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Principle of Marketing MARKETING ENVIRONMENT

H. Nagraj

Introduction: A variety of environmental forces influence a companys marketing system. Some of them are controllable while some others are uncontrollable. It is the responsibility of the marketing manager to change the companys policies along with the changing environment. According to Philip Kotler, A companys marketing environment consists of the internal factors & forces, which affect the companys ability to develop & maintain successful transactions & relationships with the companys target customers . The Environmental Factors ma !e classi"ied as: !. Internal "actor #. $%ternal "actor E#ternal Factors ma !e "urther classi"ied into: $%ternal &icro "actors & $%ternal &acro "actors $ompan %s Internal Environmental Factors: A 'ompanys marketing system is influenced by its capabilities regarding production, financial & other factors. (ence, the marketing management)manager must take into consideration these departments before finali*ing marketing decisions. +he ,esearch & -evelopment -epartment, the .ersonnel -epartment, the Accounting -epartment also have an impact on the &arketing -epartment. It is the responsibility of a manager to company/ordinate all department by setting up unified ob0ectives. E#ternal Micro Factors: !. &uppliers: +hey are the people who provide necessary resources needed to produce goods & services. .olicies of the suppliers have a significant influence over the marketing managers decisions because, it is laborers, etc. A company must build cordial & long/term relationship with suppliers. #. Mar'etin( Intermediaries: +hey are the people who assist the flow of products from the producers to the consumers1 they include wholesalers, retailers, agents, etc. +hese people create place & time utility. A company must select an effective chain of middlemen, so as to make the goods reach the market in time. +he middlemen give necessary information to the manufacturers about the market. If a company does not satisfy the middlemen, they neglect its products & may push the competitors product. 2. $onsumers: +he main aim of production is to meet the demands of the consumers. (ence, the consumers are the center point of all marketing activities. If they are not taken into consideration, before taking the decisions, the company is bound to fail in achieving its ob0ectives. A companys marketing strategy is influenced by its target consumer. $g3 If a manufacturer wants to sell to the wholesaler, he may directly sell to Munnu Prasad. V / 2nd B.Co !B" Page # of 2$

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them, if he wants to sell to another manufacturer, he may sell through his agent or if he wants to sell to ultimate consumer he may sell through wholesalers or retailers. (ence each type of consumer has a uni4ue feature, which influences a companys marketing decision. 5. $ompetitors: A prudent marketing manager has to be in constant touch regarding the information relating to the competitors strategies. (e has to identify his competitors strategies, build his plans to overtake them in the market to attract competitors consumers towards his products. An compan "aces three t pes o" competition: a6 )rand $ompetition: It is a competition between various companies producing similar products. $g3 +he competition between 7.8 & 9idecon companies. b6 The Product Form $ompetition: It is a competition between companies manufacturing products, which are substitutes to each other $g3 'ompetition between coffee & +ea. c6 The *esire $ompetition: It is the competition with all other companies to attract consumers towards the company. $g3 +he competition between the manufacturers of +9 sets & all other companies manufacturing various products like automobiles, washing machines, etc. (ence, to understand the competitive situation, a company must understand the nature of market & the nature of customers. :ature of the market may be as follows3 I. .erfect &arket II. ;ligopoly III. &onopoly I9. &onopolistic &arket 9. -uopoly <. Pu!lic: A 'ompanys obligation is not only to meet the re4uirements of its customers, but also to satisfy the various groups. A public is defined as any group that has an actual or potential ability to achieve its ob0ectives . +he significance of the influence of the public on the company can be understood by the fact that almost all companies maintain a public relation department. A positive interaction with the public increase its goodwill irrespective of the nature of the public. A company has to maintain cordial relation with all groups, public may or may not be interested in the company, but the company must be interested in the views of the public. Pu!lic ma !e various t pes+ The are: a. Press: +his is one of the most important group, which may make or break a company. It includes 0ournalists, radio, television, etc. .ress people are often referred to as unwelcome public. A marketing manager must always strive to get a positive coverage from the press people. b. Financial Pu!lic: +hese are the institutions, which supply money to the company. $g3 7anks, insurance companies, stock e%change, etc. A company cannot work without the assistance of these institutions. It has to give necessary information to these public whenever demanded to ensure that timely finance is supplied. c. Government: .oliticians often interfere in the business for the welfare of the society & for other reasons. A prudent manager has to maintain good relation with all Munnu Prasad. V / 2nd B.Co !B" Page 2 of 2$

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Principle of Marketing

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politicians irrespective of their party affiliations. If any law is to be passed, which is against the interest of the company, he may get their support to stop that law from being passed in the parliament or legislature. d. General Pu!lic: +his includes organisations such as consumer councils, environmentalists, etc. as the present day concept of marketing deals with social welfare, a company must satisfy these groups to be successful. E#ternal Macro Environment: +hese are the factors)forces on which the company has no control. (ence, it has to frame its policies within the limits set by these forces3 !. *emo(raph : It is defined as the statistical study of the human population & its distribution. +his is one of the most influencing factors because it deals with the people who form the market. A company should study the population, its distribution, age composition, etc before deciding the marketing strategies. $ach group of population behaves differently depending upon various factors such as age, status, etc. if these factors are considered, a company can produce only those products which suits the re4uirement of the consumers. In this regard, it is said that to understand the market you must understand its demography . #. Economic Environment: A company can successfully sell its products only when people have enough money to spend. +he economic environment affects a consumers purchasing behavior either by increasing his disposable income or by reducing it. $g3 -uring the time of inflation, the value of money comes down. (ence, it is difficult for them to purchase more products. Income of the consumer must also be taken into account. $g3 In a market where both husband & wife work, their purchasing power will be more. (ence, companies may sell their products 4uite easily. 2. Ph sical Environment or Natural Forces: A company has to adopt its policies within the limits set by nature. A man can improve the nature but cannot find an alternative for it. :ature offers resources, but in a limited manner. A product manager utili*es it efficiently. 'ompanies must find the best combination of production for the sake of efficient utili*ation of the available resources. ;therwise, they may face acute shortage of resources. $g3 .etroleum products, power, water, etc. 5. Technolo(ical Factors: "rom customers point of view, improvement in technology means improvement in the standard of living. In this regard, it is said that +echnologies shape a .ersons 8ife . $very new invention builds a new market & a new group of customers. A new technology improves our lifestyle & at the same time creates many problems. $g3 Invention of various consumer comforts like washing machines, mi%ers, etc have resulted in improving our lifestyle but it has created severe problems like power shortage. $g3 Introduction to automobiles has improved transportation but it has resulted in the problems like air & noise pollution, increased accidents, etc. In simple words, following are the impacts of technological factors on the market3 a6 +hey create new wants Munnu Prasad. V / 2nd B.Co !B" Page % of 2$

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b6 +hey create new industries c6 +hey may destroy old industries d6 +hey may increase the cost of ,esearch & -evelopment. <. &ocial , $ultural Factors: &ost of us purchase because of the influence of social & cultural factors. +he lifestyle, values, believes, etc are determined among other things by the society in which we live. $ach society has its own culture. 'ulture is a combination of various factors which are transferred from older generations & which are ac4uired. ;ur behaviour is guided by our culture, family, educational institutions, languages, etc. +he society is a combination of various groups with different cultures & subcultures. $ach society has its own behavior. A marketing manager must study the society in which he operates. 'onsumers attitude is also affected by their society within a society, there will be various small groups, each having its own culture. $g3 In India, we have different cultural groups such as Assamese, .un0abis, =ashmiris, etc. +he marketing manager should take note of these differences before finali*ing the marketing strategies. 'ulture changes over a period of time. (e must try to anticipate the changes new marketing opportunities. IN*IAN MARKET , IT& ENVIRONMENT It is difficult to analy*e the environmental factors affecting Indian market. ;urs is a vast country with various religions, caste, sub/caste, languages, culture, etc. $ach of these factors operates at different levels & art different places. !. Vast Mar'et: +he Indian market is the second largest in the world considering its population. If consumption is considered, it has one of the lowest levels of consumption. (ence, it can be said that ma0ority of the market for various products has been left untapped. ,egion/wise, the Indian &arket can be broadly classified into "our .arts3 a. :orthern &arket b. Southern &arket c. >estern &arket d. $astern &arket #. Rural Mar'et: &a0ority of the Indians live in rural areas. (ence, rural markets have a significant influence on the companys marketing strategy 2. $ultural , Reli(ion: India is a country with many religions each religion has its own culture & most of the Indians are religious. +he culture affects the habits of people. (ence, it has to be considered before deciding what is to be sold. $g3 ?ainism completely prohibits the consumptions of meat. (ence, it is difficult to sell meat where ?ains are living 5. Economic $onditions: India is one of the fastest developing countries. +he standard of living is increasing every year. +his indicates that the marketing opportunities in our country are vast. Munnu Prasad. V / 2nd B.Co !B" Page & of 2$

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Principle of Marketing

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<. Government: >e are following the policy of mi%ed $conomy i.e., &arket is neither totally free @'apitalism6 nor it is fully controlled @Socialism6. +he government encourages consumerism & hence he marketers are gradually accepting the marketing concept. A. Intermediaries: ;ur country has two types of distribution system. +hey are3 a. .ublic distribution system, where essential commodities are directly sold to the consumers through government agencies. b. ;pen distribution system, where the products are sold in the open market. +he open distribution system in our country is the traditional one. +he chain of distribution is once of the most efficient chains of the world. >holesalers, retailers, brokers, etc are the intermediaries operating in our country. B. .ress3 .ress in our country is not as sophisticated as in the developed countries. &ost of the newspapers & maga*ines are controlled by big business houses. C. +echnology3 &ost of the company)companies in our country import the technology from other countries. Investment in research is one of the lowest in the world. Rural Mar'etin( $hallen(es , Opportunities: &a0ority of Indians live in villages & most of them are farmers. ,ural markets in our country are changing rapidly. &any companies have not tried to find out the needs of rural consumers. (ence, many rural markets have been left untapped. Pro!lems o" Rural Mar'etin(: About CDE of villages do not have proper infrastructural facilities like transportation, communication, etc. .eople in the rural market purchase in small 4uantities1 usually, they behave as group. (ence, it is difficult to influence their behavior to deliver a product directly to the rural consumers1 a company has to incur double the cost of what it incurs in case of urban consumers. Illiteracy among villagers makes it difficult to promote products. &ost of them purchase because of their belief.

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Principle of Marketing MARKETING &EGMENTATION

H. Nagraj

Introduction: 'onsumers behave in a group. $ach such group has its own model of behaviour identifying such group of consumers is known as marketing segmentation. It is marketing strategy to produce & market producers that suits the need of a particular group of consumer. *e"inition: It is defined as +he strategy of dividing the market in order to consumer them . According to .hilip =otler, It is the subdividing of market into homogenous subsets of consumers where any subset may be selected as a market target to be reached with distinct &arketing &i% . Importance o" Mar'et &e(mentation: &arket segmentation is built around the consumers. In other words, the company analyses the needs of the consumers, & the group of those consumers who have similar needs. It tries to satisfy those needs by having common marketing program, without such segmentation, market program becomes hapha*ard & they lead the company no where. A small company with limited resources can select a particular group of consumers & market its products efficiently by selecting the marketing mi% suitable to that group. )asis o" &e(mentation: +he following factors are considered before dividing the market3 !. Geo(raphical Factors: ;n the basis of geographical factors, market may be classified as state/wise, region/wise & nation/wise. &any companies operate only in a particular area because people behave differently in different areas due to various reasons such as climate, culture, etc. #. *emo(raphic Factors: +his is the most widely used basis for market segmentation. &arket is classified on the basis of population, using ages, income, se%, etc as indicators. a. A(e: It is known fact that people of different ages like different products, need different things, & behave differently. Almost all companies use this factor to reach the target market. ;n the basis of age, market in our country is divided into childrens market, teenagers market, adults market, & the market for old people. 'ompanies use the census data to prepare marketing strategies on the basis of age. b. &e#: +here is a variation of consumption behavior between males & females. +his factor is used as a basis for segmentation for products like watches, clothes, cosmetics, leather goods, maga*ines, motor vehicle, etc. c. Famil -i"e $ cle: +his is another important factor, which influences the consumers behavior. $g3 7efore making purchases, a bachelor may consult his friends, a boy may ask his parents & a married man asks his wife. +he study of family life cycle helps a company to prepare an effective promotional strategy. 2. Ps cholo(ical "actors: a. Personalit : &ost consumers are influenced by personality traits. +his is particularly true in the case of urban consumers. ;n the basis of personality, consumers may be

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Principle of Marketing

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divided in to introverts @reserve people6, talkative, status, conscious, suspicious & so on. 5. Economic Factors: ;n the basis of economic factors, markets have been classified in the westerns countries as follows3 a. Fpper 'lass b. Fpper/upper class c. 8ower/upper class d. &iddle class e. Fpper/middle class f. 8ower/middle class g. 8ower class h. Fpper/lower class i. 8ower/lower class In our country, it is classified as upper class @rich6, middle class, & the lower class. Another classification based on income in our country is as follows3 a. 9ery ,ich b. +he ,ich class c. +he Aspiration 'lass & d. +he -estitutes. .+ )ehavior Factors: a. Occasions: Sellers can easily find out certain occasions when people buy a particular product. $g3 -emand for clothes, greeting cards, etc increases during the festival season. -emand for transportation, hotels etc increases during the holiday seasons. b. )ene"its: $ach consumers e%pects to fulfill certain desire or to derive some benefits from the product he purchases. $g3 A person may purchase clothes to save money & another to impress others. 7ased upon this, markets may be classified as markets for cheap price products & market for 4uality products etc. c. Attitude: ;n the basis of attitude of consumers, markets may be classified as enthusiastic market, indifferent market, positive market, & negative market. )ene"its o" Mar'et &e(mentation: +he purpose of segmentation is to determine the differences among the purchases which may affect the choice of the market area & marketing strategies. "ollowing are some of the benefits of marketing segmentation. a6 It helps to formulate marketing programs. b6 It helps to understand the comple% behavior of consumers c6 +astes & .references of consumers may be easily determined. d6 It helps in locating the new markets e6 It helps marketing programs beneficial to consumers as products are produced & sold according to their needs.

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Principle of Marketing

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PRO*/$T
Introduction: In simple words, the term, .roduct means an article which satisfies our wants. It is defined as a set of attributes, tangible, intangible & physical assembled in an identified manner. .hilip =otler, defines the term product as anything that can be offered to the market for consumption that might satisfy a need . Features o" a Product: !. #. 2. 5. It has many utilities It can either be tangible. $%3 soap, or intangible $%3 Insurance policy. It is a combination, package, brand, etc It is purchased because of its satisfying power.

Ne0 Product *evelopment: Introducing a new product is a difficult task, there is no guarantee that the new product developed is accepted in the market1 hence, the risk if high. It is better to adopt a scientific approach for the development of new products. +he following are the different stages of a new product development3 !. Idea Generation: :ew product development starts with an idea. +he idea may come from any source. $%3 'ompetitors, :ewspapers, Government, ,esearch & -evelopment, -epartment, etc. #. &creenin( Anal sis: (ere the company evaluates all ideas. +he intention here is to avoid unnecessary e%penses by stopping further processing of unwanted ideas, which do not suit the companys re4uirements. An idea is evaluated with reference to various factors such as consumer needs, investments, profitability, technology, etc. 2. $oncept Testin(: In the stage the concept of the new is tested. +he co. evaluates whether the concepts would suit the co., re4uirements. 5. )usiness Anal sis: (ere a detail financial analysis is done. It is carried out to find out the financial marketing competitive & manufacturing viability usually, they analysis is done by the e%perts. +he task of the management is this step is to identify the product features, estimate the market demand & the products profitability. +hose ideas, which promise more profits with minimum payback are selected. <. Product *evelopment: In this stage, product on paper is converted into a physical product. +his is done by the engineering department or by the research & development department. .roper care must be taken while developing the product, so that the new product does not become a waste. "or this purpose, research reports, companys budget, product features, etc have to be studied carefully. Fndue haste in developing a new product results in the premature death. ;n the other hand, if the time taken is to long, the company may lose the opportunity to the competitors. A. Test Ma'in(: After developing the product, the ne%t stage is to test its commercial viability. +his process is known as test making. +est marketing is defined as developing a temporary &arketing &i% & introducing the new product to a market called, the sample market to verify & analy*e the market reaction for the new product . +his is one of the most important steps because for the first time, the information on the new product acceptance by the market is collected. Munnu Prasad. V / 2nd B.Co !B" Page * of 2$

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Principle of Marketing

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>hile, test marketing, the company changes the &arketing &i% namely, .roduct, .rice, .romotion & .hysical -istribution depending upon the test marketing results. If it is accepted, it chooses the best marketing mi% for the product, otherwise the pro0ect is re0ected. Advanta(es o" Test Mar'etin(: a6 It helps to understand the market reaction to the new product. b6 'ustomers perception on the marketing mi% is understood. c6 It avoids costly error of manufacturing, unwanted products. It reduces, the uncertainties relating to the new product. d6 It helps in developing suitable marketing mi% e6 It helps in developing proper marketing strategies. f6 +est marketing also highlights the weakness of the new product, which can be rectified before launching on a large scale. g6 +est marketing gives better coordination between the company, intermediaries & the customers. h6 It also helps to understand the intermediaries view on the new product. i6 It brings down the overall cost of new product development by eliminating wastages. It should be remembered that the market chosen for test marketing must be proper in the sense that is should represent the entire country so that biased results are not considered. B. $ommerciali1ation: >hen once is successful in test marketing, i.e., when the market accepts the new product, it is launched in other markets on a large scale in a wider market is known as commerciali*ation. It is from this stage that a new product is really born from the customers point of view. PRO*/$T -IFE $2$-E .roduct also has various stages of life as human beings. "rom the time a product is introduced, till it is withdrawn from the market, it goes through < stages. Analysis of these stages for the purpose of repositioning the product in the market is called .roduct 8ife 'ycle management. +he following are the stages in a product life cycle. I. Introduction Stage II. +he Growth Stage III. +he &aturity Stage I9. +he Saturation Stage 9. +he -ecline Stage +he above stages can be shown in the following graph3

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8ife 'ycle Stages !. Introduction &ta(es: In this stage, a new product is introduced on a large scale for the first time. &arket reacts slowly to the introduction. In other words, consumers take time to accept the new product. Initially, the company may suffer losses, sales improves gradually. &ost of the products fail in this stage itself. "ollowing are the characteristics of this stage3 a. 'onsumers do not have the knowledge of the product b. 'onsumers may or may not be strongly in need of the new product. c. If there is a need for the product, the company gets readymade demand. ;therwise, it increases slowly. d. Sales are minimum e. +he competition is less, in fact the company, which introduces new product is called as a &arket .ioneer. f. +he cost of it is very high because the company spends money heavily on ,esearch & -evelopment, Sales, .romotion, etc. #. Mar'etin( &trate(ies durin( the Introduction &ta(e: A company has to prepare the policies very carefully in the stages because it has a great impact on the image of a new product. $ven a minor mistake results in the premature death of a product. +he following are the strategies that the company may adopt in this stage3 a. It may spend heavily on promotion & fi% high price. +his meets two ob0ectives. "irstly, heavy promotion creates large demand & high price, brings immediate profits. +his strategy also helps to create brand preference in the minds of the consumer. It is normally followed when there is a great need for the product, when the product belongs to the richer class & when products are consumer specialties. b. +his second strategy is to fi% high price but to spend less on promotion. +his is preferred when the product has limited market, in which people have knowledge about the product & the competition is completely absent. c. Another strategy is to charge low price & spend heavily on promotion. +his is preferable when consumers are sensitive to the price & market is wide enough. +his strategy brings good returns in the long run.

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d. +he company may charge low price & spends less on promotion. +his is preferable when the consumers are informed about the product, market is very large & there is no competition for the time being. In the introduction stage, the competitors are very cautious. +hey do not enter the market immediately. +hey study the strategies of a company & watch the reaction of the consumers. +his helps them to find out the defects of the companys strategy. 2. Gro0th &ta(e: It is called the market acceptance stage. "ollowing are its features3 a. 'onsumers & traders accept the product b. Sales & profit increase c. &ore competitions enter the market d. +he focus of competition is on the brand rather than the product e. 'ompetitors may introduce new features to the product f. -istribution network increase g. +he price will be reduced marginally. Mar'etin( &trate(ies in the Gro0th &ta(e: a. +he company tries to impress upon the consumers that its brand is superior b. It may introduce new models or improve the 4uality c. It may enter new market & sell its products with new distribution channels d. +o attract more buyers, it may reduce the price. 5. Maturit &ta(e: +his stage indicates the capacity to face the competition, sales increases at a decreasing rate. 'ompetition becomes severe. It is reflected in various ways such as offering discounts, modifying products etc. Mar'etin( &trate(ies durin( Maturit Period3&ta(e 3 In this stage, the manufactures have to take responsibility to promote his product. +his strategy aims at creating brand loyalty. <. &aturation &ta(e: +his is the stage when the sales reach the peak point. 'ompetition intensifies further & profit begins to decline. Small competitors may withdraw from the market because of their incapability to face the competition. Mar'etin( &trate(ies: +his is the stage where the marketing manager must try to reposition his product. &ost of the strategies in this stage are offensive in nature. $ach manufacture tries to cut down his competitors market share by aggressive promotion policy. +he ob0ective of marketing in this stage is to retain the present sales level. A. *ecline &ta(e: "or all products, sales invariably declines as new products enter the market. In this stage, there is a sharp decline in the profits, cost increases & market share comes down. &ost of the manufactures withdraw from the market. Some may reduce production & concentrate only on a limited market &arketing Strategies3 +his stage offers one of the greatest challenge to the marketing manager. (e has to decide whether or not to continue with the product. +he main task of marketing manager is to revitali*e the demand instead of discontinuing the product immediately. It is better to withdraw gradually. +hose channels of distribution, which are Munnu Prasad. V / 2nd B.Co !B" Page ## of 2$

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costly & unproductive maybe removed. In the meantime, the weak points of the marketing mi% maybe identified & altered as re4uired. Reasons "or the Failure o" Ne0 Product: !. .oor marketing research #. :ot using the up/to/date technology 2. (igh price or to costly products 5. .oor design <. Inefficient marketing A. :on/cooperation from the middlemen B. Improper promotional techni4ues C. Improper timing of introduction of the new product.

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Principle of Marketing PRO*/$T P-ANNING , PRI$ING &TRATEGIE&

H. Nagraj

Introduction: .roduct planning is that part of marketing, which is concerned with determining the products to be offered, deleted & diversification. O!4ectives o" Product Plannin(: .roduct planning is one of the most important functions of a marketing manager. +he following are its ob0ectives3 !. +o offer products based upon customer needs. #. +o diversify, to capitali*e on the companys strength. 2. +o utili*e the available resources more profitability. 5. +o decide on the elimination of non/profitable products. <. +o change the features of the product as per the changes in the market. A. "or long/term survival. $omponents o" Product Plannin(: !. #. 2. 5. <. A. .roduct Innovation .roduct -iversification .roduct -evelopment .roduct Standardi*ation .roduct $limination .roduct &i% & .roduct 8ine

!. Product Innovation: Innovation is a part of continuous improvement. In the absence of innovation, products become stale & hence die in the market. Innovation is re4uired to keep up with the phase of changing market needs. According to -rucker, Innovation will change customers wants, create new ones, e%tinguish old ones & create new ways of satisfying wants. #. Product *iversi"ication: >hen a manufacturer offers more products in different areas, it is referred as product diversification. In fact, when a manufacturer diversification. -iversification normally involves business in a new area. $g3 I+' entering into hotel business, sony entering into film production business. 2. Product *evelopment: It involves introducing a new product either by replacing the e%isting one or innovating a completely new product. It can either be brand e%tension or line e%tension. 'ompany must be careful while developing new products because research shows that H#E of them fall in the market. Another danger of product development is cannibali*ation. 5. Product &tandardi1ation: It implies a limitation of types of products in a given class. It gives uniformity in terms of 4uality, economy, convenience & 9alue. $g3 $ach model of +.9. gives a different standard. Standardi*ation promises a minimum level of performance & hence is used as a benchmark for 4uality. <. Product Elimination: +his involves an emotional decision of withdrawing the e%isting product line. -ecision must be carefully taken based upon current market share, future prospects etc. +he product elimination involves reviewing the present product portfolio, analy*e their profitability & then decide on discontinuance of a product.

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A. Product Mi# , Product -ine: .roduct line is defined as a group of products offered by a company which belongs to same family of products or similar to each other or substitutes. $g3 .roduct line of ponds for personal care products includes cold creams, talcum powders, etc. .roduct &i% is defined as combination of product lines offered by a company. $g3 .roduct mi% of 7a0a0 includes two wheelers, home appliances, electrical appliances, financial products etc. Product Port"olio Plannin(: A product mi% & line of a company put together forms product portfolio of a company. It can be e%plained in terms of product width, product depth I the product consistency. .roduct width e%plains the number of product lines that a company offers, whereas product indicates the number of products in each line & product consistency indicates the closeness of items of range of products. PRI$ING .rice of a product is its value e%pressed in terms of money which the consumers are e%pected to pay. "orm the sellers point of view, it is return on the e%change & in economic terms, it is the value of satisfaction. Importance o" Price: .rice is a key factor, which affects a companys operation. It plays an important role at all levels of activities of a company. It influences the wages to be paid, the rent, interest & profits. It helps in proper allocation of resources by controlling the price, the demand & supply factor may easily be ad0usted. O!4ectives o" Pricin(: !. To increase the pro"it: this is the most common ob0ective. A company may fi% the price with the aim of earning certain percentage of profits #. Mar'et &hare O!4ective: some companies fi% the price with a view to capture new market or to, increase or maintain the e%isting market share. +he ob0ective here is to either avoid competition or to meet it. 2. To &ta!ili1e the Price: +his is usually followed in the oligopoly market by the market leaders. +he ob0ective here is to avoid the price war & fluctuations in price. 5. To Recover $ost: +o get back the cost incurred as early as possible, is another ob0ective of pricing. It is for this reason that different prices are set for cash & credit sales for the same product. <. Penetration O!4ective: +he ob0ective of penetration pricing is to fi% a low/price so as to enter the new market. A. To Maintain the Product Ima(e: In this case, the ob0ective is to fi% a higher price to create a perception that the product is of superior 4uality. +his is called market skimming strategy. Factors In"luencin( the Price *etermination: +he decision to fi% the price is influenced by many factors which are controllable & uncontrollable. +hey are3 !. .roduct 'haracteristics. Munnu Prasad. V / 2nd B.Co !B" Page #& of 2$

SJEC #. 2. 5. <. A. -emand 'haracteristics. &anufacturers ;b0ectives. 'ost of the .roduct. $conomic 'ondition. Government ,egulation.

Principle of Marketing

H. Nagraj

I+ Product $haracteristics: a. Product -i"e $ cle: A product manufacturer charges the price depending upon the stages of the life cycle of the product. $g3 If he has introduced a new product, he may charge a lower price & increase it when it enters the growth stage. b. Perisha!ilit : According to the general principle, other things being e4ual, if a product is perishable, the price will be lower because it has to be sold as early as possible. c. Product &u!stitution: If there is a substitute in the market, then the price will be either e4ual to or lower than the price of the substitute, because if the price is more that the substitute, people may purchase the substitute product only. II. *emand $haracteristics: It is one of the most important factors influencing the price. +he company must forecast demand for its products & its elasticity before fi%ing the price. -emand estimation helps a company to prepare sales & the e%pected price, the consumers are willing to pay. +he e%pected price of the market is the influencing factor here. According to the general principle, the final price fi%ed must neither be lower nor higher than the e%pected price. III. Manu"acturer%s O!4ective: If the manufacturer wants to increase the market share, he has to fi% the competitive price. In other words, he has to offer more discounts etc. ;n the other hand, if his ob0ective is to increase profits, he may fi% a higher price. I9. $ost o" the Product: &ost of the companies fi% the price on the basis of cost. Accordingly, selling price is e4ual to total cost plus profit. +otal cost includes manufacturers cost, administrative cost & selling cost. 9. Economics $ondition: According to the general economic theory, price will not be lower during the depression & higher during the inflationary period. +he company has no control over this factor because it is the result of general condition prevailing in the entire country. 9I. Government .olicy ) ,egulation3 If government thinks necessary, it may fi% minimum price for a product. If it wants to discourage consumptions, it may increase the price & reduce it to encourage consumption. Pricin( Policies , Pricin( Methods or *etermination or the Price: I. $ost Plus Pricin(: In this method, the cost of manufacturing a product serves as the basis to fi% the price, the desired profit is added to the cost & the final price is fi%ed. &ost of the companies follow this method. "ollowing are various methods of cost J pricing. Munnu Prasad. V / 2nd B.Co !B" Page #' of 2$

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a. Price )ased on the Total $ost: (ere a percentage of profit is added to the cost to calculate the selling price. It is usually followed by the whole sellers & the retailers. "or industries such as construction, printing, repair shops, etc. this method is more suitable. b. Price )ased on the Mar(inal $ost: It is the method of pricing where the price is fi%ed to recover the marginal cost only. &arginal cost is the e%tra cost incurred to produce e%tra units. (ence, this method is suitable only when pricing decisions are to be taken to e%pand the market to accept the e%port orders etc. c. )rea' Even Pricin(: Fnder this method, the price is fi%ed first to recover the total cost incurred to produces the product. It is fi%ed in such a manner that the company neither earns profit nor does it suffer losses. +his method is suitable during depression when there is acute competition, when a new product is to be introduced or when the product enters the declining stage of its life. Advanta(es o" $ost 5 Pricin(: !. +his method is simple & hence price can be easily determined. #. 'ompanies, which cannot estimate the demand may follow this method. 2. It is suitable for long/term pricing policies *is6advanta(es o" $ost 5 Pricin(: !. It neglects the demand factor of the product #. It is difficult to determine the e%act cost. II. Pricin( )ased /pon $ompetition: 'ompetition based pricing is defined as a method where a company tries to maintain its price on par with its competitors. It is suitable when the competition is serve & the product in the market is homogenous. +his price is also called the going rate price. +he company cannot take risk of either increasing the price or decreasing it. "ollowing are some of the methods based upon competition3 a. Pricin( A!ove the $ompetition: It is usually followed by well/recogni*ed manufacturers to take advantage of their goodwill. +he margin of profits is too high. +his method is useful to attract upper class & upper middle class consumers. b. Pricin( )elo0 $ompetition -evel: +his type of pricing is followed by the wholesalers & the retailers. +hey offer various kinds of discounts to attract consumers. $ven established companies follow this method to maintain or to increase their sales during the off season. III. Pricin( )ased on Mar'ets: -epending upon the market of product, the manufacturers may fi% the price for their products. In a perfect market, he has to go for the e%pected price in the market. It is also called the market price or going rate price. In case of monopoly, he is free to fi% the price & can effectively practice the price discrimination policy. In oligopoly where there are few sellers, the price is fi%ed by the largest seller called the market leader & others follow him. If price is above this level, he loses sales considerably & if he reduces it, sales may not increase because competitors immediately react & reduce their price also. Munnu Prasad. V / 2nd B.Co !B" Page #( of 2$

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Principle of Marketing PRO*/$T PROMOTION OR PROMOTIONA- &TRATEGIE&

H. Nagraj

It is the duty of the manufacturers to know about & accept their products & price for this purpose, they have to communicate with, persuade, & motivate them. +o achieve this, they use promotional strategies. .romotion is the means through which a company meets its prospective customers. Meanin( o" Promotion: .romotion is a part of an organi*ation marketing mi% that is used to inform & persuade the market regarding its products & services. Promotion Mi#: It is a combination of personal selling, advertising, sales promotion, publicity & public relations that helps an organi*ation to meet its marketing ob0ectives. $ommunication Process in Mar'etin(: 'ompanies to be successful must communicate effectively. $ffective communication is one which is received by the receiver in its original meaning as sent by the sender. In marketing, effective communication must be capable of making the consumers understand what the company is going to say. "ollowing are the steps in communication process3 !. Identi" in( the Tar(et Mar'et: It is concerned in finding out to whom the message is being prepared. "or each group of consumers or distributors a different message is re4uired. Identifying the target, market helps a company to ascertain tastes, preferences etc of the consumers. #. *etermine the communication O!4ective: After analy*ing target market & their characteristics, the ne%t step is to find out what is desired from the communication, to attract the target market. 2. *esi(nin( the Messa(e: >hile designing the message, the marketing manager must understand what to communicate & to whom to communicate. +he message must be prepared in such a way that it reaches the target market effectively. 5. &electin( $ommunication $hannels: A company can use two types of channels of communications, namely personal & non/personal. .ersonal channel refers to :on/personal channels are also called communicating directly with the target indirect channel & they include newspapers, market through salesmen +9, publicity, etc. <. Allocatin( o" Promotional )ud(et: (ere the amount is to be spent to promote the product is fi%ed. -ecision is also taken on the amount to be spent on various media. A. *ecidin( on the Promotion Mi#: (ere money is allocated to various tools of promotion. 7efore deciding, the marketing managers have to analy*e the nature & impact on the market of each kind of production. Factors A""ectin( the &election o" Promotion Mi#: !. T pe o" the mar'et: .romotion of industrial products re4uires a different strategy from the promotion of consumer products. $g3 .ersonal selling is the ma0or tool of promotion for industrial products, whereas advertising is a ma0or tool for consumer product. #. Product -i"e $ cle: A product re4uires different kinds of promotion in different stages of its life. In the introduction stage, advertising & publicity are used. In the growth state, all means of promotion are given due importance. In the maturity stage, personal selling Munnu Prasad. V / 2nd B.Co

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is used mostly & in the decline stage, it is the sales promotion which is the most influencing factor. 2. Push , Pull &trate( : .ush strategy refers to the manufacturer using the sales force to push the sales. (e promotes the product aggressively to the wholesalers. >holesalers promote to retailers & retailers aggressively promote to the consumers. +his is can be illustrated as follow3 Push &trate( Promotes To &anufacturers >holesalers ,etailers 'onsumers

In case of pull strategy, manufacturer using heavy advertisement, publicity etc. promotes directly to the consumers. 'onsumers ask the retailers for the products. "eeling the demand, retailers force the wholesalers to sell)supply the product & wholesalers come to the manufacturer finally. It can be illustrated as below3 Promotes to &anufacturers >holesalers ,etailers 'onsumers

+he main advantages of pull strategy is that the manufacturers need not depend upon the wholesalers & retailers to sell his product & also this method helps him to create brand loyalty. 5. )u er%s Attitude: $g3 If buyers are positive in action, promotion aims at reminding them about the availability of the product. Tools o" Promotion I. Advertisin(: +he word Advertise has been derived from the word Ad which means Turn & Verto meaning to0ards . (ence the term advertising means to turn the attention towards something. *e"inition: According to the Philip Kotler, Advertising consists of non/personal or one way form of communication conducted through paid media under clear sponsorship. O!4ectives o" Advertisin(: +he main ob0ective of advertising may be e%plained in the 7AI*A& formula, where A8Attract the attention9 I8$reate interest :read;9 *8*esire :li'e;9 A8Action :act;9 &8&atis"action+ In other words, a god advertisement must attract the consumers, create interest in them, make them to desire the product & finally they should buy the product. +he other ob0ectives are3 a. +o bring to the notice of consumers, the product, the features, uses etc. b. +o make an immediate sale. c. +o build demand in case of a new product. d. +o build the brand recognition e. +o increase market share f. +o build overall image of the company Munnu Prasad. V / 2nd B.Co !B" Page #* of 2$

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Principle of Marketing

H. Nagraj

Factors A""ectin( the Media &election: !. The o!4ective o" Advertisin(: $g3 If immediate action is re4uired radio, tv, newspapers, etc, may be used. #. The Geo(raphical Factors: +he geographical factors such as circulation of the media, re4uired coverage, etc. 2. Nature o" the messa(e: $g3 If the advertisement is 0ust to inform people about something, only signboards can be used. 5. $ost o" the Media: $g3 :ewspapers are the cheapest medium, whereas +9 is costliest. <. +he financial resources available. A. +he nature of the product B. +he nature of the consumers C. .ower of the media to reach the target market. Kinds o" Advertisin( Media or Media or Advertisin(: <+ Press Pu!licit or the Print Media: a. Ne0spapers: :ewspapers are useful to advertise all types of product. +hey are more fle%ible & cheaper. In case of products, which are to be sold 4uickly or within a limited period, this is the most useful media. 7efore selecting a particular newspaper, the advertiser must take into account its circulation, readers, cost, etc. Advanta(es: i6 It reaches almost all places, hence the e%posure is ma%imum. ii6 As newspapers are published daily, continuous publicity is possible. iii6 +hey are more fle%ible, economical, & convenient. iv6 Advertising may be changed according to the re4uirements. *isadvanta(es: i6 +he life of advertisement is very short ii6 It becomes a waste if the readers do not go through the advertisement. iii6 It becomes a waste if there is no market for the product advertising in the place of circulation. b. Ma(a1ines: &aga*ines are read leisurely & they are more attractive. &aga*ines may be either general meant for general readers. $g3 India +oday or specific that is specially meant for a particular group, $g3 7usiness India, >omens $ra etc. Advanta(es i6 +he 4uality of advertisement is better because of the better design, print, color, & 4uality of the paper. ii6 +he advertisement reaches the target market. iii6 Almost all advertisements are read because their number will be limited, they are more attractive & readers have enough time to go through them. *isadvanta(es: i6 It is not fle%ible Munnu Prasad. V / 2nd B.Co !B" Page #$ of 2$

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ii6 It is comparatively costlier iii6 As it is published periodically, urgent messages cannot be advertised. II+ *irect Mail Advanta(es: +his method is more popular in case of mail order business. +he advertiser maintains a list of prospective customers & the advertisement is dispatched to them directly by post. Advertisement may be in the form of circulars, leaflets, broachers, catalogues, etc. Advanta(es: !. +he advertiser can reach any part of the country & convey his message directly to the customer #. It tries to build personal contact as the message is addressed to the customer himself. 2. +he message can be altered according to the re4uirements. 5. It reaches the target market. *isadvanta(es: !. It is very difficult to prepare the list of prospective customers #. In case of products, which need personal attention inspection before & after sales services, it cannot be used. III+ Outdoor Advertisin(: +his is the oldest form of advertising1 it is suitable to promote products that need a wide appeal. &essages are e%hibited at busy streets & places. +hey are primarily meant for the moving population. ;utdoor advertising helps the advertiser to remind the people of his product fre4uently. .osters, .aintings, $lectronic Signboards, Sky >riting, etc. are the various forms of outdoor advertising. Advanta(es: !. It attracts the attention of the people #. It is fle%ible & comparatively cheaper 2. It has mass appeal 5. It is useful to promote the brand name. *isadvanta(es: !. +he message is limited #. It is difficult to find out the impact of advertisement 2. It is not primary form of advertising 5. At the best, it supplements other methods. IV+ The )roadcast Media: a. Radio: In our country, radio as a means of advertising was first used in !H#B, at present it is one of most effective tools of advertising. In almost all countries, sponsored commercial programs are very popular3 Advantages3 i. Its coverage is wide ii. It reaches even the illiterate consumers.

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It is more fle%ible, in the sense that the advertiser can broadcast the messages at the language he wants it. +he changes of being heard are more because advertisements are broadcasted in between various popular programs. Advertisements are effective because they are recreational in nature. "or emergency announcement, this is the most suitable media.

*isadvanta(es: i. As it reaches general consumers, advertisement e%penditure may become unproductive. ii. Its life is e%tremely short iii. It is more e%pensive. b. Television: 7eing one of the important instruction in the field of marketing it has occupied position. &ost manufacturers prefer this medium because it has both audio & visual effect. It is suitable for consumer shopping & specialty goods & all types of industrial goods. Advanta(es: !. It is the only medium, which appeals to both eye & ears. #. 'reativity may be achieved 2. It is more life than any other medium. 5. It is more fle%ible, i.e., advertisement can be telecasted when programs relate to a particular group are telecasted. $g3 &anufactures of toys may telecast their advertisement when childrens programs are being telecasted. *isadvanta(es: !. 7ecause of too many advertisements, consumers may lose interest in them. #. +he life is e%tremely short 2. It is the costliest form of advertisement. c. $inema: It is one of the most popular media in our country. It attracts a wide audience. +he main advantage is that almost all advertisements are looked at & read by the people. 'inema advertisement may be in the form of slides, animation, documentaries, etc. +he main disadvantage is that its life is very short, in other words, when once the cinema begins people may forget all advertisements. d. ;nline Advertising or Interest Advertising3 ;ne of the features of $/marketing is online advertising. Its popularity is increasing of late as it reaches the target market directly1 scrolls, banners, etc are some of the forms of online advertising. e. Advertising on &obiles3 +he advent of mobile phones has changed the nature of advertising drastically. .eople advertise directly to mobile phone users through messages @S&S6. +his method of marketing is referred to as vital marketing. $%hibition, fairs, demonstration, window display etc are other forms of advertisements.

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$riticisms o" Advertisin(: !. It is considered as an unproductive e%penditure. #. It forces the people to purchase those products, which are not within reach. 2. It increase the cost of the product 5. It makes people to become slaves of a particular brand. <. &ost advertisements mislead the people A. &ost advertisements are unethical & immortal B. It is used as a tool to deceive people C. +hey make false claims & omit certain things intentionally. +he above points prove that advertisement is a mere waste. 7ut a deeper analysis proves otherwise, it facilitates production & consumption functions. As its results are intangible, it cannot be considered as a wasteful e%penditure. It stimulates competition & helps the people to get the better products at reasonable price.

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Principle of Marketing &A-E& PROMOTION

H. Nagraj

Introduction: Sales promotion is one of the most loosely used terms in marketing. According to some authors, sales promotion is a broader term which includes all activities such as advertising, personal selling, publicity etc to capture the market. Another school of thought feels that it is a combination of various activities intended to stimulate & to supplement personal selling & advertising. *e"inition: According to American Mar'etin( Association , Sales .romotion is A group of activities other than advertising, personal selling, & publicity that stimulates consumer purchasing & dealers effectiveness. $g3 -iscounts, Samples, $%hibition, etc. Importance , O!4ectives o" &ales Promotion: "ollowing are the reasons for the increased importance of sales promotion3 !. Shorter life cycle of a product #. (eavy competition 2. :ow producers have to capture the market as 4uickly as possible. 5. +o push the product during the off season or dull period. O!4ectives o" &ales Promotion: !. +o improve the marketing performances of the middlemen @.ush Strategy6 #. +o increase demand at the consumer level @.ush Strategy6 2. +o supplement advertising & salesmanship 5. +o make consumers to buy a new product or to encourage them to use more 4uantity of the e%isting product. <. +o attract new customers A. +o become the market leader B. +o encourage the use of other products of the same manufacturer C. +o create & maintain interest at the level of middleman. Methods o" &ales Promotion: !. &ales Promotion Aims At $onsumers: In this case promotion activities are carried on to include consumers to buy the product i.e, being promoted. "ollowing are some of the methods of promoting products at consumer level3 a. *iscount $oupons: Fsually this method is followed by the manufacturers of consumer shopping goods such as te%tiles, household articles, etc. 'onsumers will be allowed to avail discounts on their purchase when they surrender their coupons to the seller. b. Free &amples: &anufacturers may distribute samples of their product free of cost. +his method is most effective to promote consumers necessities & convenient goods. $g3 :ewspapers, &edicines, etc. c. $onsumers $ontest: A contest may be conducted to attract consumers from various parts. Some manufacturers restrict the contest only to those who purchase their product. d. Points to Purchase *ispla :POP;: Fnder this method products that are being offered to be sold are demonstrated near the important selling centers. $g3 9ehicles, +9, etc.

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e. Trade &ho0s , E#hi!ition: +hese are conducted to attract the attention of consumers to remind them of the product available in the market. ;ther methods include distribution of its gifts & complements, lucky draws for consumers, etc. #. &ales Promotion *irected at Middlemen: +hese are the programs intended to increase the interests of the middlemen to push the sales. Some of the promotional methods are3 a. Advertisement Allowance3 In this case, manufacturers compensate retailers for displaying their products. b. .remium cards given to increase sales during the off season. $g3 purchase < soaps & get ! free. c. >holesalers & agents distribute free samples to retailers in order to test the market reactions. d. Some manufacturers agree to receive back the goods if they are not sold within a specified period. e. +race associations may conduct trade fairs, e%hibitions, etc, for the distributors. +his helps them to understand the later development in the field of marketing & to have good contact with others in the same field. f. &any manufacturers hold a get/together function for their dealers. +his is popularly know as dealers convention. +his helps in the development of informal organisation among the dealers. g. Some manufacturers the follow the policy of dealers contest. +he dealer who achieves ma%imum sales is given pri*es. h. Some company offers higher allowances to the dealer when they achieve higher sales target. Personal &ellin( or &alesmanship: It is defined Art of winning the buyers confidence for sellers house & goods, thereby winning a regular & permanent customer. Importance o" Personal &ellin(: +he successful salesman creates a group of satisfied customers. (e is considered to be the mirror of the company. Importance of salesmanship can be summari*ed by the following functions performed by a salesman. !. +o introduce new products to the market #. +o maintain the present customers group & to discover new customers. 2. +o help the customers in deciding what to buy & what not to buy 5. +o give firsthand information about the market to the manufacturer. <. +o act as a link between the producers & consumers. =ualities o" a Good &alesman: It is very difficult to identify to identify all characteristics that make a good salesman. +aking into account who were successful in their 0ob, psychologist have underlined the following basic 4ualities of a good salesman3 !. .hysical ,e4uirements3 A good salesman must have a pleasing personality, (e must be able to influence others. Munnu Prasad. V / 2nd B.Co !B" Page 2& of 2$

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#. (unger for &oney & Status3 A contented salesman is always a liability to the coDmpany. (unger for money & status forces a salesman to sell more so that he earns more. 2. Self/confidence3 A successful salesman believes himself & has a high self/esteem. Self/ confidence helps him to meet people to different types & different situations 5. +endency to 'ompete with others3 'ompetition not only improves morale, but also motivates a salesperson to sell more. The other =ualities are: !. (e must be courageous, dependable, honest, courteous, cheerful & patient. #. (e should posses a pleasing personality. 2. (e should have complete information about the product that he sells. 5. (e should know the details of his company & its competitors. <. (e should have knowledge about the todays market, product he is selling. &uita!ilit : .ersonal selling is more suitable in the following cases3 !. >hen the market is limited #. >hen efficient middlemen are not available 2. >hen a new product has to be introduced 5. >hen a product re4uires demonstration. $g3 9acuum cleaner. <. >hen a product re4uires personal attention before & after sales services. A. >hen purchases are infre4uent but valuable. $g3 Industrial goods. &ales Mana(ement: In simple words sales management refers to the overall management of sales. It is defined as planning, directing & controlling of selling activities of the company. It includes recruiting, selecting, training, e4uipping, assigning, supervising, paying & motivating the sales forces of the company. Responsi!ilit o" &ales Mana(ement: !. Analysis the market thoroughly. #. +o study the consumers psychology 2. 'areful analysis of the competitors behaviour 5. +o make sure that the right product is offered & sold <. +o find out whether the company can e%pand the market or introduce a new product. A. +o establish sales target. B. +o frame sales policies C. +o co/ordinate selling activities. H. +o plan the advertising campaign to develop sales promotion strategies. !D. +o study market fluctuations !!. +o conduct efficient market reservation.

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$hannels o" *istri!ution :Ph sical *istri!ution;

Introduction: ;ne of the important problems of marketing is the distribution of goods & services to the right place, person & the right time. &anufacturers often find it difficult to decide about the effective distribution system. +he channel of distributions refers to the group of intermediaries, which perform the distribution functions. *e"inition: According to .hilip =otler, +he distribution is the set of all firms & individuals that assist in the transferring the little of goods & services as they move from producers to customers. It is also defined as +he root through which goods move from the place of production of the place of consumption. Functions o" the $hannels: !. 'hannels of distribution helps, the goods & services to move from the place of production to the place of consumption, hence they create place utility. #. Goods are brought by the channels when they are needed. (ence they create time utility. 2. A channel reduces comple%ity in the distribution system 5. Inclusion of channel reduces the financial burden of the producers <. +hey provide various services such as standardi*ation, grading, etc. A. +hey supply the market information to the producers B. +hey help producers in promoting their sales. T pes o" $hannels !. >ero6level channel :producer to consumer;: It is also called as direct marketing or direct selling. +his channel consists of the producer who directly sells his products to the ultimate consumers. +his is the shortest, simplest, & cheapest form of distribution. .roducers are benefited by increased profit, whereas consumers are benefited by reduced price. +his is possible because it eliminates the middleman completely. >ith the development of sophisticated & efficient retailing like supermarkets, chain/stores, automatic selling machine are financially sound follow this channel of distribution. "or products like 0ewelry & industrial goods like machinery, this is the best channel. #. One6-evel $hannel :Producers Retailers $onsumers or producers ?holesalers $onsumers;: +his is a short channel where the manufacturer may himself perform some of the wholesaler. +his is considered to be the best channel as it eliminates some of the marketing intermediaries & at the same time gets advantages of inclusion of retailers. In case of perishable goods, this is the best channel. >hen there is large scale promotion, inelastic demand & when manufactures are financially sound this channel is preferred. 2. T0o6-evel $hannel :Manu"actures ?holesalers Retailers $onsumers;: +his is the traditional channel. It is more useful in the case of buyers, sellers, & manufactures who operate in small scale. +he manufacturer sells his products in large 4uantities to a wholesaler who in turn sells in small 4uantities to retailers & finally

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retailers sell to ultimate consumers. .roducts which have low unit value & which are purchased fre4uently may be distributed through this channel. 5. Three -evel $hannel :Manu"actures ?holesalers A(ents Retailers $onsumers;: In this method manufactures appoint agent such as consignees to sell their products. It is preferable for e%porters or &:'s. Factors A""ectin( the &election o" $hannel Selection of a particular channel depends on various factors. +hey are3 <+ Mar'et Factors: a. Nature o" the mar'et: >hen manufacturer produce consumer goods, the channel will be lengthy because the market will be large & spread throughout the country. &oreover, demand may be inelastic. In case of industrial goods, he can sell directly because buyers are concentrated in few places. b. :umber of 'ompanies3 In case if buyers are limited in number, the manufacturer can directly sell to them. If consumers are scattered the manufacturers should go for larger channel. @+ Product Factor: a. /nit Value o" the Product: 8ower the value of the product longer will be the channel. $g3 &atchbo%es, salt, etc. b. Perisha!ilit : In case of perishable products, the shortest channel should be used because they should be sold as 4uickly as possible. $g3 "ruits, 9egetables, &ilk, etc. c. Nature o" Product: If the product is highly technical in nature, the manufacturer sells it to the buyers. $g3 'omputers, because such products re4uire before & after sales services, which wholesalers, & retailers cannot provide. In case of consumer goods, which are technical in nature he may appoint sales agent. $g3 &otor 9ehicle, +9, etc. A+ $ompan Factors: a. Finance: If the company is financially sound, it can sell its products directly to its consumers by maintaining its own warehouse, retail shops, etc. b. Mana(ement $apa!ilit : If the management is capable of handling the distribution function efficiently, it can prefer a shorter channel. Methods o" *istri!ution: !. Intensive *istri!ution: It is a method of selling whereby a manufacturer distributes his products through a large number of retailers & in, as many places as possible. In this case, retailers control the distribution system. Fsually, consumers necessities are sold through this system. #. &elective *istri!ution: In this case, manufacturer sells their products through few retailers. $ven though this method is suitable to sell all products, it is usually followed in case of industrial goods & consumer shopping & lu%ury goods. $%3 &otor vehicle. 2. E#clusive Method o" *istri!ution: In this case, the manufacturer sells his products only through a particular wholesaler or retailer. In other words, the manufacturer gives him the e%clusive rights to distribute the products such a distributor is usually prohibited in dealing to the competitors product.

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Principle of Marketing

H. Nagraj

T pes o" $hannel Mem!ers: A channel includes many middlemen. +he term middlemen mean those individuals or institutions, which assists a producer in the transfer of ownership of goods to consumers. "ollowing are some of the various kinds of middlemen3 !. A(ents: +hese are the middlemen assist the buyers & the sellers in buying & selling of the goods without taking the ownership. #. )ro'ers: +hese are the agents whose main function is to bring into contact between buyers & sellers. +heir powers are limited as they cannot fi% price, terms of sale, etc. 2. ?holesalers: +he wholesaler is a middleman who buys from the producer directly & sells it to the retailers on a small scale for the purpose of resale. *iscount Bouse: It is a kind of retail business dealing with consumer durables competing on the basis of price appeal with low margin & minimum consumer services. Elimination o" Middlemen or are middlemen necessar in the channels: +he channels of distribution are the means through which goods are passed on to consumers. In the process thy look on various marketing functions like financing, transportation, grading, standardi*ation, risk/bearing, etc. to perform these functions they have to incur losses. (ence, the services of middlemen will have to be paid either by the manufacturer or the consumer. &any manufacturers are trying to eliminate middlemen and have opted for direct selling because of improvement in retail techni4ues like automatic selling machines, telemarketing etc. It should be noted that even though &anufacturers can eliminate middlemen, they cant eliminate their functions. In other words functions performed by them must be taken over by the producers if the goods are to be maid available in the market. &anufacturers try to eliminate middlemen to perform the functions of middlemen at the lowest possible cost and to serve the consumer best. Ar(uments in Favor o" Middlemen: !. If there were no &iddlemen, it would have been difficult for the producers and consumers to meet personally to buy and sell. (ence inclusion of middlemen reduces the comple%ities of the distribution function. #. &any producers do not have the resources to sell their products directly to the consumers. 2. +hey perform some of the important marketing functions like standardi*ation, grading, transportation, warehousing, etc this makes producers concentrate on their production activities. 5. It is the &iddlemen who help in stabili*ing the prices <. It brings down the cost of production of some of the functions of the producers as they are taken over by the middlemen. A. As they purchase on large scale they also bring down the storage cost B. +hey provide important marketing information to the producers. C. +hey create place and time utilities. Ar(uments in A(ainst o" Middlemen: !. +hey are considered as parasites who for one reason or another prevent the direct contact between producers and consumers. +his mistakes producers ignorant of Munnu Prasad. V / 2nd B.Co !B" Page 2* of 2$

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Principle of Marketing

H. Nagraj

#. 2. 5. <. A.

consumers grievances which result in customer dissatisfaction which may bring down the sale. &iddlemen also manipulate the economy. +his misleads both the consumers and producers. &iddlemen are also referred to as cost escalators. In other words, they unnecessarily increase the price of the product. +hey often dictate the terms of marketing. In fact, the term K7lack &arket was the creation of middle men. +hey are also referred to as fair weather "riends. In other words, they only sell those products which gives them ma%imum profits. +hey go on changing their 8oyalties depending on the profitability. In practice they do not perform any marketing function. +hey simply transfer ownership without shouldering any responsibility. +o conclude, it can be said that many manufacturers regard middlemen as $vils. 7ut, all of them cant eliminate middlemen. (ence they are considered as necessary $vil.

Munnu Prasad. V / 2nd B.Co

!B"

Page 2$ of 2$