Unit 1
Marketing Management
Management process comprises of 5 M’s i.e. men, money, materials, machines and markets. Marketing is that the last component of this chain. The success of a business lies not only in production, but mainly in successful marketing.
Production of products and services has no meaning unless the products and services are exchanged profitably for money or money’s worth. This involves the movement of products from the manufacturers to the ultimate consumers. In bringing the producer and therefore the consumer together, certain activities and functions are performed which is the subject matter of marketing.
The meaning of marketing has changed with the passage of time. In the modern times of huge scale production and cut-throat competition, the concept of marketing has altogether changed. It’s occupied wide proportions.
Markets are not any longer local, but became national and international in character. The field of selling is being rapidly transformed into a way broader and significant field in recent years. In the past marketing was often stated simply as “selling”.
Marketing is no longer considered to be a similar thing as selling or advertising. It's viewed in a very broader context comprising several other elements besides ‘selling’ and ‘advertising’.
Old and New Approach of Marketing:
The word market has been derived from Latin word ‘Marcatus’ which refers to place of trade or a place where business is carried on. Marketing has two fold meaning i.e., in traditional sense and in modern sense. Traditionally, “marketing consists of these efforts which effect transfer in ownership of products for their physical distribution”. —Clark and Clark
In modern sense, marketing involves all efforts to make customers for the product and to maintain them permanently. Consistent with this concept the main aim of marketing is to give maximum satisfaction to consumers.
Consumer is that the focus in the modern concept of marketing. “If marketing is at all important, it's because it's directed towards the satisfaction of consumer and in this context; the buyer is the attraction for which marketing is carried out. —Geoffery, F. Francis
Parlin, the founder of modern marketing research, laid great emphasis on the buyer and once remarked “we may talk as long as we please about manufacturers, wholesalers and retailers, but in the last analysis, the consumer is king.
The decision of the buyer makes and unmakes the manufacturers, jobbers and retailers, whoever wins the arrogance of the buyer wins the day; and whoever loses it, is lost”. It are often said that modern concept of marketing clusters around the consumer.
The old approach of marketing ends when the products are produced for supplying in the market, whereas under the new approach marketing starts and ends with customers. Under the old approach, principle of “Caveat Emptor” i.e., let the buyer beware, operates.
But under the new approach, principle of “Caveat Vendor” i.e., let the seller beware, operates. The firm’s main objective then becomes to satisfy its customers through the constant study of their changing needs and wants.
Meaning of Market:
In common usage the world ‘market’ refers to a place where goods are purchased and sold, e.g., vegetable market’, cloth market’, ‘fruit market’ ‘grain market’ etc. In simple words, it refers to a place where actual buyers and sellers meet to effect purchases and sales. The term ‘market’ doesn't only mean a specific place where goods are bought and sold but the entire region in which buyers and sellers purchase and sell.
It should be clearly understood here that the word ‘market’ doesn't refer to any particular geographical meeting place of buyers and sellers but because the getting together of buyers and sellers in person, by mail, telephone or other means of communication.
‘Market’ isn't essentially concentrated at one particular point; it can scatter throughout the region.
In order to understand the term clearly, a few definitions are given below:
“It is a centre about which or are areas in which, the forces leading to exchanges of title to a particular product operate towards which and from which actual goods tend to travel.” —Professor Tousely, Clark and Clark
“Market means anybody of persons who are in intimate business relations and keep it up extensive transactions in any commodity.”
From the above definitions, it's clear that ‘market’ doesn't necessarily mean a place. It's the sum total of the situation or environment within which the resources, activities and attitudes of buyers and sellers affect the demand for products in a given area.
Meaning of Marketing:
In simple words, marketing is a process which carries goods from producer to ultimate consumer. Marketing bridges the gap between consumer and producer. It's in this sense that marketing has been defined as “all the activities involved in the creation of place, time and possession utilities’.
Marketing is thus concerned with handling and transportation of goods from the point of production to the purpose of consumption. In this process of carrying the products from the place of production to the place of consumption, many hindrances need to be removed. Marketing involves the creation of three sorts of utilities viz,
(A) Place Utility:
Goods are to be taken from the place of their origin or production to the place where they're needed.
(B) Time Utility:
Goods are to be made available at the time when they are needed by the consumers. It means that they're to be stored and guarded against the risks of fire, rain and pests etc.
(C) Possession Utility:
The ownership and possession of those goods are to be transferred from the producer to the last word consumer.
Features or Characteristics of Marketing:
On the analysis of the above definitions the subsequent features/ characteristics emerge:
1. Identification as well as assessment of markets and sales forecasting.
2. Formulation of marketing policy to cater to the market chosen.
3. Planning and operation of the marketing organisation to attain the required level of sales and to deal with the customers.
4. Organisation and conduct of sales promotion through salesmanship, advertising and other methods.
5. The costing and budgeting of the market effort.
6. Measurement and review of the results of marketing effort in order to see whether the firm is providing the required level of consumer satisfaction.
The importance of marketing are often summed up as follows:
(a) Creation of demand for goods and services,
(b) Betterment within the standard of living,
(c) Creation of social utility,
(d) Special benefit to developing countries,
(e) Maintenance of survival and mobility of business,
(f) Sense of security,
(g) Maintenance of balance between demand and supply,
(h) Means of living,
(i) Export promotion,
(j) Advertisement,
(k) Increase within the risk bearing capacity.
According to Borden, “The marketing mix refers to the appointment of efforts, the mixture, the designing and therefore the integration of the elements of marketing into a programme or mix which, on the basis of an appraisal of the market forces will best achieve an enterprise at a given time”. Consistent with Stanton, “Marketing mix is the term used to describe the combination of the four inputs which constitute the core of a company’s marketing system-the product, the worth structure, the promotional activities and the distribution system.”
Thus marketing mix is the combination of the product, the distribution system, the worth structure and the promotional activities. The term marketing mix is used to describe a combination of 4 elements-the product, price, physical distribution and promotion. These are popularly called “Four Ps.”
These four elements or sub-mixes should be taken as instruments, by the management, when formulating marketing plans. As such, marketing manager should have a radical knowledge about the four Ps. The marketing mix will need to be changed at the change of marketing conditions like economic, political, social etc. Marketing mix is developed to satisfy the anticipated needs of the identified markets.
A brief description of the four elements of marketing mix (Four Ps) is:
1. Product:
The product itself is the first element. Products must satisfy consumer needs. The management must first decide the products to be produced, by knowing the needs of the consumers. The product mix combines the physical product, product services, brand and packages. The marketing authority has to decide the quality, kind of goods or services which are offered for sale.
A firm may offer one product (manufacturer) or several products (seller). Not only the production of right goods but also their shape, design, style, brand, package etc., are of importance. The marketing authority has got to take a number of decisions on product additions, product deletions, product modifications, on the idea of marketing information.
2. Price:
The second element to affect the quantity of sales is the price. The marked or announced amount of money asked from a buyer is known as basic price-value placed on a product. Basic price alterations could also be made by the manufacturer in order to draw in the buyers. This may be in the sort of discount; allowances etc. aside from this, the terms of credit, liberal dealings also will boost sales.
3. Promotion:
The product may be made known to the consumers. Firms must undertake promotion work-advertising, publicity, personal selling etc., which are the major activities. And thus the general public could also be informed of the products and be persuaded by the customers. Promotion is the persuasive communication about the products, by the manufacturer to the general public.
4. Distribution (place):
Physical distribution is the delivery of products at the right time and at the right place. The distribution mix is that the combination of decisions concerning marketing channels, storage facility, inventory control, location, transportation warehousing etc.
Companies should view the four Ps in terms of the customer’s four Cs.
A firm’s marketing efforts should start and end with the customers. The marketing mix-Four Ps, are the important tools or instruments employed by the marketing manager in formulating marketing planning to suit the customer’s needs. A share in the market and the goodwill depends upon the marketing plans. Change is constant.
The customer’s need and desire may change often, due to the changes that happen in the market. The decisions on each element of 4 Ps are aimed to provide greater consumer satisfaction. The elements of 4 Ps are interrelated, complementary and mutually supporting ingredients.
Thus marketing mix is employed as a tool towards the customers so as to ascertain their needs, tastes, preferences etc. Marketing mix must face competition. It must satisfy the demands of the society. Then firms can attain the objectives-profit, market share, return on investment, sale-volume etc.
Concept of marketing Mix:
The concept of marketing mix, consistent with Borden consists of:
(i) A list of the important elements or ingredients that compose the marketing programmes, and
(ii) A list of the forces that bear on the marketing operation of a firm and to which the marketing manager must adjust in his look for a mix or programme which will be successful.
In brief, the four “ingredients” within the mix are interrelated. These also are referred to as marketing decision variables. Elements of marketing mix of manufacturers:
1. Product Planning comprises policies and procedures relating to:
(a) Product line to be offered-qualities and design and also services.
(b) Markets to sell: Whom, where, when and in what quantity.
(c) New product policy Research and development programmes.
2. Pricing, policies and procedures relating to:
(a) Price level to adopt.
(b) Specific prices to adopt.
(c) Price policy, for instance, one price or varying prices, price maintenance, use of asking price etc.
(d) Margins to adopt, for company, for the trade.
3. Branding, policies and procedures relating to:
(a) Selection of trade marks.
(b) Brand policy individualized or family brand.
(c) Sale under private label or unbranded.
4. Channels of distribution, policies and procedures relating to:
(a) Channels to use between plant and consumer.
(b) Degree of selectivity among wholesalers and retailers.
(c) Efforts to realize cooperation of the trade.
5. Personal selling, policies and procedures relating to:
(a) Manufacturer’s organisation.
(b) Wholesale segment of the trade.
(c) Retail segment of the trade.
6. Advertising, policies and procedures relating to:
(a) The quantity to spend
(b) Copy platform to adopt:
(i) Product image desired and
(ii) Corporate image desired.
(c) Mix of advertising: to the trade, through the trade, to customers.
7. Promotions, policies and procedures relating to:
(a) Special selling plans or devices directed at or through the trade.
(b) Sort of these devices for consumer promotions, for trade promotions.
8. Packing:
Packing policies and procedures regarding formulation of packages and labels
9. Display:
Display, policies and procedures relating to:
(a) Amount to be spent on display to assist effect sale.
(b) Methods to adopt to secure display.
10. Servicing:
Servicing, policies and procedures concerning services needed.
11. Physical handling:
Physical handling, policies and procedures relating to:
(a) Warehousing
(b) Transportation
(c) Inventories.
12. Fact finding and analysis:
Fact finding and analysis, policies and procedures relating to: Securing, analysis and use of facts in marketing operations.
1. Product:
Product decision involves deciding what goods or services should be offered to customers. The product or service serves the fundamental need of the customer. The product provides the primary value to the customer. The customer gets interested in the company primarily due to the product or service it's producing or proposes to provide. All other elements should be reinforcing the value proposition of the product.
An important element of product strategy is new product development. As technologies and tastes change, products become out-of-date and inferior to competition. So companies must replace them with new designs and features that customer’s value. The challenging task is to incorporate the newest available technologies and solutions to the newest needs of the customer in a company’s product.
It also has got to decide its branding strategy, and how the other three Ps will complement its product strategy, which essentially involves decisions regarding packaging, warranties and services.
2. Price:
Price is the cost that the customer is willing to bear for the product and the way it's made available to him. Price represents on a unit basis what the company receives for the product which is being marketed. All other elements of the marketing mix represent costs. Marketers have to be very careful about pricing objectives, methods to reach a price and the factors which influence setting of a price.
The company gives discounts and allowances to lure customers to buy its products, which means that a company’s realized price is less than its list price. Therefore, if a company is generous in giving discounts and allowances, it should keep its list price high. The list price should always have negotiation margin inbuilt. Payment periods and credit terms also affect the real price, and if a corporation has generous payment periods and credit terms, it should keep its list price high.
In comparison to other elements of the marketing mix, prices are often changed easily. But an ill-considered change in price can alter customer perceptions about the value of the marketing mix. In the absence of any objective knowledge about the quality of the merchandise , the customer builds a strong association between price and quality.
If the price of a product is reduced, customers may start regarding it as an inferior quality product. If a corporation raises price, customers may consider it a high quality product, but there's also the risk that customers may regard the worth as too high for the worth that they're getting from the merchandise . Price change, though easy to form , should be done taking into consideration the effect the change will have on the attractiveness or otherwise of the marketing mix.
3. Promotion:
Decisions need to be made with respect to promotional mix advertising, personal selling, sales promotions, exhibition sponsorship and PR . By these means, the target audience is made aware of the existence of the product and also the benefits that it confers to customers.
The type of promotional tool used has to gel with other elements of the marketing mix. An expensive product, like machinery, with a limited number of consumers should be promoted through personal contacts between buyers and salespersons.
Advertising in the mass media would be wasteful as the number of consumers is far too small, and it might be ineffective because the customer won't make a choice to buy such an expensive product based on a little information provided in an ad. He would require extensive information to be ready to make a choice. But an inexpensive product bought by the mass market is often advertised in the mass media.
Even the nitty-gritty of a selected promotional tool should enhance the marketing mix. The media used, the celebrity chosen to endorse the product, the training provided to the salesperson, etc., should reflect and reinforce other elements of the marketing mix.
Normally the corporate makes its first contact with customers through its promotional efforts. A customer doesn't buy a product unless he has formed certain expectations about the product. Promotion shapes the expectations of consumers about the product. Used rightly, promotion can raise customer expectations and drive sales. But if a product is hyped, though customer expectations are raised, he will be disappointed when he actually uses the product and doesn't find it up to his expectations. Such disappointments engender negative word-of-mouth publicity and should leave a permanent dent in the company’s reputation.
4. Place:
Place involves decisions concerning distribution channels to be used, the situation of outlets, methods of transportation and inventory levels to be held. The product should be available in the right quantity, at the proper time and place. A distribution channel contains independent intermediaries like retailers, wholesalers and distributors through which goods pass on their way to customers.
These intermediaries provide cost-effective access to the marketplace. It'll be extremely costly and cumbersome if the manufacturer had to set the whole infrastructure needed to manage the transfer of products to the purchasers . The manufacturer has got to manage and structure relationships with these intermediaries in such a way that interests of the manufacturer and intermediaries are served.
Distribution channels perform three distinct functions. They transfer products from the manufacturer to the customers, they pass information from the manufacturer to the customers, and that they retrieve payment from the customers to the manufacturer.
It is possible to segregate these three functions as alternate means of delivering products, passing information and collecting money are developed. In internet marketing, information is provided on the manufacturer’s website, the product is shipped from the manufacturer’s store to the customer through courier service, and payment is collected by banks through credit cards.
A company should have an open mind while designing its distribution strategy. The three functions need to be performed, but it's not essential that all the three functions are performed by one channel. Three separate channels can perform a function each, depending on each channel’s efficiency and effectiveness in carrying out the function.
Product is one of the important elements of marketing mix. A marketer can satisfy consumer needs and wants through product. A product consists of both good and service. Decisions on all other elements of marketing mix depend upon product. For instance , price is set for the product; promotional efforts are directed to sell the product; and the distribution network is ready for the product. Product is within the center of the marketing programme. Therefore, product contains a major role in determining overall success of marketing efforts.
A marketer tries to produce and sell such products that satisfy needs and desires of the target market. Other words used for product are good, commodity, service, article, or object. In marketing literature, a product has a comprehensive meaning.
Definitions of Product:
Term product has been variously defined by the experts.
1. Philip Kotler:
“Product is anything that can be offered to someone to satisfy a need or a want.”
2. William Stanton:
“Product is complex of tangible and intangible attributes, including packaging, colour, price, prestige, and services, that satisfy needs and needs of individuals .”
3. W. Alderson:
“Product may be a bundle of utilities, consisting of varied product features and accompanying services.”
4. We can also define the term as:
Product is a vehicle or medium that delivers service to customers.
5. Further it is often said:
Product is a bundle of benefits-physical and psychological- that the marketer wants to offer, or a bundle of expectations that buyers want to fulfil. Marketers can satisfy the needs and wants of target consumers by products. Product includes both good and repair . Normally, a product is taken as a tangible object, like a pen, tv, bread, book, vehicle, table, etc. But, tangible products may be a package of services or benefits.
Marketers should consider product benefits and services, rather than the product itself. Importance lies in the services rendered by the product, and not the tangible object itself. People aren't interested just possessing products, but the services rendered by the products.
For example, we don't buy a pen, but a writing service. Similarly, we don't buy a car, but transportation service. Just owning a product isn't enough. It must serve our needs and wants. Thus, a physical product is simply a vehicle or medium that provides services, benefits, and satisfaction to us.
Product levels
- Core Product:
Core products include basic contents, benefits, qualities, or utilities.
2. Product-related Features:
They include colour, branding, packing, labelling, and varieties.
3. Product-related Services:
They include after-sales services, installation, guarantee and warranty, free home delivery, free repairing, then forth. As per the definition, anything which can satisfy the needs and wants of consumers is a product. Thus, a product may be in the form of a physical object, person, idea, activity, or organisation which will provide any kind of services that satisfy some customer needs or wants.
Product Dimensions:
Different people view products differently. Similarly, their expectations are different. The different views or ways to ascertain or perceive the product are often said as product dimensions.
There are three dimensions, as stated below:
Managerial Dimension:
According to management, a product is viewed as the total product. It includes all those tangible and non-tangible aspects that management wants to supply . Managerial dimension of product covers mainly core products, product-related features, and product-related services.
Consumer Dimension:
To consumers, a product is a bundle of expectations. They view products as a source of expectations or satisfaction. Thus, for consumers, total benefits received from products are important. This view is extremely important for a marketer.
Social Dimension:
Society considers the product as a source of long-term welfare of individuals . Society expects high standards of living, safety, protection of environment, and peace in society.
Characteristics of Product:
Careful analysis of concept of product essentially reveals following features:
1. Product is one of the elements of marketing mix or programme.
2. Different people perceive it differently. Management, society, and consumers have different expectations.
3. Product includes both good and service.
4. Marketers can actualize its goals by producing, selling, improving, and modifying the merchandise.
5. Product could be a base for an entire marketing programme.
6. In marketing terminology, product means an entire product that can be sold to consumers. That means branding, labelling, colour, services, etc., constitute the product.
7. Product includes total offers, including main qualities, features, and services.
8. It includes tangible and non-tangible features or benefits.
9. It's a vehicle or medium to supply benefits and satisfaction to consumers.
10. Important lies in services rendered by the merchandise, and not ownership of the product. People buy services, and not the entity.
1. Core Product
This is the fundamental product and the focus is on the purpose that the product is intended. For instance, a warm coat will protect you from the cold and the rain. The more important benefits the product provides, the more that customers need the product. A key element is the uniqueness of the core product. This can benefit the product positioning within a market and affect the possible competition.
2. Generic Product
This represents all the qualities of the merchandise. For a warm coat this is about fit, material, rain repellent ability, high-quality fasteners, etc.
3. Expected Product
This is about all aspects the buyer expects to urge when they purchase a product. That coat should be really warm and protect from the weather and therefore the wind and be comfortable when riding a bicycle.
4. Augmented Product
The Augmented Product refers to all additional factors which sets the merchandise aside from that of the competition. And this particularly involves brand identity and image. Is that warm coat in style, its colour trendy and made by a well-known fashion brand? But also factors like service, warranty and good value for money play a significant role in this. The goal is to deliver something that's beyond an expected product. It’s the interpretation of the will that is converted into reality.
5. Potential Product
This is about augmentations and transformations that the merchandise may undergo in the future. For instance, a warm coat that's made from a cloth that's as thin as paper and thus light as a feather that allows rain to automatically slide down
There was a time in the not-too-distant past when a corporation could create a notable product and reap the benefits of that product for many, many years. Unfortunately, today’s market is way more competitive than it used to be, and firms now face the prospect of market saturation for single product designs, causing revenues and profits to falter or fall. Savvy companies now understand how product evolution or product diversification is needed to stay at the top of the game in their industry. To try to do that, you need a product development strategy. The question then becomes, what's a development strategy?
Product Development Strategy Definition
A product development strategy is a strategy based on developing new products or modifying existing products so they appear new, and offering those products to current or new markets. These strategies typically happen when there's little to no opportunity for new growth in a company’s current market. At that time , a corporation has three choices: create an updated product for a current product in a current market, enhance an existing product for a new market, or just move away from the product altogether, and cease growth. Best companies won’t choose the third choice so a method is therefore designed to either evolve a product for its existing market, or enhance it to introduce into a new market.
Updating a Product – Product Evolution
Depending on the product a corporation offers, there may be little opportunity to introduce that product into new markets. Thereupon limitation, a company must instead look at updating an existing product for its current market. This is often called product evolution. Product evolution is used by companies who have the vision to not only see a product idea, but how that product can evolve over time. It’s the concept of mapping out, often before the first product is even manufactured, what future iterations of a product could be as it improves and grows. For others, that vision may haven't been initially in situ , but a competitive marketplace has demanded it to happen so as to survive. Another term used for this is often “product modification”. Product modification strategies are generally aimed toward existing markets, although a side benefit could also be the capturing of latest users for the new product.
Creating a new Product for a new Market
This approach is really much more common than most people might imagine. This is often the idea of a company going outside its existing business model or approach and developing a new product for a new market. Unlike updating a product for an existing marketing, creating or enhancing a product for a new market requires steps almost like designing a brand new product. Steps to form a new product (or enhance an existing one) for a new market may include all or a number of the subsequent steps: product design, product analysis, design documentation, prototyping, and in fact product production. Though a more comprehensive undertaking than simply evolving a product for an existing market, adding new markets into a product development strategy can serve to stabilize a volatile product offering portfolio and open the doors for new opportunities. Also, depending on the new market, it may in turn create more opportunities for product evolution than an existing market may offer.
Each company is different in how they approach their product development strategy. A product development strategy provides the outline to position a company’s product development projects also as its process. It takes into consideration the company’s capabilities also as their competitors’. Regardless of which path a company chooses to require, a product development strategy is critical to the on-going growth and success of a corporation.
Product diversification is a strategy employed by a corporation to extend profitability and achieve higher sales volume from new products. Diversification can occur at the business level or at the company level.
Business-level product diversification – Expanding into a new segment of an industry that the corporate is already operating in
Corporate-level product diversification – Expanding into a new industry that's beyond the scope of the company’s current business unit
Diversification is one among the four main growth strategies illustrated by Igor Ansoff’s Product/Market Matrix:
Product Diversification
Diversification is a strategy for growth through branching out into a new market segment, allowing your business to expand its presence and occupy a completely new space. This is often achieved through expanding (or diversifying) your product or service offering to focus on new customers and grow profits.
1. Horizontal Diversification
To diversify your company horizontally means introducing brand new products or services to your current offering so as to expand market share, either in a very new market segment or your company’s existing market.
This can be done through: –
• Innovating or licensing new products,
• A merger or acquisition of another company
There are two sorts of horizontal diversification – concentric and conglomerate – which we’ll dive into afterward.
The new business venture formed through horizontal diversification is meant to appeal to the company’s existing customer base, while also attracting new customers to the brand.
Some well-known samples of horizontal diversification include:
• Disney acquiring Pixar
• Facebook acquiring Instagram
2. Vertical Diversification
Vertical diversification also mentioned as vertical integration, entails a growth strategy where the corporate expands its line through a forward or backward integration of products within its existing supply chain.
For instance,
• A company that manufactures and sells cars could diversify its business by selling tires.
• A painting company that gives painting services could begin selling paint. As seen in both of those examples, vertical integration converts the company’s inputs into outputs.
Both of the above examples illustrate backward integration.
An example of forward integration would be a toy manufacturer acquiring or opening a toy store. With forward integration, companies maximize the later stages of the supply chain than the company’s current business, while backward integration utilizes earlier stages.
Vertical diversification features a number of advantages , including:
• strengthening and enhancing your business’s supply chain,
• capturing upstream or downstream profits,
• cutting production costs,
• accessing new distribution channels and
• gaining more revenue.
Some high-profile samples of vertical diversification are:
• Ikea purchasing forests so as to provide its own raw materials
• Amazon integrating into hardware to produce its own Kindle Fire tablets
3. Concentric Diversification
Concentric diversification, a kind of horizontal diversification, involves introducing new products or services to your product/service line that are closely associated with your existing products or service.
Therefore, you're expanding your market share within the market your company already operates in.
Concentric diversification allows you to leverage your existing brand recognition, customer base, and loyalty, resources, and distribution channels. This sort of diversification aims at generating additional revenue from your existing customers, while also attracting new customers who may be interested in your other products but are more swayed by your newer products.
An example of concentric diversification would be if a smartphone company began selling smart watches (i.e., Apple, Samsung), or if a company began selling home décor.
4. Conglomerate Diversification
Also, a sort of horizontal diversification, a conglomerate diversification strategy, means to introduce brand new products or services that haven't any relation to your business’s current product offering, therefore entering a completely new market and appealing to customers which will have had zero interest in your business previously.
The benefits of conglomerate diversification are high ROI and high growth due to the addition of a completely new revenue stream during a totally separate market.
An example of conglomerate diversification would be a clothing company branching out into toys.
Assuming that a new product is being developed after studying needs and wants of target market, in normal situations, following steps – as shown in figure 1 – are to be followed (as described by Philip Kotler):
1. Idea Generation:
A new product is the results of new ideas. New ideas are the fundamental requirement for developing new products. Manager who wants to develop a new product must look for new ideas from various possible sources. Idea generation must be within specified limits.
Ideas must be generated in accordance with following factors:
i. Objectives of organisation
Ii. Product definition
Iii. Definition of market, or users
Iv. Efforts and money
v. Time available, etc.
Sources of latest Ideas:
Within the stated limits, a manager should identify possible and affordable sources for brand spanking new ideas.
Most widely used internal and external sources are listed below:
i. Top-level management
Ii. Employees within marketing department
Iii. Sales department or salesmen
Iv. Scientists
v. Channel members or middlemen
Vi. Competitors
Vii. Investors
Viii. Inventors
Ix. Advertising agencies
x. Market research firms
Xi. Government agencies and offices
Xii. Commercial and general libraries
Xiii. Private and government consultants
Xiv. Industrial publications
Xv. Mass media, including TV, Radio, Newspapers, Internet, magazines, etc.
2. Idea Screening:
The second step in the new product development process is idea screening. It's also said as scrutinizing ideas. Poor ideas are weeded out. This step is aimed toward reducing the number of ideas. The rationale is that product development costs rise substantially with each successive stage of development.
Therefore, it's advisable to consider some promising ideas, or to drop the poor ideas as early as possible. Also, all the ideas so generated aren't equally attractive. In fact, a corporation tries to materialize one or two out of highly feasible and profitable ideas. So, it's necessary to reduce the quantity of ideas so concentrate only on some promising ideas.
For idea screening purposes, appropriate criteria (often called standards) should be set, against which each of the ideas are often compared to seek out attractive and/or poor ideas.
Various relevant criteria are often established such as:
i. Objectives
Ii. Profitability
Iii. Gestation
Iv. Competitiveness
v. Resource ability of company
Vi. Location factors
Vii. Marketability
Viii. Government rules and restrictions
Ix. Social and ethical factors
x. Personal factors
Xi. Availability of inputs.
Each of the listed ideas is compared with these preliminary criteria. Those ideas that fail to suit the standards are removed from the list, put aside. As a result, only attractive ideas are often retained. While screening the ideas, there's a possibility of two sorts of errors, which must be avoided. First is, A DROP-error is one during which good/promising ideas, for any reason, are dropped. The second is, A GO-error that happens when a poor idea is permitted or selected for product development and commercialization.
3. Concept Development and Testing:
Now, a company has a limited number of most promising ideas. For every idea, a concept is developed and tested to find out the degree of success. All attractive ideas are refined into testable concepts. At this stage, we must understand the product idea, product concept, and products image.
Philip Kotler states that product ideas may be a possible product that the company may offer to the market; product concept is an elaborated version of the idea expressed in meaningful consumer terms; and product image is that particular picture that consumer acquires of an actual or potential product. The step involves three sub-steps-concept development, concept positioning, and concept testing.
Concept Development:
Each of the product ideas is to be converted into several product concepts. The idea is expressed in consumer terms. Consumer terms mean from the point of view of consumers.
Product concept could also be expressed as:
i. Users of the product
Ii. Possible uses of the product
Iii. Primary benefits offered by it
Iv. Occasions of product use
v. Price range, etc.
Concept Positioning:
Some companies go beyond mere concept development. They try to position the product concept against the competitors to seek out how strongly the product stands in reference to existing competitive products. It's called product concept positioning. On the premise of product positioning, product positioning map or brand positioning map are often prepared to see the present position of the proposed product.
Concept Testing:
As per Philip Kotler, concept testing involves testing product concepts with an appropriate group of target consumers, then getting those consumers’ reactions. At this stage of development, we only have a picture, symbol, sketch, or description of the product. However, a CAD or picture can make a powerful sense.
The use of virtual reality may help consumers to perceive the fact. In some cases, simple, less expensive, and image reflective plastic or clay based models of the proposed product are prepared to urge more reliable views and reactions of consumers. Target consumers are described by the merchandise or shown pictures to urge their opinion.
4. Marketing Strategy Formulation:
When market testing produces favourable results, marketing managers move to formulate marketing strategy for the proposed product. Remember that the corporate has, so far, not developed any product, but it's moving toward developing a new product. What strategy is going to be used if the product is to be launched? Some companies don't follow this step at this level of development, but after development of the product. The manager develops a preliminary marketing strategy statement for introducing a brand new product into the market. Marketing strategy is further refined in subsequent stages.
Marketing strategy statement includes three sub-steps, such as:
a. Target Market Determination
b. Designing Marketing Mix
c. Preparing long-term Plan
5. Business Analysis:
In this stage of a new product development process, the manager tries to calculate the business attractiveness of the proposal. Attempts are made to understand what extent a proposed product is economically viable. The proposed product is checked with regard to the overall business environment. It simply means measuring the flexibility of a product to satisfy a company's objectives (wants satisfying capacity and profitability aspects).
6. Product Development:
Only when business analysis shows positive results, the corporate will move further in developing a new product for the selected proposal. This step involves a heavy investment. Product development involves product design and testing.
Company’s research and development wing, marketing department, new product development officer, production department, outside experts, and rest start their work for development of a new product. High degree of coordination and integration among these people plays a decisive role for successful development of a new product. This is often the stage when a new product idea is also translated into technically and commercially feasible products.
A company won't directly jump into production , but it concentrates on preparing a prototype (model) of the new product. Successful development of a prototype takes long or short time depending upon the sort of product.
7. Market Testing:
If the prototype satisfies all expectations, a company proceeds further in the new product development process. It's worth noted that several companies don't prefer market testing. They directly jump into the commercialization. But, it's advisable, even sometimes, indispensable to live consumers’ and dealers’ reactions in handling, using, and repurchasing products. Product is dressed-up (wrapped with packing), and branding procedure is completed for testing it in additional authentic consumer markets.
Market testing is defined as:
An attempt to undertake the whole marketing programme for the first time in a limited number of well-selected markets, test cities or different areas this helps in testing viability of a full marketing programme for regional and national markets. A product is launched during a limited scale under normal market conditions to test consumers’ reactions. Thus, market testing essentially determines the effectiveness of all the key aspects of a marketing programme.
8. Commercialization:
This is the stage of large-scale production and full-fledged marketing. This step is followed as long as test marketing produces promising/desirable results. Now, the company makes necessary arrangements for mass scale production and full-fledged marketing.
Commercialization involves two sub-steps:
Production:
Company prepares an idea for large-scale production. It makes necessary provisions for raw materials, capital, labour, and other inputs. Minor and major problems associated with production are mastered at the earliest possible. Packaging, branding, labeling, trademark, and similar activities are done. When full-fledged production starts, finished products are stored in warehouses for sale. In short, products are able to be marketed or distributed to the consumers.
Marketing:
Marketing of products is a vital part of commercialization. Products are now launched within the market. The corporation undergoes plenty of procedures for systematic marketing of the product. The contracts are made with middlemen, terms and conditions are decided, and a system for smooth distribution is developed. Similarly, promotion and pricing strategies are formulated for introducing a replacement product in desired segments of the market.
Product Modification refers to the improvement of the present products by making necessary changes in the characteristics, nature, size, packing and colour, etc., of the products in order that the changes in demand of consumers could also be dealt effectively. The aim of the product modification is to keep up existing demand, attract new users and to face the competitors effectively. It helps in increasing the sales of the enterprise which results in increase within the profits of the enterprise. The term “Product Modification” has been defined by the subsequent eminent authors.
• Philip Kotler: “A product modification is any deliberate alteration for the physical attributes of a product or its packing”.
• Stanton: “Even a slightly changed product either in colour, design or in quality could be a completely new product”.
The following diagram clearly depicts the concept of product modification:
Strategies of Product Modification
Some important strategies of product modification are as follows:
Quality improvement strategy
In this strategy, the product quality is often improved by modifying the engineering process or by introducing changes in the material from which it's constructed. The aim of this strategy is to face the competition of the market successfully.
Style improvement strategy
In this strategy, the looks of the product are modified . Though, the quality of a product remains the same. Here, the packing of the product could also be changed or the dimensions , form, colour etc., of the product could also be changed. This strategy is widely employed by the fashion industry.
Functional features improvement strategy
All changes which make the product work better or satisfy additional needs are referred to as functional changes. Here, the design of the product is modified in a manner that new design could also be more attractive to consumers and that they feel it convenient to use.
Packaging improvement strategy
It is a technique in which the packaging of the product is modified . These improvements may be necessary because of the development of latest techniques of packaging or because of the defect of present packaging of the product; or because of the suggestions for changes made by consumers.
Product Line:
Product line is a group of product items which will satisfy the same needs and wants, they have more or less similar features. For instance , Bajaj Auto Ltd., in its two wheeler line , makes Discover, Boxer, Boss, Pulsar, Cub scooter, Bajaj Sunny, etc.
Philip Kotler:
“Product line is a group of products that are closely related because they function in a similar way, are sold to same customer groups, are marketed through the same type of outlets, or fall within a given price range.” Thus, the line is that of a group of similar products. The similarity is also seen in one or more ways. Product line consists of product items belonging to the same class.
The definition suggests following five ways the things are closely related:
i. They function in a similar manner.
Ii. They provide similar benefits, or meet similar expectations.
Iii. They're sold to similar customer groups.
Iv. They're marketed by similar outlets.
v. They fall within the same price range.
Characteristics of Product Line:
Main characteristics of product line are often listed as:
1. Product line consists of closely related product items. Difference is merely found in terms of colour, size, shape, model, performance, weight, and capacity.
2. It is a mixture of varied similar items.
3. Product items are complementary to 1 another. For instance , tube, tyre, and related materials.
4. There's a difference in price. For instance , Hero Honda charges different prices for various models.
5. The aim of offering similar items in each of the product lines is also to attract customers by offering more varieties, and to make a good image or reputation.
6. Different items of a line are often manufactured using the same technology and/or inputs.
7. Product items in each of the merchandise lines are distributed in the same channel . That is, similar outlets market them.
8. Product items in each line function in the same manner. They have the same technical skills to use them.
Product Line Extensions
A product line extension is the use of an established product’s brand name for a new item within the same product category. Line extensions occur when a corporation introduces additional items in the same product category under the same brand name, like new flavors, forms, colors, added ingredients, or package sizes. The corporate can extend its line down-market, up-market, or in both directions.
Down-Market Stretch: a corporation positioned in the middle market might want to introduce a lower-priced line for any of three reasons: (a) the corporate may notice strong growth opportunities as mass retailers like Wal-Mart attract a growing number of value-seeking shoppers; (b) the corporate might need to tie up lower-end competitors who might otherwise attempt to move up-market; or (c) the corporate may find that the middle market is stagnating or declining.
Up-Market Stretch: companies might need to enter the high end of the marketplace for more growth, higher margins, or just to position themselves as full-line manufacturers. Many markets have spawned surprising upscale segments: Starbucks in coffee, Haagen-Dazs in ice cream, and Evian in drinking water. Leading Japanese auto companies have each introduced an upscale automobile: Toyota’s Lexus, Nissan’s Infiniti, and Honda’s Acura.
Product Line Breadth
The breadth of the product mix consists of all the product lines that the company has to offer to its customers.
Product Line Breadth
The breadth of the product mix consists of all the product lines that the company has got to offer to its customers. If we take P&G, for instance , the breadth of the main product lines would consist of hair products, oral care, soaps and detergents, baby care, and private care.
Product Line Breadth and therefore the Product Mix
The product mix of a corporation is usually defined as the complete set of all products a business offers to a market. The product mix (sometimes called “product assortment”) is formed of both product lines and individual products.
A product line is a group of products within the merchandise mix that are closely related, either because they function in a very similar manner, are sold to a similar customer group, are marketed through the same sorts of outlets or fall within given price ranges.
An individual product is a particular product within a line . It's a distinct unit within the merchandise line that's distinguishable by size, price, appearance, or another attribute. For instance , all the courses a university offers constitute its product mix, courses within the marketing department constitute a line , and therefore the principles of marketing course is a product item.
Now, there are four dimensions related to a company’s product mix and therefore the product line breadth is one among them. The opposite three are the length, the depth, and therefore the consistency.
Going back in our P&G example we saw five different product lines: hair products, oral care, soaps and detergents, baby care, and private care. This means that the product mix breadth is five.
Product Line Depth
Companies employ different strategies to expand their line depth, which refers to the quantity of products in a specific line .
• Product line depth: line depth refers to the quantity of products in a company’s specific product line.
A line can contain one product or hundreds. The quantity of products in a line refers to its line depth, while the quantity of separate lines owned by a corporation is the product line width (or breadth).
Reasons to line
1. Market Demand:
To absorb changes in demand of the products, marketer changes its product mix. Demand changes due to an outsized number of factors, like technology, demographic variables, competitions, development of latest products, change in fashion, custom, attributes, and lots of other such reasons. So as to satisfy changing needs and wants of existing customers, the corporate opts for various changes in its product mix. Companies that fail to reflect market demand in product mix might not survive in the long run.
2. Competition:
It is a powerful cause resulting in product mix modification. Company formulates product mix to reply to competitors strongly. Minor or major changes in product mix are made to prevent, remove, or to fight with competitors. Company changes its product mix to supply more competitive advantages and prove the prevalence of products over competitors through product differentiation.
3. Attraction of new Customers:
When a company wants to extend the number of consumers , it's to cater the requirements and wants of new customers. Existing product mix might not be capable to satisfy the expectations of new segments. It's to add new product lines or new varieties in its existing product lines to attract new customers.
4. Utilizing Excess Production Capacity:
Sometimes, companies prefer to change product mix to utilize excess production capacity. By adding new products or varieties, a corporation can utilize its plant resources capacities. Optimum utilization of production capacity improves profitability.
5. Expansion of Market in New Territory:
When a company plans to expand geographically, it's to modify its present product mix. In several geographical areas, consumer needs and wants are different. Therefore, companies have to improve existing products or add more varieties to match products with new territories.
6. Reducing Financial Risk:
Reducing level of financial risk is additionally one of the strong reasons resulting in change in product mix. Looking at the future market trend, a company changes its product mix to take advantage of emerging opportunities or to face challenges, or both. To reduce financial risks, a corporation may prefer eliminating less profitable product lines or items within existing lines; may add low-price products to survive in recession; or may reduce product varieties to scale back capital investment and costs.
7. Improving Image and Goodwill:
Companies can establish image and reputation in the market through changing product mix over time. By introducing high-price prestigious products, adding new varieties, latest modes, etc., companies can create a good image within the market. Similarly, it can serve lower income groups by offering low-price prestigious products.
8. Effective Marketing:
In some cases, a company prefers to vary the product mix to utilize the sales department, warehouses, transportation facilities, distribution network, etc. But, it changes as long because the changes have a favourable effect on its marketing performance. Such changes may be in terms of expansion, contraction, or improvements of product mix
Like human beings, products even have a limited life-cycle and they pass through several stages in their life-cycle. A typical product moves through five stages, namely—introduction, growth, maturity, decline and abandonment. These stages in the lifetime of a product are collectively called product life-cycles.
The length of the cycle and the duration of every stage may vary from product-to-product, depending on the rate of market acceptance, rate of technical change, nature of the product and simple entry. Every stage creates unique problems and opportunities and, therefore, requires a special marketing strategy.
A brief description of every stage and therefore the marketing strategy required for it's given ahead:
Stages of PLC:
1. Introduction Stage:
In the first stage, the product is introduced within the market and its acceptance is obtained. Because the product isn't known to all or any consumers and that they take time to shift from the existing products, sales volume and profit margins are low. Competition is extremely low, distribution is limited and price is comparatively high.
Heavy expenditure is incurred on advertising and sales promotion to achieve quick acceptance and create primary demand. Rate of growth of sales is extremely slow and costs are high because of limited production and technological problems. Often a product incurs loss during this stage because of high start-up costs and low sales turnover.
The following strategies may be adopted to introduce a product successfully:
(а) ‘Money back’ guarantee is also offered to encourage the people to undertake the product.
(b) Attractive gift as an ‘introductory offer’ could also be offered to customers,
(c) Attractive discount to dealers.
(d) Some unique features built into the product.
2. Growth Stage:
As the product gains acceptance, demand and sales grow rapidly. Competition increases and costs fall. Economies of scale occur as production and distribution are widened. Attempts are formed to improve the market share by deeper penetration into the prevailing market or entry into new markets. The promotional expenditure remains high due to increasing competition and due to the necessity for effective distribution. Profits are high on account of large scale production and rapid sales turnover.
During the growth stage, following strategies could also be adopted:
(a) New versions of the product are also introduced to satisfy the requirements of different sorts of customers.
(b) Brand image of the product is made through advertising and publicity.
(c) The price of the merchandise is kept competitive.
(d) Customer service is enhanced.
(e) Distribution channels are strengthened to make the merchandise easily available wherever required.
3. Maturity Stage:
During this stage prices and profits fall because of high competitive pressures. The rate of growth becomes stable and weak firms are forced to leave the industry. Heavy expenditure is incurred on promotion to form brand loyalty. Firms attempt to modify and improve the product, to develop new uses to the product and to attract new customers in order to increase sales.
In order to prolong the maturity stage, a firm may adopt the subsequent strategies:
(a) The merchandise is differentiated from the rival products.
(b) Brand image of the product is also emphasised.
(c) Lifetime or longer period maturity is offered.
(d) New markets could also be developed.
(e) New uses of the merchandise are developed.
(f) Reusable packaging is introduced.
4. Decline Stage:
Market peaks and levels off during saturation. Few new customers buy the merchandise and repeat orders disappear. Prices decline further because of stiff competition and firms fight for retaining market share or replacement sales. Sales and profits inevitably fall unless substantial improvements within the products or reduction in costs are made.
The product is gradually displaced by some new products because of changes in buying behaviour of customers. Promotion expenditure is drastically reduced. The decline could also be rapid and the product may soon disappear from the market. However, decline is also slow when new uses of the merchandise are created.
In order to avoid sharp decline in sales, a firm may adopt the subsequent strategies:
(a) New features could also be added in the product.
(b) The packaging could also be made more attractive.
(c) Economy packs or models could also be introduced to revive demand.
(d) Selective distribution could also be adopted to reduce costs.
5. Abandonment Stage:
Ultimately, the firm abandons the product so as to make better use of its resources. As preferences of consumers change, new and more innovative products replace the abandoned product. When the decline is rapid, the merchandise is abandoned. New products with unique features could also be introduced. Some firms cannot bear the loss and sell out.
The concept of product life-cycle has several implications. By forecasting the life-cycle of a product, a firm can obtain following advantages:
Firstly, the concept indicates that products have a limited life and management must develop new products or improve existing ones to replace them to keep up sales and profits. Secondly, the merchandise life-cycle concept shows the expected sales volume and profit margins for a new product at various stages in its life.
It can, therefore, be used as a tool of business forecasting. Thirdly, the concept is a framework for taking sound marketing decisions at each stage of the product life cycle. Fourthly, the product life-cycle points out the necessity for significant and periodic adjustments within the marketing strategy or marketing-mix of the firm.
Emphasis on different elements of the marketing-mix varies from one stage to another. In the initial stage, product design and promotion are important consideration.In the middle phase, skilled distribution and effective dealer control become significant. In the end, operating expense control becomes vital.
Timely recognition of the necessity to change marketing strategy is important to maintain growth. In the introductory stage, informative advertising is used to build up initial demand for the merchandise while during maturity, persuasive advertising is required to improve the competitive status of the merchandise .
Product life-cycle analysis may be a disciplined and periodic review that provides a profile of a product’s position. Product life-cycle concept doesn't perfectly explain the behaviour of all products and it's going to be difficult to predict the timings of various stages. As an example, salt and sugar haven't been in the decline stage.
However, by providing a life-history of a product, the life-cycle concept is useful in designing appropriate marketing strategies. The life of a product is often prolonged or changed by developing new uses, reducing prices, using aggressive promotion, changing package, brand or label and by improving the product.
For instance, Dupont, a corporation of USA has sustained the sale of nylon by:
(1) Promoting more frequent use among current users, i.e., necessity of wearing nylon stockings;
(2) Developing more varied use of the merchandise , i.e., fashion value of tinted hose;
(3) Creating new users, i.e., early teenagers; and
(4) Finding new uses for the essential material, e.g., nylon tyres.
Meaning:
Branding has been around for hundreds of years as a means to differentiate the goods of 1 producer from those of another. A brand is a specific term which will include a name, sign, symbol, design or a combination of those , with an intention to identify goods or services of a specific seller.
In fact, the word ‘brand’ comes from the Old Norse word brander, which implies ‘to bum’. Branding helps to develop customer loyalty and it's advertised by sellers under their own name. a good brand develops a corporate image. Usually customers prefer brands as they will easily differentiate the quality.
Thus, branding facilitates product differentiation. Managing a brand is a major task in marketing. The battle within the market takes place not between companies but between brands, and each firm tries best to develop its brand image.
Definition:
According to Kotler and Amstrong, ‘a brand is a name, term, sign, symbol or design or a mixture of those that identifies the maker or seller of a product, or services’.
Significance of Branding:
Branding provides benefits to buyers and sellers.
To Buyer:
1. A brand helps buyers in identifying the merchandise that they like/dislike.
2. It identifies the marketer.
3. It helps reduce the time needed for purchase.
4. It helps buyers evaluate the quality of products, especially if they're unable to judge a product’s characteristics.
5. It helps reduce buyers’ perceived risk of purchase.
6. The customer may derive a psychological reward from owning the brand (e.g., Rolex watches or Mercedes).
To Seller:
1. A brand differentiates product offering from competitors.
2. It helps segment the market by creating tailored images.
3. It identifies the companies’ products making repeat purchases easier for purchasers.
4. It reduces price comparisons.
5. It helps the firm introduce a new product that carries the name of 1 or more of its existing products.
6. It promotes easier cooperation with intermediaries with well-known brands
7. It facilitates promotional efforts.
8. It helps in fostering brand loyalty, thus helping to stabilize market share.
9. Firms may be able to charge a premium for the brand.
Factors influencing branding
1. Customers
2. Corporate name branding
3. Competition
4. Company resources
5. Market area
6. Market size
7. Nature of product
8. Popularity of existing brand
9. Reputation of company
10. Preference of promoters
Pricing
Pricing is defined as the process of determining an appropriate price for the product, or it's an act of setting price for the merchandise. Pricing involves a number of choices related to setting the price of a product. Pricing policies are aimed toward achieving various objectives. Company has several objectives to be achieved by sound pricing policies and methods. Pricing decisions are supported by the objectives to be achieved. Objectives are associated with sales volume, profitability, market shares, or competition. Objectives of pricing are often classified in five groups as shown in figure 1.
1. Profits-related Objectives:
Profit has remained a dominant objective of business activities.
Company’s pricing policies and strategies are aimed toward following profits-related objectives:
i. Maximum Current Profit:
One of the objectives of pricing is to maximise current profits. This objective is aimed toward making as much money as possible. Company tries to set its price in a way that more current profits will be earned. However, the company cannot set its price beyond the limit. But, it concentrates on maximum profits.
Ii. Target Return on Investment:
Most companies want to earn a reasonable rate of return on investment.
Target return may be:
(1) fixed percentage of sales,
(2) Return on investment, or
(3) A fixed rupee amount.
Company sets its pricing policies and methods in a way that sales revenue ultimately yields average return on total investment. For instance , a company decides to earn 20% return on a total investment of three crore rupees. It must set the price of the product in a very way that it can earn 60 lakh rupees.
2. Sales-related Objectives:
The main sales-related objectives of pricing may include:
i. Sales Growth:
Company’s objective is to extend sales volume. It sets its price in such a way that more and more sales can be achieved. It's assumed that sales growth has a direct positive impact on the profits. So, pricing decisions are taken in a way that sales volumes are often raised. Setting price, altering in price, and modifying pricing policies are targeted to boost sales.
Ii. Target Market Share:
A company aims its pricing policies at achieving or maintaining the target market share. Pricing decisions are taken in such a manner that permits the corporate to achieve targeted market share. Market share may be a specific volume of sales determined in light of total sales in an industry. For instance , a company may attempt to achieve 25% market shares in the relevant industry.
Iii. Increase in Market Share:
Sometimes, price and pricing are taken as the tool to extend its market share. When a company assumes that its market share is below than expected, it can raise it by appropriate pricing; pricing is aimed toward improving market share.
3. Competition-related Objectives:
Competition could be a powerful factor affecting marketing performance. Every company tries to react to the competitors by appropriate business strategies.
With regard to price, following competition-related objectives may be priorized:
i. To Face Competition:
Pricing is primarily concerned with facing competition. Today’s market is characterized by the severe competition. Company sets and modifies its pricing policies so as to respond to the competitors strongly. Many companies use price as a strong means to react to level and intensity of competition.
Ii. To keep Competitors Away:
To prevent the entry of competitors is one of the major objectives of pricing. The phase ‘prevention is better than cure’ is equally applicable here. To attain the target , a corporation keeps its price as low as possible to reduce profit attractiveness of products. In some cases, a corporation reacts offensively to prevent entry of competitors by selling products even at a loss.
Iii. To attain Quality Leadership by Pricing:
Pricing is also aimed toward achieving the quality leadership. The quality leadership is the image in mind of buyers that high price is related to high quality product. So as to make a positive image that a company's product is standard or superior than offered by the close competitors; the corporate designs its pricing policies accordingly.
Iv. To remove Competitors from the Market:
The pricing policies and practices are directed to remove the competitors away from the market. This will be done by forgoing the present profits – by keeping price as low as possible – in order to maximise the future profits by charging a high price after removing competitors from the market. Price competition can remove weak competitors.
4. Customer-related Objectives:
Customers are at the centre of each marketing decision.
Company wants to attain following objectives by the acceptable pricing policies and practices:
i. To Win Confidence of Customers:
Customers are the target to serve. Company sets and practices its pricing policies to win the confidence of the target market. Companies, by appropriate pricing policies, can establish, maintain or even strengthen the confidence of consumers that the price charged for the product is a reasonable one. Customers feel that they're not being cheated.
Ii. To Satisfy Customers:
To satisfy customers is the prime objective of the whole range of marketing efforts. And, pricing is not any exception. Company sets, adjusts, and readjusts its pricing to satisfy its target customers. In short, a corporation should design pricing in such a way that results in maximum consumer satisfaction.
5. Other Objectives:
Over and above the objectives discussed thus far , there are certain objectives that the company wants to attain by pricing.
They are as under:
i. Market Penetration:
This objective concerns entering the deep into the market to attract the maximum number of consumers. This objective involves charging the lowest possible price to win price-sensitive buyers.
Ii. Promoting a new Product:
To promote a new product successfully, the corporation sets a low price for its products in the initial stage to encourage trial and repeat buying. The sound pricing can help the corporate introduce a new product successfully.
Iii. Maintaining Image and Reputation within the Market:
Company’s effective pricing policies have a positive impact on its image and reputation within the market. Company, by charging reasonable prices, stabilizing price, or keeping fixed price can create an honest image and reputation within the mind of the target customers.
Iv. To Skim the Cream from the Market:
This objective concerns skimming maximum profit in the initial stage of the product life cycle. Because a product is new, offering new and superior advantages, the corporation can charge a relatively high price. Some segments will buy products even at a premium price.
v. Price Stability:
Company with a stable price is ranked high within the market. Company formulates pricing policies and methods to eliminate seasonal and cyclical fluctuations. Stability in price has a good impression on the buyers. Frequent changes in pricing affect the prestige of a company.
Vi. Survival and Growth:
Finally, pricing is aimed toward survival and growth of a company's business activities and operations. It's a fundamental pricing objective. Pricing policies are set in a way that the company's existence isn't threatened.
Factors Affecting Pricing Product
The pricing decisions for a product are affected by internal and external factors.
A. Internal Factors:
1. Cost:
While fixing the prices of a product, the firm should consider the cost involved in producing the product. This cost includes both the variable and glued costs. Thus, while fixing the costs, the firm must be ready to recover both the variable and fixed costs.
2. The predetermined objectives:
While fixing the prices of the merchandise, the marketer should con-sider the objectives of the firm. As an example, if the objective of a firm is to increase return on investment, then it's going to charge a higher price, and if the target is to capture a large market share, then it's going to charge a lower price.
3. Image of the firm:
The price of the product can also be determined on the premise of the image of the firm in the market. As an example , HUL and Procter & Gamble can demand a higher price for their brands, as they enjoy goodwill in the market.
4. Product life cycle:
The stage at which the product is in its product life cycle also affects its price. As an example , during the introductory stage the firm may charge lower cost to attract the customers, and during the growth stage, a firm may increase the price.
5. Credit period offered:
The pricing of the product is additionally affected by the credit period offered by the corporate . Longer the credit period, higher may be the price, and shorter the credit period, lower may be the price of the merchandise.
6. Promotional activity:
The promotional activity undertaken by the firm also determines the price. If the firm incurs heavy advertising and sales promotion costs, then the pricing of the merchandise shall be kept high in order to recover the cost.
B. External Factors:
1. Competition:
While fixing the price of the product, the firm must study the degree of competi¬tion within the market. If there's high competition, the prices could also be kept low to effectively face the competition, and if competition is low, the prices are also kept high.
2. Consumers:
The marketer should consider various consumer factors while fixing the costs . The customer factors that must be considered include the price sensitivity of the buyer, purchasing power, and so on.
3. Government control:
Government rules and regulation must be considered while fixing the prices. In certain products, the government may announce administered prices, and thus the mar¬keter has got to consider such regulation while fixing the prices.
4. Economic conditions:
The marketer might also need to consider the economic condition prevailing within the market while fixing the prices. At the time of recession, the buyer may have less money to spend; therefore the marketer may reduce the prices so as to influence the buying decision of the consumers.
5. Channel intermediaries:
The marketer must consider a variety of channel intermediaries and their expectations. The longer the chain of intermediaries, the higher would be the prices of the products .
Pricing Strategies for Products
The major pricing strategies for products
1. Cost plus Pricing
2. Below Cost Pricing
3. Competition-Oriented Pricing
4. Follow the Leader Pricing
5. Penetration Pricing
6. Skimming the Cream Pricing
7. Discriminating Pricing
8. Loss-Leader Pricing
1. Cost plus pricing:
It is the most common method of pricing followed by manufacturers, wholesalers and retailers.
Under it, management works out the cost of products manufactured or purchased for resale and adds a percentage of profits to it – to determine the selling price.
This method is considered desirable in that there's no point in manufacturing and selling a product; if it doesn't cover its cost and doesn't yield a reasonable profit.
2. Below the Cost Pricing:
It is sometimes desirable to sell the products at a price but the cost. This method is employed to sell perishable goods to save the firm from excessive losses because of deterioration in quality with the passage of time. This method is additionally used to sell goods which can become obsolete because of changes in fashion. The philosophy behind this method of pricing is that sale at any price is better than no sale in any respect.
3. Competition-Oriented Pricing:
Competition-oriented pricing strategy is followed by manufacturers when:
1. The market is very competitive, and
2. The product of 1 manufacturer isn't significantly differentiated from those of others.
As such, under competition-oriented pricing strategy, the same price is fixed by all competitive producers. For instance , Coca-Cola and Pepsi, manufacturers fight one another everywhere in India or abroad, charging a similar price for their product.
4. Follow the Leader Pricing:
Under this policy, one firm i.e. the price leader with dominant market share sets the price; and other firms within the industry follow that price. Followers match price cuts or price rises, as initiated by the leader. Some firms, however, may match price cuts but not price rises initiated by the leader; when recessionary conditions prevail within the market.
Or some firms may match price rise but not price-cuts initiated by the leader; when boom conditions prevail within the market.
5. Penetration Pricing:
This is a typical pricing strategy followed by many manufacturers for introducing a new product by them. As per this strategy, a manufacturer sets a low price for his product; so on to penetrate into a new marketplace for popularizing his product; and capture a large market share over a period of your time , by establishing goodwill as a ‘low-price seller’.
Penetration pricing strategy is suitable when:
1. There's high competition in the market, and
2. Demand is very elastic and really sensitive to price changes.
Under penetration pricing strategy, the manufacturer may increase the price subsequently; once brand popularity is established by the manufacturer, within the market.
6. Skimming the Cream Pricing:
This pricing strategy is opposite to penetration pricing under this strategy, a manufacturer sets a very high initial price for his product; as so to form maximum profits.
This pricing strategy is suitable under conditions of rapidly advancing competition; so by the time competitors gain ground, the actual manufacturer in question can withdraw from the market or reduce price suitably-having already made much profits.
This pricing strategy is useful just in case of specialty products; i.e. luxurious items in which case rich consumers might not mind paying high prices because of their ego, status, or prestige.
High initial prices are often projected as a symbol of quality; and may be used as a technique of market segmentation, with the target of selling to ‘classes’.
This pricing policy helps to recover high promotional expenses incurred during the introductory stage of the product; and also to finance the cost of product planning and development of luxurious products.
However, this policy may induce strong competition on the part of rivals who could be tempted by excessive profits of the manufacturer, in question.
7. Discriminating Pricing:
According to Mrs. Joan Robinson, “The act of selling a similar article produced under a single control, at different prices to different buyers, is called as price-discrimination”.
Price-discrimination is common in case of professional services e.g. Those of doctor’s or lawyer’s; who may charge different fee from different customers, on the premise of their ability to pay.
Price discrimination is feasible when customers are separated from each other, on the premise of their (market) location. For instance , such kind of price discrimination is found in case of seating in cinema halls, in airline services etc.
Price discriminating may occur, on the premise of the utilization to which the product is put by different customers. For instance , electricity boards charge different prices per unit when electricity is employed for domestic or commercial purposes.
8. Loss-Leader Pricing:
This pricing strategy is favourite among retailers. They sharply cut prices on one or few popular items (even below its cost) to attract customers. The things on which prices are cut are called loss leaders.
Having been attracted in this way; they'll charge very high prices for a few of their other products; which consumers may pay for thinking that the price is simply reasonable.
In fact under this pricing strategy, loss suffered in case of ‘loss-leader-product’; is compensated through higher prices charged for other products.
9. Keep out Pricing:
It is a pre-emotive pricing policy involving fixation of low prices to discourage or prevent the entry of new firms into the industry. This policy is often adopted only by big firms who have large resources at their command.
However, it's a very risky policy and may cause severe losses to the firms. Moreover, it may not be possible for the firm to boost prices subsequently; once people get accustomed to buying at lower rates.
10. Psychological Pricing:
Under psychological pricing strategy, price is so fixed that it appears to be somewhat lesser; and influences the mind of the customer to buy the product. For instance , a price fixed at Rs. 299 rather than straightway Rs. 300 is an instance of psychological pricing strategy.
11. Differential Pricing for Product-Life-Cycle Stages:
Under this pricing strategy, the manufacturer has different price policies in view of the product- life cycle stage a product is passing though. For instance , a manufacturer may fix a low price when the merchandise is at the introduction stage; may slightly raise the price during the growth stage; may stabilize the price at the saturation stage and should finally reduce the price when the merchandise is passing through the declining stage.
12. Resale Price Maintenance (RPM) Strategy:
RPM is a strategy, under which the manufacturer of a branded product, in open competition, establishes the price at which distributors will sell the merchandise to consumers. For RPM strategy, it's necessary that the product must be branded
RPM strategy offers the subsequent advantages:
1. It builds the image of the manufacturer.
2. It provides protection to buyers against discriminating prices which can be charged by different dealers.
Types of Pricing Strategies – Market-Skimming Pricing and Market-Penetration Pricing
Pricing strategies usually change because the product passes through its life cycle. The introductory stage for new products is very challenging.
Firms that launch an innovative patent-protected product can choose from two options, viz.:
1. Market skimming pricing and
2. Market-penetration pricing.
- Market-Skimming Pricing:
Many firms that invent new products initially set high prices to ‘skim’ revenues layer by layer from the market. At the introduction phase in the marketplace, the firm may charge the highest possible price mostly supporting the advantages of its new product over competing products. The firm sets a price that made it just worthwhile for some segments of the market to adopt the new product.
After the initial skimming when the firm feels the sales is slowing down, the firm may lower the price to draw in the next price sensitive layer of the customers. During this way, a firm skims a maximum amount of revenue from the varied segments of the market. It's important to note that skimming works well only under certain conditions. The standard and image must support its higher price and enough buyers must want the merchandise at that price.
Also the cost of producing a small volume can't be so high that they offset the advantage of charging more. Within the meantime the firm should also try to make sure that competitors shouldn't easily enter the market and undercut the price.
A skimming strategy offers several benefits to the marketers, as listed below:
a. It allows a manufacturer to quickly recover its research and development costs.
b. It also allows a firm to maximise revenue from a new product before competitors enter the sector.
c. A skimming strategy offers a useful tool for segmenting a product’s overall market on a price basis.
d. It permits marketers to control demand within the introductory stages of a product’s life cycle and then adjust productive capacity to match demand.
The chief disadvantage of skimming strategy is; it attracts competition. Potential competitors see innovative firms reaping big financial gains and choose to enter the market. This new supply forces the price even lower than its eventual level under a sequential skimming procedure.
However, if patent protection or other proprietary ability allows a firm to exclude competitors from its market, it's going to continue skimming strategy for a relatively longer period.
2. Market-Penetration Pricing:
Rather than setting a high initial price to skim off small but profitable market segments, some firms set a low initial price so as to penetrate the market quickly and deeply – to attract a large number of buyers quickly and win a large market share. A penetration pricing strategy can also extend over several stages of the product life cycle as the firm seeks to maintain a reputation as a low-price competitor.
Since many firms begin penetration pricing with the intention of increasing prices within the future, success depends on generating many consumer trial purchases.
Penetration pricing works well under the subsequent conditions:
a. If good or service experiences highly elastic demand
b. The market is very price sensitive and a low price stimulates market growth
c. Production and distribution costs fall with accumulated production experience
d. a low price helps discourage actual and potential competition.
Physical distribution is a vital marketing function describing the marketing activities regarding the flow of raw materials from the suppliers to the factory and the movement of finished goods from the end of production line to the ultimate consumer or user.
Marketing agencies like dealers, merchants and mercantile agents manage the flow of products and perform the function of physical supply—right up to the consumer’s homes and stores.
Physical distribution function is responsible for completing the marketing transaction once the function of exchange is completed, i.e., buyer and seller come to terms and enter into a contract of sale. It should be noted that before the sale are often completed, the merchandise must be available at the place the customer wants it, at the time he wants it, and in the quantity he wants. Generally, the function of physical supply attempts to accomplish the delivery of products at the right place, at the right time and in the right quantity.
According to Philip Kotler, physical distribution “involves planning, implementing and controlling the physical flows of materials and final goods from place of production to the place of end use to satisfy buyers’ needs.”
Physical distribution is all about moving and storing the products and eventually making them available to the consumers. Distribution is the process of making the products/services available to the buyer. It involves movement of the products/services from the manufacturers to the end user.
Physical distribution requires a distribution infrastructure that has transportation, warehousing, material handling, inventory control, processing, customer services, which facilitate the movement of products. Physical distribution includes both the marketing channels and these facilitators.
Physical distribution is alleged to deliver products in the right quantity, time and at right place. The scholars have defined the physical distribution as associated with material handling, transportation, store, keeping, packaging, inventory management etc.
Physical Distribution – Definition
Some important definitions of physical distribution are as under:
According to Wendell M. Smith – “Physical distribution is the science of Business Logistics where the right amount of the right kind of product is made available at the place where demand for it exists. Viewed in this light, physical distribution is an essential link between manufacturing and demand creation.”
According to W.J. Stanton – “Physical distribution involves the management of the physical flow of products and therefore the establishment and operation of flow systems.”
According to Cundiff and Still – “Physical distribution involves the actual movement and storage of products after they're produced and before they're consumed”.
According to Mc Carthy – “Physical distribution is the actual handling and moving of products within individual firms and along channel systems.”
It is concluded from the definitions that:
(i) Physical distribution is the science of logistics.
(ii) Physical distribution is the main mid-look between manufacturing and creation of demand.
(iii) Physical distribution is a management of flow of commodity and flow arrangement simultaneous to the channel of the commodities of the company and inside the firm/company.
(iv) Physical distribution is said to be the receipt of proposed and made commodities, collection, and material handling storage, transportation, packaging and inventory management etc., functions.
Physical Distribution – Factors Affecting
Every producer has got to find how to distribute his products to their final users. To distribute, various channels are available in today’s economy. How does a producer select one or more channels of distribution to ensure smooth functioning and minimized cost?
This is understood by studying the factors that influence the selection of distribution channels, which are described below:
1. Product Factors/Considerations:
The first and most vital factor that influences the selection of the channel of distribution is that the nature of goods. Perishable goods like cakes and breads that are required to be sold quickly, are sold directly by the manufacturers to the consumers through stores. Goods that last longer are often handled by more intermediaries to insure a larger market.
i. Physical and Technical Nature:
Products which are of low unit value and have common use amongst consumers are generally sold through middle men; whereas, the sale of expensive and elite goods and industrial products is conducted directly by the producer himself.
Products that are perishable, i.e., products which are subjected to frequent changes in fashion or style or trend, also as those products which are heavy and bulky, go through relatively shorter routes and, are often distributed directly so as to reduce costs and damage.
Industrial products that require demonstration, installation and after sale-services are often sold on to the consumers; while, retailers generally sell consumer products which are of technical nature
Certain technical or complex products need installation and advice of product use including demonstration, service visits, etc. For this, having exclusive trained personnel is crucial. Some companies prefer exclusive dealerships in such cases.
In case of an entrepreneur who produces a large number of products, he may find it economical to line up his own retail outlets and sell his products on to the consumers. At an equivalent time, companies which have a narrow range of products may make their sale through wholesalers and retailers.
A new product needs greater promotional effort within the initial stages and, hence, few middlemen or intermediaries could also be required.
Ii. The Market Position:
Here, the focus is on the reputation of the manufacturer. A product promoted by an established and reputed manufacturer has a higher degree of market acceptance and, therefore, are often sold through various channels with little effort. a new product, thus, has quick sales based on the producer’s reputation. This may, however, have long-term risks.
2. Market Factors/Considerations:
i. The prevailing Market Structure and Size:
Producers may need to study the prevailing market structure. It is often geographically concentrated or wide spread. For instance , industrial markets are usually concentrated in a few large cities involving only large customers. Producers or channel commanders can have difficulty in changing that.
However, the consumer goods market features a different structure, as; it's directly related to the masses. Consumer preferences dictate channel selection. For instance , baby food manufacturers changed their channel of distribution to supermarkets, as; research revealed that mothers preferred supermarkets over drug stores.
Ii. Consumer Behaviour and Nature of the purchase Deliberation:
Purchase decisions are made differently for various products. Consumers spend more time and energy on durables like washing machines and mobile than on a pack of biscuits or toothpaste. The frequency of purchase influences purchase deliberations. Products, which are purchased frequently by consumers, have more buyer-seller contacts and middlemen are suggested.
Iii. Availability of the Channel:
Availability of a channel refers to the willingness of channel members to just accept a brand. For this, the channel commander or the producer has the task of winning over the cooperation of the channel members. The producer may adopt a push or pull strategy. In push strategy, the producer resorts to regular activities of convincing the prevailing channel members to just accept the product and pass it through various points to reach the retailer then the final consumer.
In the pull strategy, the producer resorts to aggressive promotional activities on the final consumer, relying on the very fact that strong consumer demand will force middlemen to accept the product so as to cater to the buyer's satisfaction.
Iv. Competitor’s Channels:
A new firm always studies the prevailing distribution pattern and this, necessarily, includes identifying the distribution channels employed by competitors. Every business has certain established norms and practices and this might, even, apply to channels of distribution. If the prevailing pattern has given success to the competitors, a new firm may adopt a similar channel as long because it is suitable and logical. As a matter of fact, finding new avenues may convince be costlier and cumbersome
3. Institutional Factors/Considerations:
The channel members also influence the selection of the channel to be selected.
They are briefly discussed as follows:
i. Financial Ability of Channel Members:
In the process of sending the products through the channels of distribution, it's found that manufacturers got to aid the retail dealers financially, either through interest free loans, or other credit terms. Credit terms being competitive the willingness to increase credit may be a determinant in channel acceptance. Retailers also sometimes finance their suppliers either directly or by investing within the company. Usually, government agencies are restricted from making advance payments.
Ii. The Promotional Strengths of Channel Members:
Every producer, i.e., the channel commander, wants his product to be promoted. For national brands, producers themselves take up the responsibility. However, for others, distributors promote jointly with the producer. In the case of certain private brands, the task is taken up by wholesalers or retailers who establish the name.
Iii. The Post-Sale Service Ability:
Many products carry a warranty and this is often used by the buyer post purchase. The responsibility of serving the warranty has got to be established. It can be the manufacturer himself or a channel member.
Since the retailer-distributor is the closest in-tuned with the buyer, the buyer may expect this service from them itself. In certain cases, the product could also be returned to the manufacturer for servicing or services could also be performed by an independent service outlet established for this purpose.
4. Unit or Firm Specific Factors/Considerations:
Every firm has its own strengths and weaknesses, which influence channel decisions.
Among them, important ones are discussed below:
i. The Company’s Financial Position:
Huge companies, which have the financial and human resource capability might not only produce the products but also may have the ability to line up their own retail outlets thereby creating plenty of visibility for themselves. On the opposite hand, smaller companies which don't have either the financial capability or manpower resources might just consider production and leave the marketing of products to others.
Ii. The Extent of Market Control Desired:
Market control refers to the power of a firm to influence the behavior of channel members consistent with the will of the management.
Here, the whole distribution network is served by factors like resale price maintenance, territorial restrictions, quotas and therefore the like. The channel commander, i.e., the producer or the manufacturer, may desire to exercise such command from time to time. The extent to which they need the control is that the question to be answered, as, higher the control, higher will be the channel directness.
Iii. The Company’s Reputation:
Popular companies, known for their products or services, have little or no problem in settling with a specific channel. This is often because reputed companies don't go in search of intermediaries. Instead, the intermediaries come in search of them.
Reputation is reflected through higher sales, timely and quick replenishment of stocks, low levels of inventory, easy settlement of claims; competitive margins granted etc. the chosen channel seems to be cheaper and dependable because of the willingness and cooperation extended by channel members.
Iv. The Company’s Marketing Policies:
A company’s marketing strategy lays down the strategy of distribution. Important factors like advertising, sales promotion, pricing, delivery and after sale services influence the channel selection the foremost.
For instance, a corporation that invests heavily in advertising and sales promotion makes the chosen channel direct, as little effort is required to push the merchandise through the chosen line. Alternatively, a corporation adopting a price penetration policy, [comes with a low margin], chooses a longer channel.
5. Environmental Factors/Considerations:
i. Economic and Legal Factors:
Due to the economic disparity prevalent within the economy, the govt. Promotes the public distribution system through fair price shops to reach out to the economically weak sector. This constitutes the general public distribution system, which primarily focuses on the distribution of necessities.
The private distribution system also needs a particular amount of regulation. Much legislation has been passed from time to time to manage the functioning of the varied channels of distribution. One such important legislation is the MRTP Act of 1969.
The provisions of this Act aim at preventing exclusive dealership, regulating territorial restrictions, reselling price maintenance, full line forcing, etc. the companies Act, 1956, forbids sole selling agency arrangements in industries like paper, cement, vanaspati, etc. Such provisions prevent cut throat competition; prevent creation of monopoly and therefore the like which are objectionable to public interests.
Ii. Fiscal Factors:
Sales tax rates vary from state to state because it is a state fiscal matter. Although such sales tax is a component of the retail price set for a product, it's actually borne by the final consumer; it's its role to play in channel arrangements.
For example, let us say, sales tax rate in Karnataka is higher in comparison to Kerala, a producer may, therefore, take advantage of this benefit, choose to open his office in Kerala and pass on the reduced tax benefit in the sort of reduced price. This will also become a competitive advantage to the merchandise.
Everything you need to understand about the types of distribution channels. A manufacturer may decide to sell his/her products either directly or indirectly to the purchasers.
In case of indirect distribution a manufacturer has again a choice to use a short channel consisting of few intermediaries or involve a large number of middlemen to sell his/her goods.
Therefore, there are various sorts of channel networks having different numbers and kinds of middleman.
Channels are often long or short, single or multiple (hybrid), and might achieve intensive, selective or exclusive distribution. The length of the channel could have any number of intermediaries or be direct to customers.
Some of the kinds of distribution channels are:-
A. Direct Channel –
1. Selling at Manufacturer’s Plant
2. Door-to-Door Sales
3. Sales by mail order Method
4. Sales by Opening Own Shops
B. Indirect Marketing Channel –
1. One-Level Channel
2. Two-Level Channel
3. Three-Level Channel
4. Four-Level Channel
C. Hybrid channel or Multi-Channel Distribution System.
Types of Distribution Channels – 3 Major Types: Direct, Indirect and Hybrid Distribution Channels
Types of Distribution Channels – Top 2 Types: Direct and Indirect Distribution Channels
The channels of distribution, which are sometimes mentioned as trade channels, could also be broadly classified into two categories:
1. Sale through direct channels; and
2. Sale through indirect channels.
Type 1 Direct Channel:
The producer can sell on to his customers without the assistance of middlemen, like wholesalers of retailers:
(i) By opening retails shop;
(ii) Through travelling salesmen;
(iii) Through mail order business.
These channels take the shortest route to the buyer . Certain goods, just like the industrial machinery, are directly sold to the consumers. Costly goods like computers and luxury automobiles are directly sold. Some manufacturers open their own retail shops in many localities and sell goods to consumers. The simplest example is that of the Bata Shoe Company Shops. The manufacturers also attempt to sell through their own order departments.
All these indicate that producers are now taking steps to approach the consumers directly. Though this is often possible for a few varieties of goods, the fact remains that the services of intermediaries, like wholesalers and retailers, are often essential in the distribution of products to consumers.
Type 2 Indirect Channels:
The indirect channels of distribution are:
(i) Producer-Consumer (industrial goods with high technical content)
(ii) Producer-Retailer-Consumer (via large department ‘ stores)
(iii) Producer—Wholesaler—Consumer (most industrial products)
(iv) Producer-Wholesaler-Retailer-Consumer (most consumer goods)
(v) Producer-Sole Agent -Wholesaler-Retailer-Consumer (usually for a prescribed geographical area).
The first channel, from the producer to the buyer , is preferable when buyers are few and therefore the goods are costly and mostly purchased by industrial users. In this category fail such goods as complex machinery involving technology , computers and luxury cars. In this case, buyers are often directly contacted and goods are often sold by direct personal approach.
The second channel, from the producer-retailer to the consumers, is preferable where the purchasers of products are big retailers like department stores, chain stores, super markets or consumer co-operative stores. In these cases, the wholesalers may be passed because the bulk of the products are purchased by these large retail distributors to be sold to the consumers.
Goods like electrical appliances, fans, radios, ready-made garments and a host of other articles fall in this category. This channel is additionally suitable when the products are of a perishable nature, and quick distribution is important . However, the manufacturer will need to undertake such functions as transportation, warehousing and financing.
The third channel, from the producer-wholesaler to the buyer , are often successfully utilized in distributing industrial goods. Under industrial goods are included goods which are used for further production and not for resale. This is often a shorter channel, and the producer eliminates the retailer in this channel link. During this case, the buyers are business houses, government agencies, consumer co-operative stores, etc.
The fourth channel, from the producer-wholesaler-retailer to the buyer , is the longest route in the distribution link but is extremely popular. It's used for the marketing of a range of consumer goods of daily use, particularly where the demand is elastic and a large number of similar products are available. This channel is preferable when the market for the products is extremely competitive.
This channel is additionally suitable when the producer operates under the subsequent conditions:
(a) The producer contains a limited line of products.
(b) The finance available to the producer is less.
(c) The wholesalers handle specialised goods.
(d) Products aren't subject to change because of changes in fashion.
(e) Wholesalers and retailers can provide good promotional support.
The last channel, from the producer-sole agent-wholesaler- retailer to the buyer , is employed by some producers. The whole production of products is delivered to the sole agent for further distribution. The sole agent, in turn, may distribute to wholesalers who, in their turn, distribute to retailers. The manufacturer may appoint one sole selling agent or he may appoint sole agents area-wise.
He wants to pass on the risk of marketing the products to the selling agents. He avoids the risk involved in selling and wants to focus on production. He cuts down on his marketing expenditure and therefore the expenditure incurred on maintaining a sales organisation and a sales force.
But, in doing so, he takes a big risk of relying only on the only selling agents, he places himself at the mercy of his selling agent. If the relations between the producer and the selling agent become strained, or if the selling agent fails to distribute the products , the producer will be put to a great loss. Within the marketing of agricultural goods, however, it's a standard practice to sell through selling agents.
A. Direct Channel:
1. Producer → Consumer…. (Zero Level/No Intermediary)
B. Indirect Channel:
1. Producer Retailer → Consumer…… (One Level/Intermediary)
2. Producer → Wholesaler → Retailer → Consumer (Two Level/Intermediaries)
3. Producer Agent → Wholesaler → Retailer → Consumer (Three Level/Intermediaries)
Diagrammatic Presentation:
1. Producer → Consumer……….. Zero Level
Example – Eureka Forbes
2. Producer → Retailer → Consumer ……. 1 Level
Example – Specialty products like Washing Machines, TVS, Refrigerators, or industrial products are sold
3. Producer → Wholesaler Distributor → Retailer → Consumer ………. 2 Level
Example – Goods like food items drugs etc., small manufacturers’ goods which are widely sold to consumers
4. Producer → Distributor → Wholesaler → Retailer → Consumer ……… 3 Level
Example – Items like cloth, grocery where producer wishes to totally expire the burden of distribution to intermediaries.
1. Producer → Consumer:
Here producer sells direct to final users with none intermediaries. Shortest channel.
Methods used are:
i. Opening sales counter at manufacturers plant, e.g., bakery items, frozen dessert etc.
Ii. Door to door sales e.g., Utensils, ladies garments, cosmetics, items of daily use Vim, Surf etc.
Iii. Sales by opening shops e.g., Raymonds, Bata etc.
Iv. Sales through mechanical devices e.g., Parag milk through ATM, etc.
Usefulness of Methods / When Suitable:
1. Marketing highly perishable goods like milk
2. Products which can be sold by post
3. New product requiring effective salesmanship
4. Industrial goods requiring effective servicing by expert that producer is that the best
5. Closeness with Consumer
2. Producer → Retailer → Consumer:
Here, goods are sold by manufacturers to retailers who sell to consumers. Also referred to as One – level Channel
Methods used:
i. Salesmen of manufacturers visit and collect orders from retailers
Ii. Orders by Post
Iii. Sales made at factory
Usefulness/ When suitable:
i. Perishable products, physically or fashion wise, so as to speed up their distribution.
Ii. Large Retailers want to deal directly (without wholesalers) with producers.
3. Producer → Wholesaler → Retailer → Consumer:
Two parties in between producer and final consumer Hence also called Two Level Channel/PWRC a standard , normal, regular and popular channel.
Suitability:
i. When there's a large number of consumers who purchase in small quantities.
Ii. When products need a balanced or equitable distribution.
Iii. Small manufacturers whose goods are to be sold to consumers widely scattered in several localities.
4. Producer → Agent / Distributor → Wholesaler → Retailer Consumer:
Here producer sells first to the Agent who sells to wholesaler successively selling to retailers. Agent or Distributor acts as facilitating party on commission basis and doesn't assume title to goods. Agents are employed by manufacturers to free themselves from marketing and pass on the burden of distribution to intermediary.
Promotion means to promote the products of the manufacturer. The word promotion has its origin within the Latin term promovere which implies moving from one end to another.
In marketing promotion is done to move the products from the manufacturer to the buyer.
Promotion is defined because the co-ordinated self-initiated efforts to establish a channel of information and persuasion to facilitate or foster the sale of products or services, or the acceptance of ideas.
Promotion means “media and non-media marketing pressures applied for a predetermined, limited period of time so as to stimulate trial, increase consumer demand, or improve product quality.” – The American Marketing Association
Promotion also covers the varied methods that an organisation uses to communicate with employees and other interest groups since effective marketing crucially relies on the establishment of a marketing orientation throughout the organisation as a whole.
Without understanding its importance, however, promotion is merely one element of the overall marketing mix, and its impact on demand will only be short term if the product isn't of the necessary quality, available in the appropriate outlets and acceptably priced.
The term ‘promotion’ refers to the range of methods utilized by an organisation so as to communicate with its customers, both actual and potential, and includes advertising, publicity, personal selling and sales promotion. The effective marketer recognises that each of the four elements of promotion-advertising, publicity and PR , personal selling, and sales promotion-has certain strengths.
They seek to integrate and unite the suitable elements to accomplish their promotional objectives. The mixture of elements a marketer chooses is the marketer’s promotional mix.
Promotion refers to the coordination of all seller initiated efforts to set up channels of information and persuasion to facilitate the sale of a product or service.
Promotion is a process of communication with the potential buyers involving information, persuasion and influence. It includes all kinds of personal or impersonal communication with the purchasers and middlemen. According to the American Marketing Association, promotion is “the personal or impersonal process of assisting and/or persuading a prospective customer to buy a commodity or service or to act favourably upon an idea that has commercial significance to the seller.”
Promotion is a vital element of the marketing mix of a business. It's the spark plug of the marketing mix. No business can sell its goods and services without informing the people about the availability of products and without creating in them the will to buy them. Customer demand is largely dormant. It must be awakened and stimulated through promotion.
The prospective customers need to be informed about the features, utility and availability of products. The aim of promotion is to inform, persuade and influence potential customers. The requirement for promotion has increased because of stiff competition, widening market, rapid changes in consumers’ tastes and technology and growing distance between producers and consumers.
Promotion – Meaning
Promotion – It refers to a process of informing, persuading and influencing a consumer to form a choice of the merchandise to be bought. Promotion is completed through means of private selling, advertising, publicity and advertisement.
Promotion is the process of marketing communication involving information, persuasion and influence. Promotion has three specific purposes. It communicates marketing information to consumers, users and resellers. It’s not enough to speak ideas. Promotion persuades and convinces the customer and enters into this consumer behaviour.
Promotional efforts act as powerful tools of competition providing the cutting edge of its entire marketing programme. Promotion has been defined as “the coordinated self-initiated efforts to establish channels of information and persuasion to facilitate or foster the sale of products or services, or the acceptance of ideas or point of view.” it's a sort of non-price competition.
Essentially promotion is persuasive communication to inform potential customers of the existence of products, to influence and convince them that those products have satisfying capabilities. Consumers really speaking buy a bundle of expectations (a package of utilities) to satisfy their economic, psychosocial wants and desires. The promotion offers the message, viz., the communication of those benefits to consumers.
Hence, promotion messages have two basic purposes- (1) persuasive communication, (2) tool of competition. Promotion is responsible for awakening and stimulating consumer demand for your product. It can create and stimulate demand, capture demand from rivals and maintain demand for you; products even against keen competition.
Of course, it's taken for granted that your product has the capacity to satisfy consumer expectations and may fill their wants and desires. It's a truism that nothing is often sold and zip can make money (except mint) without some means of promotion.
Marketers have adopted a communication view of their firms’ promotional activities. Receiver is now considered an active participant in the process of communication. All marketing communications must be planned as a part of a complete system, not as independent pieces.
The communication or promotion mix includes four ingredients, viz.:
1. Advertising,
2. Publicity,
3. Personal selling, and
4. All sorts of sales promotion.
All marketing communications or sorts of promotion attempt to influence consumer’s attitudes, beliefs, ways of living or life style, values and preferences towards a corporation and its products, and thereby influence his/her behaviour.
1. Advertising:
It is defined as any paid sort of non-personal presentation and promotion of ideas, goods and services by an identified sponsor. It's impersonal salesmanship for mass selling, a means of mass communication.
2. Publicity:
It is non-personal stimulation of demand for a product, service or a business unit by placing commercial significant news about it in a publication or obtaining favourable presentation of it upon radio, television, or stage that's not paid for by the sponsor.
3. Personal Selling:
It is the best means of oral and face-to-face communication and presentation with the prospect for the purpose of making sales. There is also one prospect or variety of prospects in the personal conversation.
4. Sales Promotion:
It covers those marketing activities other than advertising, publicity and private selling that stimulate consumer purchasing and dealer effectiveness. Such activities are displays, shows, exhibitions, demonstrations, and many other non-routine selling efforts at the purpose of purchase. Sales promotion tries to complement the opposite means of promotion.
All kinds of promotion play the role of communication channels between the marketer (the source and the sender of message) and the consumer (the receiver of the message). Promotion as a part cuff marketing mix has three broad objectives- (a) information, (b) persuasion, (c) reminding. The objective of promotion is, of course, influencing the customer behaviour and his predispositions (needs, attitudes, goals, beliefs, values and preferences).
Promotion offers the communication of the advantages to consumers who buy a bundle of expectations to satisfy their economics, psychosocial wants and desires.
Promotion has following three specific purposes:
1. It communicates marketing information to consumers, users and resellers.
2. It persuades and convinces the customer and influences his/her behaviour to require the desired action.
3. Promotional efforts act as powerful tools of competition providing the cutting edge of its entire marketing programme.
Promotion is persuasive communication and is also a tool of competition. It's a sort of non-price competition.
Promotion is responsible for awakening and stimulating consumer demand for a product or service. It can create and stimulate demands, capture demand from rivals and maintain demand even against stiff competition.
While speaking in favour of promotion, it's taken for granted that the merchandise has the capacity to satisfy consumer expectations and may fill their wants and desires.
The sales promotion is essentially aimed toward increasing sales. Sales are often increased mainly by attracting more customers. Promotion is successful as long as the middlemen co-operate with the manufacturer.
However, the promotion offers the subsequent advantages:
1. It attracts more customers to the product. The incentives like price off, premium etc., offered by the manufactures attracts people to the product
2. It encourages the middlemen to buy and store more- As a result of the incentives offered more people may go to the shops where the merchandise is available. If sufficient quantity isn't stocked customers may shift to other brands. Sometimes manufactures encourage middlemen through additional commission or allowances
3. It encourages the sales force by offering incentives to salesmen. This may influence salesmen to participate in the campaign wholeheartedly
4. It boosts sales in the short and long run
5. It reinforces the brand image with the customer
Promotion – Characteristics
1. Reminding Act – When the target market has already been persuaded of the product’s benefits, the marketing communication serves the purpose of reminding the buyer , so while assessing the options for consumption, the buyer considers the product. Rewinding acts of promotion helps to trigger the customer’s memory.
2. Persuading Act – it's done to induce desired favourable behaviour from the buyer . Persuasion normally becomes the main promotion goal when the merchandise enters the growth stage of life cycle. By this time the target market should have general product awareness and a few knowledge of how the product is fulfilling wants. Hence, the promotional nature switches from informing consumers about the product category to persuading them to get.
3. Interpersonal Element – Marketing communication is a central element of the way in which people relate to and cooperate with one another and attend the interpersonal event which is that the building block of society. Alongside sending and receiving information in order to cooperate individuals are constantly communicating their self-images to all around them.
4. Human Skill – Marketing communication serves as a person's skill as it is concerned with the state of mind of the communicator and with the state of mind of the person intended to receive the communication. Communications objectives are often specified as outcomes of attitude change.
5. Constant Activity – one among its important features is that it's a constant activity. It's a universal and essential feature of human expression and organisation.
6. Information Transaction – it's information transaction as it is said with sending and receiving knowledge, ideas, facts, figures, goals, emotions and values, a ceaseless activity of all human beings, and therefore also of all human organisations.
7. Differentiating Act – Marketing communication tries to keep out competing products from consumer decision-making by making promoted products more attractive and a closer match to their needs.
8. Informing Act – Providing data into the consumer’s mindful and appreciative thought processes to confirm that promoted product is considered as an attractive option in consumption. Marketing communication seeks to convert an existing need into want or to stimulate interest in a new product. A new product cannot establish itself against more mature products unless potential buyers don't have information about the product.
9. Marketing Tool – Communication can be viewed as neutral and compassionate, a sort of human interaction which helps society and the organisations within it to work well, and which may only benefit those who take part in it. It's a selective art, as important for what it doesn't convey as for what it does convey.
10. Customer Oriented – The producer is responsible to perform the promotional activities and obtain all the specified information about the present as well as prospective customers, so products may be offered to the market as per their needs and wants, through marketing communication, the company tries to influence and request the purchasers to purchase their goods or services.
Promotion – 3 Specific Objectives
There are three specific objectives of promotion:
(a) To communicate,
(b) To Convince, and
(c) To Compete.
It has been acknowledged that communication is the basis of all marketing efforts. In fact, it involves much additionally to the stimulation of sales. Moreover, most marketing communications are promotional.
It is not enough merely to communicate. Ideas must be convincing so that action (purchase) would follow. In other words, distribution of information should be capable of producing marketing results.
A good product, an efficient channel, and appropriate price aren't enough by themselves. Communication and convincing elements should supplement to offer contrasts to the efforts ‘of competitors. It may even be stated that the competitive characteristics of promotion defines its vital role in marketing strategy.
Communication is a necessary element in everyday and in every walk of life. People communicate for several reasons. A dynamic society can't be there without sufficient modes of communication. Members of the society seek amusement, ask help, give help, provide information, all through some kind of communication developed over centuries.
Promotion is the mode of communication adopted by the business community for achieving certain specific objectives. From the purpose of view of a seller such communications may become necessary to change consumer behaviour and thoughts and/or to strengthen existing behaviour of consumers.
Thus, the objectives of promotion are as under:
(i) To supply information to prospective customers about the supply , features and uses of products.
(ii) To stimulate demand by creating awareness and interest among customers,
(iii) To differentiate a product from competitive products by creating brand loyalty,
(iv) To stabilise sales by highlighting the utility of the merchandise.
Promotion has often been the target of criticism. Some opine that “promotion contributes nothing to society”, and for a few others “promotion forces consumers to buy products they can't afford and don't need”, and so on. It may be true that promotion can certainly be criticised on many of its aggressive and compelling factors. But it should also be recognised that it plays a vital role in modern society, particularly in business, economic and social spheres of influence.
Promotion – Strategy
Strategy lays down the broad principles by which a corporation hopes to secure an advantage over competitors, exhibit attractiveness to buyers, and result in full exploitation of company resources.
When marketers resort to promotion or persuasive communication in marketing, we've a sort of promotion square.
It has four sides of equal importance, viz.:
(a) The merchandise described in the marketing communication.
(b) The prospect to be converted into a customer through persuasion and influenced by promotion.
(c) The vendor or the sponsor who undertakes promotion, and
(d) The channel or the route along which the merchandise will move from the marketer to the customer.
The promotion strategy will rely upon these four sides.
The promotion strategy deals with the subsequent decisions:
(i) The blend of promotional activities (advertising, publicity, personal selling and sales promotion),
(ii) The amount allocated for the varied sorts of promotion particularly to the advertising media like press, radio, television, and so on,
(iii) The type of promotion to be used.
Each kind of promotion has strengths and weaknesses as a communication medium. Each mode of promotion depends on the character of the products, characteristics of the market, stage of market development and stage of the buyer’s decision-making. These unique strengths and weaknesses must be duly recognised while designing the promotion (communication) mix.
Then again we've also had interactions among the varied sorts of promotion. These interactions determine the overall promotion effectiveness. The interdependencies of all types of promotion demand an integrated approach to promotion or marketing communication strategy.
1. The Product:
The product is one among the factors determining the form of promotion. Toys are effectively shown on television. Press advertisements are unsuitable for children. Mass selling consumer goods are often easily promoted through radio and tv advertising. Industrial and speciality goods should be promoted through technical journals and through sales engineers.
2. The Buyer:
If the marketers are to provide realistic solutions to the problem of buyers, they must know their customers, their needs and desires, their attitudes, values, aspirations and expectations. Hence, marketers must have up-to-date information about consumer demand and consumer behaviour.
3. The Company:
The firm contains a unique public image in the market. The firm’s image must be closely related to promotional strategy so its goodwill will be exploited. Corporate advertisements usually emphasize more on the characters, reputation, reliability and responsibility of the marketing firm. Source credibility in promotion plays a really important role in making promotion believable to the receiver.
Effectiveness of communication depends upon the firm’s image within the market. When the perceived risk in buying a product is higher, the source credibility is a vital factor in purchase decisions. a reputable or trustworthy source produces much greater change in buyer’s predisposition than one that's not credible.
4. The Channel Choice:
The promotional strategy also depends on the channel or route through which products of the firm flow to consumers. There are pull and push strategies in promotion. Pull strategies depend on mass communication. Products are actually pulled by buyers through the channels on the premise of mass promotional efforts. In a pull strategy the merchandise is pulled through the channel by creating end-user demand.
Customers force retail shops to stock products from wholesalers. The firms have well-known brands which will exercise control over channels through pull promotion strategies. Personal salesmanship plays a secondary role in pull promotion. Marketer relies on intensive distribution. Dealer margins also lower in pull promotion.
A pull strategy is also called a suction strategy. Extensive and heavy use of advertising and sales promotion would be necessary to get consumer demand. There’s less emphasis on personal selling in the least stages of the marketing channel.
Small firms are unable to depend entirely on advertising and sales promotion, because large investment is involved because of emphasis on advertising and sales promotion. A push strategy is termed a pressure strategy. It places heavy emphasis on personal selling.
Industrial marketing strategies are mostly the push type strategies relying primarily on personal selling. In the sale of medical products and in life insurance, marketers have to use a large number of sales-people to call on physicians and prospects for life insurance. In push type promotion, personal selling expenses are considerable and dealer margin is additionally higher.
In push type promotion, after sale service is additionally important. In push type promotion, marketers believe selective distribution. Push strategy is successfully used when- (1) we've a high quality product with unique selling points, (2) we've a high priced product, and (3) we are able to offer adequate incentives (financial) to middlemen and their salesmen.
Most consumer goods manufacturers generally employ a push pull (combination) strategy to sell their products. The ratio of pull to push may differ consistent with the wants of the market situation. Salesmen are wont to push the products through the marketing channel, while advertising and sales promotion will support personal selling to accelerate sales. Thus, all tools of promotion work together.
Promotion Strategies:
Various promotion strategies are:
1. Contests:
Contests are a frequently used promotional strategy. Many contests don’t even require a purchase. The idea is to market your brand and put your logo and name in front of the general public rather than make money through a hard-sale campaign. People prefer to win prizes. Sponsoring contests can bring attention to your product without company overtness.
2. Social Media:
Social media websites like Facebook and Google+ offer companies the way to promote products and services in a more relaxed environment. This is often direct marketing at its best. Social networks connect with a world of potential customers which will view your company from a distinct perspective.
Rather than seeing your company as “trying to sell” something, the social network can see a corporation that's in touch with people on a more personal level. This will help lessen the divide between the corporate and the buyer, which successively presents a more appealing and familiar image of the corporate .
3. Mail order Marketing:
Customers who come into your business aren't to be overlooked. These customers have already decided to get your product. What is often helpful is getting personal information from these customers. Offer a free product or service in exchange for the information. These are customers who are already aware of your company and represent the target audience you want to market your new products to.
4. Product Giveaways:
Product giveaways and allowing potential customers to sample a product are methods used often by companies to introduce new food and household products. Many of those companies sponsor in store promotions, giving for free product samples to entice the buying public into trying new products.
5. Point-of-Sale Promotion and End-Cap Marketing:
Point-of-sale and end-cap marketing are ways of selling products and promoting items in stores. The thought behind this promotional strategy is convenience and impulse. The end cap, which sits at the end of aisles in grocery stores, features the products a store wants to market or move quickly.
This product is positioned so it's easily accessible to the customer. Point-of-sale could be a way to promote new products or products a store must move. These things are placed near the checkout in the store and are often purchased by consumers on impulse as they wait to be checked out.
6. Customer Referral Incentive Program:
The customer referral incentive program is a way to encourage current customers to refer new customers to the store. Free products, big discounts and cash rewards are some of the incentives it can use. This is often a promotional strategy that leverages the customer base as a sales force.
7. Causes and Charity:
Promoting the products while supporting a cause can be a good promotional strategy. Giving customers a way of being a part of something larger simply by using products they might use anyway creates a win-win situation. To urge the customers and the socially conscious image; customers get a product they will use and the sense of help for a cause. One way to do this is often to give a percentage of product profit to the cause the company has committed to helping.
8. Branded Promotional Gifts:
Giving away functional branded gifts is a more effective promotional move than handing out simple business cards. Put the business card on a magnet, ink pen or key chain. These are gifts it can give your customers that they'll use, which keeps the business in plain sight instead of in the trash or in a drawer with other business cards the customer might not look at.
9. Customer Appreciation Events:
An in-store customer appreciation event with free refreshments and door prizes will draw customers into the shop . Emphasis on the appreciation a part of the event, with no purchase of anything necessary, is an efficient way to draw not only current customers but also potential customers through the door.
Pizza, hot dogs and soda are inexpensive food items which will be wont to make the event more attractive. Fixing convenient product displays before the launch of the event will ensure the products you want to market are highly visible when the purchasers arrive.
10. After-Sale Customer Surveys:
Contacting customers by telephone or through the mail after a sale may be a promotional strategy that puts the importance of customer satisfaction first while leaving the door open for a promotional opportunity. Skilled salespeople make survey calls to customers to collect information which will later be used for marketing by asking questions concerning the way the purchasers feel about the products and services purchased. This serves the twin purpose of promoting your company together that cares what the customer thinks and one that's always striving to provide the best service and goods.
Push Strategy:
A push promotional strategy involves taking the product on to the customer via whatever means, ensuring the customer is aware of your brand at the point of purchase.
The term ‘push strategy’ describes the work a manufacturer of a product has to perform to get the merchandise to the customer. This might involve fixing distribution channels and persuading middlemen and retailers to stock your product. The push technique can work particularly well for lower value items like fast moving consumer goods (FMCGs), when customers are standing at the shelf able to drop an item into their baskets and are able to make their decision on the spot.
This term now broadly encompasses most direct promotional techniques like encouraging retailers to stock your product, designing point of sale materials or maybe selling face to face. New businesses often adopt a push strategy for their products so as to get exposure and a retail channel. Once your brand has been established, this will be integrated with a pull strategy.
Examples of Push Tactics:
a) trade show promotions to encourage retailer demand.
b) Direct selling to customers in showrooms or face to face.
c) Negotiation with retailers to stock your product.
d) Efficient supply chain allowing retailers an efficient supply.
e) Packaging design to encourage purchase.
f) Point of sale displays.
Pull Strategy:
A pull strategy involves motivating customers to hunt out your brand in an active process.
‘Pull strategy’ refers to the customer actively seeking out your product and retailers placing orders for stock thanks to direct consumer demand. A pull strategy requires a highly visible brand which may be developed through mass media advertising or similar tactics. If customers need a product, the retailers will stock it – supply and demand in its purest form and this is often the premise of a pull strategy. Create the demand and the supply channels will almost look after themselves
Meaning:
Online marketing also stated as web marketing, online marketing, or e-marketing, is that the marketing of products or services over the internet. The internet has brought media to a global audience. The interactive nature of internet marketing in terms of providing instant responses and eliciting responses is the unique quality of the medium.
Online marketing is usually considered to be broad in scope because it not only refers to marketing on the web but also includes marketing done via e-mail and wireless media. The management of digital customer data and electronic customer relationship management systems also are often grouped together under web marketing.
Online marketing ties together creative and technical aspects of the web , including design, development, advertising and sales.
Components of Online Marketing:
Internet marketing evolves in a very fast-phase manner. It's dynamic and requires every online business and marketers to stay updated with the changes within the system. There are two components of Internet marketing:
1. B-to-B (B2B):
It refers to business to business e-commerce, where business firms sell their products and services to other business firms using the web.
2. B-to-C (B2C):
It refers to business to consumers, where business firms sell their products and services to the consumers using the web.
Effectiveness of Online Marketing:
The effectiveness of Internet marketing are often enhanced if the subsequent points are considered:
1. Build trust, because the site is the platform for selling/displaying products and services.
2. Web sites should be simple, but professional in approach.
3. The content of the online site should be relevant and quantitative.
4. Every possible means should be taken under consideration to drive Internet traffic towards the online site.
5. Being an online marketer requires discipline and perseverance.
Ways to Conduct Online Marketing:
In the era of the modern world, the utilization of the internet has connected the entire world together. The Internet has been used not just for personal or professional purposes but also for marketing reasons. Businessmen find immense potential within the use of the Internet for promotional purposes.
This has given a boost to a marketing strategy called ‘Internet marketing’. It’s revolutionized the fields of advertising and marketing to a bigger extent. Marketers not only aim at producing high quality goods and services but also cost- effectively and successfully promoting them in the market.
Online Promotion:
It is often done through various means and methods.
1. Firms can promote the products and services of the corporate by establishing an internet presence. An entrepreneur can introduce the products of the organization by creating an official internet site.
A web site gives a summary to the potential customer about the corporation. This permits the firm to determine a worldwide presence and reach the global market.
2. E-mail marketing is another kind of online promotion. In this kind of marketing, firms can reach the potential customers directly through the means of an electronic mail. An advertiser can invite the customer for subscription of newsletters or alerts for special offers by the company. An electronic mail promotion generates sales and sometimes repeats sales. It’s an efficient way to fetch new and retain present customers.
3. There are banner advertisements placed on the online classified directories. These advertisements also are placed on the online sites which promote business almost like the advertiser’s business. These banners draw maximum traffic towards various internet sites.
4. Firms can organize online forums for the aim of inviting the most eager visitors to hitch, and air their views and opinions. This permits firms to keep check on their negative online reputation and promote favourable reputation.
Advantages of Online Marketing:
1. Internet marketing is comparatively inexpensive in comparison with the ratio of cost against the reach of the audience.
2. Companies can reach a large audience for a small fraction of traditional advertising budgets.
3. The character of the medium allows the consumers to research, and buy products and services at their own convenience. Therefore, businesses have the advantage of appealing to the consumers during a medium which will bring results quickly.
4. The strategy and the overall effectiveness of the marketing campaigns depend upon the business goals and the cost-volume-profit analysis.
5. Online marketing offers a greater sense of accountability for the advertisers.
6. Online marketing refers to the web marketing, which is said to e-mail and wireless marketing methods.
Disadvantages of Online Marketing:
1. Online marketing sometimes appears to be confusing and sometimes considered as a sort of virus.
2. The more you recognize, the more you realize the necessity to learn more.
3. Typical business models last for 2 years, but Internet businesses sometimes lose appeal after 6 months.
4. Intense competition.
5. Overwhelming knowledge to be learnt.
6. Too many skills to learn.
7. Takes a long time to find out many skills.
It is essential for organizations to market their brands well among the end-users not only to outshine competitors but also survive in the long run. Brand promotion increases awareness of products and services and eventually increases their sales, yielding high profits and revenue for the organization.
To understand integrated marketing communication, allow us to first understand what does brand communication mean?
Brand communication is an initiative taken by organizations to form their products and services popular among the end-users. Brand communication goes an extended way in promoting products and services among target consumers. The method involves identifying individuals who are best suited to the purchase of products or services (also called target consumers) and promoting the brand among them through any one of the subsequent means:
Advertising
Sales Promotion
Public Relation
Direct Marketing
Personal Selling
Social media, and so on
Integrated Marketing Communication - allow us to now understand what does integrated marketing communication mean?
Integrated marketing communication refers to integrating all the methods of brand name promotion to promote a selected product or service among target customers. In integrated marketing communication, all aspects of selling communication work together for increased sales and maximum cost effectiveness.
Let us understand various components of Integrated Marketing Communication:
1. The inspiration - because the name suggests, foundation stage involves detailed analysis of both the product also as target market. It’s essential for marketers to know the brand, its offerings and end-users. You need to understand the wants, attitudes and expectations of the target customers. Keep an in depth watch on competitor’s activities.
2. The corporate Culture - The features of products and services need to be in line with the work culture of the organization. Every organization features a vision and it’s important for the marketers to keep in mind the same before designing products and services. Allow us to know it with the assistance of an example.
Organization 's vision is to market a green and clean world. Naturally its products got to be eco-friendly and biodegradable, in lines with the vision of the organization.
3. Brand Focus - Brand Focus represents the company identity of the brand.
4. Consumer Experience - Marketers need to specialise in consumer experience which refers to what the purchasers feel about the product. A consumer is probably going to pick up a product which has good packaging and appears attractive. Products need to meet and exceed customer expectations.
5. Communication Tools - Communication tools include various modes of promoting a particular brand like advertising, direct selling, promoting through social media like facebook, twitter, orkut then on.
6. Promotional Tools - Brands are promoted through various promotional tools like trade promotions, personal selling and so on. Organizations got to strengthen their relationship with customers and external clients.
7. Integration Tools - Organizations got to keep a daily track on customer feedback and reviews. You need to own specific software like customer relationship management (CRM) which helps in measuring the effectiveness of varied integrated marketing communications tools
Case study
The Nirma Story
"It all started to earn a side income, and at that stage, I had never imagined this kind of success."
- Karsanbhai Patel, CMD, Nirma Ltd.
"Like other FMCGs, we have not concentrated only on marketing strategy. From the very beginning, operational strategy in cost containment, backward integration, economies of scale, innovative production, packaging and penetration schemes have received equal attention."
- Hiren K Patel, CMD, Nirma Consumer Care Ltd. (Nirma's marketing arm)
Introduction
In the early 1970s, when Nirma washing powder was introduced in the low-income market, Hindustan Lever Limited (HLL)1 reacted in a way typical of many multinational companies. Senior executives were dismissive of the new product: "That is not our market", "We need not be concerned." But very soon, Nirma's success in the detergents market convinced HLL that it really needed to take a closer look at the low-income market.
Starting as a one-product one-man outfit in 1969, Nirma became a Rs 17 billion company within three decades. The company had multi-locational manufacturing facilities, and a broad product portfolio under an umbrella brand – Nirma. The company's mission to provide, "Better Products, Better Value, Better Living" contributed a great deal to its success. Nirma successfully countered competition from HLL and carved a niche for itself in the lower-end of the detergents and toilet soap market.
The brand name became almost synonymous with low-priced detergents and toilet soaps. However, Nirma realized that it would have to launch products for the upper end of the market to retain its middle class consumers who would graduate to the upper end.
The company launched toilet soaps for the premium segment. However, analysts felt that Nirma would not be able to repeat its success story in the premium segment. In 2000, Nirma had a 15% share in the toilet soap segment and more than 30% share in the detergent market. Aided by growth in volumes and commissioning of backward integration projects, Nirma's turnover for the year ended March 2000 increased by 17% over the previous fiscal, to Rs. 17.17 bn.
A Humble Beginning
In 1969, Karsanbhai Patel (Patel) 2, a chemist at the Gujarat Government's Department of Mining and Geology manufactured phosphate free Synthetic Detergent Powder, and started selling it locally. The new yellow powder was priced at Rs. 3.50 per kg, at a time when HLL's Surf was priced at Rs 15. Soon, there was a huge demand for Nirma in Kishnapur (Gujarat), Patel's hometown.
He started packing the formulation in a 10x12ft room in his house. Patel named the powder as Nirma, after his daughter Nirupama. Patel was able to sell about 15-20 packets a day on his way to the office on bicycle, some 15 km away. Thus began the great journey.
By 1985, Nirma washing powder had become one of the most popular detergent brands in many parts of the country. By 1999, Nirma was a major consumer brand – offering a range of detergents, soaps and personal care products. In keeping with its philosophy of providing quality products at the best possible prices, Nirma brought in the latest technology for its manufacturing facilities at six places3 in India. Nirma's success in the highly competitive soaps and detergents market was attributed to its brand promotion efforts, which was complemented by its distribution reach and market penetration. Nirma's network consisted of about 400 distributors and over 2 million retail outlets across the country. This huge network enabled Nirma to make its products available to the smallest village.
After establishing itself in India, Nirma expanded to markets abroad in 1999. Its first foray was into Bangladesh, through a joint venture – Commerce Overseas Limited. Within a year, the brand became the leader in the detergent market in Bangladesh. The company also planned to enter other regions like the Middle East, China, Russia, Africa and other Asian countries.
The Road to Success
The use of detergent powder was pioneered in India by HLL's Surf in 1959. But by the 1970s, Nirma dominated the detergent powder market, simply by making the product available at an affordable price. In 1990, Nirma entered the Indian toilet soaps market with its Nirma Beauty soap. By 1999, Nirma became India's second largest manufacturer of toilet soaps by acquiring a 15% share of the 5,30,000 tonnes4 per annum toilet soap market. Though way behind HLL's share of 65%, Nirma's performance was remarkable as compared to Godrej, which had a share of 8% (Refer Figure I). By 1999-2000, Nirma had also garnered a 38% share of India's 2.4 million tonnes detergents market. HLL's share was 31% for the same period (Refer Figure II).
• Higher Costs - NO
Within a short span, Nirma had completely rewritten the rules of the game, by offering good quality products at an unbeatably low price. Nirma's success was attributed to its focus on cost effectiveness. From the very beginning, Patel had focussed on selling high-value products at the lowest possible price. The company endeavored to keep improving quality while cutting costs.
To keep production costs at a minimum, Nirma sought captive production plants for raw materials. This led to the backward integration programme, as a part of which, two state-of-the-art plants were established at Baroda and Bhavnagar, which became operational in 2000. This resulted in a decline in raw-material costs.
Tanishq - The Turnaround Story
"When we started out we didn't think that we could achieve this, but now being jewellers to the nation doesn't seem so distant."
- Tanishq COO, Vasant Nangia, in March 2000.
The Unsuccessful Launch
In 1995, Titan Industries, India's leading manufacturer of watches, launched the Tanishq range of gold watches and jewellery. Till then, the Indian jewellery market was to a large extent unorganized, with a few recognized names such as Tribhovandas Bhimji Jhaveri and Mehrason's. Tanishq, an entirely new concept in the Indian market, thus had to struggle hard to be accepted by the customers. Industry watchers were extremely skeptical of Tanishq and doubts were being cast over its prospects. Tanishq began by offering jewellery in the 18-carat gold range, with designs borrowed heavily from contemporary European brands. The company justified its decision saying that it wanted to be 'different' from the traditional Indian offerings.
Tanishq performed very badly in the next three years, posting a huge loss in 1997-98, proving its detractors right. Jacob Kurian, Tanishq's chief operating officer admitted, "Tanishq, as a concept, was far too ahead of its times." Even if one agreed with Kurian, it could not be denied that Tanishq did commit mistakes.
Analysts decreed that the company's strategies were wary. At this point, Tanishq took various steps to correct the mistakes it had committed and very soon, posted its first ever operating profit in 1999. In 1999-00, sales doubled to Rs 1532 million against Rs 743.8 million recorded in 1998-99 and reached Rs 2000 million in 2000-01. Tanishq fared equally well on the export front also with heavy exports to UK, US, Australia and West Asia.
Tanishq was the largest overseas chain in the US with 1,200 outlets. In the year 2000, exports contributed 10% to the company's turnover. The story of Tanishq, once written off as a losing proposition, making a remarkable turnaround was an example of a company single-mindedly working to make its own mark in the tradition bound Indian jewellery market. Behind this success was, of course, a well-planned and well-executed marketing plan.
Background Note
Titan Watches Limited was promoted jointly by Questar Investments Limited (a Tata group company) and Tamil Nadu Industrial Development Corporation Limited (TIDCO). The company, incorporated in July 1984 in Chennai, was started in technical collaboration with France Ebauches (a French company), one of the world's largest manufacturers of watch movements. Initially involved in the watches and clocks business, Titan later ventured into the jewellery businesses. The company was India's leading manufacturer of watches, marketed under the Titan and Sonata brand names with a 25% share of the total domestic market.
Titan established its first manufacturing facility in Hosur, Tamil Nadu and its first satellite watch assembly unit at Dehradun, Uttar Pradesh was started in 1990. In 1992, Titan set up a joint venture, Timex Watches Limited, with Timex Corporation of USA to market Timex watches in India.1 And in 1995, Titan changed its name from 'Titan Watches Ltd.' to 'Titan Industries Ltd.' in order to change its image from that of a watch manufacturer to that of a fashion accessories manufacturer. In the same year, it also started its jewellery division under the Tanishq brand. At this point of time, the jewellery business was highly localized and the concept of branded jewellery did not exist. In the late 1990s, India had around 0.2 million jewellers scattered across the country.
Jewellery had predominantly been used as an investment rather than adornment. Hence, a change in the perception of jewellery from an asset to a fashion accessory was extremely difficult to bring about. People generally bought gold from the same family jeweller they had trusted implicitly for generations. Moreover, these jewellers made the jewellery to order and often bought back their products at the prevailing market rates.
Thus, from the very beginning, Tanishq found it hard to overcome the Indian consumer's preference for buying traditional jewellery only from family jewellers. The sleek and contemporary designs being offered did not go down well with the Indian customer who was used to heavy, traditional designs.
Vasant Nangia, erstwhile Chief Operating Officer, Tanishq said, "When we launched the Tanishq range, our designs were not appreciated initially as they were believed to be extremely Western. Also, we offered only 18 carat gold." Over a period of time, Tanishq's research revealed many other loopholes in its strategies.
Setting Things Right
Tanishq found out that it had gone wrong mainly in two areas - the product proposition and retailing. Initially with a focus on the export market, its designs were predominantly Western, and the same line of jewellery was sold in India as well. However, when it shifted its focus to the domestic market, it was unable to sell these designs. Therefore the first step was to change the brand positioning from that of an elitist and Westernized offering to a more mainstream, Indian one. The 18-carat jewellery range was expanded to include 22 and 24 carat ornaments as well. Tanishq also made attempts to redefine traditional styles in its designs. Tanishq realized that, given the diverse nature of Indian ethnicity, it would have to cater to tastes of all regions.
Therefore, the emphasis shifted from the erstwhile modern designs to more ethnic ones and traditional ornaments (based on designs from various states) were launched. The company also began seasonal and localized promotions based on Indian festivals, such as during Durga Puja in West Bengal, Onam in Kerala, Diwali in north India, etc. Johnson Verghese, divisional head, sales and marketing, said, "We also decided to go in for transmigration of designs. So we not only got in more Indian motifs but also started stocking typical designs from Tamil Nadu in Mumbai and those from Bengal in Delhi. These designs, though Indian, provided variety to what the people in a particular area were used to seeing."
Tanishq's team of in-house designers came out with about 3,500 designs based on current trends and the feedback from stores. At least 10% of these designs were changed every quarter and fresh ones were added to the stock.
Tanishq gave complete freedom to the retail outlets to pick up designs, which they thought would sell in their stores. Almost all the outlets stocked the 'best selling' range of designs, which did well across the country.
Tanishq was now pitted directly against the traditional jewellers who were offering similar ornaments. In order to add some value proposition to rise above the competition, Tanishq decided to address the issue of gold purity, which was most important to the customers.
Traditionally, conventional jewellers used the touchstone2 to test the purity of gold. Apart from the fact that the customers did not trust the method, it was also alleged that a slight amount of gold was always lost while testing. The customers had to accept this for want of an alternative. In 1999, Tanishq introduced the revolutionary concept of Karatmeters in its retail boutiques. The Karatmeter used X-rays to give an accurate reading of the constitution of gold in the ornament within three minutes. Imported from Germany at a cost of Rs 1 million each, Karatmeters, though expensive, proved to be the biggest USP for Tanishq in the coming years.
In fact, its sales increased by 20-30%. The concept was later on heralded as a bold step towards professionalizing the Indian jewellery business. In an attempt to elbow out competition, Tanishq conducted tests on 10,000 ornaments selected at random. In some cases the caratage was found to be as low as 10% and almost 65% of the gold tested was below 22 carats. As the caratage offered was on the lower side in traditional jewels, the jewellers kept the making charges very low to entice customers. This had become the norm all over the country. Tanishq had to struggle hard to break this convention.
As the concept of Karatmeter became more widely known, customers began to realize that the rates they were paying for Tanishq jewellery were indeed justified. A Tanishq official commented, "They have begun to understand the total value proposition that Tanishq offers."
An all-India customer satisfaction survey conducted by Tanishq in 2001 revealed that over 50% of all Tanishq customers intended to make it their jeweller, replacing many long-standing relationships with the traditional jeweller. When Tanishq was launched, it sold most of its products through multibrand stores. This did not help the Tanishq brand to make its mark. Having realized this, Tanishq decided to set up its own chain of retail showrooms in 1998.
This proved to be a very wise move as sales picked up almost immediately. By July 2001, it had 47 'Tanishq boutiques' in 37 cities – 12 were in the metros - Delhi, Mumbai, Kolkata, Chennai and Bangalore, the rest in smaller cities with a population of at least 0.5 million such as Trichy, Nagpur, Amritsar and Patna.
The focus on smaller cities paid off well with the annual growth being as high as 150% as compared to the 45% growth in metros. The number of boutiques was expected to reach 50 by the end of 2001 and to 70 by 2002. Tanishq's efforts to standardize the price of its ornaments proved to be another milestone in its success.
Gold prices differed across the country as they were based on different parameters concerning the local markets. In a bid to control gold price variations in different parts of the country, Tanishq decided to have a standard gold price across all its showrooms from March 2000.
The standard price was made binding on all Tanishq showrooms. Tanishq based its gold prices on international exchange prices, resulting in prices often being lower than the local market prices. Nangia said, "We already have a kind of standard pricing in place, but this would represent a formalization of that system to the public." Tanishq even had plans to link directly with the London Metal Exchange (LME) for daily quotes in the future. Tanishq set up an ultra-modern and large-scale manufacturing unit in Hosur, Tamil Nadu at a cost of Rs 600 million. The unit had facilities like refining, alloying and stone casting and a dust-extraction system that kept gold losses down to 2% of the raw material while local jewellers typically lost 8-10%.
This in-house manufacturing facility was the main reason, which enabled Tanishq to charge the same price across the country. One of the company's most important initiatives was customer service enhancement.
Tanishq launched a direct consumer contact programme and conducted surveys to monitor store walk-ins and footfalls and percentage of repeat customers.
The company also kept the entry-level price as low as Rs 600 (for a pendant) and offered a range, which far exceeded that offered by any other jeweller. All Tanishq outlets gave a 100% return guarantee on its brand of jewellery and also exchanged other jewellery after deductions depending on purity. A customer satisfaction measurement program was started with the help of Customer Satisfaction Measurement Management (CSMM), an associate of IMRB. CSMM tracked customer satisfaction parameters for Tanishq on a quarterly basis. This gave the company the benefit of benchmarking against local and international players and also aided in improving repeat purchases. As a result, Tanishq was able to directly link the remuneration of franchisees with customer satisfaction. The company's corporate gold gift scheme ('When you want to say thank you, say it in gold'), launched in December 1998 proved to be a major success. Tanishq delivered 50,000 customized gold coins to 0.25 million Maruti car owners nationwide as part of the 15th anniversary celebrations of Maruti Udyog. By 2001, the scheme accounted for almost 5% of the turnover and over 30 corporate clients like Coca-Cola, the UB Group, Whirlpool, the TVS Group, Ceat and Liberty Shoes.
The communication and promotion budget was increased from Rs. 65 million in 1999-2000 to Rs 100 million in 2000-01. A majority of this was spent towards advertising, while a portion was also earmarked for promotions tailored to match regional preferences. For instance, in New Delhi, which was Tanishq's single largest market, substantial promotions were carried out. The Rs 100 million was split into four parts, comprising national-level spends (both electronic and print media), regional budgets, direct mail and research. For the first time, Tanishq initiated a long-term media plan, aiming to give the brand a round-the-year presence and enhance awareness. The communication focused on design and quality instead of the price.
Future Prospects
The Indian branded jewellery market, though nascent, grew at the rate of 20-30% during 1998-2000. Besides Tanishq, other major players included Intergold, Gili and Carbon. However, in the Rs 400 billion Indian jewellery market, Tanishq's share was not even 1%.
Not willing to accept this as a 'poor show,' Tanishq saw it as a vast opportunity instead. The company planned to attain a 2% market share in the next few years. Kurian said, "The jewellery market is one of the largest consumer segments in the country. It has an estimated 2,50,000 retailers with no national or international brand and no corporate player.
Titan believes that this market is right for consolidation. A consumer-oriented, highly ethical corporate player will have great opportunity. Our growth rates in the past three years have fully substantiated this hypothesis." Tanishq had ambitious plans to invest in information technology and utilize Intranets and the Internet to link all of its showrooms to one another. There were also plans to do online monitoring of sales and design popularity as well as using the Internet to place orders. The Intranet was to contain a photo collection of all the designs in all the stores so that even article
That not in stock in a particular store could be ordered by customers. In a highly innovative move, Tanishq tied up with Countrywide Finance for providing pre-approved credit lines to the customers at selective outlets. This was expected to boost sales significantly in the future. In May 2000, Tanishq unveiled plans to surpass its parent company's turnover by 2002. Jacob Kurian who had taken over as the CEO the same month, said, "We have finally figured out the jewellery business and should be solidly profitable, shorn of any caveat, this year.
