fidelity). Relationship marketing is simply a method of selling products and services by building a relationship with clients and prospects. It is also called as retention marketing or customer Relationship marketing (CRM).

Retailing encompases all activities involved in selling goods or services directly to ultimate consumers for their personal and nonbusiness use. The different types of retailers are-Departmental stores, supermarket speciality store, convenience store, supterstore, factory outlet, franchise, chain stores and the like. The term concept marketing refers to creation of concepts and brands and there by building brand image for a product or service. The product moves on the concept rather than as the product by itself. Example: Darshinis, MTRs, Viveks, and so on. Virtual marketing also called as electronic or online marketing involves selling buying, auctioning, use of intermediaries electronically in the digital economy. Virtual shops displaying different Qrands of products and services can be found on the internet. It is also called as electronic market place. Network marketing is a method of retailing products by using independent distributors. The distributors are allowed to build and manage their own sales force by recruiting, motivating, supplying, and training other people to sell products. It is a form of direct selling.

Key Words • Buyer's Market

• Bluetooth technology

• E-Business

• PDA • Retailing

• CRM • Virtual shop

• Franchise

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• Online Marketing

• Concept Marketing

• E-commerce

• Electronic Market Place

• Telemarketing

• B2 B, B2 C, C2 B, C2 C, • Internet

• M-Business

• Extranet

( QUESTIONS) SECTION-A (Conceptual Type-2 Marks) 1. Name any 4 recent trends in marketing. 2. What is buyer's market? 3. What is E-Business? 4. Differentiate between E-Business and Traditional business. 5. What is E-commerce ? 6. What is Telemarketing? 7. What is M-Business? 8. What is Bluetooth technology '! 9. What are PDAs ? 10. What is 3 G Network? 11. Expand the terms-SMS, MMS, Wi-Fi, ED!. 12. What is Relationship marketing? 13. What is Franchise? 14. What is concept marketing? 15. What is virtual marketing? 16. What is B2 BE-commerce? 17. What is B2 C E-commerce ? 18. What is C 2 BE-commerce? 19. What is C2 C E-commerce ?

20. What is eustomer Data base? 21. What is direct mail marketing? 22. What is viral marketing?

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23. What are Engel's laws? 24. What is enlightened marketing? 25. What is interactive marketing? 26. What is multiplux marketing? 27. What is Marketing Myopia? 28. What is Network Marketing? 29. Who coined the term Marketing Myopia? 30. Who coined the term Relationship marketing?

SECTION-B

(Analytical Type-S Marks) 1. Draw a distinction between pre-liberalisation and post-liberalisation markets. 2. Explain the Business opportunities offered by E-Business. 3. Distinguish between E-commerce and E-Business with examples. 4. Explain the role of Telemarketing. 5. Do you agree with Supreme court's ban on Telemarketing? Comment. 6. What are the advantages ofM-Business. 7. Discuss the different classes of Retail stores. 8. Write a note an concept marketing. 9. Discuss briefly the concept ofvil,tual marketing. 10. Write a note on Marketing Myopia. 11. Discuss the benefits and demerits of Network marketing.

SECTION-C

(Essay Type-1S Marks) 1. Discuss in great detail the recent trends in marketing with special

reference to India. 2. Write a short Notes on : (i) E-Business (ii)

E -Commerce

(iii) Telemarketing

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3. What is M-Business ? What are its advantages? and explain the different tools and technology used is M-Business. 4. Write a Short Notes on : (i) Relationship Marketing (ii) Concept marketing (iii) Virtual marketing

5. Analyse the Emerging Trends and Opportunities of Retailing in India 6. What is Network Marketing? State the benefits and drawbacks of it.