Unit - 1

Marketing Concepts and Tools

Management process comprises of five M’s i.e. men, money, materials, machines and markets. Marketing is the
last component of this chain. The success of a business enterprise lies not only in production, but mainly in
successful marketing.

Production of goods and services has no meaning unless the goods and services are exchanged profitably for
money or money’s worth. This involves the movement of goods from the manufacturers to the ultimate
consumers. In bringing the producer and the consumer together, certain activities and functions are performed
which is the subject matter of marketing.

The meaning of marketing has changed with the passage of time. In the modern times of large scale production
and cut-throat competition, the concept of marketing has altogether changed. It has occupied wide proportions.

Markets are no longer local, but have become national and international in character. The field of marketing is
being rapidly transformed into a much broader and significant field in recent years. In the past marketing was
often referred to simply as “selling”.

Marketing is no longer considered to be the same thing as selling or advertising. It is viewed in a broader
context comprising several other elements besides ‘selling’ and ‘advertising’.

Old and New Approach of Marketing:

The word market has been derived from Latin word ‘Marcatus’ which refers to place of trade or a place where
business is carried on. Marketing has two fold meaning i.e., in traditional sense and in modern sense.
Traditionally, “marketing consists of those efforts which effect transfer in ownership of goods for their physical
distribution”. —Clark and Clark

In modern sense, marketing involves all efforts to create customers for the product and to maintain them
permanently. According to this concept the main aim of marketing is to provide maximum satisfaction to
consumers.

Consumer is the focal point in the modern concept of marketing. “If marketing is at all important, it is because it
is directed towards the satisfaction of consumer and in this context; the consumer is the attraction for which
marketing is carried out. —Geoffery, F. Francis
he decision of the consumer makes and unmakes the manufacturers, jobbers and retailers, whoever wins the
confidence of the consumer wins the day; and whoever loses it, is lost”. It can be said that modern concept of
marketing clusters around the consumer.

The old approach of marketing ends when the goods are produced for supplying in the market, whereas under
the new approach marketing starts and ends with customers. Under the old approach, principle of “Caveat
Emptor” i.e., let the buyer beware, operates.

But under the new approach, principle of “Caveat Vendor” i.e., let the seller beware, operates. The firm’s main
objective then becomes to satisfy its customers through the constant study of their changing needs and wants.

Meaning of Marketing

Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and
exchanging offerings that have value for customers, clients, partners, and society at large.

Marketing is the social process by which individuals and organizations obtain what they need and want through
creating and exchanging value with others.

The process by which companies create value for customers and build strong customer relationships in order to
capture value from customers in return.

“It is a centre about which or are areas in which, the forces leading to exchanges of title to a particular product
operate towards which and from which actual goods tend to travel.” —Professor Tousely, Clark and Clark

“Market means anybody of persons who are in intimate business relations and carry on extensive transactions in
any commodity.”

In simple words, marketing is a process which carries goods from producer to ultimate consumer. Marketing
bridges the gap between consumer and producer. It is in this sense that marketing has been defined as “all the
activities involved in the creation of place, time and possession utilities’.

Marketing is thus concerned with handling and transportation of goods from the point of production to the point
of consumption. In this process of carrying the goods from the place of production to the place of consumption,
many hindrances have to be removed. Marketing involves the creation of three types of utilities viz,
(A) Place Utility:
Goods are to be taken from the place of their origin or production to the place where they are needed.

(B) Time Utility:

Goods are to be made available at the time when they are needed by the consumers. It means that they are to be
stored and protected against the risks of fire, rain and pests etc.

(C) Possession Utility:

The ownership and possession of these goods are to be transferred from the producer to the ultimate consumer.

Marketing Management

Marketing management is 'the art and science of choosing target markets and getting, keeping, and growing
customers through creating, delivering, and communicating superior customer value'\

According to Philip Kotler, “Marketing management is the analysis, planning, implementation and control of
programmes designed to bring about desired exchanges with target markets for the purpose of achieving
organisational objectives.

Marketing management is the process of planning and executing the conception, pricing, promotion, and
distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational goals.

Core concepts of Marketing

Philip Kotler, the eminent writer, defines modern marketing as, “Marketing is social and managerial process by
which individuals and groups obtains what they needs and wants through creating and exchanging product and
value with others.” Careful and detailed analysis of this definition necessarily reveals some core concepts of
marketing, shown in Figure 4.

1. Needs:
Existence of unmet needs is precondition to undertake marketing activities. Marketing tries to satisfy needs of
consumers. Human needs are the state of felt deprivation of some basic satisfaction. A need is the state of mind
that reflects the lack-ness and restlessness situation.

Needs are physiological in nature. People require food, shelter, clothing, esteem, belonging, and likewise. Note
that needs are not created. They are pre-existed in human being. Needs create physiological tension that can be
released by consuming/using products.
2. Wants:
Wants are the options to satisfy a specific need. They are desire for specific satisfiers to meet specific need. For
example, food is a need that can be satisfied by variety of ways, such as sweet, bread, rice, sapati, puff, etc.
These options are known as wants. In fact, every need can be satisfied by using different options.

Maximum satisfaction of consumer need depends upon availability of better options. Needs are limited, but
wants are many; for every need, there are many wants. Marketer can influence wants, not needs. He
concentrates on creating and satisfying wants.
3. Demand:
Demand is the want for specific products that are backed by the ability and willingness (may be readiness) to
buy them. It is always expressed in relation to time. All wants are not transmitted in demand. Such wants which
are supported by ability and willingness to buy can turn as demand.

Marketer tries to influence demand by making the product attractive, affordable, and easily available. Marketing
management concerns with managing quantum and timing of demand. Marketing management is called as
demand management.

4. Product:
Product can also be referred as a bundle of satisfaction, physical and psychological both. Product includes core
product (basic contents or utility), product-related features (colour, branding, packaging, labeling, varieties,
etc.), and product-related services (after-sales services, guarantee and warrantee, free home delivery, free
repairing, and so on). So, tangible product is a package of services or benefits. Marketer should consider
product benefits and services, instead of product itself.

Marketer can satisfy needs and wants of the target consumers by product. It can be broadly defined as anything
that can be offered to someone to satisfy a need or want. Product includes both good and service. Normally,
product is taken as tangible object, for example, pen, television set, bread, book, etc.

However, importance lies in service rendered by the product. People are not interested just owning or
possessing products, but the services rendered by them. For examples, we do not buy a pen, but writing service.

Similarly, we do not buy a car, but transportation service. Just owning product is not enough, the product must
serve our needs and wants. Thus, physical product is just a vehicle or medium that offers services to us.

As per the definition, anything which can satisfy need and want can be a product. Thus, product may be in
forms of physical object, person, idea, activity, or organisation that can provide any kind of services that satisfy
some needs or wants.

5. Utility (value), Cost, and Satisfaction:

Utility means overall capacity of product to satisfy need and want. It is a guiding concept to choose the product.
Every product has varying degree of utility. As per level of utility, products can be ranked from the most need-
satisfying to the least need-satisfying.

Utility is the consumer’s estimate of the product’s overall capacity to satisfy his/her needs. Buyer purchases
such a product, which has more utility. Utility is, thus, the strength of product to satisfy a particular need.

Cost means the price of product. It is an economic value of product. The charges a customer has to pay to avail
certain services can be said as cost. The utility of product is compared with cost that he has to pay. He will
select such a product that can offer more utility (value) for certain price. He tries to maximize value, that is, the
utility of product per rupee.

Satisfaction means fulfillment of needs. Satisfaction is possible when buyer perceives that product has more
value compared to the cost paid for. Satisfaction closely concerns with fulfillment of all the expectations of
buyer. Satisfaction releases the tension that has aroused due to unmet need(s). In short, more utility/value with
less cost results into more satisfaction.

6. Exchange, Transaction, and Transfer:

Exchange is in the center of marketing. Marketing management tries to arrive at the desired exchange. People
can satisfy their needs and wants in one of the four ways – self-production, coercion/snatching, begging, or
exchanging.

Marketing emerges only when people want to satisfy their needs and wants through exchange. Exchange is an
act of obtaining a desired product from someone by offering something in return. Obtaining sweet by paying
money is the example an exchange.

Exchange is possible when following five conditions are satisfied:

i. There should be at least two parties

ii. Each party has something that might be of value to the other party

iii. Each party is capable of communication and delivery

iv. Each party is free to accept or reject the exchange offer

v. Each party believes it is desirable to deal with the other party

Transaction differs from exchange:

Exchange is a process, not event. It implies that people are negotiating and moving toward the agreement. When
an agreement is reached, it is transaction. Transaction is the decision arrived or commitment made.

For example, Mr. X pays Rs. 25000 and obtains a computer. There are various types of transactions, such as
barter transactions, monetary transactions, commercial transactions, employment transactions, civic
transactions, religious or charity transactions.

Transaction involves following conditions:

i. At least two things of value

ii. Agreed upon conditions

iii. A time of agreement

iv. A place of agreement

v. A law (legal system) of contract to avoid distrust

Transfer involves obtaining something without any offer or offering anything without any return. For example,
Mr. X gives gift to Mr. Y. Transfer is a one-way process. But, pure transfer is hardly found in practice. One
transfers something with some unexpressed expectations. Offer of money to beggar is to get the favour of God.

Donor gives donations and receives honour, appreciation, and special invitation, or even special influence in
administration. Gift is rewarded in terms of gratitude, a good behaviour, saying, “thank you” or with the
expectation that the receiver of the gift will offer the same in the future. Almost all transfers are same as
transactions. Transfer and transaction both are important for marketer.

7. Relationships and Network:

Today’s marketing practice gives more importance to relation building. Marketing practice based on relation
building can be said as relationship marketing. Relationship marketing is the practice of building long-term
profitable or satisfying relations with key parties like customers, suppliers, distributors, and others in order to
retain their long-term preference in business.

A smart marketer tries to build up long-term, trusting, and ‘win-win’ relations with valued customers,
distributors, and suppliers. Relationship marketing needs trust, commitment, cooperation, and high degree of
understanding.

Relationship marketing results into economical, technical, social, and cultural tie among the parties. Marketing
manager is responsible for establishing and maintaining long-term relations with the parties involved in
business.

Network is the ultimate outcome of relationship marketing. A marketing network consists of the company and
its supporting stakeholders – customers, employees, suppliers, distributors, advertising agencies, colleges and
universities, and others – whose role is considered to be essential for success of business. It is a permanent setup
of relations with stakeholders. A good network of relationships with key stakeholders results into excelling the
marketing performance over time.

8. Market, Marketing, Marketer, and Prospect:

In marketing management, frequently used words are markets, marketing, marketer, and prospects. A market
consists of all potential customers sharing a particular need or want who might be willing and able to engage in
exchange to satisfy this need or want.

Marketing is social and managerial process by which individuals and groups obtain what they need and want
through creating and exchanging product and value with others.
Marketer is one who seeks one or more prospects (buyers) to engage in an exchange. Here, seller can be
marketer as he wants other to engage in an exchange. Normally, company or business unit can be said as
marketer.

Prospect is someone to whom the marketer identifies as potentially willing and able to engage in the exchange.
(In case of exchange between two companies, both can be said as prospects as well as marketers). Generally,
consumer or customer who buys product from a company for satisfying his needs or wants can be said as the
prospect.

Marketing Concepts

Some of the most important concepts of marketing are as follows: 1. Production Concept 2. Product Concept 3.
Selling Concept 4. Marketing Concept 5. Holistic Marketing Concept.

The Production Concept. This concept is the oldest of the concepts in business. It holds that
consumers will prefer products that are widely available and inexpensive. Managers focusing on this concept
concentrate on achieving high production efficiency, low costs, and mass distribution. They assume that
consumers are primarily interested in product availability and low prices. This orientation makes sense in
developing countries, where consumers are more interested in obtaining the product than in its features.

The Product Concept. This orientation holds that consumers will favor those products that offer the
most quality, performance, or innovative features. Managers focusing on this concept concentrate on making
superior products and improving them over time. They assume that buyers admire well-made products and can
appraise quality and performance. However, these managers are sometimes caught up in a love affair with their
product and do not realize what the market needs. Management might commit the “better-mousetrap” fallacy,
believing that a better mousetrap will lead people to beat a path to its door.

The Selling Concept. This is another common business orientation. It holds that consumers and
businesses, if left alone, will ordinarily not buy enough of the selling company’s products. The organization
must, therefore, undertake an aggressive selling and promotion effort. This concept assumes that consumers
typically sho9w buyi8ng inertia or resistance and must be coaxed into buying. It also assumes that the company
has a whole battery of effective selling and promotional tools to stimulate more buying. Most firms practice the
selling concept when they have overcapacity. Their aim is to sell what they make rather than make what the
market wants.
 The Marketing Concept. This is a business philosophy that challenges the above three business
orientations. Its central tenets crystallized in the 1950s. It holds that the key to achieving its organizational
goals (goals of the selling company) consists of the company being more effective than competitors in creating,
delivering, and communicating customer value to its selected target customers. The marketing concept rests on
four pillars: target market, customer needs, integrated marketing and profitability.

Distinctions between the Sales Concept and the Marketing Concept:

1. The Sales Concept focuses on the needs of the seller. The Marketing Concept focuses on the needs
of the buyer.
2. The Sales Concept is preoccupied with the seller’s need to convert his/her product into cash. The
Marketing Concept is preoccupied with the idea of satisfying the needs of the customer by means of
the product as a solution to the customer’s problem (needs).
The Marketing Concept represents the major change in today’s company orientation that provides the
foundation to achieve competitive advantage. This philosophy is the foundation of consultative selling.
The Marketing Concept has evolved into a fifth and more refined company orientation: The Societal
Marketing Concept. This concept is more theoretical and will undoubtedly influence future forms of marketing
and selling approaches.

The Societal Marketing Concept. This concept holds that the organization’s task is to determine the
needs, wants, and interests of target markets and to deliver the desired satisfactions more effectively and
efficiently than competitors (this is the original Marketing Concept). Additionally, it holds that this all must be
done in a way that preserves or enhances the consumer’s and the society’s well-being.

This orientation arose as some questioned whether the Marketing Concept is an appropriate philosophy
in an age of environmental deterioration, resource shortages, explosive population growth, world hunger and
poverty, and neglected social services.
Are companies that do an excellent job of satisfying consumer wants necessarily acting in the best long-run
interests of consumers and society?

The marketing concept possibily sidesteps the potential conflicts among consumer wants, consumer
interests, and long-run societal welfare. Just consider:
The fast-food hamburger industry offers tasty buty unhealthy food. The hamburgers have a high fat content, and
the restaurants promote fries and pies, two products high in starch and fat. The products are wrapped in
convenient packaging, which leads to much waste. In satisfying consumer wants, these restaurants may be
hurting consumer health and causing environmental problems.

Customer Value

Customer value, satisfaction and loyalty are indispensable inputs in today’s successful marketing strategy. On
one hand marketing organizations are faced with impinging, cut-throat competition and on the other, well
informed and discerning class of customers, the marketing firms those care for these critical inputs have to
focus their attention on designing matching strategies and programs which will enhance customer VALUE,
SATISFACTION and LOYALTY.

In the light of matching marketing strategies and programes, they will better use their treasure, talents and time
in designing the products and services so that the CUSTOMER the king is snake-charmed.

What is Customer Value?

The phrase “Customer Value” is seen from different angles. The possible angles or perspectives can be
“customer” and “marketing firm”. From the customer’s angle, value is understood as what he or she is willing
to pay and, therefore, customer value refers to the perceived value by the customer for an offer.

Put, alternatively, it is the value that customer perceives as being superior and relevant to him or her and,
therefore willing to pay for the purchase and consumption of the products or services. From the angle of firm, it
is the value of the customer which is nothing but customer life-time value and from marketing strategy point, it
signifies the process the firms use to create and deliver the value to the customer.

Customer Value from Customer’s Focus:

It is worth-while to note here the term “value” and “values”. Value stands for preferential judgment, but
“values” refer ob the decision criteria which shape this preference. Take for example, house wife Laxmi coming
from middle class has chosen IFB washing machine model say “ELITE” 5 KG and the washing detergent
namely, HENKO-MATIC of Henkel Spic India Ltd. a licensee of Henkel Company of Germany.

This means that brand is more important or valuable than others. However, the question is what made her to
choose these brands for washing machine and washing detergent? Research in the field shows clearly that
several factors have together influenced her decision to buy durable and nondurable products cited which can be
called as the “values”.

These values can be stated as under:

1. Personal:
The personal factors represent demographic variables and the life-style of the customer. In above case the
personal factors that influenced Mrs. Laxmi Washing machine may be that she is a working woman and has a
busy schedule of daily life. Her expectations about this durable product will differ from a non-working woman
who is to concentrate on managing household chores.
The decision criteria and values she expects differ while buying. Mrs. Laxmi may be having top priority for
zero-defect product and same may not be the case of a non-working woman.

2. Esteem:
Esteem value plays a decisive role in purchase of a product or service. People are prepared to pay premium
price for the products because of esteem value. These products are often called as “objects of desire”. That is the
price is beyond a layman’s imagination.

Take a simple case of mobile phones-which are in the range of Rs. 750 to 45 lakhs. A wrist watch is in the range
Rs. 150 to 8.75 lakhs; a readymade shirt ranging from Rs. 150 to Rs. 25,000 and so on. People take pride in
telling that they are different from others and quite superior to others in the society. These customers speak of
their esteem in terms of brand which is quality, value, status or esteem.

3. Utility:
Utility speaks of economy dimension of a product or service purchased. Thus, elderly family members might
spend bast or the money very economically on goods and services whereas their young sons and daughters
spend much more.

Thus, it is or common experience that cell phone is used by the youngsters almost 24 hours busy in
communicating with their friends while elderly look to it as something meant for emergency calls. That is
different target markets or customers attach varying utility to the same product or service.

4. Quality:
It is also one of the core values of customer decision-making. It is well known, that each customer in-fact pays
for quality. He buys only what he wants to buy and not what the company wants him or her to buy.

Therefore, the perception of his quality standard is a decisive factor. There is close relationship between quality
and price. Higher the superiority of quality expected, higher the price he or she will shell out.

5. Price:
There is definite relationship between the price, perceived quality and the perceived value. In fact, price is the
value expressed in monetary terms. Customers compare quality and price while buying.

A national decision maker wants have high quality products at reasonably or comparatively lower price. When a
customer enters say Vishal Retail outlet, he compares low price with the quality standard of a product, while in
case of Designer Showrooms where premium priced products attract the customers ready to pay higher or on
price.

In general, lower price is significant value the customer looks for while buying products and services especially
in price sensitive market segments. In effect, customer wants to gain by possible trade-offs between price and
quality.

6. Social Motive:
Every customer is a social and rational animal. He or she lives in a society as he or she has strong sense of
belongingness. Most of his needs, whether wants, comfort and luxuries are the society in which he or she lives.

That the social class-rich, middle or poor-that which decides as to what he should wear, eat, drink, the place to
live in. Thus, a good neighbourhood or community is very significant social value in case of purchase of a
house, bungalow or a flat.

The idea “Birds of same feather flock together” that works. Affiliation and acceptance by group may be peers,
friend or relatives.

Marketing Myopia

The concept behind the marketing myopia is that it is short sighted and inward looking approach to marketing
that focuses on the needs of the firm instead of defining the firm and its products in terms of the customers
needs and wants.

The railroads and hollywood as examples of industries that have been and are now endangering their futures by
improperly defining their purposes.

Causes :

 Company thinks its growth is guaranteed by expanding population

 Believe there is no competitive substitutes
 Mass production-Not concentrating on the needs of customer
 Focusing on the product rather than the customer(lacking of innovation)
Example:

 Kodak
 Sony(Sony walkman)
Avoid myopia:

 Solution centric focus

 Customer centric
 Marketing is not only about selling
 Aware of substitutes to the industry
 Disruptive innovation

Marketing Environment

The marketing activities of the business are affected by several internal and external factors. While some of the
factors are in the control of the business, most of these are not and the business has to adapt itself to avoid being
affected by changes in these factors. These external and internal factors group together to form a marketing
environment in which the business operates.

What is the Marketing Environment?

Marketing Environment is the combination of external and internal factors and forces which affect the
company’s ability to establish a relationship and serve its customers.

The marketing environment of a business consists of an internal and an external environment. The internal
environment is company specific and includes owners, workers, machines, materials etc. The external
environment is further divided into two components: micro & macro. The micro or the task environment is also
specific to the business but external. It consists of factors engaged in producing, distributing, and promoting the
offering. The macro or the broad environment includes larger societal forces which affect society as a whole.
The broad environment is made up of six components: demographic, economic, physical, technological,
political-legal, and social-cultural environment.

“A company’s marketing environment consists of the actors and forces outside of marketing that affect
marketing management ability to build and maintain successful relationships with target customers”. – Philip
Kotler
Features of Marketing Environment:
Today’s marketing environment is characterized by numerous features, which are mentioned as follows:

1. Specific and General Forces:

It refers to different forces that affect the marketing environment. Specific forces include those forces, which
directly affect the activities of the organization. Examples of specific forces are customers and investors.
General forces are those forces, which indirectly affect the organization. Examples of general forces are social,
political, legal, and technological factors.

2. Complexity:

It implies that a marketing environment include number of factors, conditions, and influences. The interaction
among all these elements makes the marketing environment complex in nature.

3. Vibrancy:

Vibrancy implies the dynamic nature of the marketing environment. A large number of forces outline the
marketing environment, which does not remain stable and changes over time. Marketers may have the ability to
control some of the forces; however, they fail to control all the forces. However, understanding the vibrant
nature of marketing environment may give an opportunity to marketers to gain edge over competitors.

4. Uncertainty:

It implies that market forces are unpredictable in nature. Every marketer tries to predict market forces to make
strategies and update their plans. It may be difficult to predict some of the changes, which occurs frequently. For
example, customer tastes for clothes change frequently. Thus, fashion industry suffers a great uncertainty. The
fashion may live for few days or may be years.

5. Relativity:

It explains the reasons for differences in demand in different countries. The product demand of any particular
industry, organization, or product may vary depending upon the country, region, or culture. For example, sarees
are the traditional dress of women in India, thus, it is always in demand. However, in any other western country
the demand of saree may be zero.

Components of Marketing Environment

The marketing environment is made up of the internal and external environment of the business. While internal
environment can be controlled, the business has very less or no control over the external environment.

Internal Environment

The internal environment of the business includes all the forces and factors inside the organisation which affect
its marketing operations. These components can be grouped under the Five M’s of the business, which are:

 Men
 Money
 Machinery
 Materials
 Markets
The internal environment is under the control of the marketer and can be changed with the changing external
environment. Nevertheless, the internal marketing environment is as important for the business as the external
marketing environment. This environment includes the sales department, marketing department, the
manufacturing unit, the human resource department, etc.

External Environment

The external environment constitutes factors and forces which are external to the business and on which the
marketer has little or no control. The external environment is of two types:

1. Micro Environment

2. Macro Environment

The discussion of these environments are given below:

1. Micro Environment:

Micro environment refers to the environment, which is closely linked to the organization, and directly affects
organizational activities. It can be divided into supply side and demand side environment. Supply side
environment includes the suppliers, marketing intermediaries, and competitors who offer raw materials or
supply products. On the other hand, demand side environment includes customers who consume products.

Let us discuss the micro environment forces in the following points:

i. Suppliers:
It provides raw material to produce goods and services. Suppliers can influence the profit of an organization
because the price of raw material determines the final price of the product. Organizations need to monitor
suppliers on a regular basis to know the supply shortages and change in the price of inputs.

ii. Marketing Intermediaries:

It helps organizations in establishing a link with customers. They help in promoting, selling, and distributing
products.

Marketing intermediaries include the following:

a. Resellers:

It purchases the products from the organizations and sell to the customers. Examples of resellers are wholesalers
and retailers.

b. Distribution Centers:

It helps organizations to store the goods. A warehouse is an example of distribution center.

c. Marketing Agencies:

It promotes the organization’s products by making the customers aware about benefits of products. An
advertising agency is an example of marketing agency.

d. Financial Intermediaries:

It provides finance for the business transactions. Examples of financial intermediaries are banks, credit
organizations, and insurance organizations.

iii. Customers:

Customers buy the product of the organization for final consumption. The main goal of an organization is
customer satisfaction. The organization undertakes the research and development activities to analyze the needs
of customers and manufacture products according to those needs.

iv. Competitors:
It helps an organization to differentiate its product to maintain position in the market. Competition refers to a
situation where various organizations offer similar products and try to gain market share by adopting different
marketing strategies.

Macro Environment:

Macro environment involves a set of environmental factors that is beyond the control of an organization. These
factors influence the organizational activities to a significant extent. Macro environment is subject to constant
change. The changes in macro environment bring opportunities and threats in an organization.

Let us discuss these factors in details:

i. Demographic Environment:

Demographic environment is the scientific study of human population in terms of elements, such as age, gender,
education, occupation, income, and location. It also includes the increasing role of women and technology.
These elements are also called as demographic variables. Before marketing a product, a marketer collects the
information to find the suitable market for the product.

Demographic environment is responsible for the variation in the tastes and preferences and buying patterns of
individuals. The changes in demographic environment persuade an organization to modify marketing strategies
to address the altering needs of customers.

ii. Economic Environment:

Economic environment affects the organization’s costs structure and customers’ purchasing power. The
purchasing power of a customer depends on the current income, prices of the product, savings, and credit
availability.

The factors economic environment is as follows:

a. Inflation:

It influences the customers’ demand for different products. For example, higher petrol prices lead to a fall in
demand for cars.

b. Interest Rates:
It determines the borrowing activities of the organization. For example, increase in interest rates for loan may
lead organizations to cut their important activities.

c. Unemployment:

It leads to a no income state, which affects the purchasing power of an individual.

d. Customer Income:

It regulates the buying behavior of a customer. The change in the customer’s income leads to changed spending
patterns for the products, such as food and clothing.

e. Monetary and Fiscal Policy:

It affects all the organizations. The monetary policy stabilizes the economy by controlling the interest rates and
money supply in an economy; whereas, fiscal policy regulates the government spending in various areas by
collecting the revenue from the citizens by taxing their income.

iii. Natural Environment:

Natural environment consists of natural resources, which are needed as raw materials to manufacture products
by the organization. The marketing activities affect these natural resources, such as depletion of ozone layer due
to the use of chemicals. The corrosion of the natural environment is increasing day-by-day and is becoming a
global problem.

Following natural factors affect the marketing activities of an organization in a great way:

a. Natural Resources:

It serves as raw material for manufacturing various products. Every organization consumes natural resources for
the production of its products. Organizations are realizing the problem of depletion of resources and trying best
to use these resources judiciously. Thus, some organizations have indulged in de-marketing their products. For
example, Indian Oil Corporation (IOC) tries to reduce the demand for its products by promoting advertisements,
such as Save Oil, Save India.

b. Weather:
It leads to opportunities or threats for the organizations. For example, in summer, demand for water coolers, air
conditioners, cotton clothes, and water increases while in winter, the demand for woolen clothes and room
heaters rises. The marketing environment is greatly influenced by the weather conditions of a country.

c. Pollution:

It includes air, water, and noise pollution, which lead to environmental degradation. Now-a-days, organizations
tend to promote environment friendly products through its marketing activities. For example, the organizations
promote the usage of jute and paper bags instead of plastic bags.

iv. Socio-Cultural Environment:

Socio-cultural environment comprises forces, such as society’s basic values, attitudes, perception, and behavior.
These forces help in determining that what type of products customers prefer, what influences the purchase
attitude or decision, which brand they prefer, and at what time they buy the products. The socio-cultural
environment explains the characteristics of the society in which the organization exists. The analysis of socio-
cultural environment helps an organization in identifying the threats and opportunities in an organization.

For example, the lifestyles of people are changing day-by-day. Now, the women are perceived as an active
earning member of the family. If all the members of a family are working then the family has less time to spend
for shopping. This has led to the development of shopping malls and super markets, where individuals could get
everything under one roof to save their time.

v. Technological Environment:

Technology contributes to the economic growth of a country. It has become an indispensible part of our lives.
Organizations that fail to track ongoing technological changes find it difficult to survive in today’s competitive
environment.

Technology acts as a rapidly changing force, which creates new opportunities for the marketers to acquire the
market share. Marketers with the help of technology can create and deliver products matching the life style of
customers. Thus, marketers should observe the changing trends in technology.

Following points explain the technological trends that affect the marketing environment:

a. Pace of Technological Change:

It leads to product obsolescence at a rapid pace. If the pace of technological change is very rapid then
organizations need to modify their products as and when required. On the other hand, if the technology is not
changing at a rapid pace then there is no need for the organization to bring constant changes in the product.

b. Research and Development:

It helps in increasing growth opportunities for an organization. Many organizations have developed a separate
team for R&D to bring innovation in its products. Pharmaceutical organizations, such as Ranbaxy and Cipla,
have started putting greater force in R&D and these efforts have led to great opportunities in global market.

c. Increased Regulation:

It refers to government guidelines to ban unsafe products. Marketers should be aware of these regulations to
prevent their violation. Every pharmaceutical organization takes the approval of the Drugs Controller of India,
which lays down the standards for drugs manufacturing.

vi. Political and Legal Environment:

Political and legal environment consists of legal bodies and government agencies that influence and limit the
organizations and individuals. Every organization should take care of the fact that marketing activities should
not harm the political and legal environment prevailing in a country. The political and legal environment has a
serious impact on the economic environment of a country. For example, in some regions of Uttar Pradesh,
Reliance Fresh had to shut down its stores because of the lack of political support.

Various legislations affecting the marketing activities are as follows:

a. Anti-pollution laws, which affect the production or manufacturing of various products.

b. Customer legislation, which tries to protect the customer’s interest.

The important acts set by the Indian government, which effect the marketing environment of an
organization:

i. Prevention of Food and Adulteration – 1954

ii. Drugs Control Act – 1954

iii. Company Act – 1956

iv. Standard Weights and Measurement Act – 1956

v. MRTP- Monopoly and Restrictive Trade Practices – 1969

vi. Display of Price Order – 1963

vii. Indian Patents Act – 1970

viii. Packaged Commodities Order – 1975

ix. Environment Act – 1986

x. Consumer Protection Act – 1986

4. Need for Analyzing the Marketing Environment:

The business environment is not static. It is continuously changing with fast speed.

The marketing environmental analysis will help the marketer to:

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

ii. Gain qualitative information about the business environment; which will help him to develop strategies in
order to cope with ever changing environment.

iii. Conduct marketing analysis in order to understand the markets needs and wants so as to modify its products
to satisfy these market requirements.

iv. Decide on matters related to Government-legal-regulatory policies in a particular country so as to formulate

its strategies successfully amidst these policies.

v. Allocate its resources effectively and diversify either into a new market segment or totally into a new business
which is outside the scope of its existing business.

vi. Identify the threats from the environment in terms of new competitors, price wars, competitor’s new
products or services, etc.; and prepare its strategies on the basis of that.
vii. Identify the opportunities in the environment and exploit these opportunities to firm’s advantage. These
opportunities can be in terms of emergence of new markets; mergers, joint ventures, or alliances; market
vacuum occurred due to exit of a competitor, etc.

viii. Identify its weaknesses such as lower quality of goods or services; lack of marketing expertise; or lack of
unique products and services; and prepare strategies to convert its weaknesses into strengths.

ix. Identify its strengths and fully exploit them in firm’s advantage. These strengths can be in terms of
marketing expertise, superior product quality or services, or giving unique innovative products or services.

Importance of Marketing Environment:

The study of marketing environment is essential for the success of an organization.

The discussion of importance of marketing environment is as follows:

1. Identification of Opportunities:

It helps an organization in exploiting the chances or prospects for its own benefit. For example, if an
organization finds out that customers appreciate its products as compared to competitors’ products then it might
encash this opportunity by giving discounts on its products to boost sale.

2. Identification of Threats:

It gives warning signals to organizations to take the required steps before it is too late. For example, if an
organization comes to know that a foreign multinational is entering into the industry then it can overcome this
threat by adopting strategies, such as reducing the product’s prices or carrying out aggressive promotional
strategies.

3. Managing Changes:

It helps in coping with the dynamic marketing environment. If an organization wishes to survive in the long run
then it has to adapt to the changes occurring in the marketing environment.
 UNIT - 4
MARKETING RESEARCH

Definition: The Marketing Research is the systematic collection, analysis, and interpretation of data
pertaining to the marketing conditions.

The basic reason for carrying out the marketing research is to find out the change in the consumer behavior due
to the change in the elements of the marketing mix (product, price, place, promotion).

The marketers need to know about the changing trends in the market viz. Changes in the customer’s tastes and
preferences, the new products launched in the market, prices of the competitor’s product, the close substitutes of
the product, etc.

Marketing Research Process

To begin with the marketing research, following steps has to be followed:

1. Define the Problem-The foremost decision that every firm has to undertake is to find out the problem
for which the research is to be conducted.The problem must be defined adequately because if it is too vague,
then it may result in the wastage of scarce resources and if it is too narrow, then the exact conclusion cannot be
drawn.In order to define the problem appropriately, each firm must have a clear answer to the questions viz.
What is to be researched (content and the scope)? And Why the research is to be done (decisions that are to be
made)?

2. Develop the Research Plan– This step involves gathering the information relevant to the research
objective. It includes:

 Data Sources: The researcher can collect the data pertaining to the research problem from either the
primary source or the secondary source or both the sources of information.The primary source is the first-
hand data that does not exist in any books or research reports whereas the secondary data is the second-hand
data which is available in the books, journals, reports, etc.

 Research Approaches: The Secondary data are readily available in books, journals, magazines, reports,
online, etc. But the primary data have to be collected and to do so, the following research can be conducted:

 Observational Research: The researcher can collect the information by just observing the
happenings in the market and sometimes having a friendly conversation with the customers to know
about their purchase experiences.
 Ethnographic Research: It is one of the forms of an observation research where the researcher
studies an individual in the real life situation and not under any market setup or a lab.The purpose of this
research is to know the way people live (their lifestyles), What they do to earn their livelihood, how they
consume goods and services, what they need in their personal and professional lives etc.
 Focus Group Research: It is a form of group discussion wherein six to ten people gather and
discuss the common topic given by the moderator.A moderator is a person who conducts the group
discussion and is skilled in group dynamics. He also keeps the discussion focused on the topic so that
relevant information can be obtained from the group members.
 Survey Research: These are the descriptive research generally conducted to know the about the
customer’s knowledge about the product, their preferences, and satisfaction level. The best way to
conduct surveys is through the Questionnaires.
 Behavioral Data: The customer’s actual purchases at the store reflects its behavior and the choice
of products. Thus observing what customers are buying gives more accurate information about the
customer rather than the planned answers given by them in the surveys.
  Experimental research: This is done to find out the cause and effect relationships. This research
is undertaken to study the effects of change in the customer’s behavior due to the change in the product’s
attributes.
 Sampling plan: Once the research approach is decided, the researcher has to design a sampling plan and
have to decide on the following:

 The sampling Unit i.e. whom, shall we survey?

 The sample size, i.e., How many units in the population shall be surveyed?

 The sampling procedure, i.e. How the respondents shall be chosen?

 Contact Methods: The researcher has to choose the medium through which the respondents can be
contacted. The respondents can be reached via emails, telephone, in person or online.

3. Collect the Information: This is one of the most expensive methods of marketing research. At this
stage, the researcher has to adopt the methods to collect the information, he may find it difficult to gather the
correct information because of the respondent’s biasedness, unwillingness to give answers or not at home.

4. Analyze the Information: Once the information is collected the next step is to organize it in such a way
that some analysis can be obtained. The researchers apply several statistical techniques to perform the analysis,
such as they compute averages and measures of dispersion. Also, some advanced decision models are used to
analyze the data.

5. Present the Findings: Finally, all the findings and the research are shown to the top management level
viz. Managing director, CEO, or board of directors to make the marketing decisions in line with the research.

6. Make the Decision: This is the last step of the marketing research, once the findings are presented to the
top level management it is up to them either to rely on the findings and take decisions or discard the findings as
unsuitable.

Thus, marketing research is done to gather all the relevant information about the market and design the
marketing strategies accordingly.

IMPORTANCE OF MARKETING RESEARCH

 The emergence of buyer’s market requires continuous need of marketing research to identify consumer’
need and ensure their satisfaction.
  The ever expanding markets require large number of middlemen and intensive distribution. Marketing
research should help identify and solve the problems of middlemen and distribution.
 There is always a change in the market conditions and the requirements of consumers. Marketing
research enables to anticipate and meet any such changes.
 Marketing research can help bring about prompt adjustments in product design and packaging.
 It can help find out effectiveness of pricing.
 It can help find out the effectiveness of sales promotion and advertisement.
 It can help identify the strength and weakness of sales force.
 The impact of economic and taxation policies on marketing could also be known through marketing
research.

In short, marketing research enables the management to identify and solve any problem in the area of
marketing and help better marketing decisions.

TYPES/SCOPE OF MARKETING RESEARCH

The scope of marketing research stretches from the identification of consumer wants and needs to the
evaluation of consumer satisfaction. It comprises of research relating to consumer, products, sales, distribution,
advertising, pricing and sales forecasting. A clear view of the scope of marketing research may be obtained by
the following classification of marketing research activity.
Market Research
The purpose of market research is to gather facts about markets and the forces operating therein. The
areas of market research broadly include:
 Study of the market size/ potential
 Study of the market profile
 Market share analysis
 Study of market segments
 Market trends
 Sales forecasting
 Study of seasonal trends
Consumer Research
The aim of this research is to develop an understanding about present and potential consumers and the
level of satisfaction expected and derived by them from company’s products. The broad areas of consumer
research are:
  Study of consumer profile
 Study of consumer brand preferences, tastes and reactions
 Study of consumer satisfaction/ dissatisfaction, reasons, etc.
 Study of shifts in consumption patterns.

Product Research
 Reviewing product line, product quality, product features, product design etc.
 Study on the actual uses of a given product
 Study on new uses of an existing product
 Testing of new products
 Study of related products
 Study of packing, packaging design
 Study of brand name/ brand mark/ its impact

Distribution Research
The purpose of this research is to identify the appropriate distribution channels for intermediaries,
storage, transport problems etc. The board areas include:
 Assessing the general pattern of pricing followed by the industry
 Measuring price elasticity of demand
 Evaluating the pricing strategy of the firm
Advertising and Promotion Research
The purpose of this research is to develop most appropriate advertising and promotion schemes and
evaluate their effectiveness. The broad areas include:
 Advertising copy research
 Media research
 Assessing the effectiveness of advertising
 Assessing the efficacy of sales promotional measures.
Sales Research
The purpose is to find out the sales potential and appraise sales performance of company’s products. The
broad areas include:
 Testing new sales techniques
 Analyzing of salesmen’s training
 Measuring salesman’s effectiveness
  Study of sales compensation
 Analyzing methods of setting sales quota and sales territories.
Research on Competition
The purpose of this research is to find out the intensity and effect of competition to the firm. The broad
areas include:
 Study of competitive structure of the industry and individual competitors.
 Study of competitors marketing strategies.
The scope of marketing research described above is only indicative and not exhaustive. Further, the above
research areas are not watertight compartments. They are closely interrelated. The actual scope depends on the
needs of a company and the marketing situations.

BENEFITS/ADVANTAGES OF MARKETING RESEARCH

It is apparent that the scope of marketing research activity is very wide. It covers almost all aspects of
marketing. The major contribution of marketing research is that it augments the effectiveness of marketing
decisions. Marketing research uncovers facts from both outside and within the company relevant to marketing
decisions and provides a sustainable and logical base for making decisions.
The specific contributions of marketing research to the effectiveness of the marketing programme of a
firm are as follows:
1. With the guidance of research, products should be better suited to the demand and prices reasonably.
2. Specific markets having the greatest sales potentialities could be identified.
3. Research can help to identify the best sales appeal of the products, the best way of reaching the potential
buyers and the most suitable timing of promotion etc.
4. Research can also help minimize marketing costs by making marketing efforts more efficient and
effective.
5. Research can also find out the effectiveness of sales force management such as right selection
procedure, effective training programmes, scientific compensation schemes and effective control
mechanisms.
The contributions of marketing research are considerable. It facilitates both the decision-making and the
operational tasks of marketing management effective and efficient and thereby contributes to consumers
satisfaction and organization’s efficiency.

LIMITATIONS OF MARKETING RESEARCH

The marketing research is not without its share of limitations.
 1. Marketing Research cannot provide complete answer to the problems because there are many
intervening variables which are difficult to be controlled.
2. Some marketing problems do not lend themselves to valid research conclusions due to limitations of
tools and techniques involved. There are many intangible and variables operating which are difficult to
be measured.
3. In a fast changing environment, the data collected become obsolete soon and the research findings based
on them will become little use.
4. It only provides a base for predicting future events; it cannot guarantee with any certainty their
happening.
5. Marketing research involves more time, effort and high cost. But it is very often said that marketing
research is cheaper than costly marketing mistakes.

UNIT -3
Marketing Mix
PRODUCT
INTRODUCTION
Product, the first of the four Ps of marketing mix has unique positions as it constitutes the most substantive
element in any marketing offer. The other elements – price, place and promotion – are normally employed to
make the product offering unique and distinct. Product is, thus, the number one weapon in the marketer’s
arsenal. Product is complex concept which has to be carefully defined. In common parlance, any tangible items
such as textiles, books, television and many others are called as products. But an individual’s decision to buy an
item is based on not only on its tangible attributes but also on a variety of associated non-tangible and
psychological attributes such as services, brand, package, warranty, image etc. Therefore, to crystallize the
understanding of the term ‘product’, it would be appropriate to take recourse to different definitions of ‘product’
given by marketing actioners.

DEFINITIONS
According to Alderson, “Product is a bundle of utilities consisting of various product features and
accompanying service”. The bundle of utilities is composed of those physical and psychological attributes that
the buyer receiver when the buys the product and which the marketer provides a particular combination of
product features and associated services.
According to Schwarz, “a product is something a firm markets that will satisfy a personal want or fill a business
need”, and includes “all the peripheral factors that may include reputation of the manufacturer, the warranty,
credit and delivery terms, the brand name and the courtesy shown by the sales and service personnel.”
Philip Kotler defines product ‘as anything that can be offered to a marketer for attention, acquisition, use of
consumption that might satisfy a want or need. It includes physical object, services persons, places
organizations and ideas.
The perusal of above definitions it is revealed that a product is not only an tangible entity, but also the
intangible services such as prestige, image etc. form an integral part of the product.
Precisely, the answers to the following question the product policy of a firm:
 What products should the company make?
 Where exactly are these products to be offered?
 To which market or market segment?
 What should be the relationship among the various members of a product line?
 What should be the width of the product mix?
 How many different product lines can the company accommodate?
 How should the products be positioned in the market?
 What should be the brand policy?
 Should there be individual brands, family brands and/or multiple brands?
A product policy serves the following three main functions:
1. A product policy guides and directs the activities of whole organisation toward a single goal. Only
rarely, product decisions are made solely by top executives. More often such decisions require the
specialized knowledge of experts in many fields – research, development, engineering, manufacturing,
marketing, law, finance and even personnel.
2. A product policy helps to provide the information required for decisions on the product line.
3. A product policy gives executives a supplementary check on the usual estimates of profit and loss.
A sound product policy is thus an important tool for coordination and directions. It applies not only to
those major decisions which are ultimate responsibility of general managers also to the many lower level
employees who also take day to day decisions.

PRODUCT CLASSIFICATION
Marketers have developed several product classification schemes based on product characteristics as an
aid to developing appropriate marketing strategies.
 Product can be classified into three groups according to their durability:
 Durable Goods: Durable goods are tangible goods that normally survive many users. Examples include
refrigerators, tape recorders, televisions etc.
 Non-Durable Goods: These are tangible goods that normally are consumed for short period. Example
include soap, match box etc.
 Services: Services are activities, benefits or satisfactions that are offered for sale. Examples include
banking, transport, insurance service etc.
Another method of classifying products is on the basis of consumer shopping habits because they have
implications for marketing strategy. Basing on this, goods may be classified into three:
 Convenience Goods: Goods that the customer usually purchases frequently, immediately and with the
minimum effort. The price per unit is low, Example: soaps, match box etc.
 Shopping Goods: These goods are purchased infrequently. The price per unit is comparatively higher.
The customer, in the process of selection and purchase of these goods compares the suitability, quality,
price and style. Example include furniture, clothing, footwear etc.
 Speciality Goods: Goods with unique characteristics and/or brand identification for which a significant
group of buyers are willing to make a special purchasing effort. The goods are expensive and purchased
rarely. Examples include personal computers, cars, hi-fi components etc.

Industrial Products
One of the ways of classification of industrial products involves two broad categories viz., (1) products
that are used in the production of other goods and become a physical part of another product, and (2) products
necessary to conduct business that do not become part of another product. The products that become part of
another product are raw materials, semi-manufactured goods, components and subcontracted production
services. The products that are needed to conduct the business include: Capital goods, operating supplies,
contracted industrial services, contracted professional services and utilities.
Raw material include crude oil, coal, iron ore, other mined minerals, lumber, forestry product,
agricultural products, livestock, poultry and dairy products and the products of fisheries.
Semi-manufacturing goods are products, that when purchased, have already undergone some processing
but are incomplete in themselves. Examples are cotton fiber, castings, plate glass and plastics.
Components are completed products meant to become part of another larger, more complicated product.
Examples include automobile batteries, headlights, tires etc.
Subcontracted production services are in sue in large products. Examples are, subcontracting for
installation of electrical, heating, air-conditioning and plumbing facilities to others.
 Capital goods are manufacturing plants and installations, tools, machines, trucks etc. Operating supplies
are industrial products used to keep a business operating normally. These include lubricating oils, paper clips,
cash registers etc. The operating supplies usually have a relatively low unit value, and are consumed quickly.
Contracted industrial services include such items as machine servicing and repair, cleaning, remodeling,
waste disposal and the operation of the employees’ canteens. Contracted professional services include printing
executive recruitment, advertisement, advertising, legal advice, professional accounting, data processing and
engineering studies. The industrial products in the category of utilities consist of energy, telephone, and water.

PRODUCT DIVERSIFICATION
In the pursuit of product-market integration, a number of policy and strategy option are available to a
company. One among them is product diversification. “Diversification is a policy or management philosophy of
operating a company so that its business and profits come from a number of sources, usually from diverse
products that differ in market or production characteristics”.
Unlike other product policies and strategies, the distinguishing feature of the policy of diversification is
“to increase the number of products in the product portfolio of the company”. It involves fundamental change in
the old product, say, in its modular construction, but not merely a tactical adjustment in the design, style, colour
of size of the product to gain temporary market advantage.

Reasons for Diversification

A study of the business literature and analysis of the company histories reveal that the questions of
corporate survival, stability and growth are the prime movers of diversification.
The following are the specific reasons for diversification:
Survival
 To offset declining or vanishing markets.
 To compensate for technological obsolescence.
 To offset obsolete facilities.
 To arrest declining profit margins.
 To offset an un-favourable geographic location brought about by changing economic factors.
Stability
 To eliminate of offset slumps.
 To offset cyclical fluctuations.
 To maintain employment of labour force.
 To provide a balance between high and low margin products.
  To provide a balance between old and new products.
 To maintain market share.
 To meet new products of competitors.
 To maintain an assumed source of supply.
 To reduce dependence on existing products.

Kinds of Diversification:
Horizontal diversification may be described as introduction to new products which are akin to the
industry’s product-line. The new products so introduced may not contribute anything to the present products in
any way but may cater to the mission which lies within the realm of the industry of which the company is a
member.
Vertical diversification may be described as inclusion of new products such as components, parts, and
materials in the current product portfolio of the company. These new products perform distinct and different
missions from that of the original products.
Lateral diversification may be described as a move to expand product line beyond the confines of the
industry. It may include may kind of product which may be totally different. For instance, the Bata which are
primarily in footwear business have diversified their business into readymade garments. Similarly, the
Raymonds who are basically in textile business have diversified their business into footwear.

New Product Development Process

In order to stay successful in the face of maturing products, companies have to obtain new ones by a carefully
executed new product development process. But they face a problem: although they must develop new
products, the odds weigh heavily against success. Of thousands of products entering the process, only a handful
reach the market. Therefore, it is of crucial importance to understand consumers, markets, and competitors in
order to develop products that deliver superior value to customers. In other words, there is no way around a
systematic, customer-driven new product development process for finding and growing new products. We will
go into the eight major steps in the new product development process.
 The 8 steps in the New Product Development Process

1. Idea generation – The New Product Development Process

The new product development process starts with idea generation. Idea generation refers to the systematic
search for new-product ideas. Typically, a company generates hundreds of ideas, maybe even thousands, to find
a handful of good ones in the end. Two sources of new ideas can be identified:

 Internal idea sources: the company finds new ideas internally. That means R&D, but also contributions
from employees.

 External idea sources: the company finds new ideas externally. This refers to all kinds of external
sources, e.g. distributors and suppliers, but also competitors. The most important external source are customers,
because the new product development process should focus on creating customer value.

2. Idea screening – The New Product Development Process

The next step in the new product development process is idea screening. Idea screening means nothing else than
filtering the ideas to pick out good ones. In other words, all ideas generated are screened to spot good ones and
drop poor ones as soon as possible. While the purpose of idea generation was to create a large number of ideas,
the purpose of the succeeding stages is to reduce that number. The reason is that product development costs rise
greatly in later stages. Therefore, the company would like to go ahead only with those product ideas that will
turn into profitable products. Dropping the poor ideas as soon as possible is, consequently, of crucial
importance.

3. Concept development and Testing – The New Product Development Process

To go on in the new product development process, attractive ideas must be developed into a product concept. A
product concept is a detailed version of the new-product idea stated in meaningful consumer terms. You should
distinguish
 A product idea à an idea for a possible product

 A product concept à a detailed version of the idea stated in meaningful consumer terms

 A product image à the way consumers perceive an actual or potential product.

Let’s investigate the two parts of this stage in more detail.

Concept development
Imagine a car manufacturer that has developed an all-electric car. The idea has passed the idea screening and
must now be developed into a concept. The marketer’s task is to develop this new product into alternative
product concepts. Then, the company can find out how attractive each concept is to customers and choose the
best one. Possible product concepts for this electric car could be:

 Concept 1: an affordably priced mid-size car designed as a second family car to be used around town for
visiting friends and doing shopping.

 Concept 2: a mid-priced sporty compact car appealing to young singles and couples.

 Concept 3: a high-end midsize utility vehicle appealing to those who like the space SUVs provide but
also want an economical car.

As you can see, these concepts need to be quite precise in order to be meaningful. In the next sub-stage, each
concept is tested.

Concept testing
New product concepts, such as those given above, need to be tested with groups of target consumers. The
concepts can be presented to consumers either symbolically or physically. The question is always: does the
particular concept have strong consumer appeal? For some concept tests, a word or picture description might be
sufficient. However, to increase the reliability of the test, a more concrete and physical presentation of the
product concept may be needed. After exposing the concept to the group of target consumers, they will be asked
to answer questions in order to find out the consumer appeal and customer value of each concept.

4. Marketing strategy development – The New Product Development Process

The next step in the new product development process is the marketing strategy development. When a
promising concept has been developed and tested, it is time to design an initial marketing strategy for the new
product based on the product concept for introducing this new product to the market.

The marketing strategy statement consists of three parts and should be formulated carefully:
 A description of the target market, the planned value proposition, and the sales, market share and profit
goals for the first few years

 An outline of the product’s planned price, distribution and marketing budget for the first year

 The planned long-term sales, profit goals and the marketing mix strategy.

5. Business analysis – The New Product Development Process

Once decided upon a product concept and marketing strategy, management can evaluate the business
attractiveness of the proposed new product. The fifth step in the new product development process involves a
review of the sales, costs and profit projections for the new product to find out whether these factors satisfy the
company’s objectives. If they do, the product can be moved on to the product development stage.

In order to estimate sales, the company could look at the sales history of similar products and conduct market
surveys. Then, it should be able to estimate minimum and maximum sales to assess the range of risk. When the
sales forecast is prepared, the firm can estimate the expected costs and profits for a product, including
marketing, R&D, operations etc. All the sales and costs figures together can eventually be used to analyse the
new product’s financial attractiveness.

6. Product development – The New Product Development Process

The new product development process goes on with the actual product development. Up to this point, for many
new product concepts, there may exist only a word description, a drawing or perhaps a rough prototype. But if
the product concept passes the business test, it must be developed into a physical product to ensure that the
product idea can be turned into a workable market offering. The problem is, though, that at this stage, R&D and
engineering costs cause a huge jump in investment.

The R&D department will develop and test one or more physical versions of the product concept. Developing a
successful prototype, however, can take days, weeks, months or even years, depending on the product and
prototype methods.

Also, products often undergo tests to make sure they perform safely and effectively. This can be done by the
firm itself or outsourced.

In many cases, marketers involve actual customers in product testing. Consumers can evaluate prototypes and
work with pre-release products. Their experiences may be very useful in the product development stage.

7. Test marketing – The New Product Development Process

The last stage before commercialisation in the new product development process is test marketing. In this stage
of the new product development process, the product and its proposed marketing programme are tested in
 realistic market settings. Therefore, test marketing gives the marketer experience with marketing the product
before going to the great expense of full introduction. In fact, it allows the company to test the product and its
entire marketing programme, including targeting and positioning strategy, advertising, distributions, packaging
etc. before the full investment is made.

The amount of test marketing necessary varies with each new product. Especially when introducing a new
product requiring a large investment, when the risks are high, or when the firm is not sure of the product or its
marketing programme, a lot of test marketing may be carried out.

8. Commercialisation
Test marketing has given management the information needed to make the final decision: launch or do not
launch the new product. The final stage in the new product development process is commercialisation.
Commercialisation means nothing else than introducing a new product into the market. At this point, the highest
costs are incurred: the company may need to build or rent a manufacturing facility. Large amounts may be spent
on advertising, sales promotion and other marketing efforts in the first year.

Some factors should be considered before the product is commercialized:

 Introduction timing. For instance, if the economy is down, it might be wise to wait until the following
year to launch the product. However, if competitors are ready to introduce their own products, the company
should push to introduce the new product sooner.

 Introduction place. Where to launch the new product? Should it be launched in a single location, a
region, the national market, or the international market? Normally, companies don’t have the confidence, capital
and capacity to launch new products into full national or international distribution from the start. Instead, they
usually develop a planned market rollout over time.

In all of these steps of the new product development process, the most important focus is on creating superior
customer value. Only then, the product can become a success in the market. Only very few products actually get
the chance to become a success. The risks and costs are simply too high to allow every product to pass every
stage of the new product development process.

ll products and services have a certain life span which is measured by the chronological history of sales from
the launch of the product until its withdrawal from the market. For the development of effective marketing
strategies, an understanding of the different characteristics of the product life cycle stages is absolutely crucial.
Based on this understanding, marketing implications can be derived. In the following, each PLC stage is
explained in detail. After investigating the characteristics of the product life cycle stages, the marketing
activities that accompany each stage are explicated.
The 4 Product Life Cycle Stages (PLC)
After the launch of a product, there will be times when sales grow, times when they will be relatively static and
other times when they will decline. This does in particular apply when the product is superseded by a new
product which satisfies customer needs better. Consider for instance consumer preference for CDs over vinyl
records, or the disappearance of launderettes in town centres as a result of the introduction of affordable
washing machines. The characteristics of the product life cycle stages help us to explain the development of
sales that can be observed over the lifetime of a product. In addition, the model aids in determining the required
marketing activities and the level of support that is needed to secure the future success of the product.

There are four main stages in the product life cycle, as you can see in the figure below. The characteristics of the
product life cycle stages are discussed in greater detail along with their implications on the appropriate
marketing strategy.

Characteristics of the Product Life Cycle Stages and their Marketing Implications

Characteristics of the Product Life Cycle Stages and Marketing Implications

The PLC describes the four key stages that a product is likely to experience between its launch and its
disappearance from the market. The characteristics of the product life cycle stages are discussed below.
 Introduction Stage
When a product is launched on the market, its sales will begin to grow slowly and profit, if any, will be rather
small. This can be attributed to the lead time which is required for marketing efforts to take effect. At this stage,
the product is new and untested, which implicates that potential customers may be unwilling or reluctant to
purchase it. A second reason for rather low profitability at the introduction stage is that the company is unlikely
to be making full use of its production capacity. As a result, it will be unable to benefit from the economies of
scale that are associated with higher levels of production. The low profitability does also come from the need to
recover development and launch costs. The main priority of the firm at the introduction stage is to generate
widespread awareness of the product in its target segment and to stimulate trial. This is especially the case for
new-to-the-world products, which are truly innovative by nature. In this case, primary demand will first have to
be established. The company should focus its marketing activities on those buyers who are readiest to buy:
innovators, which are usually to be found within the higher-income groups. This behaviour was evident for
instance when the manufacturers of the first smartphones targeted B2B customers when the products were first
introduced to the market.
There are various marketing strategies that can be used for introducing a new product to the market. Two
pricing strategies are available. The choice between the two strategies depends on the nature of the product and
the level of competition:

 Price skimming involves charging a high initial price, before reducing the price gradually to “skim” each
potential target group in the market as the market grows.
 Price penetration involves setting a low price to enter the market quickly and capturing market share,
before adjusting the price to increase profits once the market has grown.
You can read more about the alternative pricing strategies here.
Actually, a significant share of new products fails to progress beyond the introduction stage of the PLC. This is
often caused by a lack of understanding of the characteristics of the product life cycle stages and their
implication on the required marketing strategies. At the introduction stage, this failure is worst: Customers who
are dissatisfied with their first purchase of a product or a brand will be unlikely to make repeat purchases and
recommendations, which are in turn essential for sales increases. Therefore, it is absolutely crucial to ensure that
the products provide valuable benefits to the customer and superior customer value if survival and growth are to
follow. The most important point is to get it right the first time.

Growth Stage
If the product meets existing market needs or stimulates previously untapped needs, it will enter the growth
stage. In this stage, sales will usually lift off. This point is called the take-off point. Profits are generated as sales
revenues increase faster than costs. But competitors will also have had time to assess the product, predict its
 impact on the market and potentially respond with a similar or improved version of the offering. As a result, the
total size of the market tends to grow, and the new competitors can increase their sales by attracting new
customers rather than undercutting each other on price. An increase in the number of distribution outlets tends
to go in hand with this.
Maturity Stage
When a the sales growth of the product slows down, the maturity stage is reached. During this stage, there is a
tendency for companies to capture customers from their competitors by undercutting each other on prices and
increasing promotional efforts. As competitive rivalry intensifies, the weaker competitors are forced out of the
market. This point is known as the shake-out point. Thus, only the strongest players remain to dominate the
more stable market. The maturity stage does usually last longer than the previous stages, but also poses the
strongest challenges to the marketing: the firm will try to prevent the sales to decline, while maintaining
profitability. The problem at this stage is heavy price competition and resulting increased marketing expenditure
from all competitors in order to retain brand loyalty.
Certainly, there are some famous brands and products that are still in the maturity stage after thirty years and
more. For instance, consider Mars’ bars or Coca-Cola. Although these products have changes only very little
since their launch, they are still highly successful or even more successful than ever. Other products survive by
evolving to meet changing consumer needs.

During the maturity stage, the firm can choose from a number of alternative strategies to ensure the future
success of the product. These strategies range from innovating the market (market development) over modifying
the product (product development) to altering the marketing mix (marketing innovation). These strategies are
discussed in more detail here.

Decline Stage
If the characteristics of the product life cycle stages and their marketing implications are understood properly,
the product may have made it to the final stage in the PLC: the decline stage. Usually, the firm will have tried to
keep the product as long as possible in the maturity stage. However, once the sales of a product start to fall or
profitability can no further be maintained, the decline stage is reached. This does often happen as a result of the
market entry of substitute products which satisfy customer needs better than the previous product.

There are several alternative strategies available for handling the decline stage appropriately.

 Milking or Harvesting: When this strategy is used, the product receives only little or no marketing
support. The firm aims to maximize the life of the product while generating the cash and the time required to
establish new products. In addition, the slow decline of the product provides the firm with sufficient time to
adjust to the declining cash flow and to find alternative means of generating income.
 Phased Withdrawal: Unlike under the milking approach, where the product could in theory continue
indefinitely, phased withdrawal involves setting a hard cut-off date for the product. Before the cut-off date, there
may be interim stages at which the product is either pulled form certain channels of distribution or certain
geographic areas. Phased withdrawal provides the advantage of enabling the firm to plan the introduction of
replacement products. However, it can be a source of dissatisfaction to customers, who may not like the sudden
disappearance of their favoured product. A typical example of the phased withdrawal strategy can be found in
the automotive industry: car manufacturers normally set hard cut-off dates to existing products, so that both
dealers and the public are notified of product withdrawals and new product launches.
 Contracting out or Selling: Loyal users of a product can be retained when the brand or the rights to
produce and sell the product are handed on to a niche operator or by subcontracting. Many smaller firms use
this strategy since they are flexible enough to offer the product’s market a satisfactory return. Each party
involved in this strategy benefits from the deal: the originating firm can dispose profitably of a product it no
longer wants, consumers can keep buying products they desire, and the subcontractor or buyer can gain the
benefits of a brand they could never have established on their own.

Characteristics of the Product Life Cycle Stages and their Marketing Implications
The table below provides a summary of the characteristics of the product life cycle stages and the appropriate
marketing responses for each stage.

Product Life Cycle Stage

Introduction Growth Maturity Decline

Create product
Fight off
awareness Minimize
Establish high competition
Marketing emphasis Encourage marketing
market share Generate profits
product trial expenditure

Design product
Rationalize
Introduce basic Improve features versions for
Product strategy the product
products of basic products different
range
segments

Pricing strategy Price skimming Reduce prices Match or beat Reduce

or price enough to the competition prices
 expand the
market and
penetration further
establish market
share

Advertising and Mass media Emphasize brand Minimal

sales promotion advertising strengths to level to
Promotional strategy
to end-users and establish brand different retain loyal
dealers image segments customers

Rationalize
Build selective Increase the Maintain outlets to
Distribution strategy distribution number of intensive minimize
outlets outlets distribution distribution
costs

PRICING

INTRODUCTION
A pricing strategy takes into account segments, ability to pay, market conditions, competitor actions, trade
margins and input costs, amongst others. Price is the value that is put to a product or service and is the result of
a complex set of calculations, research and understanding and risk taking ability. A pricing strategy takes into
account segments, ability to pay, market conditions, competitor actions, trade margins and input costs, amongst
others. It is targeted at the defined customers and against competitors.
As the consideration given in exchange for transfer of ownership, price forms the essential basis of commercial
transactions. It may be fixed by a contract, left to be determined by an agreed upon formula at a future date, or
discovered or negotiated during the course of dealings between the parties involved.
In commerce, price is determined by what (1) a buyer is willing to pay, (2) a seller is willing to accept, and (3)
the competition is allowing to be charged. With product, promotion, and place of marketing mix, it is one of
the business variables over which organizations can exercise some degree of control. It is a criminal offense to
manipulate prices (see price fixing) in collusion with other suppliers, and to give a misleading indication of
price such as charging for items that are reasonably expected to be included in the advertised, list, or quoted
price.

PRICING DECISIONS
Among the different components of the marketing-mix, price plays an important role to bring about product-
market integration. Price is the only element in the marketing-mix that products revenue.
In the narrowest sense, price is the amount of money charges for a product or service. More broadly, price is the
sum of all the values that customer exchange for the benefits of having or using the product or service. Price
may be defined as the value of product attributes expressed in monetary terms which a customer pays or is
expected to pay in exchange and anticipation of the expected or offered utility.
Pricing helps to establish mutually advantageous economic relationship and facilities the transfer of ownership
of goods and services from the company to buyers. 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. Thus, pricing play a far greater role in the marketing-mix of a company and significantly contributes
to the effectiveness and success of the marketing strategy and success of the firm.

FACTORS INFLUENCING PRICING

Price is influenced by both internal and external factors. In each of these categories some may be
econo0mic factors and some psychological factors; again, some factors may be quantitative and yet others
qualitative.
Internal Factors influencing pricing.
 Corporate and marketing objectives of the firm. The common objectives are survival, current
profit maximization, market-share leadership and product-quality leadership.
 The image sought by the firm through pricing.
 The desirable market positioning of the firm.
 The characteristics of the product.
 Price elasticity of demand of the product.
 The stage of the product on the product life cycle.
 Turn around rate of the product.
 Costs of manufacturing and marketing.
 Product differentiation practiced by the firm.
 Other elements of marketing mix of the firm and their interaction with pricing.
 Consumption of the product line of the firm.

External Factors Influences Pricing

 Market characteristics
 Buyers behaviors in respect to the given product.
  Bargaining power of the customer.
 Bargaining power of the major suppliers.
 Competitor’s pricing policy.
 Government controls/ regulation on pricing.
 Other relevant legal aspects
 Social considerations.
 Understanding, if any, reached with price cartels.

PRICING PROCEDURE
The pricing procedure usually involves the following steps:
1. Development of Information Base
The first step in determining the basic price of a company’s product(s) is to develop an adequate and up-to-
date information base on which price decisions can be based. It is composed of decision-inputs such as cost
of production, consumer demand, industry, prices and practices, government regulations.
2. Estimating Sales and Profits
Having developed the information base, management should develop a profile of sales and profit at
different price levels in order to ascertain the level assuring maximum sales and profits in a given set of
situation. When this information is matched against pricing objectives, management gets the preview of the
possible range of the achievement of objectives through price component in the marketing-mix.
3. Anticipation of Competitive Reaction
Pricing in the competitive environment necessitates anticipation of competitive reaction to the price being
set. The co0mpetition for company’s product(s) may arise from similar products, close substitutes. The
competitor’s reaction may be violent or subdued or even none. Similarly, the reaction may be instant or
delay. In order to anticipate such a variety of reactions, it is necessary to collect information about
competitors in respect of their production capacity, cost structure, market share and target consumers.
4. Scanning The Internal Environment
Before determining the product price it is also necessary to scan and understand the internal
environment of the company. In relation to price the important factors to be considered relate to the
production capacity sanctioned, installed and used, the ease of expansion, contracting facilities, input
supplies, and the state of labour relations. All these factors influence pricing decisions.
5. Consideration of Marketing-mix Components
Another step in the pricing procedure is to consider the role of other components of the marketing-mix
and weigh them in relation to price. In respect of product the degree of perishability and shelf-life, shape
the price and its structure; faster the perishability lower is likely to be the price.
 6. Selections of Price Policies and Strategies
The next important step in the pricing procedure is the selection of relevant pricing policies and
strategies. These policies and strategies provide consistent guidelines and framework for setting as well
as varying prices to suit specific market and customer needs.
7. Price Determination
Having taken the above referred steps, management may now be poised for the task of price
determination. For determination of price, the management should consider the decisions inputs
provided by the information base and develop minimum and maximum price levels. These prices should
be matched against the pricing objectives, competitive reactions, government regulations, marketing-
mix requirements and the pricing policing and strategies to arrive at a price. However, it is always
advisable to test the market validity of its price during test marketing to ascertain its match with
consumer expectations.

GENERAL PRICING APPROACHES

Companies set prices by selecting a general pricing approach that includes one or more of the following
three approaches:
(1) The cost-based approach
 Cost-Plus Pricing
 Break-Even Analysis and Target-Profit Pricing
(2) The Buyer-based approach
 Perceive-Value Pricing
(3) The Competition based approach
 Going-Rate Pricing
 Sealed-Bid Pricing
1. Cost-Plus Pricing
This is the easiest and the most common method of price setting. In this method, a standard markup is
added to the cost of a product to arrive at its price. For example, the cost of manufacturing a fan is Rs.
1000/- adds 25 per cent mark up and sets the price to the retailer at Rs. 1250/-. The retailer in turn, may
mark it up to sell at Rs. 1350/- which is 35 per cent market up on cost. The retailer’s gross margin in Rs.
1500/-.
But this method is not logical as it ignores current demand and competition and is not likely to lead to
the optimum price. Still markup price is quite popular for three reasons:
i) Seller have more certainty about costs than about demand and by tying the price to cost, they
simplify their pricing task and need not frequently adjust price with change in demand.
 ii) Where all firms in the industry use this pricing method, their prices will similar and price
competition will be minimized to the benefit of all of them;
iii) It is usually felt by many people that cost plus pricing is fairer to buyers as well as to seller.
2. Break-Even Pricing and Target-Profit Pricing
An important cost-oriented pricing method is what is called target-profit pricing under which the company
tries to determine the price that would product the profit it wants to earn. This pricing method uses the
popular ‘break-even analyses. According to it, price is determined with the help of a break-even chart. The
break-even charge depicts the total cost and total revenue expected at different sales volume. The break-
even point on the chart if that when the total revenue equals total cost and the seller neither makes a profit
nor incurs any loss. With the help of the break-even chart, a marketer can find out the sales volume that he
has to achieve. In order to earn the targeted profit, as also the price that he has to charge for his product.

Buyer-based Approach
Perceive-Value Pricing
Many companies base their price on the products perceived value. They take buyer’s perception of value
of a product, and not the seller’s cost, as the key to pricing. As a result, pricing begins with analyzing
consumer needs and value perceptions, and price is set to match consumers’ perceived value.
Such companies use the non-price variables in their marketing mix to build up perceived value in the
buyer’s minds, e.g. heavy advertising and promotion to enhance the value of a product in the minds of the
buyers. Then they set a high price to capture the perceived value. The success of this pricing method
depends on and determination of the market’s perception of the product’s value.

Competition-based Approach
1. Going Rate Pricing
Under this method, the company bases its prices largely on competitor’s prices paying less attention to
its own costs or demand. The company might charge the same prices as charged by its main competitors,
or a slightly higher or lower price than that. The smaller firms in an industry follow the leading firm in
the industry and change their prices when the market leader’s prices changes. The marketer thinks that
the going price reflects the collective wisdom of the industry.
2. Sealed-Bid Pricing
This is a competitive oriented pricing, very common in contract businesses where firms bid for jobs.
Under it, a contractor bases his price on expectations of how competitors will price rather than on a strict
relation to his cost or demand. As the contractor wants to win the contract, he has to price the contract
lower than the other contractors. But a bidding firm cannot set its price below costs. If it sets the price
much higher than the cost, its chance of getting the contract will be lesser.
PRICING OBJECTIVES
A businesses firm will have a number of pricing objectives. Some of them are primary; some of them are
secondary; some of them are long-term while others are short-term. However, all pricing objectives emanate
from the corporate and marketing objectives of the firm.
Some of the pricing objectives are discussed below:
1. Pricing for a target return.
2. Pricing for market penetration.
3. Pricing for market skimming.
4. Discriminatory pricing
5. Stabilizing pricing.

1. Pricing for a target return.

This is a common objectives found with most of the established business firms. Here, the objective is to
earn a certain rate of Return On Investment (ROI) and the actual price policy is worked out to earn that
rate of return. The target is in terms of ‘return on investment’. There are companies which set the target
at, for example, 20% return on investment after taxes. The target may be for a short-term or a long-term.
A firm also may have different targets for its different products but such targets are related to a single
overall rate of return target.
2. Pricing for market penetration.
When companies set a relatively ‘low price’ on their new product in initial stages hoping to attract a
large number of buyers and win a large market-share it is called penetration pricing policy. They are
more concerned about growth in sales than in profits. Their main aim is capturing and to gain a strong
foothold in the market. This object can work in a highly price sensitive market. It is also done with the
presumption that unit cost will decrease when the level of sales reach a certain target. Besides, the lower
price may make competitors to stay out. When market share increases considerably, the firm may
gradually increase the price.
3. Pricing for market skimming.
Many companies that launch a new product set ‘high prices’ initially to skim the market. They set the
highest price they can charge given the comparative benefits of their product and the available
substitutes. After the initial sales slowdown, they lower the price to attract the next price-sensitive layer
of customer.
4. Discriminatory pricing
Some companies may follow a differential or a discriminatory pricing policy-charging different prices
for different customers or allowing different discounts to different buyers.
 Discrimination may be practices on the basis or product or place or time. For example, doctors may
charge different fees for different patients; railways charge different fares for usual passengers and
regular passengers/ students. Manufacturers may offer quantity discounts or quote different list prices to
bulk-buyers, institutional buyers and small buyers.
5. Stabilizing pricing.
The objective of this pricing policy is to prevent frequent fluctuations in pricing and to fix uniform or
stable price for a reasonable period. When price is revised, the new price will be allowed to remain for
sufficiently a long period. This pricing policy is adopted, for example, by newspapers and magazines.

NEW PRODUCT PRICING

Pricing a new product is an art. It is one of the most important and dazzling marketing problems faced
by a firm. The introduction of a new product may involve some problems in as much as there neither an
established market for the product nor a demonstrated demand for it. The firm may expect a substantial demand
for the product though it is yet to be established. Even if there are some near substitutes the actual degree of
substitution has to be estimated. Again, there may be no reliable estimate of the direct costs of marketing and
manufacturing the product.
Moreover, the cost patterns are likely to change with greater knowledge and increasing volume of
production. Yet the basic pricing policy for a new product is the same as for established product – it must cover
full in the long run and direct costs in the short run. Of course, there is greater uncertainty about both the
demand and costs of the product.
Apart from the problem of estimating the demand for an entirely new product, certain other initial
problems likely to be faced are:
1) Discovering a competitive range of price.
2) Investigating probable sales at several possible prices, and
3) Considering the possibility of relation from products substituted by it/
In addition, decisions have to be taken on market targets, design, the promotional strategy and the channels of
distribution.
Test marketing can be helpful in deciding the suitable pricing policy. Under test marketing, the product
is introduced in selected areas, often at different prices in deferent areas. These tests will provide the
management an idea of the amount and elasticity of the demand for the product, the competition it is likely to
face, and the expected sales volume and profits simulation of full-scale production and distribution. Yet it may
provide very useful information for better planning of the full-scale effort. It also permits initial pricing
mistakes to be made on small rather than on a large scale.
The next important question is “whether to charge high initial price or a low penetration price”.
A high Initial Price (Skimming Price)
 A high initial price, together with heavy promotional expenditure, may be used to launch a new product
if conditions are appropriate. For example:
(a) Demand is likely to be less price elastic in the early stages than later, since high prices are unlikely to
deter pioneering consumers. A new product being a novelty commands a better price.
(b) Is the life of the products promises to be a short one, a high initial price helps in getting as much of it
and as fast as possible.
(c) Such a policy can provide the basis for dividing the market into segments to differing elasticity’s. Bound
edition of a book is usually followed by a paper back.
(d) A high initial price may be use4ful if a high degree of production skill is needed to make the product so
that it is difficult and time consuming for competitors to enter on an economical basis.
(e) It is a safe policy where elasticity is not knows and the product not yet accepted. High initial price may
finance the heavy costs of introducing a new product when uncertainties block the usual sources of
capital.
A Low Penetration Price
In certain conditions, it can be successful in expanding market rapidly thereby obtaining larger sales
volume and lower unit costs. It is appropriate where:
(a) there is high short-run price elasticity;
(b) there are substantial cost savings from volume production;
(c) the product is acceptable to the mass of consumers;
(d) there is no strong patent protection; and
(e) there is a threat of potential competition so that a big share of the market must be captured quickly.
The objective of low penetration price is to raise barriers against the entry of prospective competitors.
Stay-out pricing is appropriate:
i) There are total demands is expected to be small. If the most efficient size of the plant is
big enough to supply a major portion of the demand, a low-price policy can capture the
bulk of the market and successfully hold back low-cost competition.
ii) When potential of sales appears to be great, prices must be set as their long-run level. In
such cases, the important potential competitor in a large multi-product firm for whom the
product in question is probably marginal. They are normally confident that they can get
their costs down to competitor’s level if the volume of product is large.

PRODUCT-MIX PRICING STRATEGIES

The strategy for setting a project’s price often has to be changed when the product is a part of a product
mix. In this case, the firm looks for a set of prices that maximizes the profits on the total product mix. Pricing is
difficult because the various products have related demand and costs and face different degrees of completion.
Product-mix Pricing Situations
Product Line Pricing
Companies usually develop product lines rather than single products. In product line pricing,
management must decide on the price steps to be set between the various products in a line.
The price steps should take into account cost differences between the products in the line, customer
evaluations of their different features, and competitor’s prices. if the price difference between two successive
products is small, buyers usually will buy the more advanced product. This will increase company profits if the
cost difference is smaller than the price difference. If the price difference is large, however, customers will
generally buy the less advanced products.
Optional-Product Pricing
Many companies use optional-product pricing – offering to sell optional or accessory products along
with their main product. For example, a car buyer may choose to order power widows, central locking
system, and with a CD player. Pricing these options is a sticky problem. Automobile companies have to
decide which items to include in the base price and which to offer as options. The economy model was
stripped of so many comforts and conveniences that most buyers rejected it. More recently, however,
General Motors has followed the example of the Japanese auto makers and included in the sticker price
many useful items previously sold only as options. The advertised price now often represents a well-
equipped car.
Captive-Product Pricing:
Companies that make products that must be used along with a man product are using captive-product
pricing. Examples of captive products are razor blades, camera film, and computer software. Producers of the
main products (razors, cameras, and computers) often price them low and set high markups on the supplies.
Thus, Kodak prices its cameras low because it makes its money on the film it sells.
In the case of services, this strategy is called two-part pricing. The price of the service is broken into a
fixed fee plus a variable usage rate. Thus, a telephone company charges a monthly rate – the fixed fee – plus
charges for calls beyond some minimum number – the variable usage rate. The service firm must decide how
much to charge for the basic service and how much for the variable usage. The fixed amount should be low
enough to induce usage of the service, and profit can be made on the variable fees.
By-Product Pricing:
In producing petroleum products, chemicals and other products, there are often by-products. If the by-
products have not value and if getting rid of them is costly, this will affect the pricing of the main product.
Using by-product pricing, the manufacturer will seek a market for these by-products and should accept any
price that covers more than the cost of storing and delivering them. This practice allows the seller to reduce the
main product’s price to make it more competitive. By products can even turn out to be profitable.
Product-Bundle Pricing:
 Using product-bundle pricing, sellers often combine several of their products and offer the bundle at a
reduced price. Thus computer makers include attractive software packages with their personal computers. Price
bundling can promote the sales of products consumers might not otherwise buy, but the combined price must be
low enough to get them to buy the bundle.

PRICE-ADJUSTMENT STRATEGIES
Companies usually adjust their basic price for various customer differences and changing situations.
Types of Price-Adjustment Strategies
(1) Discount and Allowance Pricing: Reducing prices to reward customer response such as paying early or
promoting the product.
(2) Segment Pricing: Adjustment prices to allow for differences in customers, product, or locating.
(3) Psychological Pricing: Adjusting prices for psychological effort.
(4) Promotional Pricing: Temporarily reducing prices to increase short-run sales.
(5) Value Pricing: Adjusting prices to offer the right combination of quality and service at a fair price.
(6) Geographical Pricing: Adjusting prices to account for the geographic location of customers.
(7) International Pricing: Adjustment prices for international markets.
Discount and Allowance Pricing:
Most companies adjust their basic price to reward customers for certain responses, such as early
payment of bills, volume purchases and off-season buying. These price adjustments – called discounts and
allowances – can take many forms.
A cash discount is a price reduction to buyers who pay their bills promptly. A quantity discount is a
price reductions to buyers who buy large volumes. A seasonal discount is a price reduction to buyers who buy
merchandise or services out of season.
A trade discount is offered by the seller to trade channel members who perform certain functions, such
as selling, storing and record-keeping. Manufacturers may offer different functional discounts to different trade
channels because of the varying services they perform.
Allowances are another type of reduction from the list price. Trade allowance is given, for example, or
exchange offers. Promotional allowances are payment or price reductions to reward dealers for participating in
advertising and sales-support programs.
Segmented Pricing
Companies often adjust their basic prices to allow for differences in customers, products and locations.
In segmented pricing, the company sells a product or service at two or more prices, even though the difference
in prices is not based on differences in costs. Segmented pricing takes several forms.
Customer-segment pricing : Different customers pay different prices for the same product or service.
Railways, for example, charge a concessional fare to children and senior citizens.
 Product-form pricing: Different version of the product are period differently, but not according to
differences in their costs.
Location pricing: Different locations are priced differently, even though the cost of offering each
location is the same. For instance, theaters vary their seat prices because of audience preferences for certain
locations, and state universities charge high tuition fee for foreign students.
Time pricing: Prices vary by the season, the month, the day, and even the hour. Public utilities vary their
prices to commercial users by time of day and weekend versus weekday. The telephone company offers lower
“off-peak” charges.
Psychological Pricing:
Price says something about the product. For example, many consumers use price to judge quality. In
using psychological pricing, sellers consider the psychology of prices and not simply the economics. For
example, one study of the relationship between price and quality perceptions of cards found that consumers
perceive higher-priced card as having higher quality. By the same token, higher quality cars are perceived to be
even higher priced than they actually are.
Another aspect of psychological pricing is reference prices – prices that buyers carry in their minds and
refer to when looking at a given product. The reference price might be formed by noting current prices,
remembering past prices, or assessing the buying situation. Sellers can influence of use these consumers’
reference prices when setting price. For example, a company could display its product next to more expensive
ones in order to imply that it belongs in the same class.
Promotional Pricing:
With promotional pricing, companies will temporarily price their products below list price and
sometimes even below cost. Promotional pricing takes several forms. Supermarkets and departments stores will
price a few products as loss leaders to attach customers to the store in the hope that they will buy other items at
normal markups. Sellers will also use special event pricing in certain seasons to draw more customers.
Value Pricing
Marketers adopt value pricing strategies – offering just the right combination to quality and good service
at a fair price. In many cases, this has involved the introduction of less expensive versions of established, brand
name products.
Geographical Pricing
A company must also decide how to price its products to customers locate in different parts of the
country or world. There are five geographical pricing strategies.
1) FOB Pricing: This means the goods are placed free on board a carrier.
2) Uniform Delivered Pricing: The Company charges the same price plus freight to all customers,
regardless of their location.
 3) Zone Pricing: All customers within a given zone pay a single total price; the more distant the zone,
the higher the price.
4) Basing-point pricing: The seller selects a given city as a “basing point” and charges all customers the
freight cost from that city to the customer location, regardless of the city from which the goods
actually are shipped.
5) Freight-absorption Pricing: The sellers absorb all or part of the actual freight charges in order to get
the desired business.
International Pricing:
Companies that market their products internationally must decide what prices to charge in the different
countries in which they operate. In some cases, a company can set a uniform worldwide price.

ADMINISTERED PRICE
In real live business situations, product price is not determined as envisaged in the price theory, but is
administered by the company’s management. An administered or administrative price is set by a company
official in contrast to the competitive market prices described in theory. Administered price may, therefore, be
defined as the price resulting from managerial decisions of the company. From this, the following
characteristics of the administrated price emerge:
(1) Price determination is a conscious and deliberate administrative action rather than a result of the
demand and supply interaction.
(2) Administered price is fixed for a period of time or for a series of sale transactions; it does not
frequently change.
(3) This price is usually not subject to negotiation; price structure incorporating differentiation; price
structure incorporating different variations may, however, be developed to meet specific consumer
needs.
The administrative price is set by management after considering all relevant factors impinging on it, viz, cost,
demand and competitors’ reactions. Since all companies set administrative prices on more or less identical
considerations, the prices in respect of similar products available in the market tend to be uniform. The
competition, therefore, is based on non-price differentiation through branding, packaging and advertising, etc. It
is with this administrative price that marketers are concerned with and, as natural corollary, our won concern
throughout the subsequent pages will be with the administrative price.

REGULATED PRICE
The concept of administrative price may possibly impart a notion that a company is free to fix whatever
price if deems fit and buyer have but one choice – either to buy or not to buy. But in real life situation it is not
like this. For fear of damages to consumer and national interests, administered prices are subject to state
regulation. Therefore, whenever the administered price is et and managed within the state regulation it is termed
as regulated price. It may assume two forms. First, the price may be set by some State agency, say, the Bureau
of Industrial Cost and Prices or the Tariff Commission and the company just accepts it as given. Second, the
price may be set by a company within the framework or on the basis of the formula given by the State. In India
companies, for example, the fertilizer, aluminum and steel industries sell their products at prices fixed by the
government, while companies, for example, the cotton textile industry sell products at the price fixed on the
basis of a given formula.
In conclusion, it may be said that in the real life Indian business situation it is the ‘regulated
administrative price’ that is relevant for companies and at which products are offered for sale to target
consumers.

PRICING OVER THE PRODUCT LIFE CYCLE

The price policy can be considered in terms of product life cycle. A new product, with no competitors
has an advantage, and therefore, market skimming policy may be applied. This policy is aimed at getting the
‘cream’ of the market (the top of the demand curve) at a high before catering to the more price-sensitive
segments of the market. In the initial stages the skimming policy can be useful for getting a better understanding
of the extent of demand or consumer response as well as to earn adequately to cover the product development
costs. The policy may then lead to slow reduction of the price with a view to expand the market. For the new
company (as compared with the new product) producing a product in the maturity stage, the preferred object
would be penetration pricing – the opposite of skimming. This is unavoidable when the whole demand is elastic
and the new entrant company’s first aim is to gain entry, a standing or recognition in the market even at a loss
for a short period. This policy may also be applied for new product, if the firms expects serious competition
very soon after introduction.
Finally, it may be said ‘there is no way in which the various factors analyzed earlier can be fed into a
computing machine to determine the ‘right’ price. Individual factors assume varying importance at different
times. Basically it is the judgment of the price marker which is the catalytic agent that fuses these various
factors into a final decision concerning price. Pricing is an art, not a science. The ‘feel’ of the market of the
price market is far more significant than his adeptness with a calculating machine.

GOVERNMENT CONTROL ON PRICING

Price controls refer to the Governmental regulations in respect of price fixation.
Usually statutory price control entails imposition of price ceiling so that it does not exceeds consumer
capacity to pay. Currently for example, the price of petrol in under statutory price controls. The firs
manufacturing these products are assured retention prices which are based on costs, and ensure fair return on
investment.
 In case of sugar, a dual pricing system has been introduced. Under this system, a manufacturer is
required to compulsorily sell a part of its production to the Government at substantially low prices, called levy
price.
The rest of production may be sold in the open market as a price the firm deems fit. The statutory price
control also envisages the announcement of ‘support price’ for certain agricultural products like cotton, food
grains etc., so as to protect cultivators from price fluctuation.
Voluntary price control envisages formulation of price control measures by the respective industry
association under the direction of and according to the guidelines by the Government.

PHYSICAL DISTRIBUTION

Physical distribution or marketing logistics is the tasks involved in planning, implementing and controlling the
physical flow of materials and final goods from points of origin to points of use to meet the needs of customers
at a profit.

In today’s global marketplace, selling a product is sometimes easier than physically getting it to customers.
Companies must decide on the best way to store, handle and move their products and services, so that they are
available to customers in the right assortments, at the right time and in the right place. Physical distribution and
logistics effectiveness will have a significant impact on both customer satisfaction and organization costs. A
poor distribution system can destroy an otherwise good marketing effort. Here we consider the nature and
importance of marketing logistics, goals of the logistics system, major logistics functions, choosing
transportation modes and the importance of integrated logistics management.

The ways through which the goods and services are distributed from manufacturer, consumers are called
channels of distribution.
Channel of distribution is a chain through which a producer transfers the ownership of his goods and services to
his consumers.
Channels of distribution are also known as middlemen, agent of distribution and distribution chains.
A channel of distribution is a bridge to cover the gap between a manufacturer and consumers.

Importance of Channels of Distribution

1. Helpful in Price Determination : Channels of distribution are very helpful in determining the price of
products because they are in direct touch with consumers. They can estimate paying capacity of
consumer for product. Therefore, the manufacturer must invite the suggestion of middleman while
determining the price of his products.
2. To Manage Finance : All the manufacturers have limited financial resources. Middlemen help
manufacturers in making adequate financial resources available. They purchase the goods produced
 by manufacturers and make the payment for that. This way, they help in solving the financial
problems of manufacturers.
3. To Make the Process of Distribution Easy : It is not possible for a producer, particularly a producer
of consumer goods to be in direct touch with all the consumers. Therefore it is not very practical for
a producer to distribute his goods to his consumers directly. Channel of distribution help producers
in this regard. They distribute the goods produced by producers at right time and right place to the
right consumers.
4. Promotional Activities : Channels of distribution help producers not only in the distribution of goods
and services but also in promoting the sales of these producers. Wholesalers advertise for the goods
dealt with by them and retailers help in increasing the sales by adopting the measures of sales
promotion. Retailers display the goods in their showrooms so that more and more consumers may be
attracted.
5. Helpful in Communication: It is the time of Change. Habits, tastes, nature and attitudes of consumers
keep on changing frequently. In the light of these changes, it becomes imperative for every producer
to make necessary changes in his products. Channels of distribution helps producers in
communicating the changes in products to the consumers and in communicating the changes in
habits, tastes, likings and preferences of consumers to the manufacturers. Thus, channel of
distribution play an important role in communicating the needs of consumers to the manufacturers
and policies of manufacturers to the consumers. It increases the sales of manufacturers.
6. Matching of Demand and Supply : The most important function of middlemen is to collect goods
and services from many producers so that consumers may select from among a large number of
alternatives. In the words of Wroe Alderson , "The goal of marketing is the matching of segments of
demand and supply." Thus, the middleman play the game of matching demand and supply of goods
and services in a market.
7. Other Functions : Other functions of channels of distribution may be – a) To stabilize the prices; b)
To help in forecasting the demand for a product; c) To help in marketing research; d) To help in
production activities.

Factors Determining the Choice of Distribution Channels

There are a number of factors-both objective and subjective varying from company to company which govern
choice or selection of channel of distribution. • But there are some which stand out and influence channel of
distribution choice in all cases. • They may be described as under :
A. Factors Relating to Product Characteristics
B. Factors Relating to Company's Characteristics
C. Factors Relating to Market or Consumer's Characteristics
 D. Factors Relating to Middlemen Considerations
E. Factors Relating to Environmental Characteristics

Factors Relating to Product Characteristics

Product manufactured by a company is a governing factor in the selection of the channel of distribution. 
Product characteristics are as follows:
 Industrial/Consumer Products.
 Perishability.
 Unit Value.
 Style Obsolescence.
 Weight and Technicality.
 Standardized Products.
 Purchase Frequency.
 Newness and Market Acceptance.
 Seasonality.
 Product Breadth.

1. Industrial/Consumer Product :- When the product being manufactured and sold is industrial in nature,
direct channel of distribution is useful because of the relatively small number of customers need for
personal attention, salesman technical qualifications and after sale servicing etc. However, in case of a
consumer product, indirect channel of distribution, such as wholesalers, retailers is the most suitable.
2. Perishability :- Perishable goods, such as vegetables, milk, butter, bakery products, fruits, sea foods etc.
require direct selling as they must reach the consumers as easily as possible after production because of the
dangers associated with delays and repeated handling.
3. Unit Value :- When the unit value of a product is high, it is usually economical to choose direct channel of
distribution such as company's own sales force than middlemen. On the contrary, if the unit value is low
and the amount involved in each transaction is generally small, it is desirable to choose indirect channel of
distribution, i.e. through middlemen.
4. Style Obsolescence :- When there is high degree of style obsolescence in products like fashion garments, it
is desirable to sell direct to retailers who specialize in fashion goods.
5. Weight and Technicality :- When the products are bulky, large in size and technically complicated, it is
useful to choose direct channel of distribution.
6. Standardized Products :- When the products are standardized each unit is similar in shape, size, weight,
colour and quality etc. it is useful to choose indirect channel of distribution. On the contrary, if the product
is not standardized and is produced on order, it is desirable to have direct channel of distribution.
7. Purchase Frequency :- Products that are frequently purchased need direct channel of distribution so as to
reduce the cost and burden of distribution of such products.
8. Newness and Market Acceptance :- For new products with high degree of market acceptance, usually there
is need for an aggressive selling effort. Hence indirect channels may be used by appointing wholesalers and
retailers as sole agents. This may ensure channel loyalty and aggressive selling by intermediaries.
9. Seasonality :- When the product is subject to seasonal variations, such as woolen textiles in India, it is
desirable to appoint sole selling agents who undertake the sale of production by booking orders from
retailers and direct mills to dispatch goods as soon as they are ready for sale as per the order.
10. Product breadth :- When the company is manufacturing a large number of product items, it has greater
ability to deal directly with customers because the breadth of the product line enhances its ability to clinch
the sale. Hence, direct channel is the best choice, such as Delhi Cloth Mills, Bombay Dyeing, mafatlal
Group of Cotton Mills, Calico Mills, Bata Shoe Company etc. They have got wide product range and thus
sell their products direct through their own multiple shops or authorized retail shops.

Factors Relating to Company’s Characteristics •

The choice of channel of distribution is also influenced by company's own characteristics as to its size, financial
position, reputation, past channel experience, current marketing policies and product-mix etc. • In this
connection, some of the main factors are as follows:
 Financial Strength.
 Marketing Policies.
 Size of the Company.
 Past channel Experience.
 Product-Mix. Reputation.
1. Financial Strength :- The financial strength of the company also determines the channel of distribution. A
company which is financially sound may engage itself in direct selling. On the contrary, a company which is
financially weak has to depend on intermediaries and, therefore, has to select indirect channel of distribution,
such as wholesalers, retailers, with strong financial background.
2. Marketing Policies :- The marketing policies formulated by a company play a very important role in
influencing channel choice. The policies relevant to channel decision may relate to delivery, advertising, after
sale service and pricing etc. For instance, a company which likes to have a policy of speedy delivery of goods to
ultimate consumers may prefer direct selling and thus avoid intermediaries and will adopt a speedy
transportation system.
3. Size of the Company :- A large-sized company handling a wide range of products would prefer to have a
direct channel for selling its products. On the contrary, a smallsized company would prefer indirect selling by
appointing wholesalers, retailers etc.
4.Past Channel Experience :- Past channel experience of the company also influences the choice of selection of
channel of distribution. For instance, in case of an old and established company its past good experience of
working with certain kind of intermediaries will like to opt for the same channel. However, different will be the
case of reverse situation.
5. Product-Mix :- The wider is the company's product-mix, the greater will be its strength to deal with its
customer directly. Similarly, consistency in the company's product-mix ensure greater homogeneity or
uniformity and similarity in its marketing channels.
6.Reputation :- It is said that reputation travels faster than the man. It is true in the case of companies also who
wish to select channel of distribution. In case of companies with outstanding reputation like Tata Steel, Bajaj
Scooters, Hindustan Levers etc., indirect channel of distribution (wholesalers, retailers etc.) is more desirable
and profitable.

Factors Relating to Market or Consumer's Characteristics 

Market or consumer's characteristics refer to buying habits, location of market, size of orders etc.  They
influence the channel choice significantly.  They may be summarized as under:
1) Consumers' Buying Habits.
2) Location of the Market.
3) Number of Customer.
4) Size of Order
1.Consumers' Buying Habits :- Consumers' buying habits also Influence the channel decision. If the consumer
expects credit facilities or desires personal services of the salesman or desires to make all purchases at one
place, the channel distribution may be short or long depending on the capacity of the company for providing
these facilities. If the manufacturer can afford these facilities, the channel will be shorter otherwise longer.
2.Location of the Market :- When the customers are spread over a wide geographical area, the long channel of
distribution is most suitable. On the contrary, if the customer are concentrated and localized, direct selling
would be beneficial.
3.Number of Customer :- The number of customers also influence the channel decision. For instance, if the
number of customers is quite large, the channel of distribution may be indirect and long, such as wholesalers,
retailers etc. On the contrary, if the number of customers is small or limited, direct selling may be beneficial.
4.Size of Orders :- Size of orders of the customers influences the channel decision significantly. Where
customers purchase the product in large quantities, direct selling may be preferred. On the contrary, where
customers purchase the product in small quantities, frequently and regularly, such as cigarettes, matches etc.,
long channel (wholesalers, retailers etc.) of distribution may be preferred.

Factors Relating to Middlemen Considerations •

The choice of the channel of distribution is also influenced by the middlemen consideration. • They may include
the following:
 Sales Volume Potential.
 Availability of Middlemen.
 Middlemen's Attitude.
 Services Provided by Middlemen.
 Cost of Channel.
1. Sales Volume Potential :- In selecting channel of distribution, the company should consider the capability of
the middlemen to ensure a targetted sales volume. The sales volume potential of the channel may be estimated
through market surveys. However, it should be kept in mind that no single channel is capable for achieving the
targetted sales potential. Two or more channels may be required for this purpose.
2. Availability of Middlemen :- Availability of the right type of middlemen is also an important consideration in
making channel choice decision. In this connection, the company should make efforts to select aggressive
oriented middlemen. In case if they are not available, it is desirable to wait for some time and then to pick up. In
such cases, the company should manage its own channel so long the right type of middlemen are not available.
3.Middlemen's Attitude :- The attitude of the middlemen towards the policies of the company also influences
the channel decision. For example, if the company follows the resale price maintenance policy, the choice is
limited. On the contrary, if the company allows the middlemen to adopt their own price policy, the choice is
quite wide. Quite a large number of middlemen would be interested in selling company's products.
4.Services Provided by Middlemen :- If the nature of product requires after-sales services, repair services etc.,
such as automobiles, cars, scooters etc., only those middlemen should be appointed who can provide such
services, otherwise the company will adopt direct selling channel.
5.Cost of Channel :- Another factor considered is the cost involved in the distribution. Direct selling generally is
costlier and thus distribution arranged through middlemen is more economical. In this connection, it must be
kept in mind that the channel which ensures efficient distribution at the least expenses and which secures the
desired volume of sales should be chosen.

Factors Relating to Environmental Characteristics 

The environmental factors include competitor's channels, economic conditions, legal restrictions, fiscal structure
etc, as given below, affect significantly the channel choice.
1) Economic Condition.
2) Legal Restrictions.
3) Competitors Channel
4) Fiscal Structure.
1.Economic condition :- when economic conditions are bright such as inflation, it is desirable to opt indirect
channel of distribution because there is an all-round mood of expectancy, market tendencies are bullish and
favourable. On the contrary, if the market is depressed (such as deflation), shorter channels may be preferred.
2. Legal Restrictions :- The legislative and other restrictions imposed by the state are extremely formidable
and give final shape the channel choice. For instance, in India, M.R.T.P. Act, 1969 prevents channel
arrangements that tend to substantially lessen competition, create monopoly and are otherwise prejudicial to
public interest. With these objectives at the backdrop, it prevents exclusive distributorship, territorial
restrictions, resale price maintenance etc.
3.Competitors' Channel :- This also influences the channel choice decision. Mostly, in practice, similar types
of channels of distribution used by the competitors are preferred.
4.Fiscal Structure :- Fiscal structure of a country also influences the channel choice decision. For instance,
in India, State Sales Tax rates 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.
Differences in the sales tax rates in two different states would not only bring about difference in the price
payable by a consumer but also in the distribution channel selected.
Hence the company should appoint the channel in that State where the sales tax rates are quite low,
such as in Delhi, and that would give price advantage to the buyers of those States where the sales tax
rates are high. • For instance, most of the large size companies have either opened their branches or
appointed dealers in Delhi. • That is why, a large number of customers from neighboring States like
Rajasthan, U.P., Haryana etc. make their purchases from Delhi in view of the high sales tax rates in their
respective States. • For example sales tax on plastic goods in Delhi is only 2% as against 12% in U.P. •
Thus, the manufacturer or the producer should take into consideration the above factors in the channel
decision.

Types of Channels of Distribution

 The flow of goods from the producer to the ultimate consumer may take place through different types of
channels of distribution.  In this connection, different experts have discussed different types of channels of
distribution. 
According to R.S. Davar , there are three main types of channels of distribution, as given below :
1. Producer -> Ultimate Consumer
2. Producer -> Retailer -> Ultimate Consumer
3. Producer -> Wholesaler -> Retailer -> Ultimate Consumer

According to Philip Kotler , the four main type of channels of distribution are as follows:
1. Producer ->Ultimate Consumer
2. Producer -> Retailer -> Ultimate Consumer
3. Producer -> Wholesaler -> Retailer ->Ultimate Consumer.
4. Producer -> Wholesaler -> Jobber -> Retailer -> Ultimate Consumer.

William J. Stanton has suggested the following five types of channels of distribution for consumer goods :
1. Producer ->Ultimate Consumer
2. Producer -> Retailer -> Ultimate Consumer
3. Producer -> Wholesaler -> Retailer -> Ultimate Consumer
4. Producer -> Agent -> Retailer -> Ultimate Consumer
5. Producer -> Agent -> Wholesaler -> Retailer -> Ultimate Consumer
From the above, it is clear that opinions differ as to types of channels of distribution. However, the most
popular and common channels of distribution used for bringing the products in the market from the producer to
the ultimate consumer are as follows:

Producer —> Ultimate Consumer

This is the oldest, simplest and shortest type of channel of distribution.mUnder this method, the producer or the
manufacturer directly sells goods to the ultimate consumer without any middlemen. There are 3 alternatives in
making direct sales to ultimate consumer  Sale through advertising and direct methods, such as mail order
selling,  Sale through traveling sales force, such as house to house canvassing,  Sale through retail or
multiple shops of producer or manufacturer, such as Delhi Cloth Mill shops, Bata Shoe shops, Bombay Dyeing
shops etc.
This method is suitable in the following situations :
 When there are few potential buyers such as industrial buyers.
 When market for the product is concentrated in a particular geographical area only.
  When goods produced are in small quantity.
 When the product requires demonstration, tests, lengthy negotiations before sale and there is need to
provide after sale service, such as machinery, automobiles etc.
 .When the channel costs are higher than that of direct selling system.
 When the middlemen are not prepared to undertake the sale of a new market and introduce the new
product in the market.
 When the producer or the manufacturer decides to eliminate middlemen.
 When the product is of perishable nature, such as vegetables, eggs, etc.

Producer -> Retailer ->Ultimate Consumers •

This is also a simple, easy, old and most popular type of channel of distribution. Under this method, producers
sell their goods to retailers and retailers sell them in turn to ultimate consumers. Here the producer allows the
retailer to have direct access to him. The wholesalers or agents are totally eliminated. This channel option is
preferable when buyers are large retailers, such as departmental stores, chain stores, super bazaars, discount
houses, big mail order houses or cooperative stores. It is also suitable when the products are of perishable
nature, such as vegetables, fruits, eggs, and thus speed in distribution is essential. Home appliances, ready-made
garments, automobiles, shoes etc. are directly sold by the manufacturers to the retailers.
This type of channel of distribution maybe suitable in the following situations :
 When the product is perishable either physically or due to changes in fashion and thus requiring
speedy distribution.
 When the wholesalers are unwilling to promotional efforts needed by the producer. undertake
 When the retailers are financially sound to finance the producer towards the supplies made to them.
 .When the retailers are large enough to carry on the distribution work independently and efficiently.
 When the producers may desire to have closer contacts so as to understand buyers' preferences and
for product planning.
 When the demand for the product is constant.

Producer -> Wholesaler -> Retailer -> Ultimate Consumer

It is a normal, regular, traditional and also popular channel of distribution. Under this method, the producer
sells goods in large quantities to wholesalers. The wholesaler distributes the goods to retailers as per their
requirements in small quantities. The retailer finally sells the same to the ultimate consumers. In this way the
distribution channel is quite long. This channel of distribution is desirable for groceries, drugs and other types
of medicines, hardware, food-items etc.
This type of channel of distribution is suitable in the following situations :
1.When the producer has a narrow product range.
2.When the wholesalers are specialized and can provide strong promotional support.
3.When the products are durable and are not subject to physical deterioration or quick fashion changes.
4.When the retail outlets are more and widely spread.
5.The financial resources of producers are limited.

Producer –> Agent ->Wholesaler -> Retailer -> Ultimate Consumer

This is the longest channel of distribution. In this channel the producer uses the services of an agent who has
greater outlets and contacts. The agent in turn may distribute the goods to wholesalers, who in turn sell to
retailers. The retailer sells the goods to the ultimate consumers. The agents have a wide distribution system on
national level. The agent acts as a sole selling agent of the producer, such as Voltas. In this case the producer is
not required to undertake marketing task as the entire supply is purchased by the agent. • This type of channel of
distribution is suitable for marketing agricultural and large scale manufactured products, such as cotton textiles,
cement etc.

Producer -> Wholesaler -> Ultimate Consumer

In this type of channel of distribution, producer sells the goods to wholesalers and the wholesalers sell them
directly to ultimate consumers. The wholesaler may bypass retailer only when there are large institutional
buyers, such as industrial buyers, government and educational institutions, hospitals, consumer cooperative
stores and large business houses etc.

Common Channels of Distribution of Industrial Goods

As the industrial goods have quite different nature and more or less fixed patterns, the channels used by them
are less complicated. Major channels of distribution, which are commonly used in the distribution of industrial
goods, are as follows:
1. Producer -> Industrial User
2. Producer -> Wholesaler -> Industrial Users
3. Producer -> Agent -> Industrial Users
4. Producer -> Agent -> Industrial Distributor -» Industrial User

Producer -> Industrial User •

This is the most popular and commonly used channel in the distribution of industrial goods. • This
system is most suitable if the goods are sold to few industries and the number of such industries is quite small. •
This will help in maintaining close contact with customers and prospective buyers and create opportunities for
more sales. • This system is in a position to supply highly specialized technical service along with after-sales
service to their customers.

Producer -> Wholesaler -> Industrial Users •

In this case, the producers sells goods to wholesalers who sell them to industrial users. • This channel of
distribution is beneficial when the market is scattered and the volume of sales in each area is quite thin. • This
system is useful for small-scale manufacturers of equipment for air conditioning plants, building construction,
small-sized tools and other standard pieces of equipment etc.

Producer -> Agent -> Industrial Users •

In this case, the producer uses the services of agents for selling goods to industrial users. • The agent
may be a broker or commission agent or sales agent. • The producer has to rely only on one agent in each
geographical area and is to be prepared to hand over the marketing function to one agent in a particular area. •
In this case, the cost of distribution is quite low. • This system is more suitable for small-sized industrial
enterprises or for introducing a new product in the market.

Producer -> Agent -> Industrial Distributor -> Industrial User •

This is the longest and popular channel of distribution which is mostly adopted by enterprises for selling
their goods. large-sized industrial • In this case, the producer uses the services of the agent though the goods are
sold to industrial distributors, who in turn, sell them to industrial users. • The agent may be a broker,
commission agent, sales agent or producer's agent. • This channel of distribution is suitable for selling new
products or to enter new markets.

ADVERTISING

“Advertising consists of all activities involved in presenting to a group a non-personal, oral or visual, openly
sponsored identified message regarding a product, service, or idea. The message, called an advertisement, is
disseminated through one or more media and is paid for by the identified sponsor”-William Stanton.
The world has become a global market. Modern market is more dynamic, competitive, and consumer-oriented.
Entire marketing process is aimed at satisfying consumers more effectively than competitors. Consumer
satisfaction can be achieved by receiving information from market and sending information to the market.

In order to inform, attract, and convince the valued customers, a marketer undertakes a number of promotional
means. Advertising is one of the powerful means to inform about company’s total offers. Advertising is a
dominant element of market promotion. Many times, the entire promotional efforts are replaced by advertising
alone.
Major portion of promotion budget is consumed by advertising alone. Advertising is so powerful and popular
that it is taken as equal to marketing!! Mass media are used intensively to advertise various products. Marketing
without advertising seems to be impossible. Advertising works like a magic stick to actualize marketing goals!

Definitions of Advertising:
1. We can define term ‘advertising’ as:
Advertising is a paid form of mass communication that consists of the special message sent by the specific
person (advertiser or company), for the specific group of people (listeners, readers, or viewers), for the specific
period of time, in the specific manner to achieve the specific goals.

2. More clearly, advertising can be defined as:

Advertising includes oral, written, or audiovisual message addressed to the people for the purpose of informing
and influencing them to buy the products or to act favorably toward idea or institution.

3. Philip Kotler:
“Advertising is any paid form of non-personal presentation and promotion of goods, services, or ideas by an
identified sponsor.”

4. Frank Presbrey:
“Advertising is a printed, written, oral and illustrated art of selling. Its objective is to encourage sales of the
advertiser’s products and to create in the mind of people, individually or collectively, an impression in favour of
the advertiser’s interest.”

5. William Stanton:
“Advertising consists of all activities involved in presenting to a group a non-personal, oral or visual, openly
sponsored identified message regarding a product, service, or idea. The message, called an advertisement, is
disseminated through one or more media and is paid for by the identified sponsor.”

Characteristics of Advertising:
1. Tool for Market Promotion:
There are various tools used for market communication, such as advertising, sales promotion, personal selling,
and publicity. Advertising is a powerful, expensive, and popular element of promotion mix.

2. Non-personal:
Advertising is a type of non-personal or mass communication with the target audience. A large number of
people are addressed at time. It is called as non-personal salesmanship.
3. Paid Form:
Advertising is not free of costs. Advertiser, called as sponsor, has to spend money for preparing message,
buying media, and monitoring advertising efforts. It is the costliest option of market promotion. Company has
to prepare its advertising budget to appropriate advertising costs.

4. Wide Applicability:
Advertising is a popular and widely used means for communicating with the target market. It is not used only
for business and profession, but is widely used by museums, charitable trusts, government agencies, educational
institutions, and others to inform and attract various target publics.

5. Varied Objectives:
Advertising is aimed at achieving various objectives. It is targeted to increase sales, create and improve brand
image, face competition, build relations with publics, or to educate people.

6. Forms of Advertising:
Advertising message can be expressed in written, oral, audible, or visual forms. Mostly, message is expressed in
a joint form, such as oral-visual, audio-visual, etc.

7. Use of Media:
Advertiser can use any of the several advertising media to convey the message. Widely used media are print
media (newspapers, magazines, pamphlets, booklets, letters, etc.), outdoor media (hoardings, sign boards, wall-
printing, vehicle, banners, etc.), audio-visual media (radio, television, film, Internet, etc.), or any other to
address the target audience.

8. Advertising as an Art:
Today’s advertising task is much complicated. Message creation and presentation require a good deal of
knowledge, creativity, skills, and experience. So, advertising can be said as an art. It is an artful activity.

9. Element of Truth:
It is difficult to say that advertising message always reveals the truth. In many cases, exaggerated facts are
advertised. However, due to certain legal provisions, the element of truth can be fairly assured. But, there is no
guarantee that the claim made in advertisement is completely true. Most advertisements are erotic, materialistic,
misleading, and producer-centered.

10. One-way Communication:

Advertising involves the one-way communication. Message moves from company to customers, from sponsor
to audience. Message from consumers to marketer is not possible. Marketer cannot know how far the
advertisement has influenced the audience.

Advertising Objectives:
Advertising is aimed at achieving various objectives. Objectives may be commercial or social in nature. Prof.
Kelly gave the concept of DAG MAR – Defining Advertising Goals for Measuring Advertising Results – in
relation to advertising objectives. Broadly, advertising objectives can be categorized into three classes, such as
informative objectives, persuasive objectives, and reminder objectives.

Prof. Sew and Prof. Smith have classified objectives as:

i. Sales objectives

ii. Aiding sales force

iii. Competition-related objectives

iv. Brand loyalty and reputation-related objectives

However, we will consider following objectives:

1. To Inform Buyers:
This objective includes informing customers regarding product’s availability, price, features, qualities, services,
and performance. Besides, it also includes informing them about changes made in the existing product and
introduction of new products. Company also highlights its location, achievements, policies, and performance
through advertising.

2. To Persuade or Convince Buyers:

Company uses advertisement to persuade or convince the buyers about superior advantages offered by its
product. Company communicates competitive advantages the product offers to induce customers buy it.
Comparative advertising is used to prove the additional benefits of product at a given price.

3. To Remind Buyers:
Marketer uses advertising to remind the buyers regarding existence of company, products, maintenance of
quality, superior services, and chasing customer-orientation. Mostly, the existing firms aim their advertising for
this objective.

Here, the purpose is to inform that the company is still in existence and serving customers in a better way. Due
to huge information bombarded by a number of companies, customers are more likely to forget name of
company and/or products and services it offers.

4. To Face Competition:
Advertising is treated as the most powerful weapon to fight with competitors effectively. Advertising enables
the firm to respond the competitors strongly. It helps the firm to distinguish its total offerings from competitors.

In brief, the firm can face competition, can prevent the entry of competitors, or can remove competitors away
from the market. In competitive marketing environment, the firm cannot survive without an effective
advertisement.

5. To Achieve Sales Targets:

Increase sales volume is one of the major advertising objectives. A company can advertise its products in
various media to attract customers situated in different parts of the world. National and international marketing
is the result of advertising. Even, non-users can be converted into users and usage rate can be increased. Thus,
company can achieve its sales objectives by advertisement.

6. To Build and Improve Brand Image:

Advertising is used for brand recognition and acceptance. A company can distinguish its brand by magnifying
major benefits the product offers. Advertisement attracts customers toward the brand; they try it and accept it
over time. In the same way, bad image related to brand can be changed by systematic presentation of facts and
scientific evidences, and removing misunderstanding.

7. To Help or Educate People:

Advertising is not always used only for company’s benefits. It is meant for helping customers to make the right
choice of product. It educates people about availability of new products, its features and qualities, price,
services, and other related aspects. Such information is instrumental for purchasing suitable products. Thus, it
guides customers to choose the most appropriate product.

8. To Build Company Image and Reputation:

A company opts for advertisement to build prestige and reputation in the market. Most of the companies, though
they are satisfied with the volume of sales, go for advertising to acquire fame in the market. Many companies
advertise its policies, activities, and achievements to make a permanent place in the mind of people.

9. To Assist Sales Force and Middlemen:

Advertising is an aid to middlemen and salesmen. Advertising also popularizes the name of dealers. Likewise,
advertising provides necessary information to the buyers. Middlemen and salesmen are not required to do the
same. It eases the task of sellers. In the same way, advertising encourages sales force.

Advantages of Advertising

The major advantages of advertising are: (1) introduces a new product in the market, (2) expansion of the
market, (3) increased sales, (4) fights competition, (5) enhances good-will, (6) educates the consumers, (7)
elimination of middlemen, (8) better quality products, (9) supports the salesmanship, (10) more employment
opportunities, (11) reduction in the prices of newspapers and magazines, (12) higher standard of living!

The benefits derived from advertising are manifold. It is one of the most important components of the marketing
process.

This is beneficial to manufacturers, traders, consumers and society as a whole. Advertising offers the following
advantages.

(1) Introduces a New Product in the Market:

Advertising plays significant role in the introduction of a new product in the market. It stimulates the people to
purchase the product.

(2) Expansion of the Market:

It enables the manufacturer to expand his market. It helps in exploring new markets for the product and
retaining the existing markets. It plays a sheet anchor role in widening the marketing for the manufacturer’s
products even by conveying the customers living at the far flung and remote areas.

(3) Increased Sales:

Advertisement facilitates mass production to goods and increases the volume of sales. In other words, sales can
be increased with additional expenditure on advertising with every increase in sale, selling expenses will
decrease.

(4) Fights Competition:

Advertising is greatly helpful in meeting the forces of competition prevalent in the market. Continuous
advertising is very essential in order to save the product from the clutches of the competitors.

(5) Enhances Good-Will:

Advertising is instrumental in increasing goodwill of the concern. It introduces the manufacturer and his
product to the people. Repeated advertising and better quality of products brings more reputation for the
manufacturer and enhances goodwill for the concern.

(6) Educates The Consumers:

Advertising is educational and dynamic in nature. It familiarises the customers with the new products and their
diverse uses and also educates them about the new uses of existing products.

(7) Elimination of Middlemen:

It aims at establishing a direct link between the manufacturer and the consumer, thereby eliminating the
marketing intermediaries. This increases the profits of the manufacturer and the consumer gets the products at
lower prices.

(8) Better Quality Products:

Different goods are advertised under different brand names. A branded product assures a standard quality to the
consumers. The manufacturer provides quality goods to the consumers and tries to win their confidence in his
product.

(9) Supports The Salesmanship:

Advertising greatly facilitates the work of a salesman. The customers are already familiar with the product
which the salesman sells. The selling efforts of a salesman are greatly supplemented by advertising. It has been
rightly pointed out that “selling and advertising are cup and saucer, hook and eye, or key and lock wards.”

(10) More Employment Opportunities:

Advertising provides and creates more employment opportunities for many talented people like painters,
photographers, singers, cartoonists, musicians, models and people working in different advertising agencies.

(11) Reduction in the Prices of Newspapers and Magazines Etc:

Advertising is immensely helpful in reducing the cost of the newspapers and magazines etc. The cost of
bringing out a newspaper is largely met by the advertisements published therein.

(12) Higher Standard of Living:

The experience of the advanced nations shows that advertising is greatly responsible for raising the living
standards of the people. In the words of Winston Churchil “advertising nourishes the consuming power of men
and creates wants for better standard of living.” By bringing to the knowledge of the consumers different variety
and better quality products, it has helped a lot in increasing the standard of living in a developing economy like
India.

Types of Advertising

Nine types of advertising media available to an advertiser are: (1) direct mail (2) newspapers and magazines (3)
radio advertising (4) television advertising (5) film advertising (6) outdoor advertising (7) window display (8)
fairs and exhibition and (9) specially advertising!

(1) Direct Mail:

This is one of the oldest types of advertising media. Under this method message is sent to the prospective
buyers by post. A mailing list is prepared for this purpose. Circular letters, folders, calendars, booklets and
catalogues are sent under this type of advertising. In the sales letter an appeal is made to the buyers separately.

It contains detailed information with regard to the product. The main aim of these letters is to create the reader’s
interest in the product. The letter should be attractive, interesting and convincing. Booklets and catalogues
contain information regarding detailed description and prices of different varieties of products.

This method is very effective as it establishes direct contact with the consumer and also maintains secrecy in
advertising. Detailed information with regard to the product can be sent to the buyers. The letters and circulars
contain personal appeals which are greatly helpful in arousing their interest in the products. This method can be
effectively undertaken in case the manufacturers are selling directly to the consumers.

Direct mail advertising suffers from certain drawbacks also. It has limited access i.e. a small number of buyers
can be covered. There are practical difficulties in preparing and maintaining up-to-date mailing list. This is also
not suitable for every type of product.

(2) Newspapers and Magazines:

These are the important forms of press advertising, newspapers are the most effective and powerful medium of
advertising. Newspapers contain valuable information with regard to different current events. It may be referred
to as ‘a store house of information’. There are daily, bi-weekly and weekly newspapers. Newspapers have
widest circulation and read by many people. The newspapers may be local, provincial or national.

There is a separate advertisement department in every newspaper which classifies and designs different
advertisements in the paper. Before selecting a newspaper the advertiser should take into consideration various
factors viz., coverage of the newspaper, the class of customers and the cost of advertising etc.

The newspapers offer widest circulation and have universal appeal. The cost of advertising is lesser as
compared to other media. The newspapers have more repetitive value and are very helpful in introducing a new
product. These are suitable for all types of goods having wider markets.

A high degree of flexibility is ensured by newspapers i.e., the advertisement campaign can be undertaken and
stopped quickly. Advertisements are the main source of revenue to the publishers. The most important benefit
derived from the newspapers is that the advertiser’s message can be conveyed to the readers quickly.

Besides newspapers suffer from certain drawbacks also. They have shorter life and are not suitable for illiterate
people. Most of the people read the papers casually especially in the morning hours when they are in a hurry to
join their respective jobs.

Secrecy cannot be maintained in this type of advertising. Another drawback of newspaper advertising is that
they are in black and white prints. Coloured advertisements are not covered, which are more appealing and
attractive.

Magazines:
Magazines or periodicals are other important media of communication. Magazines may be released weekly,
monthly, quarterly, bi-annual or annual. These are read with more interest by the readers as compared to
newspapers. Advertisements given in magazines are more descriptive and attractive. They are usually in
coloured form which depicts the product nicely and gives lasting impression to the reader.

There are magazines or journals meant for general public and special class of people. There are exclusive
magazines relating to industry, trade, finance and economics etc. There are also special magazines for men,
women and children. The magazines have longer life and are very suitable for advertising specific goods.

Magazines have lesser flexibility as compared to newspapers. Last minute changes cannot be introduced in the
advertisement as they are sent to the press many days before the publication. There is lesser repetitive value and
no secrecy can be maintained.
Cost of advertising is higher as compared to newspapers. Their circulations are small and are suitable for
educated readers only. In the introduction of a new product, magazines are not much suitable on account of
lesser continuity.

(3) Radio Advertising:

Radio advertising is very popular these days. The advertisements are broadcasted from different stations of All
India Radio. Radio advertising can be explained as “word of mouth advertising on a wholesale scale”. The
advertising messages can be in different regional languages.

The most important advantage derived from radio advertising is that it covers every type of listener whether
illiterate or educated. It is a very effective medium for popularising on mass scale various consumer articles.
The coverage of this medium is wider extending to a large number of listeners. It ensures quicker repetition.

Radio advertising suffers from shorter life, limited memory and short messages. Cost of advertising is higher.
The message may not be listened properly by the listener. There is no secrecy. This is useful for those who
possess radio sets. There is lesser flexibility and lack of personal touch.

(4) Television Advertising:

This is the latest and the fast developing medium of advertising and is getting increased popularity these days. It
is more effective as compared to radio as it has the advantages of sound and sight. On account of pictorial
presentation, it is more effective and impressive and leaves ever lasting impression on the mind of the viewer.

It is a very costly medium which can be employed by big concerns only; it has a shorter life span and limited
coverage. Back reference to the advertisement cannot be made after its presentation. The duration of the
advertisement is very limited.

Despite of the above mentioned drawbacks, this method of advertising is gaining rapid coverage and immense
popularity among the masses.

(5) Film Advertising:

This is also known as cinema advertising. This also provides sight and hearing facilities like television. Short
advertisement films are not prepared by big business houses which are sent to different cinema houses to be
shown to the audience before the regular shows or during the intermission. It has more repetitive value but not
to the same viewers. Its coverage is limited which benefits the local population only.
It is a very costly medium involving higher distribution and film making costs. Only big organisations can
afford to produce advertisement films. It ensures more flexibility at larger costs. Its effectiveness cannot be
measured properly. Film making is a time consuming process.

(6) Outdoor Advertising:

This type of advertising include different media like posters, placards, electric displays or neon signs,
sandwichmen, sky writing, bus, train and tram advertising. This is also known as ‘Mural advertising’. The main
aim of outdoor advertising is to catch the attention of passerby within twinkling of an eye.

This is the most effective medium of advertising. This is very suitable in the case of consumable and household
articles like soaps, medicines, fans, shoes and pens etc.

Posters and placards are usually fixed on the walls near the road sides, railway station and bus stands. These
posters are made of thick paper or metal plate or wood and carry the advertising message which can be easily
read and seen from a distance.

The posters also pasted on the back of buses, trains and trams which are greatly helpful in carrying the message
throughout and outside the city. Painted displays are prepared by expert painters which carry attractive multi-
coloured pictures also to impress upon the people.

Electric displays or neon signs are also used in order to impress the passerby. These carry a very short message.
This is a very costly device.

Sandwich-men move from street to street carrying the posters and peculiarly. They shout and sing praising the
concern and the product. Sky writing is also known as air advertising.

The pilots of the aeroplanes through whom this is carried write the advertiser’s message in the form of smoke or
illumination. The message is quite visible even from a long distance. Balloons fitted with the message and
pictures of the product are also flown in the sky.

This type of advertising has a wider coverage and leaves effective impression on the people. It is very suitable
for making the product popular and creating proper brand image. It has greater flexibility and can be designed
by keeping in view the peculiarities of a particular locality. It requires lesser time and effort on the part of the
advertiser to undertake this medium. This is more durable and economical form of advertising medium.

It has been referred as reminder or residuary publicity which is used by the advertiser after all the other
advertising media.
Sticking of bills and posters destroys the walls of different building and adversely affects the cleanliness and
beautification of a particular area.

Various media like skywriting, sandwichmen, balloons and electric displays are very costly. They are beyond
the means of a small trader.

(7) Window Display:

It is a common method which is usually undertaken by retailers who display their products in the shop windows
in order to attract the customers. This is also known as exterior display.

It is the most effective and direct method of influencing the people. Window display has direct appeal to the
onlookers. It is instrumental in arousing the desire to purchase in the prospective customers. It acts as a silent
salesman.

In order to operate this method successfully, goods should be arranged properly and systematically in the show
windows. The articles in the windows should be regularly- changed. The advertiser should not forget that the
window is the index of his shop. Utmost care should be undertaken to display the products in windows.

(8) Fairs and Exhibition:

A trade exhibition or a fair is organised on extensive scale which is attended by different manufacturers and
traders along with their products to be sold to the large number of people who visit the exhibition. The
exhibition may be either organised on local, provincial or international basis. The examples of some of the
international exhibitions are EXPO 70 of JAPAN, ASIA 72 and recent trade fair at Delhi every year.

Different stalls or pavilions “are allotted to various traders who display their goods in these pavilions. The
manufacturers also distribute the sales literature and sometimes free samples of goods to the people. Facilities
of practical demonstration are also provided to the customers. The customers clearly understand the method of
operation and use of the product.

In the case of international exhibitions, traders of different countries assemble at one place; they can
conveniently share the experiences of their respective countries with each other which are really informative
and useful for all of them. It provides ample opportunity for learning. The huge gathering of people in the
exhibition provides a larger market for sale.

(9) Specially Advertising:

Most of the business houses in order to increase their sales, advertise their products, give free gifts like diaries,
purses, paper weights and calendars to the customers. The name of the firm or the dealer is inscribed on the
articles presented.

CONSUMER BEHAVIOUR

Meaning and Definition:

Consumer behaviour is the study of how individual customers, groups or organizations select, buy, use, and
dispose ideas, goods, and services to satisfy their needs and wants. It refers to the actions of the consumers in
the marketplace and the underlying motives for those actions.

Marketers expect that by understanding what causes the consumers to buy particular goods and services, they
will be able to determine—which products are needed in the marketplace, which are obsolete, and how best to
present the goods to the consumers.

The study of consumer behaviour assumes that the consumers are actors in the marketplace. The perspective of
role theory assumes that consumers play various roles in the marketplace. Starting from the information
provider, from the user to the payer and to the disposer, consumers play these roles in the decision process.

The roles also vary in different consumption situations; for example, a mother plays the role of an influencer in
a child’s purchase process, whereas she plays the role of a disposer for the products consumed by the family.

Some selected definitions of consumer behaviour are as follows:

1. According to Engel, Blackwell, and Mansard, ‘consumer behaviour is the actions and decision processes of
people who purchase goods and services for personal consumption’.

2. According to Louden and Bitta, ‘consumer behaviour is the decision process and physical activity, which
individuals engage in when evaluating, acquiring, using or disposing of goods and services’.

Factors influencing Consumer Behaviour

There are many factors affecting consumer behaviour. These all factors jointly shape consumer behaviour. Due
to impact of various factors, consumers react or respond to marketing programme differently. For the same
product, price, promotion, and distribution, their responses differ significantly. The factors do not affect equally
to all the buyers; they have varying effect on their behaviour. However, some factors are more effective, while
others have negligible effect on consumer behaviour.

(A) Cultural Factors:

Cultural factors have the broadest and deepest impact on consumer behaviour. This set of factors mainly
includes broad culture, sub-culture, and culture of social classes.

1. Broad Culture:
Culture is a powerful and dominant determinant of personal needs and wants. Culture can be broadly defined as:
The way of living, way of doing, and way of worshiping. Culture determines the total patter of life. Culture has
a tremendous effect on needs and preference. People react according to the culture to which they belong.

Every culture has its values, customs, traditions, and beliefs, which determine needs, preference, and overall
behaviour. The child acquires a set of values, perception, attitudes, interest, preference, and behaviour from
family and other key social institutions that control his/her behaviour. Every member is bound to follow cultural
values to which he belongs. These cultural factors determine the way of reacting toward product and marketing
strategies.

Culture is reflected in terms of followings:

i. Family life/social system

ii. Role of women

iii. Woman education

iv. Approach to work and leisure

v. Approach to life

vi. Ethics in economic dealings

vii. Residence pattern

viii. Geographic factors

ix. Impact of other cultures, and so on.

These all factors affect what, when, where, how much, from whom, and how many times the product should be
purchased and used. Marketer must be aware of the relevant cultural aspects, and marketing programme should
be designed accordingly.

2. Subcultures:
Each culture consists of smaller subcultures. Each subculture provides more specific identification of members
belong to it. Product and marketing programme should be prepared in light of subcultures to tailor their needs.

Subculture includes:
i. Nationality:
Every nation has its own unique culture that shapes and controls behaviour its citizens. For example, Indian
culture, American culture, Japanese culture, Chinese culture, African culture, etc. Consumers of different
nations hold different behaviour toward the company’s products and strategies. The company can concentrate
on one or more nations to serve.

ii. Religion:
It is a powerful determinant of consumer needs and wants. Every religion has its culture in terms of rules,
values, rituals, and procedures that have impact on its followers. Commonly, consumer behaviour is directly
affected by religion in terms of products that are symbolically and ritualistically associated with the celebration
of various religious events and festivals/holidays.

Religious requirements or practices, sometimes, take on an expanded meaning beyond their original purpose.
For example, Christians, Hindus, Muslims, Buddhists, etc., influence food preference, clothing choice, career
aspiration, and overall pattern of life.
Even, in each religion, there are several sub-religions. For example, Hindu Religion includes Vaishnav,
Swaminarayan, Shivpanthi, Swadhiyai, and likewise; Christian Religion includes Protestants and Catholics; and
similar is the case with Muslim and Jain.

iii. Racial Groups:

In each culture, we find various racial groups; each of them tends to be different in terms of needs, roles,
professions, habits, preference, and use of products. Each group responds differently to marketing offers due to
different cultural backgrounds.

For example, in our country, we find a number of racial groups like Kshatriya, Banya, Patel, Brahmin,
Scheduled Caste, Scheduled Tribe, Shepherded, and so forth. These racial groups have their cultural values,
norms, standards, habits, etc., that govern their overall response toward the company’s products.

iv. Geographical Regions:

Each geographic region represents specific culture and differs in terms of needs, preference, habits, usage rates,
and uses of products. Clothing, residence, food, vehicle, etc., are determined by regional climate and culture.

3. Culture of Social Classes:

Philip Kotler defines: “Social classes are relatively homogeneous and enduring divisions in a society, which are
hierarchically ordered and whose members share similar values, interest, and behaviour.” In many cases, social
classes are based on caste system. Members of different castes have their cultures and, accordingly, they
perform certain roles.

Social classes reflect differences in income, occupation, education, their roles in society, and so on. Every social
class has its culture that affects behaviour of its members. Social classes differ in their dress, speech patterns,
recreational preferences, social status, value orientation, etc.

They show distinct product and brand preferences in many areas like clothing, home furniture, education,
leisure activities, and automobiles. Kotler identifies following social classes, each of them differs significantly
in term of income, skills, needs, habits, preference, career orientation, approach toward life, etc.

i. Upper-upper

ii. Lower upper

iii. Upper middle

iv. Middle class

v. Working class

vi. Upper lower

vii. Lower-lower

Normally, with reference to India, on the basis of income level, or status in society, we can identity three social
classes like upper class, middle class, and lower class. In every society, percentage of each of these classes is
subject to differ. Marketer should design his marketing programme to cater the needs of specific social classes.

(B) Social Factors:

Here, we examine the effect of social factors on consumer needs and preferences (behaviour). Social factors
affect consumer behaviour. Consumer response to product, brand, and company is notably influenced by a
number of social factors – family, reference groups, and roles and statuses. Marketer needs to analyze these
social factors of his target market to cater its needs effectively.

Let’s briefly comment on some dominant social factors influencing consumer behaviour:
1. Family:
Family is one of the most powerful social factors affecting consumer behaviour. This is more significant where
there is joint family system, in which children use to live with family for longer time. Values, traditions, and
preferences are transmitted from parents to children inherently.

Family members constitute the most influential primary reference group. From family, its member acquires an
orientation toward religion, politics, ambition, self-worth, love, respect, and so on. Need, preference, buying
habits, consumption rate, and many other aspects determined by family affect one’s behaviour.

In every family, elders, husband-wife, other members, and children have varying degree of influence on
purchase decision, which is the matter of interest for the marker to appeal them. Some products are children
dominant; some products are husband dominant; some products are wife dominant; while some products are
equal dominant.

2. Reference Groups:
Philip Kotler states: “A person’s reference group consists of all the groups that have a direct (face-to-face) or
indirect influence on the person’s attitudes or behaviour.” Groups having a direct influence on the person are
called membership groups.

Normally, following reference groups affect behaviour of their members:

i. Primary Reference Groups:
They are informal groups such as family members, friends, neighbors, relatives, and co-workers with whom the
person interact fairly continuously. Habits, life-style, and opinions of these groups have direct impact on the
person.

ii. Secondary Reference Groups:

They tend to be more formal groups such as religious groups, professional groups, trade unions or associations,
etc., that affect buying decisions of an individual buyer.

iii. Aspiration (Aspired) Groups:

A person is not the member of such groups. But, he likes to belong to those groups. He imitates habits,
preference and buying pattern of such groups. For example, college students imitate/like to belong to film stars,
sportsmen, or professional groups.

iv. Dissociative (Disliked) Groups:

Theses reference groups include such groups whose values or behaviour a person rejects or dislikes. He tends to
behave differently than those groups. A marketer should identify reference groups of his target market and
should try to influence those groups. In case of television, automobile, clothing, home furniture, books and
magazines, cigarettes, etc., the reference groups have more direct impact on buyers’ purchase decision.

3. Roles and Statuses:

A person plays various roles in many groups throughout his life. He has to play different roles in family, club,
office, or social organisation. A role consists of the activities that a person is expected to perform. For example,
a person is father for his children, husband for his wife, son for his parents, friend for his friends, boss for his
department, and a member of social organisation.

Each role carries status. For example, sales manager has more status than sales officer. People choose those
products that communicate or represent their roles and statuses in society. Therefore, marketer must be aware of
the status symbol potential of products and brands. The marketer should also try to associate products and
brands with specific roles and status.

4. Social Customs and Traditions:

Social customs, beliefs or traditions can be associated with religion, caste, or economic aspects. Such customs
determine needs and preference of products in different occasions and, hence, affect consumer behaviour.

5. Income Level:
Income affects needs and wants of consumers. Preference of the rich consumers and the poor consumers differ
notably. In case of quality, brand image, novelty, and costs, there is wide difference between the rich and the
poor buyers. Marketer must be aware of expectations of different income groups of his target market.

(C) Personal Factors:

Along with cultural and social factors, personal factors also affect one’s buying decision. Personal factors are
related to the buyer himself. These factors mainly include age and stage in life cycle, occupation, economic
circumstances, life style, personality, and self-concept. Let us briefly examine the effect of personal factors on
consumer behaviour.

i. Age and Stage in Life Cycle:

A man passes through various stages of his life cycle, such as infant, child, teenager, young, adult, and old.
Need and preference vary as one passes through different stages of life cycle. For example, child and adult
differ to a great extent in terms of needs and preference. Marketer may concentrate on one or more stages of his
target consumers’ life cycle. Use of different product depends on age and stage of buyers’ life cycle.

ii. Occupation:
Buying and using pattern of consumer, to a large extent, is affected by a person’s occupation. For example,
industrialist, teacher, artist, scientist, manager, doctor, supervisor, worker, trader, etc., differ significantly in term
of need, preference, and overall buying pattern. Company can specialize its products according to needs and
wants of special professional groups.

iii. Economic Circumstances:

Product preference, frequency of buying, quality, and quantity are largely affected by consumers’ economic
circumstances. Economic circumstances consist of spendable income, income stability, level of savings, assets,
debts, borrowing power, and attitudes toward saving versus spending. People buy products keeping in mind
these economic circumstances.

iv. Life Style:

People with the same culture, social class, and occupation may differ in term of their life style. Knowledge of
life style of the target market is essential for marketer to design more relevant marketing programme. Kotler
defines: “Life style is the person’s pattern of living in the world as expressed in the person’s activities, interest,
and opinions.”
Life style portrayed the “whole person” interacting with his/her environment. It is generally reflected in terms
of activities, interest, clothing patterns, status consciousness, spending and savings, helping others,
achievements, working style, etc. Every product has potential to suit different life styles.

v. Personality:
Personality is a distinguished set of physical and psychotically characteristics that lead to relatively consistent
and enduring response to one’s environment. Personality characteristics, such as individualism, difference, self-
confidence, courage, firmness, sociability, mental balance, patience, etc., have a strong influence on needs and
preferences. Every person buys that product which suits his personality. In case of clothing, automobiles, shoes,
perfumes, etc., products are influenced by users’ personality characteristics.

vi. Self-concept:
It is also referred as self-image. It is what person believes of him. There can be actual self-concept, how he
views himself; ideal self-concept, how he would like to view himself; and others-self-concept, how he thinks
other see him. Person purchases such product that matches with his/her self-image. Marker must identify self-
concept of his target buyers and must try to match the products with them.

vii. Gender:
Gender or sex affects buying behaviour. Some products are male-dominated while some are female-dominated.
Male customers react to those products which are closely suit their needs and styles. Cosmetics products are
more closely related to female customers than male. Marketer must be aware of gender-effect on buying
behaviour of the market.

viii. Education:
Education makes the difference. Highly educated, moderately educated, less educated, and illiterates differ
considerably in terms of their needs and preferences. In the same way, stage of education (like primary,
secondary, college, etc.) affects buyers’ behaviour.

Education factor seems more relevant to academic institutes, book publishers, magazines, and newspapers.
Education affects one’s mindset. Buyers’ colour choice, quality-orientation, services, and other aspects have
more or less educational significance.

(D) Psychological Factors:

Buying behaviour is influenced by several psychological factors. The dominants among them include
motivation, perception, learning, and beliefs and attitudes. It is difficult to measure the impact of psychological
factors as they are internal, but are much powerful to control persons’ buying choice. Manager must try to
understand probable role the factors play in making buying decisions.

i. Motivation:
It has a significant impact on consumer behaviour. Motivation is closely related to human needs. One has many
needs at a given time. Some needs are biogenic or physiological in nature arising from physiological states of
tension, such as hunger, thirst, or discomfort.

Other needs are psychogenic or psychological in nature arising from psychological state of tension, such as
recognition, esteem, or belonging. Motivation comes from motive; motive is expression of needs; or intensified
need become a motive. Thus, a motive is the need that is sufficiently pressing to drive the person to act.
Satisfying the need reduces the felt tension.

People hold one or more of following motives to buy:

i. To satisfy basic needs like hunger, thirst, or love

ii. To protect from economic, physical or mental hazards

iii. To get social status

iv. To be recognized or appreciated

v. To be respected

vi. To be self-actualized

vii. To avoid physical or mental stress

Motivation is, thus, a driving force that makes the individual to act to release the tension aroused from unmet
needs. A motivated person is ready to act/react. Marketer should identify why people buy the products. What are
the motives to purchase the products? If product is connected with their motives, they definitely respond
positively.

In fact, the product is a source of satisfying unmet needs. So, product is presented as a solution of tension
resulted from unsatisfied needs. Several theories are available to understand motivation aspect.

Most popular theories include Maslow Need Hierarchy, Herzberg’s Two-Factor Theory, Stacy Adam’s Equity
Theory, Vroom’s Expectancy Theory, Porter-Lawler Theory, McClelland’s Achievement Theory, etc.
Knowledge of these theories assists the manager to understand deeper motives the people hold for buying
different products.

ii. Perception:
Person’s motivation to act depends on his perception of situation. It is one of the strongest factors affecting
behaviour. The stimuli – product, advertising appeal, incentives, or anything – are perceived differently by
different people due to difference in perception. Marketer should know how people perceive marketing offers.

Bernard and Gary define:

“Perception is a process by which an individual select, organize, and interpret information inputs to create a
meaningful picture of the world.” Perception depends on physical stimuli and stimuli’s relation to surrounding
field, too. People perceive the same stimulus differently due to selective attention, selective distortion, and
selective retention. So, all consumers may not see the product or message in a way the marketer wants.

Marketer should take these perceptual processes carefully while designing marketing programme. It is
necessary that the product or marketing offer must be perceived in a way the market wants to be perceived.
Marketer is also required to know the factors that affect people’s perception. Tactful interview or questionnaire
can help to measure perception of target groups.

iii. Learning:
Most human behaviour is learned. Learning is basically concerned with experience of an individual. Learning
can be defined as: Relatively permanent changes arising from experience. If an individual has satisfactory
experience of buying and using the products, he is more likely to talk favourably or repeat the same.

Most of purchase decisions depend on self-experience or experience of others, whose opinion carry value in
buying decisions. Learning is produced through the interplay of drives, stimuli, cues, responses, and
reinforcement. Learning theories help marketer to build up demand for the product by associating it with strong
drives, using motivating cues, and providing positive reinforcement.

New company can enter the market by using competitions’ drives, cues and reinforcement. Sufficient
knowledge of learning is an important input for the marketer to design the meaningful marketing programme.

iv. Beliefs:
People hold beliefs about company, company’s goods or services, and they act accordingly. Beliefs of the
buyers affect product and brand image. We can define the term as: Belief is a descriptive thought that a person
holds about something. Beliefs may be based on knowledge, opinion, or faith.
Note that beliefs have nothing to do with facts or reality. People may have wrong beliefs for the superior
product, or they hold positive beliefs for inferior product. Positive and negative beliefs have their impact on
purchase decisions. Marketer can create positive belief by associating strong aspects related to product and
brand, or can correct wrong beliefs by proper campaign.

It is clear that people buy only if they believe it is worthwhile to buy. So, beliefs play decisive role in the buying
decision. Marketer must try to know what type of beliefs people hold about company, products, and brands.
Such knowledge must be incorporated in preparing an effective marketing programme.

v. Attitudes:
An attitude is a person’s enduring favourable or unfavorable evaluations, emotional feelings, and action
tendencies toward some object or idea. These emotional feelings are usually evaluative in nature. People hold
attitudes toward almost everything, such as religion, politics, clothes, music, food, product, company, and so on.

Attitudes decide liking or disliking of object. People can judge good or bad, beautiful or ugly, rich or poor, or
desirable or undesirable about an object, a product, or a person. Attitudes play a vital role in accepting or
rejecting, appreciating or criticizing the product or brand. People do not react to every object in a fresh way.
Object is evaluated by attitudes.

So, it is imperative that marketer must know what type of attitudes people hold about the company, products,
and brands. Attitudes can be learned or developed. Learning plays an important role in developing attitudes.
Even unfavorable attitudes can be changed into favourable ones by systematic campaign. Mostly, beliefs and
attitudes are taken simultaneously.
 MARKETING SEGMENTATION

Market segmentation is a recent development in marketing thinking and strategy. It is based on the natural

variations found in a general or total market. Diversity is the basic characteristic of a market, be it a consumer

market or industrial market. Marketers must understand natural diversity for effective marketing. In today’s

highly competitive environment, market segmentation, target market selection and effectively positioning the

offerings are very essential requirements for gaining competitive advantages. For instance, a ready-to-wear

garment seller must first identify his customer segment groups.

He may subdivide his customers in terms of sex and age group-men’s wear and ladies wear. Then he may go on

selecting a particular segment or all the segments. Accordingly, he may cater to the needs of each segment

efficiently. Likewise, a hotelier may subdivide his customers as vegetarians and non-vegetarians. A further sub-

division can be average customers and affluent customers. For affluent customers he may provide air-

conditioned and luxurious services. What we understand from the examples given above is that customers are

not alike and they differ in many aspects including purchasing power and buying habits.

Business organisations operate in different markets consist of all types of existing and potential customers with

their widely varying needs and wants. The markets exhibit widely heterogeneous characteristics with widely

differing and scattered consumers. The buying practices are different and it is indeed difficult for any

organisation to operate and serve such markets effectively, both from organization’s point of view as well as

consumers’ interest.
The business organisation, instead of competing everywhere to cope with the entire market, may decide to

identify those markets or territories of markets which can be served most effectively by offering them correct

products and matching their needs and long-term business and consumer interests are served in the most desired

manner.

Thus, the firm tries to break up the market into smaller units, club them so that each submarket has more or less

homogeneous characteristics. Therefore, it is sub-dividing or breaking up the market into different cohesive and

homogeneous market characteristics with a distinct marketing programme and effort.

The process of dividing a market into smaller homogeneous markets with similar characteristics is called

market segmentation. The firm will focus only on those submarkets which can be served most effectively on the
basis of their evaluation of market requirements. This is called target marketing.

Definition:

According to Philip Kotler, “Market segmentation is the sub-dividing of market into homogeneous sub-sections

of customers, where any sub-section may conceivably be selected as a market target to be reached with a

distinct marketing mix.”

According to Stanton, “Market segmentation consists of taking the total heterogeneous market for a product and

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

aspects.”

Market segmentation is just the first step in a three-phase marketing strategy. After segmenting the market into

homogeneous clusters, the marketer must select one or more segments to target. So the second step is target

marketing, which is the process of evaluating each market segment’s attractiveness and selecting one or more

segments to enter.

To accomplish this, the marketer must decide on a specific marketing mix-that is, a specific product, price,

channel and promotional appeal for each distinct segment. The third step is market positioning, which involves

arranging for a product to occupy a clear, distinctive and desirable place relative to competitive products, in the

minds of target consumers.

The concept of market segmentation emerged as an extension of the marketing concept in the latter part of

1950’s. It is based on the simple observation that all the existing and potential consumers are not alike: there are

significant differences in their needs, wants, tastes, background, income, education and experience etc. and

these characteristics change over time with lifestyle changes.

Had they been alike, it would have eliminated the need to have different variations of the same basic product

and one promotional campaign is all that would have been needed. For instance, there would have been only

one type of soap, one detergent, one scooter, one computer, one car and so on.

A market is composed of individuals and they are rarely homogeneous in benefits wanted, purchase rates, price

and promotion elasticity. Their response rates of products and services and promotion programmes differ. Since

consumers have dissimilar needs and wants in a market, it is called a heterogeneous market and most markets

are heterogeneous. Differences in product preferences, size and growth in demand, media habits and

competitive structure of the market also affect the differences and response rates.

A market segment is a portion of a larger market in which the individuals, groups or organisations share one or

more characteristics that cause them to have relatively similar products needs; whereas market segmentation is

the process of dividing the total market into relatively distinct homogeneous sub-groups of consumers with

similar needs or characteristics that lead them to respond in similar ways to a particular marketing programme.

Three-decision processes comprising market segmentation, target marketing and positioning are closely related

and have strong inter-dependence and essentially need to be examined carefully and implemented to be

successful in managing a given product-market relationship. Peter Doyle cites international examples:
“In England, Japanese companies have out-performed their British rivals across a range of industries. A major

reason for this was that the Japanese were better at managing the segmentation, targeting and positioning

relationships. Thus, only 13% of the Japanese firms versus 47% of the British were unclear about their target

segment of customers and their special needs.”

All too often, the marketing directors of British companies remarked that they see their target market as being

the whole market and since their products had wide appeal, there was no need to segment the market. As a

consequence, Japanese concentrated their resources in specific high-potential segments, while the British tended

to spread theirs thinly across the entire market. When British companies did segment, they did so at the lower,

cheaper end of the market. This resulted in customers increasingly perceiving the Japanese, in contrast to the

British, as offering quality and status.

Market segmentation and the identification of target markets are an important element of each marketing

strategy. The importance of market segmentation results from the fact that the buyers of a product or service are

no homogeneous group. Actually, every buyer has individual needs, preferences, resources and behaviours.

Since it is virtually impossible to cater for every customer’s individual characteristics, the marketing people

group customers into various market segments by variables they have in common. These common

characteristics allow developing a standardized marketing mix for all customers in this segment. They are the

basis for determining any particular marketing mix.

The interlinking of segmentation, targeting and positioning:

Criteria for Market segmentation:

The market segmentation to be worthwhile six criteria, as shown below, must be satisfied:

1. Identity:

The marketing manager must have some means of identifying members of the segment, that is, some basis for

classifying an individual as being or not being a member of the segment. There must be clear differences

between segments. Members of such segments can be readily identified by common characteristics which

display similar behaviour.

2. Accessibility:
It must be possible to reach the different segments in regard to both promotion and distribution. In other words,

organisation must be able to focus its marketing efforts on the chosen segment. Segments must be accessible in

two senses. First, firms must be able to make them aware of products or services. Secondly, they must get these

products to them through the distribution system at a reasonable cost.

3. Responsiveness:

A clearly defined segment must react to changes in any of the elements of the marketing mix. For instance, if a

particular segment is defined as being cost-conscious, it should react negatively to price rises. If it does not, this

is an indication that the segment needs to be refined.

4. Size:
The segment must be reasonably large enough to be a profitable target. It depends upon the number of people in

it and their purchasing power. For example, makers of luxury goods may appeal to small but wealthy target

markets whereas makers of cheap consumption goods may sell a large number of persons who are relatively

poor. The idea is that enough potential buyers must exist to cover the costs of production and marketing

required in that segment. This is often called as substantiality.

5. Nature of Demand:

It refers to the different quantities demanded by various segments. Segmentation is required only if there are

marked differentiation in terms of demand.

6. Measurability:
The purpose of segmentation is to measure the changing behaviour pattern of consumers. For example, the

segments of a market for a car are determined by a number of considerations, such as economy, status, quality,

safety, comforts etc.

Bases for consumer Market segmentation:

Geographic Segmentation:

In geographic segmentation, the whole market is divided into different geographical units. Generally, the market

is divided into regions-northern, southern, western, eastern and so on. Each region may consist of several states

and districts. A national marketer may treat the whole nation as his market and divide it on the basis of region or

zone for business operations.

For example, in the detergent market, Hindustan Level and Proctor and Gamble are all national marketers in

India. Moreover, a multinational company (MNC) may divide the global market on the basis of continental

characteristics. For example, Coca-Cola may consider the entire Asia as its market but for further business
operations, it may divide Asia into South Asia, Middle-east, Far-east Asia etc. Perhaps, each country may also

be considered as a geographical segment.

Demographic Segmentation:

In demographic segmentation, the market is subdivided into different parts on the basis of demographic

variables-age, sex, family size, income, occupation, education, family life cycle, religion, nationality etc.

Demographic variables have long been the most popular bases for distinguishing significant groupings in the

market place. One reason is that consumer wants or usage rates are often highly associated with demographic

variables; another is that demographic variables are easier to measure than most other types of variables.

Psychographic Segmentation:
Consumers are subdivided into different groups on the basis of personality, life style and values. These

characteristic lead to psychographic segmentation. People exhibit different life-style and they express them

through the products they use. Some social segments are very orthodox and tradition bound at home. But the

same people look very modem and conspicuous when in the outside world.

Marketers of cosmetics, textiles, soft-drinks, fast-food providers etc. must understand the lifestyle of the target

market. Personality is another psychographic characteristic which is used to segment the market. Particularly,

automobile manufacturers-two wheelers and passenger cars-must consider different personality traits in dividing

the market. Values are also used by marketers to segment a market. Values are beliefs which determine people’s

product choices and desires.

Socio Economic Characteristics:

Income, occupation, education, religion and social classes are the important socio-economic data required for

market segmentation. These are all components of socio-economic characteristics of a target population. Income

and occupation characteristics are generally used in market segmentation for durable products such as

automobiles, household appliances, electronic items, personal computer etc.

Benefit Segmentation:

Buyers can be classified according to the benefits they seek. On a purchase of same product, different customers

look for different benefit because of which they buy products from different companies which satisfy their

specific needs. Let us take the example of a car. The basic function of a car is transportation.
But people prefer different cars because they seek different benefits:

(а) Quality:

There are people for whom the quality is important: they buy Mercedes Benz, Skoda Octavia.

(b) Service:

People buy things to avail some specific service: they buy Ambassador Bullet-proof car.

(c) Economy:

The price may be important deciding factor in case of any purchase: they buy Maruti 800.

(d) Specialty:

People can be adventurous and sporty in purchase decisions: they by Ferari.

User Status:

The users of a product or service can be classified as heavy users, medium users and light users- heavy buyers,

medium buyers and light buyers. Marketers of soft drinks, hot drinks etc. for example, may segment the market

in terms of the above said criteria. A firm, generally, is interested in the heavy buyers or users. Sometimes, a

firm may select light users as their target market with the intention of wooing and changing these customers into

heavy users.

Usage Rate:

Markets can be segmented into various classes depending on usage rate. Considering the cosmetics usage, the

different categories of usage rate are as follows:

(a) Light:

These are the categories of the users who are very infrequent users. In case of cosmetics an average housewife

who is not very fashion conscious is a light user of cosmetics.

(b) Medium:

The fashion-conscious teenagers are the medium users of cosmetics, that is, they use it frequently.

(c) Heavy:
There are people for whom the cosmetics are the most important purchase and they are heavy users of it.

Celebrities in entertainment world, the models etc. need cosmetics on a regular basis, as it is the most important

part of their profession.

Loyal Status:

Consumers have varying degrees of loyalty to specific brands, stores and other entities. Buyers can be divided

into four groups according to brand loyalty status.

(a) Hard-core-Loyals:

Consumers who buy one brand all the time. We find people who have been using Colgate for years without

caring which other brands are coming in and going out of the market.

(b) Split or Soft Core Loyals:

Consumers who are loyals to two or three brands. Pepsodent after its launch found some customers of Colgate

switching between the two brands.

(c) Shifting Loyals:

Consumers who shift from one brand to another. Customers can be found to keep on switching off from Colgate

to close up and then to Pepsodent without any consistency.

(d) Switchers:

Consumers who show no loyalty to any brand. These are the people who will buy any brand that is available in

the market.

Attitude:

A market may be segmented by classifying people in it according to their enthusiasm for a product. Five attitude

groups can be found in a market.

(a) Enthusiastic:

These are people having tendency of impulsive purchase. They may not carry cash all the time but suddenly

decide to buy something. They definitely need credit cards.

(b) Positive:
They are serious buy mobile people who need to buy suddenly at any time.

(c) Indifferent:

There are some people who are technology averse with systematic purchasing pattern. They would prefer to

purchase with cash after thinking over the need for purchase. They do not prove to be potential users of credit

cards.

(d) Negative:

People can be spendthrifts who fear of loosing money or misusing it. They would never go for a credit card.

(e) Hostile:

People at times become very much irritated either by sales-people calling or meeting any time, giving false

promise or by the service provided. For example, in case of credit cards, there are some hidden costs which are

not clarified by the sales-person during selling.

Benefits of Marketing Segmentation

1. Segmentation helps in focusing strategies more sharply on target groups.

2. It helps the company to know demand pattern of each segment thus increased the sale volume of the
products.

3. It helps the marketer to understand the needs, behaviour, habits, tastes and expectation of consumers of
different segments. Thus marketing opportunities increases.

4. It is possible to satisfy a variety of customers with a limited product range by using different promotional
activities.

5. Marketing can be more specialized when there is segmentation as the element of marketing mix.

6. Segmentation helps in adopting different policies, programmes and strategies for different markets based on
rival’s policies, programmes and strategies.

7. New customers are attracted because of segmentation strategy and thus opportunities are created for growth.

8. Customers are benefitted as the products that serve customers interest and satisfy their needs and wants.

9. Segmentation supports the development of niche strategies.

10. It helps to achieve a better competitive position for existing brands.

11. Identify gaps in the market which represent new product opportunities.

12. It is possible to pay proper attention to a particular area.