Professor Vipin 2014
Unit 3
Marketing Mix
Meaning of Marketing Mix
Neil Borden in the year 1953 introduced the term Marketing mix, an extension of the work done by
one of his associates James Culliton in 1948.
Marketing Mix is a mixture of several ideas and plans followed by a marketing representative to
promote a particular product or brand is called marketing mix. Several concepts and ideas combined
together to formulate final strategies helpful in making a brand popular amongst the masses form
marketing mix.
Elements of Marketing Mix
The elements of marketing mix are often called the four P’s of marketing.
1. Product: Goods manufactured by organizations for the end-users are called products.
Products can be of two types - Tangible Product and Intangible Product (Services). An
individual can see, touch and feel tangible products as compared to intangible products. A
product in a market place is something which a seller sells to the buyers in exchange of
money.
2. Price: The money which a buyer pays for a product is called as price of the product. The price
of a product is indirectly proportional to its availability in the market. Lesser its availability,
more would be its price and vice a versa. Retail stores which stock unique products (not
available at any other store) quote a higher price from the buyers.
3. Place: Place refers to the location where the products are available and can be sold or
purchased. Buyers can purchase products either from physical markets or from virtual
markets. In a physical market, buyers and sellers can physically meet and interact with each
other whereas in a virtual market buyers and sellers meet through internet.
4. Promotion: Promotion refers to the various strategies and ideas implemented by the
marketers to make the end - users aware of their brand. Promotion includes various
techniques employed to promote and make a brand popular amongst the masses.
Lately three more P’s have been added to the marketing mix. They are as follows:
5. People - The individuals involved in the sale and purchase of products or services come
under people.
6. Process - Process includes the various mechanisms and procedures which help the product
to finally reach its target market
7. Physical Evidence - With the help of physical evidence, a marketer tries to communicate the
USP’s and benefits of a product to the end users
Product Mix
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The product mix of a company, which is generally defined as the total composite of products offered
by a particular organization, consists of both product lines and individual products.
A product line is a group of products within the product mix that are closely related, either because
they function in a similar manner, are sold to the same customer groups, are marketed through the
same types of outlets, or fall within given price ranges.
A product is a distinct unit within the product line that is distinguishable by size, price, appearance,
or some other attribute
Product mix consists of 3 main characteristics:
1. Length / Depth: It refers to the number of products in each product line.
2. Width: Refers to the number of distinct product lines offered by an organization.
3. Consistency: refers to the whether or not the products have production, marketing or
research affinity.
Product Life Cycle Theory
a. Introduction Stage
In the introduction stage, the firm seeks to build product awareness and develop a market
for the product. The impact on the marketing mix is as follows:

Product branding and quality level is established and intellectual property protection
such as patents and trademarks are obtained.
 Pricing may be low penetration pricing to build market share rapidly, or high skim pricing
to recover development costs.
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
Distribution is selective until consumers show acceptance of the product.
 Promotion is aimed at innovators and early adopters. Marketing communications seeks
to build product awareness and to educate potential consumers about the product.
b. Growth Stage
In the growth stage, the firm seeks to build brand preference and increase market share.

Product quality is maintained and additional features and support services may be
added.
 Pricing is maintained as the firm enjoys increasing demand with little competition.
 Distribution channels are added as demand increases and customers accept the product.
 Promotion is aimed at a broader audience.
c. Maturity Stage
At maturity, the strong growth in sales diminishes. Competition may appear with similar
products. The primary objective at this point is to defend market share while maximizing
profit.

Product features may be enhanced to differentiate the product from that of
competitors.
 Pricing may be lower because of the new competition.
 Distribution becomes more intensive and incentives may be offered to encourage
preference over competing products.
 Promotion emphasizes product differentiation.
d. Decline Stage
As sales decline, the firm has several options:

Maintain the product, possibly rejuvenating it by adding new features and finding new
uses.
 Harvest the product - reduce costs and continue to offer it, possibly to a loyal niche
segment.
 Discontinue the product, liquidating remaining inventory or selling it to another firm
that is willing to continue the product.
The marketing mix decisions in the decline phase will depend on the selected strategy. For example,
the product may be changed if it is being rejuvenated, or left unchanged if it is being harvested or
liquidated. The price may be maintained if the product is harvested, or reduced drastically if
liquidated.
Product Planning
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Product planning is a process used to identify and develop new products. The purpose of planning is
to make choices about which product ideas a company should invest in. Companies can approach
product planning from a number of different perspectives.
Having a system in place before planning begins is important as it helps to avoid wasted time and
creates a framework for decision making. Consultants who specialize in marketing and corporate
decision making can be involved in the development of a product planning system for a company,
which will accommodate the company's approach to business while helping it avoid expensive dead
ends.
At any given time, a company should have numerous ideas for new products and services circulating.
These ideas come from customers, distributors, people within the company, and research conducted
by the company.
This research can include surveys, research on competitors, and study of the market to identify
emerging needs. A company must be able to act quickly on time-sensitive product ideas while also
stopping bad ideas in their tracks.
New Product Development
1. The 1st stage is idea generation that is the search for new products. Companies pay a
particular focus on customer needs and demands to decide on the new product. Idea
generation can also be done by studying competitor’s product. Companies try to learn why
competitor’s product ticks with consumer or what more customers want from that product.
Companies also look at top management for idea generation. For example, Steve Jobs of
Apple is known to participate actively in an idea generation. Research groups comprising of
scientist, patent holders, colleges and universities also serve as the base for idea generation.
2. The 2nd stage is idea screening. Not all new ideas proposed can be converted into products.
Companies list ideas into three categories promising ideas, marginal ideas and rejects.
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Promising ideas are further process by screening committee to be ready for the next stage.
Screening should avoid the error where good ideas are dropped due to bias towards the idea
generator. Another commonly occurring error is encouragement to a commercially unviable
idea. Therefore, extra precautions are necessary during the screening process.
3. The 3rd stage begins when ideas move into the development process. Here a product idea is
converted into several product concepts. Out of several product concepts, the one which
looks fit is then placed against competitors to finalize marketing and positioning strategy.
Product concept is introduced to a focus group of customer in a form of proto-type to
understand their reaction.
4. The 4th stage involves developing of marketing strategy for new product. The marketing
strategy involves evaluation of market size, product demand, growth potential, profit
estimate in first few years. Further marketing strategy plan is developed with the launch of
product, selection of distribution channel and budgetary requirements for the 1st year.
5. The 5th stage involves the development of the business model around the new product.
Business models start with estimation of sales, frequency of purchase, and nature of
business. Next estimation of cost and expense involve in production and distribution of new
product. In that basis profit estimations are reached. Discounted cash flow and other
methods are used to understand feasibility of new product.
6. The 6th stage involves the actual production of new product. Here more than one possible
product are created, from proto-type to finalized products are produced. Decisions are
taken from operation point of view whether is technically and commercially feasible to
continue production. If analysis is showing cost not within the estimate then project is
abandoned.
7. The 7th stage involves market testing of new product. The new product is ready with brand
name, packaging, price to capture space in consumer’s mind.
8. The 8th stage involves launching of product across target market backed by a proper
marketing and strategy plan. This stage is called commercialization phase.
Packaging & Labelling
Packaging is the science, art and technology of enclosing or protecting products for distribution,
storage, sale, and use. Packaging also refers to the process of design, evaluation, and production of
packages. Packaging can be described as a coordinated system of preparing goods for transport,
warehousing, logistics, sale, and end use.
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The term "product label" is a general term used to refer to printed information affixed to a product
(typically retail products) communicated from the manufacturer to consumers or other users.
Importance of Packaging and Labelling
Packaging and package labelling have several objectives
a)
b)
c)
d)
e)
f)
g)
h)
Physical protection: The objects enclosed in the package may require protection from,
among other things, shock, vibration, compression, temperature. .
Barrier protection: A barrier from oxygen, water vapour, dust, etc., is often required.
Permeation is a critical factor in design. Modified atmospheres or controlled atmospheres
are also maintained in some food packages. Keeping the contents clean, fresh, sterile and
safe for the intended shelf life is a primary function.
Containment or agglomeration: Small objects are typically grouped together in one package
for reasons of efficiency. For example, a single box of 1000 pencils requires less physical
handling than 1000 single pencils. Liquids, powders, and granular materials need
containment.
Information transmission: Packages and labels communicate how to use, transport, recycle,
or dispose of the package or product. With pharmaceuticals, food, medical, and chemical
products, some types of information are required by governments. Some packages and
labels also are used for track and trace purposes.
Marketing: The packaging and labels can be used by marketers to encourage potential
buyers to purchase the product. Package graphic design and physical design have been
important and constantly evolving phenomenon for several decades. Marketing
communications and graphic design are applied to the surface of the package and (in many
cases) the point of sale display.
Security: Packaging can play an important role in reducing the security risks of shipment.
Packages can be made with improved tamper resistance to deter tampering and also can
have tamper-evident features to help indicate tampering. Packages can be engineered to
help reduce the risks of package pilferage: Packages also can include anti-theft devices.
Convenience: Packages can have features that add convenience in distribution, handling,
stacking, display, sale, opening, reclosing, use, dispensing, and reuse.
Portion control: Single serving or single dosage packaging has a precise amount of contents
to control usage. Bulk commodities (such as salt) can be divided into packages that are a
more suitable size for individual households. It is also aids the control of inventory: selling
sealed one-litre-bottles of milk, rather than having people bring their own bottles to fill
themselves.
Branding
A brand is a name, term, sign, symbol, design or a combination of the above to identify the goods or
service of a seller and differentiate it from the rest of the competitors.
The essentials of a good brand are:
a. A brand would suggest something about a product’s benefits
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b.
c.
d.
e.
f.
The name should be short, simple, and easy to pronounce and remember.
It must lend a visual interpretation.
It should be capable of being registered and protected legally
It should have a stable life and be unaffected by time. It should not depend on trends and
styles as they have a short life.
It should be unique, attractive and distinctive.
Types of Brands
1. Individual Brand Name: Each product has a special and unique brand name. The
manufacturer has to promote each individual brand in the market separately. This creates a
practical difficulty in promotion. Else it is the best marketing strategy. E.g.: Surf, Ovaltine.
2. Family Brand Name: Family name is limited to one line of a product, which complete the
sales cycles. E.g.: Amul for milk products. However if one member of the family brand is
rejected by consumers, the prestige of all the other products under the family brand is
adversely affected. The manufacturers have to take care against this danger. This method of
branding assumes that end users of all products under a family brand are similar and the
products are not dissimilar.
3. Umbrella Brand: All the products use the name of the company or the manufacturer’s. All
products such as soaps, chemicals, textiles made by Tata are an example of an umbrella
brand. There are often economies of scope associated with umbrella branding since multiple
products can be efficiently promoted with a single advertisement or campaign. Umbrella
branding facilitates new product introductions by providing by evoking a familiar brand
name, which can lead to trial purchase, product acceptance, or other advantages.
4. Corporate Branding: Corporate branding is the practice of using a company's name as a
product brand name. It is an attempt to leverage corporate brand equity to create product
brand recognition. It is a type of family branding or umbrella brand. Disney, for example,
includes the word "Disney" in the name of many of its products; other examples include IBM
and Heinz.
This strategy contrasts with individual product branding, where each product has a unique
brand name and the corporate name is not promoted to the consumer.
5. Private Brand: Private branding is when a large distribution channel member (usually a
retailer), buys from a manufacturer in bulk and puts its own name on the product. This
strategy is only practical when the retailer does very high levels of volume. The advantages
to the retailer are:
a.
b.
c.
d.
More freedom and flexibility in pricing
More control over product attributes and quality
Higher margins (or lower selling price)
Eliminates much of the manufacturer's promotional costs
Brand Loyalty
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In marketing, consists of a consumer's commitment to repurchase or otherwise continue using the
brand and can be demonstrated by repeated buying of a product or service or other positive
behaviours such as word of mouth advertising.
An example of a major brand loyalty program that extended for several years and spread worldwide
is the dedication that many Mac users show to the Apple and its products.
Brand extension
The existing strong brand name can be used as a vehicle for new or modified products; for example,
many fashion and designer companies extended brands into fragrances, shoes and accessories,
home textile, home decor, luggage, sunglasses, furniture, hotels, etc.
Mars extended its brand to ice cream, Caterpillar to shoes and watches, Michelin to a restaurant
guide, Adidas and Puma to personal hygiene. Dunlop extended its brand from tires to other rubber
products such as shoes, golf balls, tennis racquets and adhesives.
There is a difference between brand extension and line extension. A line extension is when a current
brand name is used to enter a new market segment in the existing product class, with new varieties
or flavours or sizes. When Coca-Cola launched "Diet Coke" and "Cherry Coke" they stayed within the
originating product category: non-alcoholic carbonated beverages. Procter & Gamble (P&G) did
likewise extending its strong lines (such as Fairy Soap) into neighbouring products (Fairy Liquid and
Fairy Automatic) within the same category,
Brand Equity
Brand Equity refers to the marketing effects or outcomes that accrue to a product with its brand
name compared with those that would accrue if the same product did not have the brand name.
And, at the root of these marketing effects is consumers' knowledge. In other words, consumers'
knowledge about a brand makes manufacturers/advertisers respond differently or adopt
appropriately adept measures for the marketing of the brand.
The study of brand equity is increasingly popular as some marketing researchers have concluded
that brands are one of the most valuable assets that a company has.
Pricing
Pricing is the process of determining what a company will receive in exchange for its products.
Pricing is also a key variable in microeconomic price allocation theory. Pricing is a fundamental
aspect of financial modelling and is one of the four Ps of the marketing mix.
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Factors affecting Pricing
1. Internal Factors Influencing Pricing Decisions – Internal factors are those which the company
can control. The internal factors affecting pricing decisions are:
a. Company Objectives - This has considerable influence on the pricing decisions of a firm.
b.
c.
d.
e.
Pricing policies and strategies must be in conformity with the firm's pricing objectives.
For example, if a company desires a targeted rate of return on capital investment, then
the pricing decisions are so made that the total sales revenue from all products, exceeds
the total cost by a sufficient margin, to provide the desired return on the total capital
investment.
Organisation Structure – Generally, the top management has full authority for framing
pricing objectives and policies. Some firms allow workers' participation in decision
making and therefore in such firms, all the employees give their views and suggestions
for the pricing policy. The marketing manager also helps and assists the top
management in framing the pricing policies and strategies and the cost accountant can
make an important contribution to this 'decision making process by providing the
management with costs, which are relevant to the pricing decision at hand.
Marketing Mix - Price, product, promotion and place are the four 'p's of a marketing mix.
The pricing policy of a firm must consider the other components of a marketing mix as
well, because these factors are closely related. Marketing research and the marketing
information system can be utilised to form the appropriate pricing policy.
Product Differentiation – If a product is different from its competitive products, with
features such as a new style, design, package, etc., then it can fetch a higher price in the
market. ·For. Example, Lee, Arrow and Park A venue shirts, are sold at a high price in the
market. Thus, if the product has distinguishing features, then the firm has greater
freedom in fixing the prices, and customers will also be willing to pay that price.
Cost of the Product - Pricing decisions are based on the cost of production. If a product is
priced less than the cost of production, the firm has to suffer the loss. But the cost of
production can be reduced, by co-ordinating the activities of production properly, the
firm can reduce the price accordingly. ]
2. External Factors – External factors are those which the company cannot control. The
external factors affecting the pricing decision of a firm are:
a. Demand - Market demand for a product or service has great impact on pricing. If there is
no demand for the product, the product cannot be sold at all. If the product enjoys good
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demand, the pricing decision can be aimed to utilise this trend.
b. Competition - There has been a revolutionary change experienced in the Indian market
after the liberalisation and opening up of the economy. The number, size and pricing
strategy followed by competitors have a significant role to play in the pricing decision. If
the product cannot be differentiated with special features, a firm cannot charge a higher
price than that of its competition
c. Buyers - If there are no ready takers for the product, it is said to have failed in the
market. Pricing decision is thus related to the characters, nature and preferences of the
buyers.
d. Suppliers - They supply the required items of production to the firm. As already pointed
out, the firm can reduce the price if it can reduce the cost of production. If not, the usual
tendency is to charge the increased cost of production to the consumer. For example,
the price hike for petrol or diesel will automatically
increase the price of vegetables, fruits, provisions, etc. If a firm could get the required
raw materials at reasonable rates from suppliers, then it can also price the goods at a
less rate.
e. Economic Conditions. - This also affects the pricing decision of a firm. In a depressed
economy, business activities will be considerably less, but in a boom condition, there will
be hectic business activity. Therefore, economic conditions affect the demand for goods
and services. So, in a depressed economy, in order to accelerate business one sells
goods at a lesser price, but in a boom period, goods can be sold at a high price.
f. Government Regulations - The government has the power to regulate the activities of
business firms, so that they do not charge high prices, and don't indulge in anti-social
activities. The government does this by passing various acts; for example, the MRTP Act,
Consumer Protection Act, etc. To quote one case, Nestle had advertised that they are
giving one Kit Kat chocolate free.
Methods of Pricing
The following are the methods of pricing
1. Price based on cost
a. Mark Up Pricing - the selling price of a product includes the cost of the product and an
estimated amount' of profit. The underlying principle is that the selling price of a
product must cover its full cost along with a reasonable margin of profit. The formula for
calculating the selling price as per this method is: Total Cost Per Unit + Desired Profit Per
Unit
b. Rate of Return Pricing - If a firm desires to achieve a certain rate of return on capital, it
may adopt rate of return pricing. As per this method the management fixes the selling
price required to produce a given rate of return on capital employed.
c. Break Even Analysis and Target Profit Pricing - A Break Even chart is a graph that shows
the amount of fixed and variable costs, and the sales revenues, at different volumes of
output. In Break Even Analysis tables or graphs are developed at different selling prices,
for different volumes of production. So the expected profit or loss for each level of sales
and level of production is known. The volume of sales at which the total cost is equal to
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total revenue is known as the breakeven point, or the point of no profit and no loss.
2. Prices Based on Marginal Analysis - Sometimes a firm may be forced to sell below the total
cost. In such a situation, marginal pricing is useful, because this method gives us the
additional cost required for producing an additional unit. It is helpful in quoting the price of
the product for special orders. This method also helps in taking the decision of selling below
the total cost, or stopping production during a depression. It is especially useful in fixing
prices in such adverse situations.
3. Price Based on Buyer - Many firms are basing their prices on the product's perceived value.
In other words, pricing is based on what the buyer is willing to pay and not the seller's cost,
which usually the key to pricing. In this method, non-price variables in the marketing mix are
used to build up a perceived value in the buyers' minds. Accordingly, the price is set to
capture the perceived value.
4. Prices Based on Competitive - Market Conditions These methods of pricing are based on
competitive market conditions and include the following:
a. Pricing to Meet Competition - This method is adopted when the market is highly
competitive, products are' homogeneous and not capable of differentiation. Then the
company has to price at a rate .identical to what competitors are charging for similar
products. A company maintains its prices according to the prices charged by its
competitors.
b. Pricing Below Competition - This is a method in which prices are kept below the level of
one's competitors. It is done by giving discounts at the retail level. If this method is
accepted by the consumer, then the brand with the lowest price is chosen
c. Pricing above Competition - This method can be adopted when the product is distinctive,
and has a prestige or status value in the market. For example, Mercedes Benz cars are
sold for Rs. 50 lakhs and upwards due to their reputation. Only reputed manufacturers
can resort to above- market pricing.
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Pricing policies and strategies
1. Skim the Cream Price (High Policy) Policy - Under skim the cream price policy, the product is
priced at a very high price in the initial stage. A manufacturer introducing a new product
may adopt this pricing strategy, so that the demand for the product is immediately known,
and investments made in the product are quickly realised. Its aim is to sell to the "rich
customer" who is not bothered much about how much he pays for a novel product.
2. Penetrative Pricing (Low Pricing) - This policy is the opposite of skim the cream pricing; the
product is priced at a very low price in the initial stage to make the product popular. This
policy is advisable when the product has a long life cycle and mass production provides for a
substantial reduction in the unit cost of production. The 'Nirma' detergent powder company
used this policy when it was introduced, and still continues with this policy. This policy
results in a high sales volume and demand in the initial stages of the product life cycle itself.
The disadvantage of this policy is that, some consumers may have the feeling that low priced
products are of poor quality.
3. Follow the Leader Pricing or Price Leadership - This may be defined as "the pricing pattern in
which one firm in the industry initiates price changes, and other firms follow suit,
approximating their prices to that of the initiating firm". The firm initiating the price changes
is called the price leader, and those following it are called price followers. This type of pricing
is followed in the case of steel, cement, fertilizers and consumer durables. As per this policy,
non-leading firms have no other practical alternative but to follow the leader in their price
fixing.
4. Psychological Pricing - This pricing policy may be referred to as the one in which an attempt
is made to fix prices in such a way, that the product price influences the psyche of buyer. For
example, Bata India Ltd. is following this policy, wherein instead of putting Rs. 100 for a pair
of shoes, it puts Rs. 99 to make the prospective buyer think that it is relatively cheaper as it
is a bargain offer. Similarly, in Teleshopping, all the products are priced at Rs. 99 instead of
Rs. 100.
5. One Price Policy - This policy may be defined as; "one in which all buyers, regardless of their
class, size, or condition of purchase, are charged a similar price". As per this policy there is
no question of negotiation, bargaining or haggling. If any discount or allowance is allowed, it
is on equal items to all buyers. This is a fair trade practice. Some examples are news papers,
magazines, milk and bread which are sold less than one price policy.
6. Variable Price Policy - As per this policy, the same quantities of a product are sold to similar
buyers at different prices, where the final price is determined through bargaining or
negotiations, between the buyer and the seller. Cars, two wheelers, televisions sets,
refrigerators, etc. are sold at variable prices.
7. Trade Discount or Functional Discount - The idea of this discount is to compensate different
classes of intermediaries operating in the company's distribution channel, for the services
rendered by them. For example, a publisher gives books 33.33 % to wholesale book dealers,
and 30% to retail book dealers. When the wholesalers sell to the retailer, he will keep 3.33%
which is his margin to cover his expenses and profit. The retailer allows 15 % to students and
keeps 15 % to cover his expenses.
8. Cash Discount - This is a deduction granted to buyers, for paying their bills within a specified
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time period. This is a reward for prompt payment, and is usually intended to encourage cash
inflow. For example, "3/15 net 30" means that the buyer is entitled to a 3 % discount if the
amount is paid within 15 days and if it is paid after 15 days, he has to pay the net amount
without any rebate.
9. Quantity Discount - Quantity discount is a deduction from the quoted price allowed to all
buyers, in consideration of their purchasing stipulated quantities of goods. Quantity discount
stimulates larger sales. For example, if you buy 5 packets of cement, you will get 2 %
discount, for 5 packets to 10 packets 4 %, for! 0 packets to 20 packets 5 % etc.
10. Resale Price Maintenance (R.P.M.): This is a marketing policy adopted by one or a
group of manufacturers, not allowing retailers to sell goods below the fixed retail price
decided by the manufacturer. According to the MRTP Act, RPM is an unfair trade practice
and considered void. This policy ensures uniform retail prices for all the dealers. This method
is also known as fair trading.
Physical Distribution
In the marketing context, channels of distribution indicate routes or pathways through which goods
and services flow, or move from producers to consumers. The distribution system has two subdivisions, namely:
1. The choice of distribution channels, through which the product shall flow from the
manufacturer to the ultimate consumer, and
2. Physical distribution, comprising transportation and storage of goods.
The best thing for the firm is to distribute its products directly to consumers, without the help of any
intermediaries.
Otherwise it can distribute through one or more middlemen, such as a wholesaler, retailer, selling
agent, etc. Whatever be the channel used, the objective is that the product should move efficiently,
and at the lowest possible cost, from the place of manufacture to the ultimate customer.
Factors Affecting Choice of Distribution Channel
Different factors affect the choice of a distribution channel, and differ from firm to firm. We can
divide these factors under five heads:
1. Market Factors - As per the modern concept of marketing, market factors influence
marketing decisions. Similarly, the choice of distribution channel is also influenced by market
factors. This can be classified under three heads:
a) Consumers: The number of consumers, their geographic location and purchase pattern
affect the choice of a channel for distribution. If the number of consumers is large, spread
over a wide area, and their purchases are frequent and in small lots, then the indirect
channel is preferable. On the other hand, if the number Of consumers is small, concentrated
in a small geographic location, and if the purchase is deliberative, then it is preferable to use
the direct channel.
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b) Middlemen: The terms and conditions of middle men also affect the channel choice. For
example, if the wholesaler asks for more commission, then the manufacturer may have to go
for a direct channel
c) Competitors: The distribution channel used by competitors also influences the channel
choice, because it may mean choosing a customary channel in the same line of business
activity. For example, automobiles are sold in India through the indirect channel and a
change from the indirect channel to direct channel is not possible.
2. Product Factors - The nature of the product also affects the choice of the channel in the
following manner:
a)
Industrial or Consumer Goods - If the product to be distributed is an industrial good,
then the direct channel is adopted, because there are very few customers who can be
given personal attention and provided with good after sales services. But for consumer
goods, the indirect channel is preferable.
b)
Perishable Nature' - If the goods are of a perishable nature, like milk, vegetables, fruits,
etc., then it is better to adopt direct methods
c)
Standardisation- If the goods are standardised (for example, ISI Mark, AG Mark, etc.)
then the indirect method is preferable, because standardisation is a proof of
uniformity and quality.
d)
Unit Value - If the unit price of the product is high, then it is preferable to use the
direct method, and if the unit price is less, then the firm can go for an indirect channel.
e)
Technicality - If the product is highly technical and complex, it is advised to go for the
direct method. For example, for computers and machinery because they require actual
demonstration, after sales service, warranty, etc
f)
Seasonal - In the case of seasonal goods like woollen items, jams, pickles, squash etc.,
production is highly seasonal, according to the availability of raw materials. In such a
situation, the manufacturer-retailer-consumer method is preferable, i.e., the indirect
channel.
g)
New Products - In the case of new products which require aggressive marketing
techniques, the indirect channel is adopted, usually by giving franchise rights.
h)
Style Obsolescence - In the case of ready-made clothes, which may go out of fashion
within a short time, it is preferable to sell the items fast, through retail shops, i.e., the
indirect channel.
i)
Number of items in the Product-line -If the firm's product mix consists of a large
number of product items, it can sell the items directly to consumers through its ability
to deal directly with them and the experience gained over the years.
j)
Price Stability - If the product is subject to frequent price changes, due to product up
gradation and modification, then the direct channel is preferable.
3. Company factors - Strengths and weaknesses of the company also affect the
choice of channel in the following way
a) Financial Strength - For a reputed and financially strong company, it is possible to move
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from the customary methods of distribution to experiment with new methods. So these
companies usually go for direct methods and financially weak companies go for
customary methods.
b) Past Channel Experience - For a firm, if past experiences with middlemen have been
satisfactory, then the firm may continue in the same line and if not the firm may change
the line of distribution.
c) Marketing Policies - If the firm is advertising heavily, and supported with sales
promotion, then it can choose an indirect method. For example, Pepsi and Coke. The
company has to use direct channels, if the product is not advertised properly or not
aided by sales promotion efforts.
d) Reputation - For highly reputed companies, middlemen are ready to join in order to be
associated with the firm. Firms like MRF Tyres and Bombay Dyeing may not find it
difficult to find middlemen, to go for the indirect channel.
e) Market Control Desired - The channel of distribution is influenced by the degree of
market control desired by the company. Market control refers to the efforts of a
company to control intermediaries. A company may use a smaller channel to facilitate
better co-ordination, communication and control.
4. Environmental Factors - Elements of the marketing environment can also influence the
choice of alternative channels available. They are:
a) Economic Conditions - This affects the choice of a channel. During depression,
economic activities are dull and therefore a shorter and cheaper channel is preferable.
But in times of inflation, it is full of business activities and so a wider channel may be
adopted.
b) Legal Factors - In India, various Acts prevailing in the country, viz., the Companies' Act
and The Monopolies and Restrictive Trade Practice Act influence the choice of a
channel. These Acts have been passed with a view to control monopoly, to prevent
resale price maintenance and to protect the rights and interests of companies.
Therefore, channel selection is also influenced by various Acts passed in the country.
c) Technological Factors - Various inventions in the technological field also influence the
choice of a channel. For example, if perishable items are to be distributed, proper
refrigerated storage facilities are a must. Only if that is possible, can the firm can go for
indirect channel methods, otherwise it has to restrict distribution through the direct
method.
5. Financial Factors - The financial factors which influence the choice of a channel are the
desired sales volume and the rate of return on investment.
a)
Sales Volume - The required sales volume will have to be predicted on the basis of
trend analysis, past experience, industry-wise data, interpolation, extrapolation,
regression, etc. Accordingly, the firm has to choose the distribution channel in order to
achieve the targeted sales volume.
b)
Rate of Return on Investment - This is the return expected from investments. If the firm
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has to achieve a targeted rate of return, it has to increase the sales volume accordingly.
Therefore, the firm has to select as appropriate distribution channel.
Types of Intermediaries
1. Middleman
2. Wholesalers
3. Retailers
Middlemen - Middlemen are the intermediaries who participate in the distribution of goods from
the point of production to the point of consumption. They help bridge the gap between producer
and consumers and serve as a link between the two:
a) Agent Middlemen: They are otherwise known as mercantile agents and exist in the buying and
selling of goods by taking part in negotiating the purchase and sale of commodities. They do not
take the title to goods. Their charge commission or brokerage for their services and include
brokers, commission agents, etc.
b) Merchant Middlemen: Merchant middlemen are those channel members who take both the
title and possession 0f goods from preceding members and channelize them to the subsequent
member in the channel sequence. They take up the marketing risks and include wholesalers and
retailers
Wholesalers
Wholesalers are individuals or business firms who buy am sell products to retailers or industrial
units, but do not sell directly to the ultimate customer. Usually they specialise in only one product
and keep large stocks.
Functions of Wholesalers
The functions performed by wholesalers are:
a) Sales Promotional Work - They do their level best to promote the goods and services of
the manufacturer.
b) Transportation - A wholesaler carries goods from producers to his warehouses and
from there he gives it to the retailers. He keeps a fleet of trucks for this purpose.
c) Storage - A wholesaler is the warehouse keeper of the market. He stocks large
quantities - of stock and supplies it to retailers so that he can stabilise prices by adjusting
the supply of goods with the demand.
d) Financial help to both manufacturers and retailers - A wholesaler buys goods on cash
basis from the manufacturer and sells them on credit to retailers. Thus, he provides
financial help to the manufacturer and retailer.
e) Risk Taking - A wholesaler bears the risk of changes in demand, prices, bad debts, spoilage of
goods, etc. in the course of transportation and storage. Thus, he undertakes various marketing
risks and simplifies the process of distribution.
f)Packing and Grading - A wholesaler re-packs goods in convenient forms. Sometimes he grades the
products into standardised grades also.
Types of Wholesalers
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Classification on the basis of kind of function performed
a) Sole Distributors - In this case, the manufacturer gives away marketing rights throughout one
state, district or city to' one agent. The sole distributor takes charge of all marketing and
distribution responsibilities while the manufacturer concentrates on production. For e.g.
Mercedes Benz has a sole distributor for Bangalore city.
b) Franchisees - A franchising operation is "a legal contractual relationship between a franchiser
(the company offering the franchise) and the franchisee (the individual who will own the
business). The terms and conditions between the parties may vary based on the agreement
between them. This method of distribution channel originated in America; the parent company
provides loans, designs for buildings, training for both the owner and his staff and helps in
advertising for and promoting the business. These outlets are called franchisees.
c) Stockists - This type of wholesaler stocks products for the retailer. Hence, their area of operation
is limited to the local re-distribution function. Generally the promotion and advertising functions
are not undertaken by a stockist. Hence, they get lesser commission as compared to sole
distributors and franchisees. For e.g. M/S AB Ltd. is the stockist for ACC cement.
Classification on the basis of kind of business
a) General Merchandise Wholesalers - These types of wholesalers deal in a number of
unrelated goods. For example, a wholesale dealer stocks building materials and food items:
These types of wholesalers are not popular now because the general tendency is to deal in
specialized goods.
b) Speciality Wholesalers - These types of wholesalers deal in only one type of merchandise.
For example a wholesaler dealing in tea leaves. General Line Wholesalers - These types of
wholesalers deal in closely related items. For example, a wholesaler dealing only in two
types of two wheelers.
c) Cash and Carry Wholesaler or Metros - These types of wholesalers stock a variety of goods.
The retailer pays cash and carries the goods. In Bangalore 'Metro' has different outlets in the
city. Only retailers are allowed to buy from Metro and the wholesaler operates just like a
retail store.
d) Drop-shipment Wholesalers - These types of wholesalers do not handle goods; they sell. But
they collect orders from retailers and pass them on to manufacturers who deliver the goods
directly to retailers. They perform most of the wholesaling function, with the exception of
storage and handling. They are found in the cement, iron, steel, and paper industry
Retailers
Retailing is a "trading activity directly related to the sale of goods and services to the ultimate
consumers for personal or non-business use." The party which does the retailing is called the
retailer. A retailer is the last link in the channel of distribution. He sells either goods or services to
the final consumer
Types of Retailers
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Store retailers
As the name indicates, a store retailer sells the products to consumers through its retail outlets. The
various types of store retailers are:
a)
General Stores: These stores are very common and offer a wide variety of unrelated products.
They fulfil the requirements of a large section of consumers. For example,
Sunday to Monday, FabMall, Food World, etc.
b)
Convenience stores: These are stores located near residential areas. They store provisions,
vegetables, dairy products, etc. and often give one month's credit, are open seven days a week
with long working hours and home delivery facilities.
c)
Speciality Stores: In this type of stores, goods of a particular variety are sold. These dealers
specialize and deal only in one line of gooks. For example, Exide Battery showroom; it sells
batteries for two, three and four wheelers.
d)
Specialized Departmental stores or Hypermarkets: This combines the principles of a
supermarket, departmental store, speciality shop and service shop in one giant sized store. It
has a wide collection of goods in one shopping mall. These types of shops are called "one stop
shops" and store food products, sport goods, garden products, dress materials etc. For
example, Big Bazaar.
e)
Departmental stores: A departmental store is a huge retail shop situated at a central place in
the city, divided into a number of smaller shops or departments, each dealing with one or two
lines of goods and specializing in those lines. All such departments or speciality stores are
under one roof and under one management and control. This type of department store is
usually owned by one company as requires huge capital. For e.g. Wills Life Style store,
Shoppers Stop, etc. .
.
f)
Super market: a departmentalized retail establishment having four basic departments, i.e. self
service; grocery, meat produce and dairy plus other household items and doing a maximum
business. It may be entirely owner operated or have some of the departments leased on a
concession basis. Usually these stores are self service stores and store lots of food and nonfood products.
Manufacturer's Own Stores: Manufacturers themselves organize retail stores for selling their
products. This is needed to survive in today's competitive world. These type of shops are
popular with ready-made shirts, jeans, branded shoes etc. For example, Adidas, Peter England,'
Lee, etc
Chain Stores or Multiple Shops: Chain stores or multiple shops are a network of retail shops
owned and operated by a manufacturer or an intermediary. A chain shop is owned and
operated by a big retailer. They deal in a variety of products manufactured by different
manufacturers. For example Food World, FabMall, etc. The' idea is to avoid wholesalers
Consumers' Co-operative Stores: A consumers' co-operative society is set up to ensure the
g)
h)
i)
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j)
steady supply of essential commodities of standard quality at fair prices. This society can
eliminate middlemen by establishing a direct link with producers. They purchase articles of daily
consumption" directly from manufacturers or wholesalers and sell them to members at
reasonable prices
Public Distribution System: This is an initiative of the Govt of India to supply essential
commodities to the poorer section of society. The other objectives of the public distribution
system are stability of prices and equitable
Functions of Retailers
a) The retailer gives maximum local convenience to consumers. They are now providing home
delivery also, thus giving maximum convenience to consumers.
b) Consumers need not store the commodity beyond their normal requirements.
c) A retailer also stocks a wide variety of items.
d) A retailer gives information to consumers and displays the item in his store.
e) Retailers give advice and guidance to customers regarding the goods and services.
f) A retailer is the connecting link between manufacturers and wholesalers. Thus, without
retailers it is not possible to distribute goods to the ultimate customer and if so, our wants
will remain unsatisfied.
g) Retailers ensure the supply of essential items like fruits, vegetables, bread, milk, etc.
h) Retailers give consumer durables on an instalment basis, thus helping consumers and
manufacturers.
i) Retailers give the feedback to wholesalers and manufacturers about the latest change in
consumer wants and preferences so that they can make the changes accordingly.
j) A retailer also educates customers about the diverse uses of new products.
k) A retailer is a guide and friend to his customer.
Promotion
The nature of marketing communication is persuasive since it aims at influencing the consumer
behaviour in favour of the firm's offering. These persuasive communications are commonly called
"Promotion".
In the context of marketing promotion refers to the applied communication used by marketers to
exchange persuasive messages and information between the firm and its various prospective
customers and general public.
Importance of Promotion
1. It attracts more customers to the product. The incentives like price
off, premium etc, offered by the manufactures attracts people to the
product
2. It encourages the middlemen to buy and store more: As a result of
the incentives offered more people may go to the shops where the product will be available.
Sometimes manufactures encourage middlemen through additional commission or
allowances
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3. It encourages the sales force by offering incentives to salesmen. This will influence salesmen
to participate in the campaign wholeheartedly
4. It boosts sales in the short and long term
5. It reinforces the brand image with the customer
Personal Selling / Salesmanship
Personal selling is a marketing process with which consumers are personally persuaded to buy
goods and services offered by a manufacturer. Personal selling is a component element in the
communication mix. It is a two- way form of communication that has' a. number of advantages from
the point of view of marketing organization.
Personal selling gives marketers the freedom to adjust the message to satisfy the customer's
information needs. The American Marketing Association defines personal selling as "oral
presentation in a conversation with one or more prospective purchases for the purpose of making
sales".
A significant feature of personal selling is the interaction between the marketer and the customer.
For .e.g. Eureka Forbes and Aqua Guard uses this method for selling
Personal selling is an efficient promotional method due to the following reasons:
a) It allows marketers to adapt the selling situation according to the situation at hand.
b) A personal relationship can be developed between the customer and sales person.
c) Salesmen can demonstrate the features of products and services.
d) The customer can clarify or collect extra details about the products and services.
e) This method is an intensive means of promotion. Salesmen can use their tact, skill, wisdom,
and calibre to handle the situation efficiently.
f)
Salesmen also adopt the language of communication of the customer while explaining the
features of goods and services
Advertising
The Definitions Committee of the American Marketing Association defines advertising as, "any paid
form of non- personal presentation and promotion of ideas, goods or services by an identified
sponsor."
The term advertising is derived from the Latin word, "advertere" which means 'to turn' attention.
Features of Advertising
a) It is a Mass Communication Process - Advertising is the means to communicate a message to a
target audience. For example, an advertisement in television for a few seconds, reaches millions
of people.
b) It is Information in Action - Each and every advertisement is a piece of information to listeners,
readers, viewers and onlookers. An advertisement announces the arrival of a new product, talks
about its special features and explains the best use of the product.
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c) It is a Persuasive Act - Advertising is persuasive because the main function of advertising is to
persuade the reader, listener or viewer. We can say that advertisement draws attention, creates
interest, converts interest into desire, and desire into action. Thus, the success of advertising is
its ability to persuade.
d) It is a Competitive Act - Through advertising, the advertiser wants to communicate the
superiority of his product to other products or services available in the market. Thus, advertising
is the medium for a business unit to turn business in its favour, to increase its market share,
sales and hence profits.
e) It is not Part of the Product - Advertising is the total benefit that a consumer derives through the
use of a product or a service. It is true that the product price includes advertising cost but
advertising is not a part of the product or service
f)
It is paid for - Advertising is not possible free of cost, and whatever be the media of advertising,
it has a cost to the advertiser.
g) It has an Identified Sponsor - Advertising is a matter of public relations. Each and every
advertisement is sponsored by a manufacturer or dealer on behalf of manufacturers, with the
specific name, brand or logo. Thus, we can identify the advertiser.
h) It is Non-Personal Presentation - Advertising is an impersonal attempt to present the message,
regarding a product or a service or an idea. In other words, the manufacturer and consumer are
not in direct or personal contact with one another. For example, Ratan Tata does not personally
tell us about his products, instead, he selects a convenient and viable media to pass on his
message to the target audience or target market.
Advertisement Copy
The objective of advertisement copy is to influence and motivate people. The words used to convey
the advertising idea or themes are collectively called the "copy" and the person who prepares the
copy is called a "copywriter". The success or failure of the advertisement is closely related to the
copy of the advertisement. The objective of advertisement copy is that people should see the
advertisement, read it, the message should be conveyed and then they should act upon it on that
basis.
Qualities of a Good Advertisement Copy
An advertising copy is defined as "all the written or spoken material in it, including the main body,
headlines, sub-heads, and all other printed elements such as picture captions, slogans, brand names,
trademarks, and prices, logotypes (advertiser's name or signature).
The qualities of good advertisement copy are:
a. It must get the attention of people. It must have personal appeal
b. People should get the relevant information. It must be easily understandable
c. It must make people believe in it and impress them
d. It must create a desire among people to buy the product
e. It should be imaginative but never misleading
It is worth quoting the "AIDA" formula of advertising here, where "A" stands for Attention, "I"
stands for Interest, "D" stands for Desire and "A" for Action.
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Elements of Advertising Copy
a) Attention Value: The first and foremost element of an advertisement copy is its attention
value because if it fails to attract attention the entire effort is useless. The copy must be so
well prepared that it must attract the notice of even involuntary readers. The general
tendency of readers is to skip advertisements while reading. Thus, it is inevitable for the
advertiser to make the 'advertisement attractive. Usually advertisers use pictures, drawings,
attractive headings, slogans, contests, puzzles, gift coupons, etc. When Maruti Suzuki
introduced its new model "Swift", the company gave full-page advertisements in all national
dailies to get maximum attention.
.
b) Suggestive Value: The copy should suggest the usefulness of the article advertised. The use
of slogans, pictures and phrases have been found to ·have great memorizing value. Even
repeated advertisements have been found to be noticed by people. Tata Steel's
advertisements say "Relationship. The bond of building quality."
c) Memorising Value: The copy should create a lasting impression on the reader's mind. Even
the very first advertisement is aimed at the reader remembering the product image. The
same message is communicated in repeated advertisements for a memorizing effect. For
example, Sachin Tendulkar's "Boost is the secret of my energy".
d) Conviction value: The advertisements should never be misleading but should convince the
prospective buyer about the accuracy and truth of the statements conveyed. The message
should not be an exaggeration or misrepresentation. The company can use sincere and
plain statements. For example, the Fevicol adhesive states that it sticks paper,
thermocole, wood, cardboard, cloth and cotton.
e) Sentimental Value: Sentiments play a significant role in advertising. It is the duty of the advertiser
to respect local habits, customs, traditions, likes and dislikes, communal
value, etc. For example 'Godrej' chicken states that they sell "halal cut" chicken. Some
companies insist that their product is "Indian" to distinguish it from those of foreign
companies.
f) Educational Value: The copy must possess educative value. The advertiser should be well
aware of the habits of the people and the advertising campaign can be designed accordingly.
For example polio vaccination advertisements educate people about the need for that
particular vaccination.
g) Instinct Value: Human actions are guided by instincts and inclinations. A successful
advertiser must appeal to the right instinct. Human behaviour is fundamentally related to
instincts. Thus, people behave differently at different times and occasions. In order to create
the desired instinct the advertiser should plan well before the preparation of an
advertisement copy. These instincts are pride, beauty, health, fear, etc. and the
advertisement should be capable of tackling these instincts and directing people towards a
particular product.
h) Action Value: The main objective of advertisement copy is to persuade the people so that
they act upon it. People will act if the company enjoys goodwill acquired over the
years. For example, Mahindra and Mahindra, Tata and Ashok Leyland enjoy goodwill in the
heavy vehicles sector.
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