BBA 302- Marketing Management → TOPIC: DISTRIBUTION What are the retailers, their types, and describe their functions? Retailers sell products/ goods to final consumers for consumption or use. Retailers buy the products from different sources like manufacturers, wholesalers, traders, etc. basis the need and want in the market. They are considered the final link with the consumer in the marketing/ distribution channel. Most of the retailing in retail stores is through new concept of retailing called non-store retailing. This type of retailing is becoming popular. It is direct selling to customers via infomercials, telecalling, internet selling, ecommerce, direct mail, personal selling, etc. Retailers can be broadly classifies as small scale retailers and large scale retailers. i) Small scale retailers – a) Unit stores – these are general stores or single line stores like clothes, gift shops, grocery stores, utensils, book shops, bakery, etc. b) Street traders – they sell products on streets, footpaths, etc. They usually sell items that can be easily carried and are quite unique like, mobile accessories, gloves, fancy accessories, etc. They can often be found at bus stands, railway stations, etc. on busy places at times when people go out for shopping, to work etc. c) Market traders – these open for selling on specific days and move around wherever there is an event, or time specified market. They have a fixed location and arrangement made for selling like a selling van, setting a kiosk, outlet, etc. on a fixed location. For example, farmers market, magic event, crockery sales, etc. d) Hawkers and Peddlers – these retailers sell goods door to door on their cart, bicycle, etc. They carry items that are in demand and as the demand changes because of various reasons like season change, they start selling different products. A hawker selling woollen clothes in winter may change to selling clothes suitable for warm climate in summer. e) Cheap jacks – these retailers have a specific place in a locality but do change locations for business. They usually sell unbranded items like clothes, plastic vessels, kitchen utensils, shows, etc. They set up the business for a specific time before changing location. ii) Large scale retailers – a) Departmental stores – a departmental store has wide variety of products being sold under one roof. From there, one can find a raincoat to a pen. They sell a particular specialized product or an entire product line. b) Discount store – here standard items are sold at lower prices. The business is done on higher sales and lower profit margins. For example, Wal-Mart and 49-99. c) Chain stores – these are stores near residential areas selling the same kind of products in different localities. These can be in the entire region, state or nation. For example, Nike stores, Dell, Raymond, Big Bazaar, etc. They have their chains in almost all towns. These centrally owned and managed. They mostly deal in same products across all chains like, fast food chains, Nike products, etc. The items for sale are bought centrally and sent across to all the chains. Since it operates under the same brand, the prices and quality is standardized. For example, a McDonald’s outlet will have same kind of price range, and feel and appearance of the store in different locations. d) Mail order houses – through this the seller shares information about the product via different means like advertising, press, post, catalogue, telecalling, etc. The buyer doesn’t visit the seller but orders the product and receives it via post, courier, etc. The business is done by mail or other means without inspecting the product by the consumer. TV advertising like infomercials are considered as extension of mail order houses. Here the sellers provide as much information as possible to the consumer through different media as customer will buy the product basis the advertising. e) Super market – it is a large retail store which sells a variety of consumer goods with self-service. They sell food items and articles of daily needs like, cold cream, bakery, vegetables, meat, groceries, fruits, dairy, etc. They deal in credits and consumers move around the store to choose products of their choice from a wide variety. f) Super stores – These are oversize department stores and also known as hypermarkets. They carry a wide range of general merchandise and FMCG’s. A customer can get services like haircuts, salons, restaurants, banking, etc. at these stores. g) Convenience stores – These are small stores that deal in limited-line of high selling goods at a higher price. They are like mini-supermarkets. They are located at the corner and have fast food franchise or fast food items also. h) Consumer cooperative – It is an association of consumers themselves who buy products in large bulk for members as well as non-members. The consumers or locality residents themselves manage all the activities from designating a manager to setting the policies of the store. Below are major functions of retailers- 1. Buying and Assembling – A retailer deals with different kind of products from different manufacturers and brands. They buy these products from different wholesalers and store them in their shops or stores to be bought by the consumers. They buy from the most economical source to have maximum profit margin. Different retailers have different business objectives which can be profit oriented or quality oriented. 2. Warehousing and storing – Retailers assemble products from different suppliers and store them to be supplied to the consumers on time. They keep enough supply stored with them so as to meet the demand in the market. 3. Selling for final consumption – The retailers sell products to final consumers for use and consumption. They are the final link in the distribution channel. 4. Promotion of brands – The manufacturers and wholesalers encourage retailers to display their products on shelves and selling counters to increase sales. Retailers help a brand in getting exposure in the market. Manufacturers try to give higher profit margins to retailers for meeting certain sale targets. Retailers try their best to make sales through salespersons, display on shelves, window displays, hoardings, etc. to maximize sale of products that gives them higher profits. 5. Credit facilities – The retailers sell products on credit to buyers. They try influencing buyers by accepting payments on installments, etc. and bear the risk of bad debts. 6. Risk bearing – Like wholesalers, retailers also bear the risk of handling the purchased products. They carefully handle products in their stores till the product is made available to the consumers. For example, Perishable commodities like milk and bread need to be sold before the expiry date and feeble products like glass and television sets needs careful handling. The products are exposed to natural risks like fire, earthquakes, rains, etc. Customer preferences also change so the already purchased products with retailers may have a reduced demand in the market. If these products are not sold the retailer has to bear the risk. 7. Grading and packaging – many times the products which are not graded or packaged by wholesalers are packaged by the retailers for convenient selling. The products are packed in small containers of packages with proper information for the convenience of the customers. 8. Source of market information – Since the retailers are in constant touch with the consumers, they are the best source of information for doing market analysis by the manufacturers and wholesalers. They have ready data available regarding the sales of the product in the market, likes and dislikes of consumers, their feedback, their preferences, etc. 9. Customer education – manufacturers ensure that the retailers are well educated about their products. Sometimes they even have their representatives sent to retailers for answering queries of salesmen as well as customers. Retailers play a big role in passing on the information to the customers about the functions, benefits, utility, and characteristics of a product. 10. Cater to the needs of all kinds of customers – Retailers cater to the needs of all kinds of customers’ basis their financial as well as social status. Retailer’s advice consumers about products that suits his/ her needs. For example, a clothes merchant will advice a rich person to go for branded jeans, while a customer will less paying capacity will be advised of much cheaper options. Functions of Wholesalers Wholesalers are the organisations that buy and resell products to other resellers like retailers, other merchants or to industrial buyers, and not in significant amount to end users. They take title to the products they trade in. They buy the products in large quantities and break down the bulk basis the requirement for distribution to retailers, etc. They provide range of services to buyers as well as manufacturers like transportation, buying on credit, etc. Below are the major functions of Wholesalers- 1. Buying and assembling – The wholesalers buy products from various manufacturers and assemble them for supply to retailers. They store these products in their warehouses, and ensure supply of product as per demand in particular region. 2. Warehousing – The wholesalers not only buy products but also store them in their warehouses. The quality of the products is kept intact. The products are shipped to retailers on time, basis the demand ensuring the time lag between manufacturing and consumption is efficient and effective. The products reach the consumers as intended by the manufacturer without wear and tear. 3. Breaking the bulk – It is not feasible for manufacturers to manufacture and supply products in small quantities in the target market. The job of breaking the bulk is done by wholesalers. The consumers buy products for household purposes in small quantities. This helps retailers in storing products in small quantities to meet the demand of the consumers in the marketplace. When the stocks of the retailers are exhausted, the retailers approach the wholesalers to buy products in small quantities. 4. Dispersing of products to retailers scattered in the target market – the wholesalers help in dispersing the products all over the market to the retailers. This helps manufacturers as the task of dispersing the products is no longer with them and they can focus on other marketing functions. The wholesaler becomes a source of all buying for the retailers. The retailers don’t have to contact the manufacturer. 5. Source of market information – The wholesalers are important source of information for the manufacturers. The information about demand, competitors, customer preferences as well as substitute products is available with wholesalers. They receive this information from the retailers. Not only they receive information, they also disperse information from the manufacturers to retailers as well as other players in the market. For example, launch of a new product by a manufacturer, market position of a manufacturer, etc. 6. Financing – The wholesalers do business on credit with retailers as well as manufacturers. The retailers receive the goods on credit which helps new retailers in the market who cannot buy products by giving large sums of money. Similarly, wholesalers give advance money to the manufacturers for the products that will be received later by them. This function helps in easy flow of products even when the money is not immediately exchanged. 7. Grading and Packaging – The wholesalers not only break the bulk, but also package the goods in small quantities and grade the quality on the packaging. This is a very important marketing function which helps consumers make decisions. 8. Transportation – The wholesalers buy products from wholesalers and ship them to their warehouses and godowns. From there, the products are supplied to the retailers, etc. They may employ their own vehicles for transportation. As the wholesaler is in touch with the retailers, the supply is also done effectively (on time) and efficiently (lowest cost possible). 9. Risk bearing – Products are exposed to many risks like destruction – natural as well as unnatural disasters. They can get spoiled during transportation, climate change or may even get spoiled if not sold before the expiry date. The products also bear a risk of not sold because of less demand, reduced prices of competitor or substitute products. As the manufacturer has already sold the product to the wholesaler, this risk is borne by the wholesaler. To avoid such risks wholesalers carefully buy products in right quantities and opt for insurance of different kinds. 10. Advertising – The wholesalers also do advertising of new products via distribution of pamphlets, hoardings, mouth publicity, Television ads, etc. This helps manufacturers in market growth. The consumers learn about product launches and its benefits which helps them in making proper decision when buying a product. The functions of wholesalers also varies basis the kind of wholesaler. They are as below- a) Full function wholesaler – they buy products/goods from manufacturers and sell them to other resellers like retailers, traders, etc. below the marketing or distribution channel. They buy in bulk from different manufacturers, break down the bulk, store, sell the smaller lots for cash or credit, and also helps with information (advice, education, etc.) to whom he sells. As they take title to the products, they are also responsible for the risk factor involved. b) Converter wholesaler – as the name suggests, they buy the products in bulk, process them before selling them to the following channel members. For example, a wholesaler buys textile and bleaches it before selling it to other merchants. c) Industrial wholesalers – they sell the products to manufacturers instead of retailers. difference between wholesaler and retailers and their types. 1) Wholesalers – These are the organisations that buy and resell products to other resellers like retailers, other merchants or to industrial buyers, and not in significant amount to end users. They take title to the products they trade in. They buy the products in large quantities and break down the bulk basis the requirement for distribution to retailers, etc. They provide range of services to buyers as well as manufacturers like transportation, buying on credit, etc. There are different kinds of wholesalers and they can be broadly put into the below categories- a) Full function wholesaler – they buy products/goods from manufacturers and sell them to other resellers like retailers, traders, etc. below the marketing or distribution channel. They buy in bulk from different manufacturers, break down the bulk, store, sell the smaller lots for cash or credit, and also helps with information (advice, education, etc.) to whom he sells. As they take title to the products, they are also responsible for the risk factor involved. b) Converter wholesaler – as the name suggests, they buy the products in bulk, process them before selling them to the following channel members. For example, a wholesaler buys textile and bleaches it before selling it to other merchants. c) Industrial wholesalers – they sell the products to manufacturers instead of retailers. d) Drop shipper wholesaler – a drop shipper wholesaler doesn’t handles the product. They take orders and coordinates with the manufacturer to deliver the goods directly to the retailer or other merchants in the channel. As they take the risk of the products, they need to handle the products in case the retailer, etc. cancels the order. They trade in bulk like coal, sand, lumber, etc. 2) Retailers – Retailers sell products/ goods to final consumers for consumption or use. Retailers buy the products from different sources like manufacturers, wholesalers, traders, etc. basis the need and want in the market. They are considered the final link with the consumer in the marketing/ distribution channel. Most of the retailing in retail stores though new concept of retailing called non-store retailing is becoming popular. It is direct selling to customers via infomercials, telecalling, internet selling, ecommerce, direct mail, personal selling, etc. Retailers can be broadly classifies as small scale retailers and large scale retailers. i) Small scale retailers – a) Unit stores – these are general stores or single line stores like clothes, gift shops, grocery stores, utensils, book shops, bakery, etc. b) Street traders – they sell products on streets, footpaths, etc. They usually sell items that can be easily carried and are quite unique like, mobile accessories, gloves, fancy accessories, etc. They can often be found at bus stands, railway stations, etc. on busy places at times when people go out for shopping, to work etc. c) Market traders – these open for selling on specific days and move around wherever there is an event, or time specified market. They have a fixed location and arrangement made for selling like a selling van, setting a kiosk, outlet, etc. on a fixed location. For example, farmers market, magic event, crockery sales, etc. d) Hawkers and Peddlers – these retailers sell goods door to door on their cart, bicycle, etc. They carry items that are in demand and as the demand changes because of various reasons like season change, they start selling different products. A hawker selling woollen clothes in winter may change to selling clothes suitable for warm climate in summer. e) Cheap jacks – these retailers have a specific place in a locality but do change locations for business. They usually sell unbranded items like clothes, plastic vessels, kitchen utensils, shows, etc. They set up the business for a specific time before changing location ii) Large scale retailers – a) Departmental stores –a departmental store has wide variety of products being sold under one roof. From there one can find a raincoat to a pen. They sell a particular specialized product or an entire product line. b) Discount store – here a standard items are sold at lower prices. The business is done on higher sales and lower profit margins. For example, Wal-Mart, 49-99. c) Chain stores – these are stores near residential areas selling the same kind of products in different localities. These can be in the entire region, state or nation. For example, Nike stores, Dell, Raymond, Big Bazaar, etc. The have their chains in almost all towns. These centrally owned and managed. They mostly deal in same products across all chains like, fast food chains, Nike products, etc. The items for sale are bought centrally and sent across to all the chains. Since it operates under the same brand, the prices and quality is standardized. For example, a McDonald’s outlet will have same kind of price range, and feel and appearance of the store in different locations. d) Mail order houses – through this the seller shares information about the product via different means like advertising, press, post, catalogue, telecalling, etc. The buyer doesn’t visit the seller but orders the product and receives it via post, courier, etc. The business is done by mail or other means without inspecting the product by the consumer. TV advertising like infomercials are considered as extension of mail order houses. Here the sellers provide as much information as possible to the consumer through different media as customer will buy the product basis the advertising. e) Super market – it is a large retail store which sells a variety of consumer goods with self-service. They sell food items and articles of daily needs like, cold cream, bakery, vegetables, meat, groceries, fruits, dairy, etc. They done deal in credits and consumers move around the store to choose products of their choice from a wide variety. f) Super stores – These are oversize department stores and also known as hypermarkets. They carry a wide range of general merchandise and FMCG’s. A customer can get services like haircuts, salons, restaurants, banking, etc. at these stores. g) Convenience stores – These are small stores that deal in limited-line of high selling goods at a higher price. They are like mini-supermarkets. They are located at the corner and have fast food franchise or fast food items also. h) Consumer cooperative – It is an association of consumers themselves who buy products in large bulk for members as well as non-members. The consumers or locality residents themselves manage all the activities from designating a manager to setting the policies of the store. Channel of distribution, Supply Chain Management and Logistics Management. The organizations invest heavily in making a product of customer’s choice. If the organisation don’t make arrangements to deliver or make it available to prospective buyers at the right time and the right place, it is sure to fail in the market. Imagine a customer has to contact the manufacturer for the products like shampoo, soaps, etc. and arrange his own transport. It will be a big hassle for the customer who would rather prefer something that is easily accessible. Making the products available effectively and efficiently to the end consumers is taken care under the place concept of the marketing mix also known as marketing channel or distribution channel. Decisions concerning distribution channels are of utmost importance to manufacturers. It is concerned with how the product gets through the producer to the consumer. Most of the manufacturers do not sell the products to the end users. They use a set of intermediaries which perform different roles in the channel network. Each member in this chain or channel serves as a link in the distribution network linking the manufacturer to the end user. Supply Chain Management involves the management of materials, information, etc. from the suppliers to the physical distribution of the finished products to the consumers which encompasses logistics, material handling, and purchasing. This area of marketing if properly executed reduces costs to a great extent. This is the reason this arm of marketing is gaining much importance, and organizations constantly strive to employ a right candidate for this role. Advertisements Management of the supply of materials and information from the suppliers (source) to the end customer is Supply Chain Management. All the organizations that are part of the process of producing, promoting and delivering a product to the end customers are considered part of the product’s Supply Chain. It begins from the suppliers who provide raw materials, etc. to manufacturers for production and follows the distribution of the finished product till the end consumer. This includes the storage activity as well of the materials and products. Supply chain management encompasses the flow of materials and information up and down the chain. All the activities of managing the supply as well as storage incurs the costs for the organization. Marketers strive to bring efficiency in this function to reduce the costs. These costs finally get added to the price of the product. If this function is managed most efficiently, the price of the final product will be less and will help the organization gain competitive advantage. It also gives great opportunity to increase the cost to profit margin and increased profits to the organization. Reducing costs is part of supply chain. Value Chain is another term used interchangeably with the term supply chain. Definition of Supply Chain Management – “Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all Logistics Management Activities.”– Council of Supply Chain Management Professionals. Most of the organizations produce products at a certain location for efficiency through large-scale production. The buyers of these products are spread all over the world. This necessitates the function of making the products available to buyers. This function of connecting the manufacturer with the buyers by distribution of goods and information comes under Marketing Channels. Marketing Channel involves all the people and organizations that are focused on providing value to the customer (downstream) via buying, selling and promoting the product to the customers. These organizations that perform the marketing activities of buying, selling and promoting a product are called as intermediaries, middlemen or resellers. For example, the producer of raw materials that supplies these to the manufacturers for making a product forms part of the Supply Chain and not Marketing Channel. Marketing channel is only concerned about the channel flows (physical goods, ownership, payments, etc.) to-and-fro among manufacturer, any intermediaries, and end consumers. These are set of organizations linked to each other which are concerned with making an offering available for the user. The characteristics of all these organizations (middlemen, intermediaries, resellers) help an organization to determine which of these intermediaries to utilize or to not utilize them at all. That is to make a decision of selling the offering directly to the consumer or via intermediaries. As involvement of marketing channels results in costs, important decisions are made on selection of these channels and designing an effective and efficient marketing channel network. Advertisements Definitions of Marketing Channel – Marketing channels are set of interdependent organizations involved in the process of making a product or service available for use or consumption. – Philip Kotler. Marketing channel or Marketing intermediaries are organizations that are responsible for the distribution function of connecting manufacturers to consumers. One who specialises in performing operations of rendering services that are directly involved in the purchase and sale of goods in process of their flow from producers to the users. – Definition of middlemen by American Marketing Association. Various intermediaries like wholesalers, retailers, agents, etc. form the marketing channel. Supply chain encompasses all the organizations involved in producing, marketing and delivering of products to consumers. It consists of flow of information and materials upstream as well as downstream. It includes suppliers as well as intermediaries. Supply chain management ensures supply of inbound materials and outbound finished products Logistics refers to the physical flow of materials in the supply chain. Logistics management is part of the supply chain management that is concerned with planning, implementation and control for effective and efficient flow of goods, services, and information up and down the supply chain. importance/ objectives/ role of marketing channels. Marketing channels from the soul of the marketing function. Consider a product of customer’s choice made by a manufacturer at the right price. Now when a customer wants to buy the product, he will have to locate a manufacturer who may be in a different region. Just making enquiries about the product, getting it, etc. will take immense effort from the customer. It has been noted that most of the products in the market fail if they are not made available to the target customer at the right time and at the right place. The roles, functions and benefits of marketing channels are listed below- 1) When the product information is available (promotion), the customer is bound to make enquires with different retailers, ecommerce sites, wholesalers, etc. It becomes important for the manufacturers to ensure the product is easily available to the customers. Else a competitor will take advantage of this opportunity and introduce the product with different intermediaries for the customer. 2) Presence of intermediaries reduces the number of links between the manufacturers and the buyers. As shown in the figure, for example, if the producer 1 manufactures shirts and producer 2 manufacturers shoes. So a customer looking for both these items will have to contact these 2 manufacturers separately. This effort will be greatly reduced if both of these items are available with an intermediary like a retailer. This not only benefits the customer but also the manufacturer in meeting its marketing strategy, sales, etc. 3) The presence of the marketing channels ensure market coverage and a successful marketing strategy for the organization. The intermediaries provide a variety of products from different manufacturers at one place. The customer doesn’t needs to make extra efforts to reach the manufacturers. The intermediaries not only provide producers products but also act as hub of information about the products and manufacturers. A customer can get all the required information on the product like its features, quality, warranties, guarantees, and also have a first-hand experience of experiencing the product via demo. 4) The intermediaries provide a variety of products at one place. The buyers get a great opportunity of comparing the products and their substitutes from different manufacturers. 5) The intermediaries perform the function of product storage as well as transportation. In their absence, the manufacturer will have to perform these functions. They take the risk of transportation and storage. 6) The intermediaries reduce the transaction costs because of the lower number of links between manufacturers and buyers. 7) They are the source of information for manufacturers. The intermediaries provide information about the market like demand, competitors, consumer behaviour, consumer buyer behaviour, etc. (marketing environment) which helps manufacturers in altering marketing strategies or identifying new needs and wants in the market (information on opportunities and threats). 8) Intermediaries take the risk of new product launches. Irrespective of the acceptance of a new product in the market, the intermediaries take the risk of managing the new product that requires investment in time, effort and money. 9) Time utility function – the intermediaries perform the function of making the product available at a convenient time. 10) Place utility function – the product is made available at a convenient location. 11) Products are made available in small as well as large quantities – Break of bulk services. For example, a customer can buy a single tooth brush or half-a-dozen at a time from an intermediary. To entertain each and every request of different quantities from the buyers in the marketwill be a difficult task for the manufacturer. 12) The intermediaries help promote products via different in-store promotion activities like distribution of pamphlets, display, assigning shelf space, store salesman, etc. For example, customers do ask the store representatives about the value of the product, any complaints from other customers, etc. 13) Knowledge of the region – a manufacturer will need help of local people in the target market on the expertise on the local language, culture, etc. The retailers, etc. perform this function, and help the manufacturer in implementing its marketing strategies. We can conclude that the presence of intermediaries, middlemen or resellers fill the below gaps between the manufacturer and the consumer- a) Space gap – manufacturer location is at different location from the buyer. Intermediaries make the product available at the convenient place to the buyer. b) Time gap – As manufacturing takes place at a different place from the buyer’s location, product reaching the buyers place at the time of need is not possible. Intermediaries store the products in advance to ensure the product is readily available when needed. c) Offerings gap – Intermediaries store different kinds of goods from same as well as different manufacturers. The customer can buy groceries, clothes, shoes, etc. from a single retailer now days. For example, shopping malls, supermarkets, etc. d) Quantity gap – Products are made available in small as well as large quantities. e) Information gap – Intermediaries educate the customer about the product through demo, etc. This function helps buyers to compare different products, understand the value delivered by the product, etc. f) Product variety gap – Intermediaries store goods from different manufacturers. Buyers don’t need to contact the manufacturer individually for comparison, etc. The manufacturer can decide to skip the intermediaries. Usually large organisations directly sell to consumers like Apple store, Vodafone mini store, etc. Here the manufacturer saves the costs on intermediary margins and reduces the cost of the product. The lower cost increases the profit margins. Some examples are direct selling through company sales representatives, mail, vending machines, phone calls (telemarketing), infomercials, internet selling, etc. Types of Marketing channels / Channel Levels and Channel Flows. The producer and the end consumer are the starting and end point of the marketing channel. The presence of number of intermediaries depends on the marketing objectives of the organisation. Selecting the right channel is a critical task as it can be the reason for failure or success of the product. We will look at the Levels of marketing as shown in the figure above. Manufacturer – Consumer channel, there is absence of intermediaries. Here the manufacturer opts to sell directly to the customer. Hence, this level is also known as Direct-marketing channel. The internet, television (cable networks) gives great opportunity to manufacturers to reach their prospective customers. Manufacturers understand the power of retailers as the final link to the customers. To reduce this influence of retailers, organisations follow this channel. This channel structure is also economically viable as the manufacturer doesn’t needs to give sales or profit margins to intermediaries. Some examples of this channel are: mail order, door-to-door selling, internet selling, Television commercials (infomercials), telemarketing, and manufacturer store outlets. Manufacturer – Retailer – Consumer channel has one intermediary. This intermediary is generally a retailer in consumer markets. For example, producers of televisions, appliances, etc. sell their products to large retailers who buy these products in bulk. These retailers have large distribution network. They break down the large bulk quantities into smaller ones and distribute to their stores in the market. For example, departmental stores, shopping malls, super markets, etc. The manufacturer performs the function of the wholesaler. There are many reason for adopting this channel- a) Sometimes, the product needs immediate distribution and cannot be stored for long (perishable products), b) more proximity to end consumers to study their response, c) shorter channel has better control. Manufacturer – Wholesaler – Retailer – Consumer: Smaller retailers cannot buy in bulk from producers. Here the producers sell the bulk to wholesalers who break the bulk and sell it to retailers. For example, hardware, drugs, food items, etc. Manufacturer – Agents/Brokers – Wholesalers – Retailers – Consumers: This three-level channel has three intermediary levels. When the manufacturers don’t have many clients they take benefits of agents/brokers. When manufacturers find it difficult to reach the wholesalers through their representatives or branches, they take help of agents or brokers on commission basis. Agents/brokers negotiate purchases or sales, or both, but do not take ownership of the goods. They are likely to have several contacts or clients in the market and can arrange variety of product. For example, imported goods, textile goods, agricultural goods, etc. Marketing channels with more levels are also found in some organisations. But each intermediary in paid a margin for its service. This adds to the cost and price of the product. Also, more the number of intermediaries lesser is the manufacturers control on the channel. In Business marketing channels, the manufacturer’s sometimes use their own sales people to sell to industrial buyers. The industrial distributors also help an organization increase its market presence in industrial markets. They have large client base and their expertise helps an organisation expand its business. Depending on the scale of business, the organisation can directly sell through the industrial distributors, or its representatives and sales branch can sell to industrial buyers through industrial distributors. Channel Flows – Supply Chain Management involves the management of materials, information, etc. from the suppliers to the physical distribution of the finished products to the consumers which encompasses logistics, material handling, and purchasing. The entire management in Supply Chain from the source to the consumer and back involves forward flow as well as backward flow. Apart from flow of physical products, the other flows are information, ownership, money (financial transactions), and risk. Physical flow starts from the source of the channel that is suppliers. This flow, mainly via transportation is among suppliers, manufacturers, intermediaries, and consumers. There may be backward flow of physical goods in case of returns for various reasons like defects, etc. Title flow involves transfer of ownership through the channel. The flow of ownership accompanies physical flow most of the times but not all the intermediaries take title of the product. Brokers and agents negotiate deals but don’t take title of the product. Payment flow or financial flow is movement of payment of goods within the channel. It may involve financial institutions like banks, finance firms, etc. Payment can be in cash or credit and it flows in the direction opposite to the flow of physical flow. Information flow involves negotiation, terms of sale, advertising, etc. It is the flow of information within the channel among different intermediaries, consumers, manufacturers, and suppliers. It may be a feedback, an appreciation, a request, or even a complaint from the consumer, and a reply to this from the manufacturer, wholesaler or a retailer. Risk flow involves all kinds of risks in handling the product. It usually flows with the flow of physical flow and affects all the members of the channel. Product becoming outdated, passing its expiry date, defects, price changes, etc. are many of the risks that affect the buyers and sellers. All the members on the channel try to reduce the risk by various means like insurance against damage, finance firms increase interest rates, etc. DIFFERENT KINDS OF INTERMEDIARIES Intermediaries, also known as middlemen and re-sellers, are organisations that perform the different functions in the marketing channel to connect the manufacturer to the buyer. These can be organizations as well as individual business men. There are two types of middlemen, one those who take title to the products (merchant middlemen), and others who just facilitate the sale and purchase of product without taking title of them (agent middlemen). The first category are known as merchant middlemen which are known as wholesalers and retailers. The agent middlemen are the agents and brokers who negotiate purchase or sales, or both and do not take ownership of the product. Example of agent middlemen are agents, brokers, commission agent, forwarding and clearing agents. I. Merchant Middlemen – 1) Wholesalers – These are the organisations that buy and resell products to other resellers like retailers, other merchants or to industrial buyers, and not in significant amount to end users. They take title to the products they trade in. They buy the products in large quantities and break down the bulk basis the requirement for distribution to retailers, etc. They provide range of services to buyers as well as manufacturers like transportation, buying on credit, etc. There are different kinds of wholesalers and they can be broadly put into three categories- a) Full function wholesaler – they buy products/goods from manufacturers and sell them to other resellers like retailers, traders, etc. below the marketing or distribution channel. They buy in bulk from different manufacturers, break down the bulk, store, sell the smaller lots for cash or credit, and also helps with information (advice, education, etc.) to whom he sells. As they take title to the products, they are also responsible for the risk factor involved. b) Converter wholesaler – as the name suggests, they buy the products in bulk, process them before selling them to the following channel members. For example, a wholesaler buys textile and bleaches it before selling it to other merchants. c) Industrial wholesalers – they sell the products to manufacturers instead of retailers. d) Drop shipper wholesaler – a drop shipper wholesaler doesn’t handles the product. They take orders and coordinates with the manufacturer to deliver the goods directly to the retailer or other merchants in the channel. As they take the risk of the products, they need to handle the products in case the retailer, etc. cancels the order. They trade in bulk like coal, sand, lumber, etc. 2) Retailers – Retailers sell products/ goods to final consumers for consumption or use. Retailers buy the products from different sources like manufacturers, wholesalers, traders, etc. basis the need and want in the market. They are considered the final link with the consumer in the marketing/ distribution channel. Most of the retailing in retail stores though new concept of retailing called non-store retailing is becoming popular. It is direct selling to customers via infomercials, telecalling, internet selling, ecommerce, direct mail, personal selling, etc. Retailers can be broadly classifies as small scale retailers and large scale retailers. Small scale retailers – a) Unit stores – these are general stores or single line stores like clothes, gift shops, grocery stores, utensils, book shops, bakery, etc. b) Street traders – they sell products on streets, footpaths, etc. They usually sell items that can be easily carried and are quite unique like, mobile accessories, gloves, fancy accessories, etc. They can often be found at bus stands, railway stations, etc. on busy places at times when people go out for shopping, to work etc. c) Market traders – these open for selling on specific days and move around wherever there is an event, or time specified market. They have a fixed location and arrangement made for selling like a selling van, setting a kiosk, outlet, etc. on a fixed location. For example, farmers market, magic event, crockery sales, etc. d) Hawkers and Peddlers – these retailers sell goods door to door on their cart, bicycle, etc. They carry items that are in demand and as the demand changes because of various reasons like season change, they start selling different products. A hawker selling woollen clothes in winter may change to selling clothes suitable for warm climate in summer. e) Cheap jacks – these retailers have a specific place in a locality but do change locations for business. They usually sell unbranded items like clothes, plastic vessels, kitchen utensils, shows, etc. They set up the business for a specific time before changing location. Large scale retailers – a) Departmental stores –a departmental store has wide variety of products being sold under one roof. From there one can find a raincoat to a pen. They sell a particular specialised product or an entire product line. b) Discount store – here a standard items are sold at lower prices. The business is done on higher sales and lower profit margins. For example, Wal-Mart, 49-99. c) Chain stores – these are stores near residential areas selling the same kind of products in different localities. These can be in the entire region, state or nation. For example, Nike stores, Dell, Raymond, Big Bazaar, etc. The have their chains in almost all towns. These centrally owned and managed. They mostly deal in same products across all chains like, fast food chains, Nike products, etc. The items for sale are bought centrally and sent across to all the chains. Since it operates under the same brand, the prices and quality isstandardised. For example, a McDonald’s outlet will have same kind of price range, and feel and appearance of the store in different locations. d) Mail order houses – through this the seller shares information about the product via different means like advertising, press, post, catalogue, telecalling, etc. The buyer doesn’t visit the seller but orders the product and receives it via post, courier, etc. The business is done by mail or other means without inspecting the product by the consumer. TV advertising like infomercials are considered as extension of mail order houses. Here the sellers provide as much information as possible to the consumer through different media as customer will buy the product basis the advertising. e) Super market – it is a large retail store which sells a variety of consumer goods with self-service. They sell food items and articles of daily needs like, cold cream, bakery, vegetables, meat, groceries, fruits, dairy, etc. They done deal in credits and consumers move around the store to choose products of their choice from a wide variety. f) Super stores – These are oversize department stores and also known as hypermarkets.They carry a wide range of general merchandise and FMCG’s. A customer can get services like haircuts, salons, restaurants, banking, etc. at these stores. g) Convenience stores – These are small stores that deal in limited-line of high selling goods at a higher price. They are like mini-supermarkets. They are located at the corner and have fast food franchise or fast food items also. h) Consumer cooperative – It is an association of consumers themselves who buy products in large bulk for members as well as non-members. The consumers or locality residents themselves manage all the activities from designating a manager to setting the policies of the store. II. Agent middlemen- They facilitate the sale and purchase of product without taking title of them. They negotiate the sales between sellers and buyers, and generally receive commission for their service. They are classified as – a) Commission agent – They do not assume any risk of the products and receives a fixed rate of commission for his service. They are expert in dealing with the commodities they deal in and have knowledge about the market trends and the producers. They take orders and arrange the transport, delivery and payment transactions. He may or may not take possession of goods. b) Brokers – they are agents who do bargains and arrangements between parties and receives a compensation known as brokerage. They bring the buyers and sellers on one platform for discussion. Other agent middlemen are Factors who sells goods for compensation. They can sell the product in their name at a price of their choice. They buy goods on credit or cash and can sell on credit. They can sell the products in the sellers name by issuing receipts. Forwarding and clearing agents fulfill the responsibility of collecting and delivering of products on behalf of others. They are mostly dominant in export and import business. Forwarding agents receive goods and deliver the same to the intended destination. Clearing agents take delivery of imported goods and help clearance at entry. Similarly there are Auctioneers and Selling agents employed by sellers. TYPES OF CHANNELS (VERTICAL, CONVENTIONAL AND MULTIPLE) Types of channels- Conventional marketing channel In this members work independently with each other under agreement and no member has control over other member. It comprises on autonomous/ independent manufacturer, wholesaler and retailer. Each member is concerned about increasing the profits of its business and not the profit of the entire channel. For example, the manufacturer will perform the function of Product development, branding, pricing, promoting and selling. The wholesaler performs its function of buying, stocking, promoting, displaying, selling, delivering, finance, etc. The decision making resides in each firm and there is lack of proper planning to achieve the objectives of the entire channel. Vertical marketing channel It has the manufacturer, wholesaler and retailer working as one system. They formally agree to cooperate with each other. The responsibility of functioning of each channel member in owned by one member. This arrangement is done through contractual agreement. The member which has authority over all the member can be the manufacturer, wholesaler or the retailer. They work in cohesion, and conflicts between channel members don’t exist. This type of channel came into existence to avoid disagreements and conflicts among channel member. As independent members try to force their influence to meet their objectives, there is always a possibility of conflict and powerful channel member influencing the other. Once the channel operates as a one system and managed by one member, there is much clarity and coordination among channel members to achieve the channel objectives . Multiple marketing channel in, the manufacturer utilizes two or more marketing channels in the target market. This channel can be planned and implemented for various reasons. A manufacturer gains more market coverage through additional channel by targeting additional segments. For example, introduction of ecommerce serves a segment of consumers that are tech savvy and like home delivery and research of products on internet. It can also lower the costs. For example, a manufacturer can open a company store in the target market. Customers would prefer a company store rather than an intermediary because of reasons like brand image, etc. here the firm saves on the margins that it shares with the channel members. If the firm is a market leader, an additional channel often brings competition among the intermediaries who strive to promote and sell the products more enthusiastically. An additional channel like a sales force also helps getting directly in contact with the customer. This provides proper education, and service for complex products to the customer and a reliable feedback to the organization. CHANNEL STRATEGIES (EXCLUSIVE, SELECTIVE AND INTENSIVE). Channel Strategies – Organizations’, depending on their marketing strategy, decide on the number of channel members. There are three channel strategies that organizations chose from – Exclusive distribution, Intensive distribution, and Selective distribution • Exclusive distribution – In exclusive distribution, a firm selects only one or few intermediaries for product distribution. This leads to a strong relationship between the manufacturer and the intermediary. This system demands high level of support between the manufacturer and distributer. They both become highly dependent on each other. Manufacturer requires the knowledge and distribution expertise of the intermediary. The intermediary is asked to promote the product, and they generally do this enthusiastically as they get the benefits of higher sales. The intermediary being the sole distributor benefits from the product’s success in the market. In case the manufacturer alters the contract or gives additional selling rights to other intermediary, the relationship between intermediary and the manufacturer hits a low. Intermediaries may block the sale of products at its outlet. Many TV series sign exclusive contracts with networks for exclusive premier on certain TV channels. Manufacturers of electronic items and automobiles also sign exclusive distribution contracts. In India, Motorola, gave exclusive rights to Amazon India to launch and sell its Moto G4 model of its mobile phone. • Intensive distribution – In intensive distribution, a firm sells products through as many outlets as possible. The products which can be easily accessed by customers without much shopping effort are sold through intensive distribution. For example, newspapers, milk, soaps, etc. These products do not require much additional services from intermediaries apart from handling and assigning shelf space. A customer can walk into any retail store or supermarket or a shopping mall and choose or ask for the product needed. The consumers can get these products when and where they are needed. These for mostly the FMCG products. This strategy provides great brand exposure and consumer convenience is given high priority. • Selective distribution – In selective distribution, the manufacturer opts to distribute products at select outlets and in select regions. This distribution lies between Selective distribution and Intensive distribution. Selective distribution gives more market coverage than Exclusive distribution and better control on the marketing channel than Intensive distribution. The intermediary may be required to add value in some way like outlet ambience, customer education before and after the sale of the product, etc. This channel strategy is also less costly as compared to Intensive distribution. For example, Cannon cameras can be found in many outlets but not all the models at all these outlets. The manufacturer sells its select models at select outlets appealing to different customers in the target markets. For expensive products organisations usually go for exclusive distribution over selective and intensive distribution. This way the firm controls the prices as well as the brand image. THE FACTORS THAT AFFECT THE SELECTION OF A MARKETING CHANNEL A careful and systematic study needs to be done for selecting a marketing/ distribution channel. It not only affects the marketing strategy and organisational goals but also the strategies of the intermediaries in the channel. Place factor of the marketing mix that involves the distribution system requires effort and time of the management and involves costs for making changes to it. Therefore it becomes essential that a right channel if chosen to avoid any later changes. Below are the factors that influence the choice of the channel – Product – The first factor to be considered is the product category. A FMCG product will require different distribution than an automobile. Similarly the channel of distribution for making an industrial product like a “Rotary Encoder” will be shorter as compared to a consumer product like Shampoo. Some consumer goods need immediate availability for the risk of shorter life like perishable goods from a bakery, etc. Similarly a fragile product will need careful handling by the intermediaries and hence, a shorter channel is selected. A technical product will need selling from knowledgeable sellers providing demos, etc. Complexity of product and level of sales service also decide the selection of the intermediary. Customer – There is a difference in buying behaviour of consumers and a business buyers. They have to be sold through different channels. A consumer may want to personally inspect vegetables and fruits bought for home consumption. A business buyer (hotel owner) will not be that inclined to do personal inspection. He/ she my expect a dealer, company supplier, agent, or a reseller contacting him/ her. This was a business owner would sign a contract for a regular supply for a certain period. Similarly the buying style for consumer and a business buyer will vary like buying on credit, demo by sales team, etc. Type of market – A large market will require increase in channel members. If the number of buyers is large, it is better to have local presence to understand the pulse of the market. If the market is small, direct selling can be utilised. Number of buyers in the market and their frequency of buying the product affects the choice of channel member. Organisations objectives and resources – To ensure complete control on the quality, price and after sales service, the organisation may sell directly to consumers. A large organisation with huge resources can avoid intermediaries and deal directly with consumers. It can have its own exclusive outlets to sell its products. An organisation will less financial resources are dependent on the intermediaries to sell their products. They rely on the experience and expertise of the channel members. Marketing environment – Economic environment affects the choice of marketing channels. For example, a fall in the dollar or pound value will result in increase of product imported from other countries like India and China. Similarly, at the time of high inflation, cheaper intermediaries are chosen. The organisations try to shorten the channel to reduce costs. Technological advancements have given consumers options to buy products through mobile phones. The organisations also have control over the prices of products when sold over the internet. They can also track the number of potential buyers who visited their sites and which products they have shown interest in. The consumer can buy a custom made product. Availability of intermediary – The availability of the intermediary also influences the selection of the channel member. The intermediary that the organisation wishes to sell through should be available in the target market. In their absence, the organisation will have to opt for an intermediary that is available to them. Or the organisation will have to invest to open their own stores, opt for direct selling, etc. Sometimes the intermediary is unwilling to distribute the organisations products. In such cases the firm should be ready to involve channel alternatives. Channel partner capabilities – A new gadget from a manufacturer can be sold through internet. But if a consumer wants to physically inspect the gadget, the producer will need to make it available at stores to increase its sales. The store salesman will be able to educate and influence the sale of the product. Sometimes, the customer is more inclined to buy from a store to ensure easy return and after sales service. Depending on the characteristics and capabilities of the intermediary, the manufacturer chooses an intermediary to meet its objectives. Cost –There is cost involved in distributing products in the market. The intermediaries are given a share of the profit for their services. Organisations strive to make the channel network as efficient and effective as possible to reduce the costs. The organisations select a channel network that generates high sales with minimum costs. Competitors control and choice of intermediaries – Sometimes the market leaders control the intermediaries, and threaten to withdraw their products for selling competitor products. An organization has to closely study the intermediaries of the competitors. To avoid conflicts, a firm can sell products through direct selling if the competitor has its products sold through retailers. If both the rival firms sell through the same retailer, intermediaries often influence sale of a product that gives them higher profit margin. Selecting the best channel is critical for the success of the product in the target market. Not every organisation can have the same channel. The above factors play a big role in selection of intermediaries. Organisations need to balance the above factors carefully to design an effective and efficient marketing channel. steps involved in designing a marketing channel A marketing channel not designed effectively fails to make an excellent product successful. The firms usually follow the below steps for designing a marketing channel- Analysis – A channel design starts with analysing the market requirements. Basis the customer, product category, and marketing environment, the organisation has to follow the matching channel strategy – Exclusive distribution, Intensive distribution and Selective distribution. The availability of the intermediary also influences the selection of the channel member. The intermediary that the organisation wishes to sell through should be available in the target market. In their absence, the organisation will have to opt for an intermediary that is available to them. Or the organisation will have to invest to open their own stores, opt for direct selling, etc. Sometimes the intermediary is unwilling to distribute the organisations products. In such cases the firm should be ready to involve channel alternatives. The firm should take into account the functions necessary to ensure the availability of product to end users. These functions should be clearly defined as to which functions that the firm can itself perform like storage, transportation, after sales service, etc. The organisation can choose intermediaries from wholesaler, retailer, sales personal, agents and brokers, etc. The availability and capabilities of different intermediaries, number of intermediaries, and their services to competitors should be carefully analyzed. Evaluation – The evaluation process involves study of costs involved, time constraints relevant to channel development, availability of channel members, political and legal constraints, functions and control of the channel members. This process is very critical and requires expert planning. For example, in intensive distribution at retail outlets, the costs may go up but there is also a great possibility of high sales turnover. In contrast, in the presence of a broker, the organization will need to invest in promotion activities to create awareness of the product. Personal selling gives the organization control on its selling efforts. Advertisements The channel implementation usually takes a long time to generate the desired results. The firm has to decide on a channel that can be developed in the shortest period and is effective. A good product of customer’s choice lying in the stores just adds to costs and losses to the organisation. The organization also needs to consider the control factor over the channel members. In VMS (vertical marketing system) the member which has authority over all the member can be the manufacturer, wholesaler or the retailer. As independent members try to force their influence to meet their objectives, there is always a possibility of conflict and powerful channel member influencing the other. The manufacturer controlled channel gives the manufacturer control over the prices, customer service, market coverage, etc. Sometimes the market leaders (competitor) control the intermediaries, and threaten to withdraw their products for selling competitor products. An organization has to closely study the intermediaries of the competitors. If both the rival firms sell through the same retailer, intermediaries often influence sale of a product that gives them higher profit margin. Legal and political constrains need careful consideration for channel development. Every state and region has local laws that can interfere with the channel functions. Similarly the firm has to outline the terms and conditions on various aspects of rights that can be given to the intermediaries. Channel selection- An organization can select one or more channel alternatives. The firm can do market testing and experiment with the channel alternatives. Two factors that affect the final selection are – the reach of the intermediaries to the customers in the target market and economic viability in the channel. Advertisements Intermediaries consider the some or all of the below factors before getting into a relationship with a producer- • Profit margin • Effect on or reaction from other channel members • The new product category relative to the other products the intermediary helps distribute • Manufacturers brand image and relationship with other members in the market • Costs involved in functions like storage, promotion, etc. A firm can choose one or more channels basis its objectives and geographic location of the target markets. Lesser the conflicts between channel members helps in efficient and effective distribution network. There could be situations that a conflict arises when a manufacturer opens a factory outlets in addition to other channel network. Here the customers benefit from a reduced price and manufacturer can increase the profit margin to the intermediaries because of increase in sales. It requires careful consideration of various factors before final channel selection. After all the intermediaries represent the manufacturer. Customers create an image about the manufacturer through the service they receive from the intermediaries. An organization has to constantly revise its channel strategies and make changes with the change in needs and wants of customERS

TOPIC: PRICING DECISIONS Price is the only Marketing Mix variable that generates revenue. All the other variables viz. Product, Place, and Promotion incur costs. For any kind of transaction, an offering has a price for its value. Price goes by many names – rent, rate, fee, tuition, toll, fare, royalty, honorarium, etc. Price is the most flexible or easily changeable element of the marketing mix elements. A marketer can change the price without much investment in time as compared to making changes to the Product features, Promotion strategies, or distribution channels. Price can be defined as quantifying (into Dollars, Pounds, Rupees, etc.) the perceived value of an offering to the buyer at a particular time. Pricing includes setting of objectives, determining price flexibility, outlining strategies, finalizing price, and controlling it depending on the challenges. Organizations have to rely on the managerial skills in the implementation and control of pricing strategies. Its success relies heavily on how the managerial staff monitors the response of customers and competitors. In developing countries, price is the major factor that drives sales. Pricing and price-wars among competitors is the biggest problem that an organization faces. There are different ways in which organizations approach the final pricing decision. These decisions depend on competitors, costs, demand, perceived value, long term return on investment or short term return on investment, etc. Role/ importance of pricing in marketing strategy 1) Price in combination with promotion becomes a strong tool for influencing buyers to buy products. It interests the buyers and highlights the image of the brand to increase sales. Sometimes organization’s focus on other marketing mix elements by keeping the price constant based on recovering costs at certainpercentage. 2) Finalizing price in combination with other marketing mix variables, sets guidelines and boundaries for management to set marketing strategies. 3) Pricing also determines standard of living. The lower the prices in the economy, the higher is the purchasing power in the hands of consumers. Price reflects purchasing power of the market. 4) Price is a strong weapon against competitors. 5) Price determines the profits on sales. It is a basis of generating profits. As it is the most flexible of the marketing mix variables, organizations exercise this freedom very often for defensive or offensive pricing strategies. 6) Price influences two types of management decisions. First is setting price for a new product and second, adjusting the price of existing products basis the market situation, costs, etc. 7) Depending on the marketing program, organizations use Price in different ways – Demand oriented strategy, cost oriented strategy, competition oriented strategy, and also because of ethical constraints. 8) Price should be carefully set basis its combination with the other marketing mix variables. The price on a product affects the market of another product in the product line from the same manufacturer. For example, a soap priced similar to another soap from the same manufacturer which has different features will have impact on the sales of each other, and the customer will have difficult time in making a choice. Price setting should be according to the product features and should accompany strong promotional activities like discounts, education of product features, etc. 9) Price should be set in relation to the delivered value and perceived value of the product -Price also communicates the quality of the product. If a product is priced very low and its features communicated are better than the competitor, the customers may think that the product has low quality. In such cases organizations have to invest heavily in promotional activities and communicate clearly highlighting the services associated like warranties, brand value, etc. 10) Prices should be set in coordination with distributors. Most organizationsstrive to give higher profit margins to distributors as the distributors like wholesalers and retailers too aggressively promote the products to consumers. 11) High promotional activities result in costs. Organizations have to set price basis the costs associated to advertising, public relations, etc. The organizations have to carefully analyze the promotional expenditure and decide if it will result in production and marketing economies of scale. This will reduce the unit cost and give freedom to make price changes. objectives of Pricing AND variables/ elements of Price Mix. Pricing objectives refer to the targets to be achieved via pricing strategies in the marketing plan. These should be clearly outlined in quantitative terms so as to be understood by all the members involved in pricing decisions. The pricing objectives can be divided as Short term objectives and Long term objectives- 1) Short term pricing objectives- The short term objectives for pricing policies are as below- • Attracting new customers, middlemen, etc. • Generate interest in the product • Discourage competition • Sales or profit growth • Rapidly establish market position • Meeting competition • Maintain market share • Promote new products • Recover costs of a product in decline stage • Secure key accounts 2) Long term pricing objectives- The long term objectives for pricing policies are as below- • Stabilize industry prices • Market share growth • Maximize long-run profits • Strategic pricing in different markets • Retain or capture market share • Maintain price leadership • Maximize return on investment • Product and quality leadership Advertisements Whether the objectives are long term or short term, they should be clearly defined and easily understandable. The organization adopts a pricing strategy depending on the pricing objective. In the short run, most of the time the main objective is to survive in the market which has intense competition or changes in consumer preferences. Adding value to the brand generally comes under long term objective. Price should be used as a strategic tool rather than it being determined by costs and markets. There are many variables that affect the pricing strategy. Basis the factors, an organizationutilizes different pricing variables to cover the costs of manufacturing and generate profits. The Price Variables depend on “Pricing policies and strategies”, “terms of credit” and “resale price maintenance.” Pricing Policies and Strategies are outlined basis the market needs. These help the organization’s in outlining different Discount options – discounts offered for large quantity sale, cash discounts, trade discounts, seasonal discounts, etc. Advertisements Terms of credit help to increase of market size. Increase the sale of the product results in increase in production. More the production, more is the economies of scale. Buying on credit is the most followed option in modern day marketing as it is a means of sales promotion and contributes to hassle free selling. In today’s economy, no firm can do business without offering credit facility. Resale Price Maintenance is also followed by many organization’s. Through this the manufacturer or the distributor recommends the profit margin at which the next channel member/ members can sell the product. Here the minimum sale price is fixed below which the channel member cannot sell the product. This Price variable helps the organization in generating cooperation and support from the distributors. When a certain profit margin in fixed, the intermediaries cannot sell the product below or above the specified percentage. This helps consumers as well as it protects them from being overcharged for the product by the middlemen. Pricing Strategies. When making price decisions, an organization has to follow price strategies. Price strategies offer a set of guidelines and gives direction to the organization for pricing decisions for the target markets. It determines the extent of pricing basis the region, price variability, price levels, price stability, use of price lining, and pricing according to stages of the product in the product life cycle. 1) Region based pricing (Geographical pricing) – This involves studying the region or country of the target market and setting the prices accordingly. Different regions have different set of prevalent systems for making payments. Also, the organization may consider adding additional percentage to price basis the taxes, transportation and storage costs. Many companies are asked to invest back a percentage of their earnings in the target market country. The system in which the buyers want to payback in other forms other than money is known as countertrade. These can take place in different forms like barter, compensation deals, buyback agreements, and offset. (Source – Marketing Management; Prof. Kotler, Developing price strategies and programs, 2004, p.g. 489). Barter system involves exchange of goods instead of money and no third-partyinvolvement. Compensation deals involve seller receiving some percentage of payment in the form of products and the rest in money. In buyback agreement the seller sells the machinery, technology, etc. to buyers and agrees to buy the products developed by the buyer using that machinery, technology, etc. In Offset the seller receives the complete payment in money but needs to spend a large amount of that in the country of operation within a specified time. For example, many companies were not allowed to trade in India unless a substantial amount of earning was spent in India. There were bills passed in the parliament after a heated debate. 2) Pricing through Price variability/differentiation – When an offering is sold to buyers at two or more prices equal to each buyer’s perception of product value though they do not reflect proportional difference in marginal costs. These can be done in the following forms – Advertisements • Customer basis- one customer may pay one price and another a different price at one time and place. For example, different movie shows at different timings and different age groups, warehouse sales, etc. • Product-form basis – different versions of the product are priced differently for buyers with different perceptions. For example, Motorola sells its Moto X series with a different back cover texture at different prices. • Place basis – geographically separated target markets will have a different price of the same product though the cost of offering in each location is same. • Time basis – the product price changes with time. For example, off-peak prices for theatre, movies, seasonal products, etc. 3) Pricing through Price levels – A border pricing is set with in which the price is set. For considering the general price, management considers competitive advantage, product line objectives, attractiveness of target market, current and desired image of the firm. A company like Maruti Suzuki has always targeted middle class and upper middle-class customers. It maintained this image for a long time but has moved at changing it image in the last decade by moving into the premium segment of cars. Maruti Suzuki has cars for different income and lifestyle segments. They manufacture cars like Alto, Alto 800, A-star for lower middle-class customers. They have moved into making SUV vehicles as well. But the image that the company has maintained is of reliability, affordability and fuel-efficient vehicles for price sensitive Indian customers. 4) Pricing through Price lining – Price lining refers to setting price for products within a product line to meet the needs of customers. For example, Maruti Suzuki has cars for different income and lifestyle segments. Wagon, DeZire are targeted to middle class segments whereas Alto and A-star is to target lower middle-class market. If it launches a new car in a certain product line, it will need to consider the price level close to the products in that product line. Advertisements 5) Pricing according to stages of the product in the product life cycle – Some organization’s plan in advance the pricing strategies of the product as it moves through the different stages of life cycle. As the competition becomes intense with the success of the product, the organization has to change the price of the product or else customers will switch to new products from rival firms or substitute products. For example, after 5-6 months of its launch, a premium mobile phone has its price reduced with the launch of new models from rival companies. The firm tries to earn as much revenues possible before the product becomes obsolete in few years. New product pricing There is great flexibility with the organization’s in setting a price for a new product as compared to the product in other stages of life cycle. New product launch and its price are given lot of importance as these cover the overall marketing strategy of the organization. The products in growth, maturity and decline stage face competition and give little choice in increasing the prices. New products on the other hand have little or no competition hence, can be utilized to generate high profits through Market skimming pricing strategy and Market penetration pricing strategy. Skimming pricing strategy involves setting high profit margin relative to costs to “skim” as much profit as possible from the high demand in the market. Once the competitors enter the market with a similar or a substitute product, the organization reduces the price of the product to make it available for price sensitive customers. Most of this strategy is directed towards the Innovators and Early adopters in the target market to “skim the cream” highlighting the unique product features, brand image, and quality. (Innovators – they are willing to try new ideas and are first to buy the new product. They help get the product exposure. Early adopters – these people adopt new ideas early but carefully. They serve as the opinion leaders. Early majority – these form around 34% of the market and adopt a new product earlier than an average consumer.)For example, Samsung mobile’s launch of a new note series handset is usually high priced. After few months the price is generally lowered amidst competition. Penetration pricing strategy involves setting a low price of the new product relative to costs to increase the market share in a short period. This strategy keeps the competitors away as the profit margins are low. The organization’s objective is to gain market share and maintain it for a longer period through economies of scale. This strategy is mostly successful if the market is not big. Competitors enter the market if the market is big and the demand is high. For example, Motorola entered the Indian market through the launch of it Moto G models. The price of this model was kept fairly low as compared to competitive products offering similar features. The launch was such a great success that all the handsets of this model were sold within 20 minutes of its launch through Flipkart, an ecommerce giant, which was given exclusive selling rights. Advertisements 6) Psychological pricing – the law of demand is not always successful for making sales and profits. Customers are influenced via psychological pricing methods like odd-even pricing ($19.99), pricing the product highlighting the quality, etc. Customers usually estimate the price of a product based on their past experience or noticing the prices at some places or media channels. The sellers try to tab on these perceptions and manipulate these reference prices. They may display the product among prestige and expensive products, etc. STEPS INVOLVED IN SETTING PRICING POLICY. 1) Specify Pricing Objective- Pricing objectives refer to the targets to be achieved via pricing strategies in the marketing plan. These should be clearly outlined in quantitative terms so as to be understood by all the members involved in pricing decisions. Depending on the challenges a firm faces in the market, the objective can be either of these – survival, maximize current profit, maximize market share, product-quality leadership. These objectives can be short-term or long-term. a) Short term pricing objectives- • Attracting new customers, middlemen, etc. • Generate interest in the product • Discourage competition • Sales or profit growth • Rapidly establish market position • Meeting competition • Maintain market share • Promote new products • Recover costs of a product in decline stage • Secure key accounts b) Long term pricing objectives- • Stabilize industry prices • Market share growth • Maximize long-run profits • Strategic pricing in different markets • Retaining or capture market share • Maintain price leadership • Maximize return on investment • Product and quality leadership Whether the objectives are long term or short term, they should be clearly defined and easily understandable. Advertisements 2) Determine Costs – There is a close relationship between price and cost. The organization strives to make profits to ensure the various costs it incurred in production and marketing of the products are covered. Careful analysis of costs need to be done to make profits. Many firms fail to set price basis the costs believing that the costs will be covered over a long term through economies of scale. Costs incurred at various stages of product development including the services from departments other than production like legal Consultants, market research, finance, etc., promotion activities, and inflation should be carefully accounted for pricing strategy. A company incurs two forms of costs – Fixed costs and variable costs. Fixed costs are that which the organizations incur irrespective of the production or sales revenue. These include staff salaries, property tax, interest, rent, etc. not dependent on production or sales. Variable costs vary with production. Less the production of units will result in decrease in costs. It has been observed that with increase in production and experience, production costs decline due to the learning curve effect. Many timesorganization’s set the price below the initial total cost. As the sales and production increases, the costs decrease with experience. If this is not taken into account and the price is set higher, there is increase in profits which attracts competition. The profits earned this way are generally short run. It is therefore important that the organization’s understand the cost theory. The management should consider the probable production stages, manufacturing improvements that result from experience, variable and fixed costs for proper estimation of costs. 3) Evaluate Demand – The lower limits of price are set by costs and the upper limits are set by demand and competition. The law of demand states that Price is inversely proportional to demand. Increase in price will lower demand, and decrease in price will increase demand provided all other relevant factors remain constant. This does not holds true in all the cases. Sometimes price reflects product quality like in prestige goods. Customer responses to different price levels are difficult to estimate. Marketers use market opportunity analysis and demand estimation methods to evaluate demand. Change in demand is studied with increase in price. A small percentage increase may not affect the demand largely but a significant increase in price may decline demand substantially. The response of demand to price change is measured by price elasticity of demand. It is the relationship between changes in sales with the percentage change in price. The changes at alternative price levels are studied closely. According to the product type, the demand elasticity also changes. Elasticity is the result of consumer behavior. Increase in price of Petrol or Diesel fuel didn’t affect the sales of large vehicles. The affect was very insignificant. Advertisements According to Prof. Kotler there are many reasons for less elastic demand – • Less or no substitutes, competitors • Buyers fail to notice the price change • Buyers are slow to change their buying habits • Buyers think the price raise is fair The buyers may continue buying the product at an increased price but not for a longer period. They will eventually switch to substitute or competitor products. The response of customers to prices must be evaluated for the total market. Reducing the price may increase sales but it should justify and should be beneficial for the organization in the target market. 4) Evaluate Competition – Most of the time, organization’s set their price basis the price of the competitors. They set the price above the competition, below the competition or at par with the competition. For this the organization must study the industry structure it operates in. The organization may change the price irrespective of costs incurred just because the competitor has done so. The organization should compare the product features with substitute and competitor products. Then basis the value and benefits offered by the product, the management should set price of the product. If the product offers more features, the management can set a little higher price and vice versa. If the products in the market are similar, competition becomes intense and leads to price wars. As customers can easily check prices of products from different manufacturers, study of competitor’s prices becomes essential. 5) Select Pricing Method – Once the organization has analyzed Demand, Costs and Competition, it initiates the process of setting the price. Organizations choose from any of the below pricing methods – 1. Cost Oriented Pricing method – Costs form the base of price range and there are two commonly used methods of setting the price – Cost-Plus/ Markup pricing and Target Return pricing. 1.1 Cost-Plus/ Markup Pricing – It involves adding an additional percentage of profit to the sellers per unit cost of the product. The profit or markup is percentage of the selling price instead of the cost. The following formula can be used to determine the price- Selling price = Average unit cost/ (1 – Desired markup percentage) If the average unit cost is $10 and the markup is 20%, then the selling price will be $12.5. [10/1-0.2). This method is successful only if the marked-up price generates expected sales. The major drawback of this method is that it ignores the demand, competition and perceived value of the product. This method is popular in retail and wholesale trade. It depends on the type of goods. The markups are set higher on seasonal goods, specialty goods, goods with high storage and distribution costs, goods with inelastic demand like medicines. Premium goods will have a higher markup as compared to ordinary consumer goods. There are benefits of using this method. It avoids price wars as competition is not taken into account. The costs are identified and taken into consideration which is easier to analyses as compared to demand and competition. As demand is not considered for setting a price, the consumers are charged fairly. Else the price will be set higher if the demand is severe in the market. 1.2 Target Return Pricing – In this method the price is set such that the profit would give a target rate of return on the investment (ROI). It determines the level of sales needed to cover all the costs. The firm tries to determine the price at which it will break even or make the target profit it is seeking. The fixed and variable costs are determined before setting the price. Target Return Price = unit cost + [desired return*invested capital/unit sales] Target return pricing is based on break even analysis. Break-even volume = fixed cost /(price – unit variable costs) Different prices are considered and their impact on sales and profits are estimated. This method ignores the market demand and is solely derived from costs. But it helps ensure that the price set exceeds the costs which helps in earning profits. 2. Demand Oriented Pricing method – Demand cannot be ignored while considering pricing decisions. What customer thinks about the product (perceived value) and the market demand is given importance in this method. There are two ways of setting prices under this method – Perceived value pricing and Value pricing. 1.1 Perceived value pricing – in this method the price is set either matching or lower than customer perceived value of the product. The organization invests in promotion activities like advertising and sales force to communicate and educate customers on the perceived value of the product. For consumer products, it is based on psychological pricing strategy. Many times customers are willing to pay higher price depending on their perception of quality for which they are paying. It becomes essential for organization’s to conduct market research. The data collected through research should give a realistic estimate of the market’s perception of the value of the product. Perceived value can be based on brand image, product value based on its performance, quality, distribution network, after sales service, etc. For example, an electronic manufacturer created a temperature sensing device. Unsure of setting the price, the organization conducted a survey on their expectations as compared to similar or same products in the market. It was learned that the existing products were not as accurate. The customers showed great interest on the reliability and accuracy of the product. This helped the organization price the product little higher that the competing product in the marked based on customer perception. The organization’s product was more accurate than those available in the market. The organization should strive to deliver more value that the competitor’s product and communicate the same in the target market. 1.2 Value pricing – the price is set lower that the value being offered to the customer. The price is generally lower as compared to the high quality of the product. Reliance Jio is adopting this strategy for providing high speed internet at fairly lower price than its competitors. Other examples include pricing strategy adopted by Wal-Mart, Big Bazaar. Everyday low pricing (EDLP) is another value pricing tool used at retail level. There are no special sales or promotions done. In high-low pricing, the prices are set higher for a longer period but promotions are done to sell products even lower than EDLP for a certain period. Big Bazar sells products at lower prices on Wednesdays. The ecommerce giants like Flipkart and Amazon have low prices for products on festival days (Flipkart’s Big Billion sale on Diwali festival in India generates revenues in billions on a single day). 1.3 Demand-Modified Break-Even pricing – in this method the demand estimates in conjunction with break-even analysis and setting the alternative prices to achieve the highest profit. The estimates of market demand are required at feasible price. Then break-even points and expected total sales revenue is calculated. Here the primary challenge facing the organization is obtaining the right estimate of the price and quantity relationship. For example, a unit sold at $5, $7 or $10 can generate break-even at different profit earnings depending on the demand forecasts. The organizations can do analysis on historical data, conduct direct customer interviews to check their response for different prices, or conduct in store experiments where consumers make purchase decisions. 3. Competition Oriented Pricing method – although an organization cannot overlook the demand and cost factors when setting price, many organizations set the price of a product in relation to the competitors prices. 1.1 Going-Rate pricing – the price of the product is set equal, above or lower than that of the competitor. This method is more popular in cases where costs are difficult to measure and demand has no relation with the price. The organization believes that the market leaders are better able to set the price. This method is also more suitable when costs and demand are stable and have minimal effect on sales and profits. 1.2 Sealed-bid pricing – the firms bid the lowest to increase the odds of being selected. The firm sets a price anticipating how the competitor will respond instead of relying on the costs and demands associated with production. The organization can win the contract which requires pricing less than other firms. However, the cost factor cannot be ignored as the firm is in the business of making profits. 4. Auction based pricing and Group pricing are also becoming popular with the increased use of internet. The above methods narrow down the approach in setting the final price. However, other pricing methods also should be considered. Psychological pricing –the law of demand is now always successful for making sales and profits. Customers are influenced via psychological pricing methods like odd-even pricing ($19.99), pricing the product highlighting the quality, etc. Customers usually estimate the price of a product based on their past experience or noticing the prices at some places or media channels. The sellers try to tab on these perceptions and manipulate these reference prices. They may display the product among prestige and expensive products, etc. Influence of other marketing mix elements –Price can also be set basis the brand image, quality, advertising, etc. in relation to competition. If an organization has invested heavily on advertising for an average quality product, consumers are willing to buy a product that is well known. Similarly, customers are willing to buy a product only if there is a service center for the manufacturer in their town. For example, customers are happy buying a Samsung mobile instead of an Apple’s iPhone in a developing country because of easy access to Samsung service center. (The above discussion is loosely based on David Cravens, Gerald Hills and Robert Woodruff. Marketing Management, AITBS books, Delhi 2002; and Prof. Kotler’s, Marketing Management, 11th edition) Advertisements 6) Implementation and Control – Apart from studying the response from the consumer, the impact of pricing on distributors and sales people should also be considered. The successful implementation of price and making changes to it depends largely in coordination with the distributors and sales team. These are the people who directly talk to consumers and their inputs become very valuable in price changes. For successful control of prices, an organization should closely collect data from- • Consumers, • Distributors, • Staff members who come in direct contact with consumers, • Reaction from competitors. The data collected should be carefully monitored and acted upon by the managers who work on pricing objectives and strategies. THE PRICING METHODS Organizations mostly choose the pricing methods based on demand, costs or competition in the target market. Some of the pricing methods are given below- 1) Cost Oriented Pricing method – Costs form the base of price range and there are two commonly used methods of setting the price – Cost-Plus/ Markup pricing and Target Return pricing. a) Cost-Plus/ Markup Pricing – It involves adding an additional percentage of profit to the sellers per unit cost of the product. The profit or markup is percentage of the selling price instead of the cost. The following formula can be used to determine the price- Selling price = Average unit cost/ (1 – Desired markup percentage) If the average unit cost is $10 and the markup is 20%, then the selling price will be $12.5. [10/1-0.2). This method is successful only if the marked-up price generates expected sales. The major drawback of this method is that it ignores the demand, competition and perceived value of the product. This method is popular in retail and wholesale trade. It depends on the type of goods. The markups are set higher on seasonal goods, specialty goods, goods with high storage and distribution costs, goods with inelastic demand like medicines. Premium goods will have a higher markup as compared to ordinary consumer goods. There are benefits of using this method. It avoids price wars are competition is not taken into account. The costs are identified and taken into consideration which is easier to analyze as compared to demand and competition. As demand is not considered for setting a price, the consumers are charged fairly. Else the price will be set higher if the demand is severe in the market. Advertisements b) Target Return Pricing – In this method the price is set such that the profit would give a target rate of return on the investment (ROI). It determines the level of sales needed to cover all the costs. The firm tries to determine the price at which it will break even or make the target profit it is seeking. The fixed and variable costs are determined before setting the price. Target Return Price = unit cost + [desired return*invested capital/unit sales] Target return pricing is based on break even analysis. Break-even volume = fixed cost /(price – unit variable costs) Different prices are considered and their impact on sales and profits are estimated. This method ignores the market demand and is solely derived from costs. But it helps ensure that the price set exceeds the costs which helps in earning profits. 2) Demand Oriented Pricing method – Demand cannot be ignored while considering pricing decisions. What customer thinks about the product (perceived value), and the total market demand is given importance in this method. There are two ways of setting prices under this method – Perceived value pricing and Value pricing. a) Perceived value pricing – in this method the price is set either matching or lower than customer perceived value of the product. The organization invests in promotion activities like advertising and sales force to communicate and educate customers on the perceived value of the product. For consumer products, it is based on psychological pricing strategy. Many times, customers are willing to pay higher price depending on their perception of quality for which they are paying. It becomes essential for organizations to conduct market research. The data collected through research should give a realistic estimate of the market’s perception of the value of the product. Perceived value can be based on brand image, product value based on its performance, quality, distribution network, after sales service, etc. For example, an electronic manufacturer created a temperature sensing device. Unsure of setting the price, the organization conducted a survey on their expectations as compared to similar or same products in the market. It was learned that the existing products were no as accurate as the product created and customers showed great interest on the reliability and accuracy of the product. This helped the organization price the product little higher that the competing product in the marked based on customer perception. The organization should strive to deliver more value that the competitor’s product and communicate the same in the target market. b) Value pricing – the price is set lower that the value being offered to the customer. The price is generally lower as compared to the high quality of the product. Reliance Jio is adopting this strategy for providing high speed internet at fairly lower price than its competitors. Other examples include pricing strategy adopted by Wal-Mart, Big Bazaar. Everyday low pricing (EDLP) is another value pricing tool used at retail level. There are no special sales or promotions done. In high-low pricing, the prices are set higher for a longer period but promotions are done to sell products even lower than EDLP for a certain period. Big Bazar sells products at lower prices on Wednesdays. The ecommerce giants like Flipkart and Amazon have low prices for products on festival days (Flipkart’s Big Billion sale on Diwali festival in India generates revenues in billions on a single day). Advertisements FACTORS THAT AFFECT PRICING The management sets the price in relation to costs and the attractiveness of the target market like, customer’s ability to spend, demand, competition. The management also does the analysis for giving appropriate margins to the distributors. The possible range of prices also gets affected because of legal and ethical constraints. All these factors determine the upper and lower limit of price. These factors that affect pricing are discussed below- 1) Marketing Mix – Management can easily do variations to the price component of the marketing mix element. The other elements, product, promotion, and place (distribution channels) are not easy to change as it takes a considerable time, effort, and coordination to make changes to them. All these 4 elements are related to each other; hence pricing decision cannot be taken without considering the other elements. Change in promotion or distribution network will add to costs. Making changes to the product also results in costs because of need of different raw materials, technological investments, etc. Increase in costs will increase the lower limit of setting price. Making price changes or setting prices without considering Product, Promotion and Place elements will generally have negative impact on the entire marketing strategy and may also result in losses. 2) Organizational decision making and implementation – The skills of the management and right decision making by them goes a long way in successful pricing. The top management should work in coordination with the lower management for making an effective pricing strategy. The correct systems need to be used for the flow of information from the customers and distributors to all the concerned employees of the organization. Arriving at a pricing decision requires effective analysis of costs, demand and competitor strategy. The organization has to make sure that they have the right employees handling the right tasks at the right time 3) Product differentiation – How different the product is from the other offerings in the market? The difference can be in terms of its features, positioning, design, shape, etc. This difference is according to the customer’s perception about the product. Depending on the uniqueness of the product value to the customer, the organization sets a price. For example, HUL (Hindustan Unilever) has bathing soaps targeting different customers which are priced differently basis their uniqueness. Advertisements 4) Product life cycle – An organization can opt for penetration pricing or skimming pricing strategy for its new product. Skimming pricing involves “skimming of the cream” by targeting innovators, early adopters and early majority type of customers. Penetration pricing is done to gain immediate market share by keeping lowest possible price of the product. But once the product moves to the next stages of life cycle like growth, maturity and decline, price changes need to be done to counter competition and ensure market survival. In the decline stage the prices are kept so as to cover the costs and utilization of the inventory already bought from the suppliers. The strategy is to make as much earnings as possible to cover the fixed costs for which the organization has already paid – raw material, etc. 5) Distribution Network – As the distributors make their earnings by selling products from manufacturers or other distributors, the organization has to ensure that they receive their fair share of margin from sales. The organizations cannot survive without proper coordination from the distributors. Depending on the distribution network, the organizations strategy will have a direct impact on the costs and pricing. For example, an organisation can sell its products through ecommerce, or wholesalers and retailers, etc. Each channel has its merits depending on the marketing strategy of the firm. 6) Suppliers – The price at which the raw materials are bought from the suppliers, and changes in the same by the suppliers also affect the pricing decisions. The contract signed with suppliers make have changes after its renewal. Sometimes, suppliers have monopoly in the market in the absence of any other supplier for the same raw materials. The organizations always try to maintain cordial relation with the suppliers as the entire production depends on the products supplied by the suppliers. So the pricing decisions of suppliers have direct impact on the pricing decisions of the firm. 7) Buyers – The buyer behavior of the target market also has a great influence on the pricing decisions. The organizations constantly gather information from retailers, sales people, etc. on the response of customers. The buyers can influence price decrease by majority of them not buying and giving negative feedback about the price to the distributors and sales people. Thus the organization has to make changes to the price basis the majority of buyers in the target market. Advertisements 8) Demand – Demand cannot be ignored while considering pricing decisions. The customers understanding of the product (perceived value), and the total market demand in the market affect the price strategy largely. The demand can be elastic, wherein a fall in price would result in increase in demand. For example, 10% decrease in price would result in 20% increase in demand in the target market. If demand is inelastic, a fall in price doesn’t has a significant increase in demand. For example, a 10% price reduction may increase demand by 0.2%. The firm has to study the market demand and formulate its pricing strategy. The marketing managers are concerned with the level of demand at different price levels. The cost factor also is considered when evaluating demand for pricing. If the costs have also gone up, lowering the price of a product in elastic demand, will not generate profits. 9) Competition – The pricing strategies of competitors affect the product pricing decisions. An organization serving the same target market eats into the market share of the organization. To gain market share as much as possible, the organization has to constantly strive to gain more customers. The organization invests and makes changes in the product via differentiation (to prove product uniqueness), promotion and distribution (place) to counter competition. Depending on the price changes by competitors, the firm adjusts the price of its product to stay, survive or maintain leadership in the market. A firms pricing is affected by the marketing strategies of its competitors. 10) Target market attractiveness and economy – The spending power and types of customers (early adopters, laggards, etc.) in the target market also affects the pricing strategy. If the economic condition of the target market is good, there is great opportunity for the organization to generate sales via different pricing methods and strategies – Market penetration, market skimming, perceived value pricing, demand differential pricing, etc. If economic condition is weak, the prices are usually set low. Many times, there are no competitors in such situations, but the pricing is set so as to serve the demand in the market. If prices are set high, a competitor will usually enter the market with a low priced product. 11) Government regulations – The government regulates the prices of products through its various policies. These policies ensure that a customer is not exploited by increase in unreasonable prices. For example, the government of New Delhi (union territory and capital of India) had to intervene when customers were unfairly charged during peak season by the cab service companies. Advertisements 12) Ethical constraints – With long term moral effects of pricing decisions, the management should consider its commitment to serve the society. Ethical constraints suggest that a firm should make a reasonable profit, provide quality products and make them available at the right place at the right time. Most of the organizations try to maintain an image of themselves considering the effect of non-ethical values in the long run. Is it justified to charge customer based on product value (perception) itself even if the costs are low and profit margins too high? How high the price can be set? Management considers such questions relative to its social responsibility.

Promotion Mix A promotion mix is a set of different marketing approaches that marketers develop to optimize promotional efforts and reach a broader audience. The marketer’s task is to find the right promotion mix for a particular brand. Developing a promotion mix requires skills and experience in marketing. Marketers should complete various studies and gather lots of data about a particular company to come up with an effective promotion mix. For instance, it is necessary to identify your target audience, work out a budget that you can afford for a promotion, and decide the most efficient marketing channels for your audience. A promotion mix is a more expanded approach towards one of five elements of the marketing mix — Promotion. Other factors are people, product, place, and price. Promotion mix is a part of marketing mix which determines the success of all marketing efforts of company. All promotional programmers and advertising campaigns carried out by organization are included and performed in accordance with its promotion mix. It includes various marketing approaches designed by marketers with better experience and aims at optimizing the overall promotional efforts of business organizations. Promotion mix of a company is created after a lots of research and collecting data about a particular company, its target audience to involve effective tools of marketing in it. It is all the efforts of promotion mix that enables a brand to develop its better image in market and differentiates itself from other competitors. Promotion carried out by business enables in informing public about its products and impart them all required information. It is served as a communication channel in between company and its customers which helps in building trust. Why is using a promotion mix important? • Improves the effectiveness of promotional campaigns • Helps segment the audience • Improves communication with clients • Informs subscribers • Stands out from the crowd • Improves the effectiveness of promotional campaigns. Promotion is a crucial part of any business, so companies develop a promotion mix, putting all efforts to make promotions at the right place, at the right time, and to the right audience. It helps one get the most out of their marketing resources by optimizing their budget and saving time. • Helps segment the audience. To develop a compelling promotion mix, a company needs to identify its target audience. Potential subscribers may include various groups of people who have something in common, for example, age, gender, preferences, etc., and they all require an individual approach. A promotion mix is a key method for delivering a relevant promotion message via the most suitable channel for each segment. • Improves communication with clients. Companies develop a promotion mix trying to speak their consumers’ language. If prepared correctly, it helps build trust between the brand and its customers. This is a crucial factor in lead nurturing and customer retention. For example, automated email campaigns help achieve these goals by responding to people’s actions instantly. • Informs subscribers. Some promotions, on Instagram for example, aim to show the product from the best angle, and others, like SMS, emphasize the advantages of local services. When using a promotion mix, companies define the best ways to educate people about the products and services they provide. • Stands out from the crowd. People are bombarded with all sorts of advertising at every turn. With a promotion mix, it is possible to stand out from the crowd without creating chaos in your customers’ heads. Successful companies make quality prevail over quantity, promoting their product or service at the right place and right time. Components of a Promotion Mix 1. Advertising 2. Direct selling 3. Sales promotion 4. Public relations 1. Advertising. This is a non-personal promotion of products and services. Marketers use advertising as a vital tool for increasing brand awareness. Advertisers show promotions to masses of people using email, webpages, banner ads, television, radio, etc. 2. Direct selling. This is a one-to-one communication between a sales representative and a potential customer. Direct selling influences people to decide to buy certain products or services. It is one of the most effective ways of promoting your brand because the sales rep can tailor the promotion precisely to those who are most likely to make a purchase. On the other hand, this is the most expensive form of sales because companies need to pay for one person’s time. 3. Sales promotion. This is a set of short-term activities that are designed to encourage immediate purchase. Sales promotions are a campaign that uses time-sensitive offers — sales, discounts, coupons, etc., to engage existing consumers and bring in a larger audience. Many companies make this a core component of their marketing efforts, though sometimes it’s the most annoying type of communication for people. 4. Public relations. This type of promotional method determines the way people treat the brand. Companies using PR try to build a firm and attractive brand image by planting interesting news stories about their activities in the media. Public relations are not fully controlled by the company, though, as some reviews and webpages may negatively highlight the brand. If a company adequately solves these issues, people will reward them with positive word-of-mouth consideration. • Use appropriate marketing channels • Rely on the right promotion mix elements • Implement segmentation • Monitor marketing trends • Identify the target audience. Determine your target audience and take advantage of the promotion mix tactics. Create your customer profile to find out how to provide people with the products they need. • Follow a five P’s rule. Five factors form promotional marketing success: what you sell (Product), how much you want for it (Price), how you offer it (Promotion), where you sell it (Place), and whom you sell it to (People). Work on these five P’s of marketing and give your customers what they need at the most convenient time. • Provide people with useful information. Demonstrate the products and services you sell. Explain what makes them so unique and why customers should choose yours and no one else’s products. Create reviews comparing your product with competitors’ products. • Use appropriate marketing channels. Find out which channel of communication is the most convenient for your audience. Try delivering the same message through different channels and examine which performs best with your customers. • Rely on the right promotion mix elements. Personal selling is usually useful for only small businesses due to its high cost and low outreach. Every business can afford to display advertising and email marketing, though. Develop a balanced system of communication with your audience that fits your business well. • Implement segmentation. This tool targets the audience by dividing it into smaller groups based on similarities. With SendPulse, segmentation works with emails, SMS, and web push notifications. • Monitor marketing trends. As internet marketing evolves, new channels for communication with customers appear. Follow marketing trends to be able to reach your customers the way they like it. Promotion Mix Example 1. Advertising 2. Personal selling 3. Sales promotion 4. Public relations 5. Direct marketing Let’s take Nike’s promotion mix as an example and learn how they use each of the promotion mix components. 1. Advertising. In advertising campaigns, Nike aims to reach large target audiences. The brand invites celebrities who represent the image of an ideal consumer. Potential customers associate themselves with famous ones, and this motivates them to trust the brand and communicate with it. 2. Personal selling. Nike’s selling takes place in their stores. Trained store personnel assist consumers, provide details on the company’s products and stimulate visitors to buy their products. Besides, Nike’s employees help customers find the right Nike product and promote the company through the use of personalized services. 3. Sales promotion. Usually, Nike’s sales promotions include special discounts for a targeted audience. The brand motivates their customers with the savings they can have when they buy discounted products. After that, they create a demand for purchasing more products using those bonuses, turning new customers into loyal clients. 4. Public relations. Nike developed a social responsibility strategy, in response to global ecological trends. Besides, Nike sponsors numerous sports events that build a better brand image in the eyes of their audience. 5. Direct marketing. Nike uses direct marketing to promote its products among sports organizations in universities, colleges, schools. Marketers call this lead nurturing. Elements of Promotion Mix Advertising Advertising is a paid form of promotion of company goods and services that is of non-personal nature. It is carried out by identified sponsor who charges fees in return for his promotional services. Advertising is a one-way communication done for creating awareness among public and bring their attention towards the company’s products. It is a vital tool for reaching out to mass group of people for informing them about the brand existence in the market. Here, company representatives do not interact directly with customers but carries out promotion using distinct sources such as television, newspaper, radio, magazines, social media and direct mail. Personal Selling Personal selling is a tool of promotion mix where representatives of company interacts directly with people. It is a traditional form of promotion where face to face interaction is done in between the customer and company agents. It is a type of promotion where salesman directly visits customers in a door to door campaign and define all details about product for motivating them to buy it. Personal selling is most expensive method of promotion which leads to enhance the buyer and seller relationship. Sales Promotion Sales promotion comprises of all promotional activities which aims to stimulate sales and purchase by providing incentives to customers. These incentives are provided by company for a short-term basis. Sales promotion activities enable companies in attracting both existing and new customers which leads to increase the short-term profits. The incentives are offered during festive periods or end seasons in the form of discounts, coupons, product samples and payback offers. Sales promotional activities are carried out by business for a limited time-period for bringing a large amount of audience. Public Relations Public relation is one that aims at developing a favorable image of company among public. It is sharing of information by organization about itself in market for attracting its target audience. Public relation is a promotional method which determines how people treat a particular brand. Many public relation campaigns are carried out by organization to get support of all peoples that are connected with it either directly or indirectly. Public for an organization includes employees, customers, shareholders, suppliers, distributor, government and society as a whole. Publicity is one of the widely used type of public relation for sharing newsworthy information in market. Direct Marketing Direct marketing is a promotional tool where company interacts directly with target audience without any intermediary. It is unpaid form of promotion intended to reach prospect customers in place of mass audience. Direct marketing is a one-way communication in between company and customer that is done for product announcements, bulletins, order confirmations and special promotions. It is of various forms such as text messages, fax, e-mail, online alerts, websites and promotional letters. Advantages of Promotion Mix Build Awareness Promotion mix is an important tool available with organization for create wide awareness about its products in market. All news about new product launching, innovative techniques, offers and other inside detail of organization are provided through the promotional tool. It serves as a communication medium for information flow in-between customers and company. Reaches Mass Audience It enables corporation in reaching out to more and more numbers of people. Various promotional tools like advertising, sales promotion and direct marketing facilitate in grabbing the attention of mass audience with less efforts. People are also interested in knowing about brand using attractive promotional messages for connecting with public in market. Higher Sales Growth Promotion mix has an efficient role in enhancing the overall sales of business organization. Companies incur heavy expenditure on advertising and promotional activities with the aim to raise their sales level. With the use of distinct promotion tools, organization come in contact with large peoples and induce them for taking buying decision for brand products. Increase Market Share Companies using effective tools of promotion are able to capture a good share in market. People gives good response towards brand using robust methods to remain dominant in market using mass scale promotion. They are more interested to buy products of such brand that are famous in market and enjoys better goodwill. Advertising leads to build better reputation of brand over its competitors in market. Enhance Customer Experience And Satisfaction Promotion mix enable companies in serving its customer in a better way. It provides a medium through which customers and company are easily able to interact with one another. Companies run various promotional campaigns where they give complete details about their products which clears all confusion in people’s mind. Availability of all information leads to right buying decisions by consumer thereby enhancing their satisfaction level. Disadvantages of Promotion Mix Costly Promotion mix bring heavy expenses for the business organizations. They need to hire a large number of salesforce and various media houses for doing promotion of their products and services. Many times these promotional activities do not yield as much return as their investment amount in the form of expenditures incurred. Impersonal Promotional activities are mostly impersonal in nature which are ineffective in clearing all doubts of people. These activities spread a common message about company and is not specific to what customer wants to know. Many times various questions of customers remain unanswered which are not effective in influencing their purchase decisions. Spoil Brand Image Companies excessively using promotional methods for stimulating quick sales may spoil their brand image. When there are huge incentives and discount on brand products, customer may feel that a product is an of low quality that’s why it is offered at low prices. Risk Of Losing Control Another major drawback of doing promotion is that organization may lose its control over what is circulating about it in market. Promotion tool like public relation is not always under the company’s control as what other says about a brand and its products is uncontrollable. Public may also spread negative words about a brand in market. • Home • Upload & Share • Privacy Policy • Contact Us Promotion Mix Article shared by : <="" div="" style="margin: 0px; padding: 0px; border: 0px; outline: 0px; font-size: 16px; vertical-align: bottom; background: transparent; The term ‘promotional mix’ is used to refer to the combination of different kinds of promotional tools used by a firm to advertise and sell its products. The main promotional tools or activities which make up promotion mix are personal selling, advertising, publicity and sales promotion. These are also known as elements of promotion mix. Philip Kotler opines, “A company’s total marketing communication mix also called promotion mix consists of specific blends of advertising, personal selling, sales promotion, public relations and direct marketing tools that the company use to pursue its advertising and marketing objectives.” : The concept of promotional mix assumes that there is a variety of means for communicating with consumers. Promotional mix refers to the combination of various types and amounts of various forms of promotion used by a marketer. The final selection of them depends upon the jobs assigned to promotion and the environment in which they are performed. 1. Introduction to Promotional Mix 2. Meaning of Promotion Mix 3. Definition 4. Scope 5. Concept 6. Objectives 7. Components 8.Significance 9. Factors 10. Strength and Weakness. ________________________________________ Promotion Mix: Meaning, Definition, Concept, Scope, Objectives, Components, Factors, Strength and Weakness Promotion Mix – Introduction Communication is a must in marketing process. The manufacturer (communicator or source) transmits the message to the target consumer through mass communication methods —advertising, personal selling, sales promotion and publicity—in order to create the demand for the product. This is invariably called promotion. Promotion influences demand by communicating pro-product and pro-company messages to the market. A promotion strategy involves the coordination of ail communication efforts aimed at specific audiences—consumers, dealers, the government shareholders and so on. The most critical promotional question facing the marketing manager concerns the proper mix of communication methods—advertising, personal selling, sales promotion and publicity. The promotion mix is usually coordinated on a campaign basis, making the campaign, the relevant unit of the promotion strategy campaign may last for a short fixed period, i.e., a few week, months or a year or if successful, it may run over a pretty long period, several years. The most desirable marketing effort includes a total campaign with one unified theme. It is a coordinated effort of unifying various promotional strategies. The four promotion mix currents—advertising, personal setting, publicity and sales—promotion are more or less used at every stage in the selling process, but their intensity differs at different stages and at different periods. Publicity is generally effective at the awareness stage. Advertising becomes less and less effective over a period of time. Personal selling is more effective as consumer needs dictate a more personal relationship. Sales promotion may be effective in providing added incentives for buyer’s action. To a marketing manager, it is difficult to arrive at the best kind of promotion mix because results of communication efforts are hard to measure and it is very difficult to understand what a particular medium will do at a particular time for one product as opposed to another. Most marketing managers select more than one channel to promote a product. Their choices are affected by a number of factors. ________________________________________ Promotional Mix – Meaning Promotion is an important part of the marketing mix of a business enterprise. It is the spark plug of the marketing mix. It is a process of communication involving information, persuasion, and influence. It includes all types of personal or impersonal communication with customers as well as middlemen in distribution. The purpose of promotion is to inform, persuade and influence the prospective customers. Personal selling, advertising publicity and sales promotion are widely used to inform the people about the availability of products and create among them the desire to buy the products. Non business enterprise can market its products unless it undertakes promotional activities effectively. The prospective customers have to be informed about the product its features, utility and availability. The need for promotional activities has increased because of stiff competition, widening of market and rapid changes in technology and tastes of the customers. The term ‘promotional mix’ is used to refer to the combination of different kinds of promotional tools used by a firm to advertise and sell its products. The main promotional tools or activities which make up promotion mix are personal selling, advertising, publicity and sales promotion. These are also known as elements of promotion mix. In the modern business world, big business firms cannot depend upon a single promotional tool. They have to make use of all the promotional tools in different degrees depending upon the nature of produce, nature of competition and kinds of customers. The marketing manager is supposed to decide about the use of various promotional activities and allocate budget for them, while taking a decision about promotion mix, two factors need adequate consideration. Firstly, a combination of promotional activities is to be used because any promotional tool, used alone, may not prove fully effective. Secondly, all promotional tools are not of equal importance and their importance m iv change with the change in business environment. There is no tailor-promotional mix for a firm. Every firm has to design its own promotional mix, i.e., to determine, the various promotional tools to be used for promoting the sale of its products. The most striking feature of the promotional tools is their cross-substitutability. They represent alternative ways to influence buyers. This substitutability calls for treating various promotional tool in a joint decision framework. Promotional strategy is determined by the product market strategy and over-all marketing strategy. Various combinations, types and degrees of personal selling, advertising and other promotional tools are brought together into a promotional mix to develop the promotional strategy. For each component of the promotional mix, management has to set objectives, determine policies and formulate strategies. ________________________________________ Promotion Mix – Definition Gary Armstrong defines promotion mix as, “A company’s promotional mix includes advertising, personal selling, sales promotion, public relations, direct marketing. It also includes product design, shape, package, colour, label etc., as all these communicate something to buyer.” Philip Kotler opines, “A company’s total marketing communication mix also called promotion mix consists of specific blends of advertising, personal selling, sales promotion, public relations and direct marketing tools that the company use to pursue its advertising and marketing objectives.” Promotion is a process of communication involving information, persuasion, and influence. It includes all types of personal or impersonal communication by a producer with prospective customers as well as middlemen in the distribution network. The purpose of promotion is to inform, persuade and influence the prospective customers. Personal selling, advertising, public relations, sales promotion and direct marketing are widely used to inform the people about the availability of products and create among them the desire to buy the products. Promotion is a form of corporate communication that uses various methods to reach a targeted audience with a certain message in order to achieve specific organisational objectives. Nearly all organisations, whether for-profit or not-for-profit, in all types of industries, must engage in some form of promotion. Such efforts may range from multinational firms spending large sums on securing high-profile celebrities to serve as corporate spokespersons to the owner of a one-person enterprise passing out business cards at a meeting of local business persons. Promotion is communication from a marketers to the prospective buyers in the market. It tries to instil into buyer’s minds images (through advertising, personal selling, sales promotion and publicity) that make them buy the product. ________________________________________ Promotion Mix – Scope of Promotion Mix in Different Areas Promotion basically deals with outer world and therefore comprise of more and more communication strategies and tools for attracting customers. Scope of promotion mix can be stressed with the help of following key points: 1. Advertising: Advertising involves turning attention of third parties towards product for the sole purpose of sale. Hence it can be stated that anything and everything that turns the attention to an article or service or an idea might be called as an advertisement. American marketing association defines advertising as, “any paid form of non-personal presentation of ideas, goods or services by an identified sponsor. Advertising is a prime part of promotion mix. 2. Personal Selling: Art of personal selling is defined by D.D.Couch as, “science of creating in the mind of your prospect a desire that only possession of your product will satisfy”. It is evident that salesmanship is both science and art. As a part of art requires patience, practice and use of correct methods, devices and skills. As a scientific process it requires mastery over certain fundamentals that pre requisites for success in selling. 3. Sales Promotion: American marketing association defines sales promotion as, “Those marketing activities other than personal selling, advertising and publicity that stimulate consumer purchasing and dealer effectiveness such as display shows and exhibitions, demonstrations and various non-¬recurrent selling efforts not in the ordinary routine.” 4. Public Relations and Publicity: “Public relations is a deliberate and continuous effort to establish and maintain favorable relations between the organization and its public .Customers, employees, stockholders, government and society.” Public relations must be healthy for future prospect of any organization. Costs involved in publications and media management is comparatively lower than advertisement and other promotional elements. 5. Other Selling Tools: Other selling tools includes any other selling and promotions activity other than advertising, personal salesmanship, sales promotion. It mainly includes mouth publicity etc. Many corporate giants have taken keen interest in viral marketing via internet which is similar to Mouth Publicity. Thus word of mouth has been facilitated by the internet. One more form not directly connected to any other form is sponsorship to events, other brands, organized activities, sporting tournaments etc. Indian Premier League was officially sponsored by DLF. Individual teams participating in IPL were sponsored or co-sponsored by different companies by participating in the Bidding process. Every event now is either sponsored or co-sponsored and properly advertised for popularity of that sponsoring company. ________________________________________ Promotion Mix – Concept The concept of promotional mix assumes that there is a variety of means for communicating with consumers. The term promotional mix refers to the combination of various types and amounts of various forms of promotion used by a marketer. The final selection of them depends upon the jobs assigned to promotion and the environment in which they are performed. The concept further assumes that there are different types of promotion and each are has its advantages and disadvantages over other forms. All types of promotions are not suited to all types of business. Certain promotion types are better suited for some tasks than others. All promotional types are compatible and interchangeable. The determination of the various elements in the promotional mix depends upon a number of factors that influence the manager decisions. These factors can be summed up as: (1) The amount of money available for promotion purpose; (2) The nature of market i.e., whether local, regional, national or international; (3) The nature of the product viz., consumer or industrial, durable or non-durable or perishable; (4) The stage in the product life cycle i.e. introduction, growth, maturity or decline. Advertising, personal selling and sales promotion are generally employed on the basis of the promotional strategies and the nature of the market. Generally, speaking a promotion manager employees a combination of different forms of promotion because anyone cannot satisfy the need of the company. A good combination of advertising, personal selling and other promotion methods may increase the sales enormously at a most reasonable low price. Dependence on anyone form of promotion element is seldom effective. ________________________________________ Promotion Mix – 5 Possible Objectives Promotion can be used for number of reasons for ex: Promotional activity can increase sales, raise awareness or concerns about particular issues develop a brand image or alter public opinion. The possible objectives for promotion mix may include the following: Objective # 1. Build Awareness: New products and new companies are often unknown to a market, which means initial promotional efforts must focus on establishing an identity. In this situation the marketer must focus promotion to effectively reach customer and tell the market who they are and what they have to offer. Objective # 2. Create Interest: Moving a customer from awareness of a product to making a purchase can present a significant challenge. Consumer buying behaviour depends on the type of customer so the customer must first recognize they have a need before they actively start to consider a purchase. The focus on creating messages that convince customers that a need exists has been the hallmark of marketing for a long time with promotional appeals targeted at basic human characteristics such as emotions, fears, humor, sex etc. Objective # 3. Provide Information: Some promotions are designed to assist customers in the search stage of the purchasing process. In some cases, such as when a product is so novel it creates a new category of product and has few competitors the information is simply intended to explain what the product is and may not mention any competitors. In other situations where the product competes in an existing market, informational promotion may be used to help with a product positing strategy. Objective # 4. Stimulate Demand: The right promotion can drive customers to make a purchase. In the case of products that a customer has not previously purchased or has not purchased in a long time, the promotional efforts may be directed at getting the customer to try the product. This is often seen on the internet where software companies allow for free demonstrations or even free downloadable trials of their products. For customer base products, promotion can encourage customers to increase their purchasing by providing a reason to purchase products sooner or purchase in greater quantities than they normally do. Objective # 5. Reinforce the Brand: Once a purchase is made a marketer can use promotion to build a strong relationship that can lead to the purchaser becoming a loyal customer. For instance, many retail stores now ask for a customer’s email address so that follow-up emails containing additional product information or even an incentive to purchase other products from the retailer can be sent in order to strengthen the customer marketer relationship. ________________________________________ Promotion Mix – Top 5 Components (With Some Other Tools) Promotion strategies are concerned with the planning, implementation, and control of persuasive communication with customers. These strategies may be designed around advertising, personal selling, sales promotion, or any combination of functions of these. One of the major strategic issues associated with the development of effective promotion strategy is the availability of financial resources for a specific product/market. The distribution of the budget among advertising, personal selling, and sales promotion is another strategic matter. The formulation of strategies dealing with these determines the role that each type of promotion plays in a particular situation. Promotion strategy consists of planning, implementing and controlling communications from an organization to its customers and other target audiences. The function of promotion in the marketing program is to achieve various communications objectives in the market segment. An important marketing responsibility is to plan and coordinate an integrated promotion strategy and to select the specific strategies for the promotion components. It is important to recognize that word-of-mouth communications among buyers and the communications of other organizations may also influence the target audience of the company. The promotion-mix has the following components: 1. Advertising. 2. Personal Selling. 3. Sales Promotion. 4. Direct Marketing. 5. Publicity. Component # 1. Advertising: Advertising may be defined as the strategy of communicating a sales message to potential customers. Advertising is one segment of a well-organized, continuous marketing plan. Effective advertising is a cumulative process that maintains current customers, attracts new customers and establishes a favorable position for the business with competitors. Advertising will neither cure slow business growth or low profits, nor will create a better business person or a well-organized business. Advertising offers specified benefits to a specific or target audience. As part of a sound marketing plan, advertising becomes an investment in the future of the business, instead of one more expense. An effective advertisement is based on a careful analysis of the situation before money is spent. “Advertising and promotions” is bringing a service to the attention of potential and current customers. Many products or services have failed in the market, not because of their quality, packaging or pricing, but because the potential customers didn’t know they were there, and if they did, they didn’t know what those were or how to use them. In order to sell your product or service you must promote it. One effective method of promotion is advertising. The goals of the plan should very much depend on the overall goals and strategies of the organization, and the results of the marketing analysis, including the positioning statement. The plan usually includes what target markets you want to reach, what features and benefits you want to convey to them, how you will convey it to them (this is often called advertising campaign), who is responsible to carry the various activities in the plan and how much money is budgeted for this effort. Successful advertising depends on knowing the preferred methods and styles of communications of the target markets that you want to reach with your ads. A media plan and calendar can be very useful, which specify what advertising methods are to be used and when. The fashion advertisements (FAds) and strategies building for optimum sales realization are prominent among them. The FAds have a greater impact on the elite clientele group as compared to other measures used for raising the sales. The product branding and packaging technology is the core input for FAds. Attractive packaging and popular branding have a significant role in the market expansion and product promotion. In a competitive market economy, the brands are hired by the manufactures for product marketing. In this system, new product managers have to face an uphill task. In marketing new products, it is essential to take potential as well as existing customers into confidence through an effective communication management. In the absence of building up such awareness, the new product manager gets fringe benefits while the brand owner gets a higher share in the consumer rupee. As such, these companies may not be in a position to establish their own brand due to many weaknesses pertaining to capital, technical know-how and market guidance. The future threat in this regard can be visualized in the light of selling their product. In the long run their identity will be only as a manufacturing unit, but not as a product seller. Packaging in the competitive product market is an important determinant as far as the buyer’s behavior is concerned. The more attractive and durable the packaging of any product, greater would be the product resistance and market demand. ‘The New packs’ may be the hard core of some FAds which could be more appealing to the target customers. It requires enough capital to invest in the packaging technology. Advertising, direct marketing and public relations are the important tools for promoting international marketing. The process of advertising in an international business begins with a market situation analysis conducted to assess marketing opportunities for the product in the existing market. On identifying, the marketing strategies are formulated and supported by communication linkages. Advertising strategies are developed in accordance with the marketing plan and advertisements are released according to the media plan. Hence, commercials (Ads) seen by the consumer are like the tip of an iceberg emerging from a situation analysis, trade goals and strategies that have been evolved by the marketing and advertising managers. However, it is difficult to establish whether advertising is the first or the last component in the entire process of marketing. Despite numerous research efforts on the function of advertising, a unified theory has not yet emerged. Component # 2. Personal Selling: Personal selling consists of verbal communication between a salesperson or selling team and one or more prospective purchasers with the objective of making or influencing a sale. Many companies feel that the personal selling is better strategy to manage the interface of buyer and seller and so annual expenditures on personal selling are larger than advertising. However, advertising and personal selling strategies share some common features, including creating awareness of the product, transmitting information, and persuading people to buy. The personal selling is an expensive way of persuading the buyers as compared to various ways of advertising. Salespeople can interact with buyers to answer questions and overcome objections, they can target buyers, and they have the capacity to accumulate market knowledge and provide feedback. Sales promotion consists of various promotional activities, including trade shows, contests, samples, point-of- purchase displays, trade incentives, and coupons. Sales promotion expenditures are substantially greater than the amount spent on advertising. Direct marketing includes the various communication channels that enable companies to make direct contact with individual buyers. The common direct marketing techniques are catalogues, direct mail, telemarketing, television commercials, radio, magazine, newspaper, electronic shopping and kiosk shopping, etc. The distinguishing feature of direct marketing is the opportunity for the marketer to gain direct access to the buyer. Direct marketing expenditures account for a large portion of promotion expenditures. Electronic shopping is one of the newer forms of direct marketing. Publicity or public relations for a company’s product, service, or idea involves communications placed commercially in the media. The objective of public relations is to encourage the media to include company- released information in media communication. Development of an optimum promotion mix is by no means easy. Many companies often undermine the roles of advertising, personal selling, and sales promotion in a given product or market situation. Decisions about the promotional mix are often diffused among the decision¬-makers, impeding the formation of a unified promotion strategy. The personal selling plans are sometimes deviated from the planning of advertising and promotion. Component # 3. Sales Promotion: Selling is an art largely associated with the behavioral skills of the sale personnel of a sales organization. Today, selling is performed using scientific methods of product presentation, advertising and various approaches drawn to take the customer into confidence. The efficiency of sales depends upon the type of sales person and the techniques used in selling goods or services. The consumers are the decision-makers in buying the goods and services proposed for sales and hence play key role in the sales process. There are four categories of sales that include every type of sales position. These types of selling are: 1. Consultative sales, 2. Technical sales, 3. Commercial sales, and 4. Direct sales. These selling categories require a specific management approach to deal with the market Component # 4. Direct Marketing: In direct marketing, organisations communicate directly with target customers to generate a response and/or a transaction. Direct marketing traditionally has not been considered an element of the promotional mix. It has become such an integral part of the IMC program of many organisations and often involves separate objectives, budgets, and strategies, marketer view direct marketing as a component of the promotional mix. Component # 5. Publicity: When the marketer makes use of a commercially significant news or editorial comment in the print media or a favourable presentation upon radio, television or stage, it is called publicity. Though publicity is a non-personal form of communication, it is not a paid form of communicating marketing message. The major tools of promotion mix are as follows: i. Online Marketing: The Internet has a great effect on marketing communication programs and as well change the ways companies design and implementing their entire business and marketing strategies. Unlike traditional forms of marketing communications such as advertising, which are one-way in nature, the new media allow users to perform a variety of functions such as receive and alter information and images, make inquiries, respond to questions, and, of course, make purchases. Additionally with the Internet, other forms of interactive media include CD-ROMs, kiosks, and interactive television. However, the interactive medium that is having the greatest impact on marketing is the Internet, especially through the component known as the World Wide Web. Thousands of companies, ranging from large multinational corporations to small local firms, have developed websites to promote their products and services, by providing current and potential customers with information, as well as to entertain and interact with consumers. ii. Word-of-Mouth: The passing of information from person-to-person is referred to as word of mouth. It comprises of human communication, such as face-to-face, telephone, email, and text messaging. An organisation’s image can be projected through channels other than the formal communication process. Of course, positive word-of-mouth recommendation is generally dependent on customers having good experiences with an organisation, and studies have shown how unexpectedly high standards of service from a company can promote recommendation. iii. Public Relations: It is a planned effort by an organisation to influence the attitudes and opinions of a specific group by developing a long-term relationship. Therefore, firms are concerned with customers, suppliers and dealers along with the effect of their actions on people outside their target markets. Their target are inclusive of a large number of interested public (customers, stock holders, government agencies, special interest groups). ________________________________________ Promotion Mix – Significance of Promotion Mix in Marketing Promotion plays an important part in marketing. This function of marketing is dedicated towards persuading the existing and potential customers to make a purchase of a given product or service. Promotion is termed as Marketing Communication Mix by famous author and Marketing Guru Philip Kotler. He stated following functions of Marketing Communication Mix – 1) Advertising, 2) Sales promotion, 3) Public relations and 4) Salesmanship. Final aim of any organization is making an increase in profits through healthy competition and for helping this aim, promotion comes in picture. It is a strongest tool for increasing sales and profits any organization can have. It’s an action oriented program with an intention of persuasion. Significance of marketing promotion mix is highlighted with the help of following points: 1. Profit Maximization and Increase in Sales Volume: This is the ultimate aim of any organization. Every organization strives for the achievement of this goal. Without this, the sole purpose of establishing a company will lose its significance. Hence every company makes it a primary objective and directs every department to achieve it. All the other objectives are secondary and only helps in achieving this primary aim. Every part of the world now is full with promotional and saleable material, both in audio and visually accessible format looking for maximum reach of audience. Millions of dollars, Euros, Rupees are getting disbursed for the purpose of maximum promotional activities. Moreover many production houses of Movies are spending crores of rupees for a promotion of a single movie. Such is the vital role of promotional activities in modern highly dynamic scenario of globalization and technology advancement. Corporate managements are ready to spend huge amounts for promotional activities and people are also ready to buy such products whose promotional activities are attractive. Social activities are rising like a jungle fire for promotion and sale purpose. It is estimated that after five years, half of consumer product sale will effect from social networking and e-commerce web sites and portals. People are buying high value items like LED TV, other consumer durables like Refrigerators on a single click. Therefore marketing team must consider this growing demand for sales promotion and should accordingly make arrangements so that they remain in competition which is growing like a virus. According to a survey conducted in India regarding importance of internet it was seen that usage of internet for product promotion as well as online purchase has increased tremendously. 2. Customer Base Widening: Promotion is important for widening, maintaining and saving customer base which is a tangible form of profit figures. This activity becomes important because of the widening of market. All products are now sold all over the world with very advance logistics and transportation facilities. Promotion is now done for not only profit maximization but for capturing major share in the market. For attracting more and more markets, for satisfying and creating demands for products. Promotion has gained importance because number of prospective buyers have increased marginally and so this class of customers will be attracted towards those who have better promotional tactics. Apple is one of the most popular brand in the world which only with the promotion created miracle. Today, Product launching event of Apple is one of the most popular video and viewed on the YouTube by millions of people. Apple is the most trusted brand in world and it has become a leader in promotional techniques and persuasion and attracting customers without negotiation on prices. Apple never offers discount on any product and in spite of that people are ready to buy apple product without asking for discounts and youth today is crazy about apple products and feel proud to own apple i- pod or i-phone. This is the effect of promotional and persuasion techniques. 3. Penetrating Cut Throat Competition: Cut throat competition is an ill effect of modernization of business and globalization. It is an outcome of thirst for more and more profit and market share. There is an excessive competition in every sector from agriculture to industrial with more or less degree. With the introduction of new products every day in a market full of thousands of producers already selling same product. In order to meet the competition, every producer has to persuade customer about their specialty of producing that particular product. Promotion is a direct as well as indirect instrument of attractive packaged inducement which strikes when iron is hot and for favorable decision. Customers are clever and know what to purchase, so producer must be clever to satisfy customers demand. 4. Only Tool Left in Times of Depression: Depression comes with some inherent effects on economy which includes rise in inflation, low demand for luxurious items, high demand for basic necessities, unemployment, etc. Depression is a best example of showing the importance of promotion in marketing management. In poor economic conditions, organization needs promotional activities in order to sustain low profitable situations. In times of lower sale and profits high promotion can bring stable results which are essential in times of this type of crisis, hence the significance of promotion. Cost involved in promotional activities are huge and are increasing day by day. It is to be observed here that promotional expenditure must be strictly monitored and controlled because they contribute highest marketing expenses. All major corporate giants are making studies and research for controlling these costs and looking for new avenues which are cost effective and in spite of that, effective in bringing the results. Vodafone introduced animated zoo zoo characters in their advertisements which become massively successful and sale boosted marginally with this promotional technique which was comparatively cost effective and simple. 5. Attribute of the Face of Company: If product is the heart of the company then the promotion mix is the face of company which displays the purity of the heart with simplicity and lucidity, which in turn creates stability and healthy growth. Person sees face of other person and not heart hence if face is simple, attractive and persuasive then other person is attracted easily and with little efforts .Hence promotion is very important in marketing a product because it is the major factor in buyers decision. It attracts customers to doorstep of company. Thus significance of promotion must be understood in this light of good outer relations, and must be applied in forming marketing policies. Simple sign of ‘√’ is now responsible for millions of gross profit of NIKE Company; similarly one simple Tree of woodland is attracting customers all over the India. This is important for study because how simple promotional techniques can become so effective in assisting sales and profits. ________________________________________ Promotion Mix – 6 Major Factors that Helps Marketing Manager in Deciding the Promotional Mix There are various factors which are usually considered by the marketing manager in arriving at the promotional mix: 1. Stage of a Product Life Cycle: The stage in the life cycle of the product is one of the determinants in deciding the promotional mix. The various stages in the product life cycle are- (i) innovation, (ii) growth, (iii) maturity, (iv) saturation, (v) decline and (vi) obsolescence. Every product passes through these stages. The marketing manager has to adopt different promotional mix in different stages. At the first stage, all types of promotional efforts— advertising, publicity, sales promotion and public relations are necessary because these efforts are aimed at informing the target consumers of the presence of the product in the market. Substantial expenditures on advertising are vital to inform the public on the other hand, personal selling programme is also undertaken that aids in generating product acceptance among retailers, wholesalers, industrial and institutional buyers. Sales promotion efforts are made during growth period in order to check the entry of competitors. During the maturity stage, heavy expenditure on advertising and personal selling are required to fight competitive situation and to maintain their share of market. During saturation and declining stages, the promotion expenditures are reduced to a great extent. Only a minority of organisations attempt to prop up lagging product with high promotional advertising. Some use aggressive personal selling programme to further penetrate the specific market segments where demands or the product exist. In obsolescence stage, all promotional efforts are stopped and it is thought better to withdraw the product from the market or substitute the product with the new product. (2) Type of Product: The characteristics of a product may also dictate its natural audience. A non-differentiated product (detergents or soaps) may be promoted with psychological advertising. A product with hidden emotional qualities of suitings, clothing, etc., may be given a careful and subtle mass media promotion. The product is generally classified as consumer product or industrial product. The classification of product or service is an indicator of the most appropriate type of promotion mix that may be required. (a) Consumer Goods: Ordinarily, there are three types of consumer goods — convenience, shopping and speciality. Each one requires a separate type promotion. Convenience goods are those goods that are frequently purchased, are low in cost and are bought at most accessible retail outlet as soon as the need for the product is felt. This type of goods calls for emphasis on advertising and sales promotion efforts. Such items have a large and geographically dispersed market, advertisement is the most suitable form of mass communication for people to react at large at the lowest cost per contact. Such convenience items which are sold on self-service basis, sales promotion techniques are the best promotional devices. Products purchased after careful consideration of quality, price style and durability are classified as shopping goods. The product, in this case, has a high unit value and are not frequently purchased such as clothing and furniture. The marketer of shopping goods place more emphasis on personal selling because customer in purchasing such items require an advice from the salesmen and a comparison of goods with the other brands of the same product in the same store or in different stores. A good salesmanship will do the needful. However, advertising is also necessary just to inform the public of the existence of the product. High unit value and infrequent purchase are also the characteristics of speciality goods, if it is a branded item, which the consumer has become convinced is superior to all competitive brands. Here, the marketer employs a combination of the three primary methods of promotion — advertising, personal selling and sales promotion. Personal selling technique helps the marketer in maintaining the image of the product. Advertising also serves the same purpose and reminds the people to keep the product in mind. Sales promotion techniques maintain the image of the product and remind consumers, of the product. (b) Industrial Goods: Industrial goods are generally classified in five categories — raw materials, fabricating materials and parts, operating supplies, installations and accessory equipment. In general, all types of industrial goods require more emphasis than consumer goods on personal selling because these goods are purchased and sold in bulk and moreover, salesman offer advice and assistance at the time of supplying such goods and in the post- sales period. A computer supplier, unhesitatingly, allow his salesmen to spend many hours with an account after the sale has been completed just to ensure that the equipment is operating properly and the account is using it in a proper manner. Advertising and sales promotion are important elements of the promotion mix for some. Advertising is helpful for salesmen in convincing the prospect about the product and the organisation and its product line. Once the prospect has achieved familiarity about the product and product line of the organisation through advertisement, the salesperson finds it easy to get an appointment. Some industrial seller use advertising to generate prestige. As far as sales promotion devices are concerned, the sellers of industrial goods use these devices not as extensively as the marketers of consumer goods. Some marketers of industrial goods rely heavily on displays in trade fairs, exhibitions and conventions. Some use price deals such as ‘Rupees off or ‘two for one’ or “buy two get five free” or ‘gifts’ offer to generate sales. Still others allow premiums and trading stamps to the buyers. (3) Target of Promotion: The use of promotion mix is also affected by the type of person, to which it is directed. Promotion may be directed at four different groups — wholesalers, retailers, industrial consumers and final consumers. The right choice of promotion blend for each group is different. (a) Promotion to Wholesalers: As wholesalers are less in number and more conscious to demand and cost, they respond to economic arguments. Any type of promotion which the producer intends to direct at retailers and final consumers will be sufficient promotion for wholesalers but they are more conscious about the personal selling representatives who cements the relationship between producer and wholesalers. (b) Promotion to Retailers: If number of retailers are less, the personal selling may be feasible to manufacturers and wholesalers. In case the number of retailers are numerous the advertisings in trade magazine and newspapers are valuable. Sales promotion activities such as discount on sales or gifts on bulk purchases, etc., also play valuable roles in marketing the goods. If the product is consumer item of high value, the bulk of promotion efforts is to serve the retailers through sales personnel. Personal selling will also be valuable where the product requires after-sales service or possesses some technical characteristics, because the salesperson may have to answer the retailer’s questions about the technical characteristics the promotion that will be directed towards final consumer, the retailer’s own part in selling the product, and important details concerning price, the marketers and promotional assistance. In other words, promotion to retailer is mainly informative in nature which he passes on to consumers. The promotion to retailers must also be persuasive so that his interest in selling the product may not be lost. In most cases, personal selling is the main promotion efforts to retailers because marketing mixes may have to be adjusted drastically from one geographic territory to another to meet competitive situations and moreover it creates and maintains good channel relationship. (c) Promotion to Industrial Consumers: Industrial customers, being less numerous than final consumers have a justification for a promotion blend emphasising personal selling because the personal sales representatives may be more flexible in adjusting their company’s appeal to suit each customer. They supply the necessary information as desired by the customer. Although personal selling dominate the scene in industrial marketing, advertising is also used widely, mainly for economic reasons. (d) Promotion to Final Consumers: The large number of ultimate consumers practically force retailers, wholesalers and manufacturers to use the mass selling techniques in their promotion blends. So, advertising is preferred in most cases because it establishes brand preference to such an extent that little personal selling may be required. Sales promotion techniques are also used extensively. Self-service, discount, gift and novelties attest to this. Advertising may even be the way to supply the necessary information to those who are interested in seeking them. (4) Size of Budget: The amount allocated for the promotional efforts is an obvious limitation on the choice of promotional channels. If the budget is small, a firm cannot spend more on promotional activities because it cannot buy enough mass media advertising worth the count. If accounts are limited, the organisation can safely rely on personal selling and publicity, and can manage within its resources. But, on the other hand, if accounts are numerous the organisation will prefer advertising in local or regional newspapers, or it may use local radio or TV. On the other hand, if size of budget is big enough, the organisation may use national newspapers, or TV and radio. It will be economical per contact but it will require lump sum amount which a small firm cannot afford. Some smaller manufacturers, out of necessity rather than choice, use personal selling as their major promotion method. A salesperson may be employed for Rs. 5,000 p.m. or so plus expenses while the sponsoring of a single TV., broadcast may cost a sizeable amount of money. A small firm having small promotion budget may also use sales promotion, public relation and direct mail, over and above personal selling. The size of promotion budget may have an impact on the composition of the promotion mix. Organisations with small budget may be forced to use promotion methods which are less effective because they are not in a position to afford heavy expenditure on other methods which are more effective such as advertising in national newspaper and national network on TV and radio which can be used only by the organisations that allocate a big amount for their promotional efforts. Smaller organisations prefer personal selling and publicity. They pay commission to salesmen which is payable only when sales are affected. Sometimes family members invest their time in personal selling. Though personal selling is costly per contract than the advertising, yet it is used because the payment is not made in one lump sum. Thus, size of budget leads the management to use the methods which would not be employed otherwise even though they are less effective. (5) Push and Pull Strategy: In deciding on ideal promotional mix, the key variable is the direction of influence in the distribution marketing channel. In some case, direction of influence is towards the middlemen whereas in some other cases, it is an end-user. This characteristic of the variable is called push-pull strategies: (a) Push Strategy: In push strategy, generally used in industrial product marketing, products have a high unit value and need adjustment for consumer needs. It is aimed at the middlemen with the goal of getting them to aggressively promote the manufacturer’s brand to consumers. This strategy can favourably be used when consumers rely heavily on the advice of dealers for the product use. Thus, specially stores often emphasise the push strategy with a lesser emphasis on advertising. In this strategy, personal selling is the favoured promotional channel. Dealers promote the product line aggressively for which they are granted high margins and an exclusive distribution territory. (b) Pull Strategy: A pull strategy, in its extreme form, emphasises the importance of mass communication. It is aimed at stimulating the end-consumer demand to a sufficient degree so that the consumer may ask retailers for the product and retailers are forced to stock the brand in order to please their customers. The retailer will ask the wholesaler to supply the brand demanded by the consumer and the wholesaler, naturally, will ask the manufacturer to supply. Thus, this strategy stresses on advertising in order to create a heavy demand of goods. The promotional campaigns of most manufacturers are a blend of the two approaches. Deciding where to place the emphasis is not always easy; the choice of approach depends on the nature of the product and the buying habits of consumers. Push strategy is most effective where units value is high whereas pull strategy is suitable for products having low unit value and are meant for broad public distribution. In most cases, marketers use both strategies; but one is always emphasised. (6) Organisational Philosophy: The philosophy of the organisation too, affects the promotion mix. Thus, it is evident from the above discussion, that no promotion blend is suitable for all situations. Each mix should be developed as a pact of marketing mix. A blend of personal selling and advertising may be expected when a firm sells consumer and industrial goods, More emphasis on advertising should be on advertising promoting consumer goods and or personal selling for industrial goods. ________________________________________ Promotion Mix – Strengths and Weaknesses of Promotional Mix The strengths and weaknesses of major promotional mix are discussed as follows: Strengths: 1. Publicity/Public Relations – Has high credibility; can create goodwill; is low in cost; reaches many audiences, especially difficult-to-reach audiences. 2. Personal Selling – Flexible, Highly targeted, interactive and bidirectional, message and presentation can be customised and personalised, measurable, offers immediate feedback, takes the consumer closer to sales, effective in building relationships, suitable for certain product types and niche audiences. 3. Online Marketing – Is direct, low in cost, interactive and two-directional, personalised, up-to-date, targeted, less intrusive, and less commercial. 4. Advertising – Informs, persuades, reminds, and reinforces mass audiences about a product; builds brand identify. 5. Direct Marketing – Highly targeted, measurable, customisation and personalisation possible, suitable for certain product types, possibility for two-way communication and building long-term relationships. 6. Sales Promotion – Is relatively less expensive than advertising, leads to immediate results, has a direct impact on sales and is measurable, helps to clear excess inventory, helps to nullify competitive promotions, generates excitement, gets trade and salesforce support. Weaknesses: 1. Publicity/Public Relations – Organisation has little control over what gets publicised, often has hidden costs, results are difficult to measure, does not have a direct impact on sales. 2. Personal Selling – Expensive, unsuitable for large audiences. 3. Online Marketing – Smaller audiences, unsuitable for non-savvy audiences, some forms like spam e-mails or pop-ups can be quite intrusive. 4. Advertising – Expensive, within a cluttered media with high noise level. 5. Direct Marketing – Expensive, not suitable for reaching large audiences. 6. Sales Promotion – Is gradually getting cluttered and expensive, has short-term results, makes consumers deal-prone, can erode brand equity and loyalty. ________________________________________

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