Marketing Management

Q.1. Answer any five. (2 marks)

1. A carton of orange juice has no brand name and on the package only the name of the
product ‘Orange Juice’ is written. This is an example of

i) Manufacturer brand

ii) An own Label brand

iii) A no frills brand

iv) A generic brand

2. Explain New Product Development Process. (Define ‘Idea Screening Stage’)

Ans –

• New Product Development Process

New product development is an eight step process which involves all the key elements required
for developing a product.

These steps are beneficial in getting information input and decision-making while developing
a new product.

Other than this, market research also plays a crucial role in the process.

The process of new product development is shown in figure –

I. Idea Generation

1) The most vital and first step of new product development is gathering and evaluating
new ideas to reach the potential product options.
2) Idea generation is considered as an on-going process for many companies involving the
assistance from internal and external sources of the organisation.
3) Several market research techniques are applied to boost ideas such as running focus
groups with customers, organisation's sales force and channel members, encouraging
customer suggestions and complaints via website forms and toll-free telephone
numbers.
4) This can also be done by and gaining insight on product development activities of
competitors through secondary data sources.
5) Brainstorming is one of the significant research techniques used to generate ideas,
where different creative thinkers collect to share their ideas and thoughts.
6) An idea of a new product is nothing but the product that a company can launch in the
market in near future.
o Sources of Idea’s

According to Drucker, the various sources of ideas of a new product can be divided into the
following two categories:

1. Internal Sources: New product ideas have the below mentioned salient internal sources:

i) Research and Development Departments: Generally, Research and Development

departments are beneficial sources of new product ideas. But, only large business corporations
have separate R&D departments.

ii) Technical Service Staffs: Technical staffs are relatively more exposed to the problems of
aligning the products manufactured by the company with the needs and wants of consumers.
Therefore, they can be a good source of new product ideas.

iii) Company Salesmen: Similar to the technical service staff, a salesman also understands the
consumers' needs, and hence exhibits an identical tendency to relate ideas; especially regarding
the presentation of products.

iv) Executive Personnel: Executives associated with the departments like research, sales,
production, and administration are generally more familiar with the requirements and likely
future progress of the company. Hence, they are in a good position to generate ideas that are
according to the company competencies and power.

v) Company Sales Records: Scrutinising the sales record of the company in a detailed manner
can help in determining that which product of the product portfolio is famous among the
consumers, which product is failing to prove its presence, which product is in need of
modification, etc. Due to such valuable information, company sales record is said to be a good
source of information.

2. External Sources: There are various external sources of new product ideas, some of them
are discussed below:

i) Consumers: The lead users of the products can act as a very important source of information
for the companies. The idea of famous product 'Scotch-Brite - Never Scratch Soap Pad' of 3M
is a result of a customer study.

ii) Competitors: Popular competitors (more specifically, the market leaders) can usually be
considered as one of the important sources of information. From these sources, one can get the
ideas like which items or variants should be made a part of the product line and which ones
should be discontinued.
iii) Trade Literature: Some companies gain information by searching several literatures.
There are many examples where equipment and machinery designed and developed in different
nations has later on become available and being sold in U.S. or Japan through various import
channels. Therefore, by referring to the foreign literatures, a local business firm can develop
identical equipment and technology, and launch it in domestic market before imports are made
available in that country.
iv) Other Outside Sources: Outside sources of information comprise of trade shows,
university research programmes, exhibits, consulting organisations, government research
programmes, professional society meetings, etc. The major issue faced while using these
sources is the technique of approaching these information sources without spending significant
amount of energy and time.

o Idea Generating Methods

A new idea can be generated in many ways; few of them are discussed below:
1) Focus Group: Under the focus group technique, a discussion is held among a group of
people in order to decide a new business idea. This discussion is held in an organised style.
These discussions require a moderator or a leader to sit with the group of individuals, and to
conduct the discussions in an explicit and open manner. Usually, focus group discussions are
conducted for generating the ideas concerning the products such as cosmetics, healthcare
products, apparel designs, jewellery designs, etc. This technique of generating business ideas
is very efficient, practical, and less time consuming.
2) Brainstorming: Brainstorming is also a group technique of generating new and innovative
ideas and business solutions. In this method, the group members are assembled together to
participate in the discussion, and to contribute their creative inputs. In brainstorming session,
the knowledge and experience of all the members are taken into consideration. The main
purpose of these sessions is to canalise the ideas to a specific product or a product line.

3) Reverse Brainstorming: It is a technique identical to the technique of brainstorming in

which the discontentment and disagreement is permitted and appreciated so as to generate new
ideas and solutions. Reverse brainstorming concentrates on the negative facets like "the
chances of failure of certain idea” “the reason which necessitates the change in product", etc.
By such kind of criticism, cross-questioning, and creative thinking, new and innovative ideas
are generated. The manner of criticising the ideas and igniting discussion from it is known as
Reverse Brainstorming.

4) Check List: Discussions based on a list of related issues form the basis of developing new
ideas for a business. An entrepreneur tabulates a particular area of discussions and also lists out
different statements, questions, and suggestions so as to conduct a thorough discussion and
approach a creative business idea. There can be various kinds of questions for a specific
product, few of which are listed below:

5) Synectics: Gordon coined the concept of synectics. This technique is used to advance the
process of creative problem-solving. Joining together distinct and evidently unrelated elements
is termed as synectics. Under this method, problems and issues are defined by "making the
strange familiar” while the ideas are generated by "making the familiar strange". In other
words, the purpose of this technique is to define the issue with the help of familiar terms and
to distort, transpose, and invert the familiar ideas to purposely make them strange and
unfamiliar. This process can invert or alter the standard expectations and standard ways of
comprehending about how others will act; which in turn will give rise to new ideas.
6) Information from Publications: A large amount of information about different products
and services is available in the printed format. The printed form includes advertisements, sales
brochures, publicity posters, catalogues, etc., which are easily available to every person. These
publications can at times provide new ideas and business concepts.
7) Seminars and Conferences: In order to address the emerging opportunities and challenges
present in the business environment, several seminars and conferences are conducted by
different institutions. Therefore, those who wish to enter or are new to business world can get
a lot of useful and important tips by attending such conferences and seminars.

8) Discussion with People: It is quite possible that if an entrepreneur is not open and attentive,
he stands a chance to miss an opportunity to gain new ideas and solutions. An entrepreneur
must be a good listener with an open mind, i.e. he must listen and consider the ideas and inputs
provided by others. These qualities can definitely help him to identify the requirements, wants,
preferences and tastes of individuals working with him. And this information can be beneficial
to evolve products and services that indeed possess the quality of fulfilling the needs of the
customers.
9) Day Dreaming and Fantasising: When an entrepreneur fantasises about a certain product
or service which he wishes to have in his life, it generates a business opportunity. For example,
the concept of space tourism was just a fantasy few years back but now it is a reality. Such
dreams and fantasies are responsible for inventions of many products and services.

II. Idea Screening

1) In this step, all the ideas generated in the first step are analysed and the best possible
one is selected for new product development.
2) Working on non-feasible ideas may be costly and risky for an organisation. Hence, the
ideas generated above are evaluated effectively by the company personnel to select the
most feasible idea.
3) The screening of ideas primarily depends upon the number of ideas generated, based
on which the screening process may be held in rounds like the first round comprising
of judgements of ideas by company executives, whereas other successive rounds may
involve advanced research techniques.
4) After the selection of few attractive ideas, a rough estimate of an idea is made, which
includes its potential in terms of sales, profit, production cost, competitor's response,
etc.
5) If the ideas are suitable then they are moved to the next stage of new product
development.
6) An organisation is required to continuously review and reconsider its estimate of the
product's overall profitability of success, as and when the new product idea moves
through the development process. This can be achieved by using the formula given
below:
 Overall Profitability of Success = Profitability of Technical Completion × Profitability of
Commercialisation given Technical Completion Profitability of Economic Success given
Commercialisation

7) The principal basis for screening an idea can be classified under the headings enlisted
below:
i. Market feasibility,
ii. Management objectives, mission, vision, policies, and strategies,
iii. Preliminary business analysis,
iv. Legal, social, and environmental limitations, and
v. Technical feasibility.
8) There are mainly two objectives on which the screening stage is based. First is to get
rid of all those ideas which are evidently inappropriate of further consideration and the
second is to select or shortlist from those remaining ideas which have enough potential
to prove their worth.

o Types of Errors

A company should be aware of the following types of errors while screening the ideas:

1) DROP Error: This error is committed when the company dismisses a good idea. For
example, IBM happened to commit this error by assuming that the market for personal
computer would be very small to operate for them.

2) GO Error: This error happens when the company allows a bad idea to move through
development and commercialisation process which in turn causes product failures. These
product failures can be of the following three kinds:

1) Relative Product Failure: Under this scenario, the company manages to earn a profit
but not as anticipated by the management.
2) Partial Product Failure: Here the company incurs a marginal loss as the total sales are
able to cover all the variable costs and a significant part of fixed cost.
3) Absolute Product Failure: Here the company makes huge losses as the total sales are
not even able to cover the variable costs.

III. Concept Development & Testing

1) Once the marketer has finalised few ideas, he initiates towards the attainment of initial
feedback from the customers, its employees, and distributors.
2) These ideas are then represented to the focus groups through storyboards, board
presentations, etc.
3) For example, the customers may be shown the product concept by drawing the product
idea on the whiteboard or an advertisement introducing the new product.
4) The most feasible ideas selected by the organisation are put forward to the target
audience.
 5) This is the next stage after the ‘idea screening'. Here a new product idea is put through
to concept testing after undergoing the initial screening.
6) In the meantime, the 'product image' deals with the process of deciding the manner in
which the product must be viewed by the consumers in the market. Also, it deals with
how the product will be marketed to its potential consumers.
7) Once a distinct and explicit product concept is evolved, it would be expected to advance
further by testing it in the market.
8) For the purpose of testing, company can either take the sample product or the concept
or both.
9) The testing will generate feedback from the customers which will not only assist in
discovering the need of any alterations or improvements in the product but it will also
give certain hints regarding whether the product will succeed in market.
10) A detailed version of the idea that is conveyed in important and consequential consumer
terms is termed as product concept.
11) The concepts need to be tested and developed with a view to conceptualise and execute
an idea.

o Concept Development:

The following questions can be used to turn a product idea into several concepts:

i) Who would be the users of the product?

ii) When the customer would use the product?

iii) How the customer would use the product?

iv) Identify the fundamental advantages that would be provided by the product.

Broadly, there are two steps involved in concept development; namely:

1) Product Concept Generation: A design team develops product concepts based on
consumer needs, wants, and specifications. These concepts are assessed, and the most favorable
one is selected for further refinement.

2) Concept Selection: A team evaluates and selects the best concept through a structured
decision-making process. Since different members have diverse viewpoints, careful
consideration is essential to avoid costly mistakes. Proper understanding of regulatory,
intellectual property, and business model conflicts is crucial, as these challenges frequently
arise.

o Concept Evaluation or Testing

1) In this phase, the product concept is proposed to the target customers to gather feedback.
2) A combined analysis helps estimate consumer interest in alternative concepts.
3) Also known as concept testing, this process predicts the success of a new product before
marketing and launch.
4) It uses quantitative research to assess the potential performance of conceptual ideas.
 5) The process gradually narrows down a large pool of concepts to a viable set, which is
then tested with a representative group of potential customers.
6) These participants evaluate the final concepts, answer questions, and provide ratings,
helping refine the product further.

IV. Marketing Strategy Development

1) After concept testing, a primary marketing strategy plan is developed.

2) A marketing strategy is used to launch the product idea in the market.
3) For this, a comprehensive plan is laid down including the marketing mix strategy,
segmentation, targeting and positioning strategy, with the expected sales and profits.
4) The marketing plan can be categorised into three parts:
i. Firstly, the marketing strategy discusses the structure, behaviour and size of
target market, the planned positioning of new product, estimated sales, market
share and profitability goals to be achieved in the initial years.
ii. Secondly, the strategy outlines the distribution strategy, planned price and
marketing budget for the first year.
iii. Lastly, the plan defines the sales and profit in the long-run and also the
marketing-mix strategy for future.

V. Business Analysis

1) In this stage, the large numbers of ideas are condensed to one or two ideas, by the
marketer.
2) During this stage, market research is used extensively to analyse the viability of product
ideas. (In many situations, a product remains only an idea, if not found viable).
3) The main aim of this step is to find out the valuable estimates of market size (i.e., total
market demand), operational costs (i.e., production costs), and financial predictions
(i.e., sales and profits).
4) Moreover, it is most significant to determine if the product is suitable for company's
overall mission and strategy.
5) The market research can be directed in two ways, i.e., internal and external. Internal
market research may involve discussions with production and purchasing personnel
whereas, external market research comprises of customer and distributor surveys,
secondary research, competitor analysis, etc.
6) Other than all this, the organisation must also scrutinise the financial viability of the
product in the long-run such as cashflow generation, production cost, market share of
the product and expected product life cycle.
7) The next step after developing the product concept and marketing strategy, the
management must assess the business attractiveness of the concept. With a view to do
so, the management personnel must conduct a proper calculation of total costs, sales,
and profits.
o Estimating Total Sales:

It is necessary for management to determine if the sales will be high enough to earn sufficient
profits.

The sum total of estimated first time sales, estimated repeat sales, and estimated replacement
sales is equal to total estimated sales.

'Purchase frequency' of the product is very crucial and it acts as a deciding factor for sales
estimation as well.

Based on purchase frequency, products can be of three different types which are explained
below:

i) One-Time Purchase Product: The sales figures increase at the starting for such type of
products; and subsequently approach zero as most of the prospective customers are converted.
The concept of one- time purchase product can be understood by considering the example of
buying a home after retirement.

ii) Infrequently Purchased Product: These types of products display replacement cycles
either due to physical deterioration or eradication caused due to change in performances, styles,
and attributes. Sales estimation of such products necessitates both the replacement sales as well
as the first time sales. Industrial equipment, automobiles, etc. are few examples of such kind
of products.

iii) Frequently Purchased Product: For these kinds of products, the number of first-time
customer increases at the beginning, decreases later on, and ultimately only few are left. As
soon as the first-time buyers are served, repeat purchase orders start coming in; and finally, the
sale curve falls to a plateau- like position indicating a level of constant repeat-purchase volume.
Consumer non-durable items such as shampoos, detergents, bathing soaps, etc. are examples
of frequently purchased products.

o Estimating Costs and Profits:

The management must forecast expected costs and profits after drafting the sales forecast.
Usually, different financial measures are used by firms to assess the benefits of a new product
proposal. Out of all such financial measures, risk analysis is the most complex, while the break-
even analysis is the simplest of all.
o Business Analysis Techniques

A business analyst will normally make use of a series of generic business techniques while
assisting the business changes. Some of the generic business techniques are discussed below:
1) PESTLE Analysis – Evaluates the macro-environmental factors affecting a business:
i. Political (laws, regulations)
ii. Economic (growth, inflation, income levels)
iii. Social (demographics, public safety)
iv. Technological (innovation, automation)
v. Legal (legislations, policies)
vi. Environmental (local & global ecological factors)
2) Heptalysis – A startup analysis tool that assesses:
Product/Solution, Human Capital, Financials, Market Opportunity, Execution Plan,
Safety Margin, and Potential Return.
3) MOST Analysis – Evaluates a company’s internal alignment:
i. Mission (business direction)
ii. Objectives (goals)
iii. Strategies (action plans)
iv. Tactics (implementation steps)
4) SWOT Analysis – Strategic evaluation tool:
i. Strengths (competitive advantages)
ii. Weaknesses (limitations)
iii. Opportunities (growth potential)
iv. Threats (external risks)
5) CATWOE Analysis – Helps understand stakeholders and influences in a business
process:
Customers, Actors, Transformation Process, World View, Owner, Environmental
Constraints.
6) Six Thinking Hats – A brainstorming technique using different perspectives:
Green (creative), Red (emotional), White (logical), Blue (control), Yellow (positive),
Black (critical).
7) Five Whys – Root cause analysis method by repeatedly asking "Why?" to uncover
deeper issues.
8) MoSCoW Method – Prioritizes requirements:
Must Have (essential), Should Have (important but not critical), Could Have (optional
enhancements), Would Like (future considerations).
9) VPEC-T Analysis – Evaluates shared systems and priorities:
Values, Policies, Events, Content, Trust.
VI. Product Development

1) A prototype of the product is produced at this stage.

2) Before launching the prototype in the market, it must clear all the tests and then finally
the product is offered to the target audience.
3) While doing business analysis, the suggestions and ideas are given due consideration.
4) The initial design or prototype of that idea is then developed by the research and
development team.
5) The marketer also designs a marketing plan for the idea, and once the prototype is ready,
it is introduced to the customers.
6) Unlike the concept-testing stage, in this stage the customers go through the actual
product or idea and its related aspects such as marketing mix, distribution channels, etc.
7) On the basis of customer reactions about the product, marketer is able to take decisions
for the final market launch while, considering the purchase rates and customers' needs
and wants.

o Types of Prototype Tests

The prepared prototypes are tested through particular tests like functional as well as consumer
tests.

These are described below:

1) Functional Test: In order to test the functional aspect of the prototype two types of tests are
used by organisations, i.e., Alpha testing and Beta testing:
i) Alpha Testing: Firstly, a particular prototype is tested within the organisation with respect
to different applications so as to determine its performance. It is called 'Alpha testing'. After
implementing the necessary inputs in the prototype it is exposed for beta testing.
ii) Beta Testing: Here, the organisation involves a particular set of customers who are asked
to use the prototype and accordingly give their feedback to the firm regarding their experiences
while using the prototype. According to Tom Peters, Beta test is very beneficial in the following
cases:

a) When complete knowledge regarding the possible applications is not known.

b) When opinion leaders are required from early adopters.

c) Where the prospective customers are of heterogeneous nature.

d) When several decision makers are involved in taking the buying decision regarding the
product.

2) Consumer Test: It involves testing the prototype as per the benchmark of the customers. In
this, customers are allowed to test the prototype through different methods. They can be invited
in the labs of the organisation to directly test the prototype or samples may be provided to them
to be used in home. There are plenty of techniques to determine the preferences of the
customers, which are as follows:
i) Rank-Order Method: Here the consumer is asked to rank the products in order of their
preferences or likings such as A>B>C.

ii) Paired-Comparison Method: It illustrates the pair of items, and requests the consumers to
select one preferred item from each pair such as preferring A to B or B to C.

iii) Monadic-Rating Method: In this method, the customers are asked to rate their liking for
each product on a specified scale such as A=4, B=7 and so on.

VII. Market Testing/Test Marketing

1) The word 'test' refers to examination or trial.

2) Test marketing is defined as the process of testing a product before it is commercialised
in the market at large scale. Here, test marketing is also known as field-testing.
3) This provides a better understanding of the market and marketing considerations like
nature of demand, competition level and consumers' needs and wants.
4) Test marketing of a product is done within a particular market area so as to monitor the
marketing mix strategy and if required, it is revised before launching it nationally.
5) According to Philip Kotler, "Test marketing is the stage at which the product and
marketing programs are introduced into more realistic market settings".
6) The prototypes or products which have made it to the product development phase are
now to be tested in real market. It is called 'market testing' or 'test marketing'.
7) It is crucial to have inputs from large group of customers so as to make the product
acceptable at commercial level. But, market testing is avoided by some marketers as
they improve their products as per the concept testing phase and do not want to waste
their effort on market testing.
8) The commonly used market testing method is one in which the product is made
available to a small segment of the target market (e.g., a city), wherein all the marketing
efforts are being applied similar to any other existing product the customers could
purchase.
9) The two main reasons for undertaking test marketing are as follows:
a. To Know the Reactions of the Consumers: The foremost reason for
undertaking test marketing is to understand the reactions of the consumers and
to anticipate or estimate the sales when the product is commercially launched
in the market on a large scale.
b. To Know Alternatives: The marketer gets a chance to know the real reason of
the product not being accepted by the customers. Test marketing also gives one
more opportunity to the marketer to identify the areas of improvements that
needs to be implemented to make the product more acceptable and famous
among the customers.
10) A "post-test market launch survey" is required to be conducted by the company to make
test marketing more effective and rewarding. Through this survey, the organisation can
determine whether the consumers are liking the product and buying it, whether the
 advertisement efforts are fruitful and whether the customers are satisfied with the
product.
11) Thus, the marketing mix of the product is modified as per the findings of the survey so
as to make it appropriate for the final launch.

o Types of Market Testing

Two major types of market testing are as follows:

1. Consumer Goods Market Testing: Organizations evaluate four key variables—trial, first
repeat, adoption, and purchase frequency. The main consumer goods market testing methods,
in ascending order of expense, are:

1) Sales Wave Research: Consumers initially offered the product for free are re-offered
it at a lower price, along with competing products.
2) Simulated Test Marketing: Customer feedback is gathered on brand familiarity and
preferences within a product category.
3) Controlled Test Marketing: The new product is placed in select stores for a fee to
manage product availability.
4) Test Markets: The product is launched in key cities, aiming for maximum shelf
presence, with an active salesforce driving sales.

2. Business-Goods Market Testing:

1) Functional tests, including alpha and beta tests, assess business goods and technologies.

2) Alpha tests evaluate performance within the organization for various applications.
3) Beta tests involve external customers providing feedback.
4) The gathered information is reviewed by the technical team to identify shortcomings.
An executive committee assesses findings, considering economic and marketing data.
5) If information is insufficient, further research is conducted. Severe issues may lead to
technical revisions or project cancellation.

o Importance of Test Marketing

Following points reflect the importance of market testing:

1) Product Evaluation: Market testing is a method which enables a marketer to evaluate a

new product in the real environment so as to predict its sales.

2) Evaluation of Alternative Marketing Strategies: Different alternative marketing tactics

can be assessed by the marketers with the help of market testing as it encompasses developing
database of potential customers and their buying behaviours.

3) Setting of Competitive Structure: The overall marketing strategy, i.e., pricing, distribution,
promotion, etc., is evaluated by marketers in market testing so as to determine the current
demand patterns and competitive environment.
4) Highlighting Scope of New Product: It helps to obtain basic or preliminary information
required for making the best possible marketing decision. It also reveals the information such
as benefits and drawbacks of particular product, required changes for modifying and improving
the product, new applications and uses of the product, etc.
5) Sales Forecasting: Market testing also helps to evaluate the future sales of the new product.
Moreover, the firm can prepare itself to produce the required quantity of product to fulfil the
future sales needs through installing required production capacity.

6) Identification and Removal of Defects: Through market testing, marketing related issues
such as defective pricing, inappropriate distribution channels, ineffective promotion methods,
etc., can be identified and reasonable solutions can be developed so as to make the product
acceptable at large scale.

7) Formulation of Policy Concerning Middlemen: Through market testing, behaviours and

responses of middlemen can be determined. It ultimately leads to the formulation of policy
concerning the middlemen. This policy assists the middlemen to show their best sales
promotion efforts.

8) Determination of Consumer Responses: In market testing, behaviours and responses of

customers concerning the new product as well as the competitors' product can be determined.

VIII. Commercialisation
1) Commercialisation or launch is the final step in any new product development process.
2) Once market testing is complete, launching the product in the target market becomes
critical.
3) Success depends on a well-coordinated team, strategic planning, and execution.
4) Poor strategic approaches, role conflicts, or organizational issues can lead to failure.
5) Key steps include volume production, documentation, installation support, distribution
management, marketing execution, and training sales and support personnel.
6) After test marketing, national launch follows, considering factors like timing, location,
and approach.
7) Some organizations prefer regional launches to manage production and refine the
marketing mix, while others introduce products in waves, allowing controlled capacity
expansion and market adjustments.
8) Commercialisation process involves huge expenses of the organisation.

o Types of Decisions

There are certain decisions related to commercialisation which are very important and need to
be taken accurately and rationally.

1. When (Timing): The timing of market entry is crucial, with three options:
 a. First Entry: The product is the first of its kind, gaining a ‘first-mover
advantage’ by securing distributors and customers. However, it risks a faulty
image if not thoroughly tested.
b. Parallel Entry: The product enters the market simultaneously with a
competitor’s product.
c. Late Entry: Entry is delayed to observe competitors, allowing the firm to:
i. Avoid customer education costs,
ii. Identify competitor shortcomings, and
iii. Assess market size and profitability.
2. Where (Geographic Strategy): The company must decide whether to launch in a
single region, multiple regions, nationally, or internationally.
3. To Whom (Target-Market Prospects): The most promising target market should be
prioritized with effective distribution and promotion.
4. How (Introductory Market Strategy): Marketers must develop an action plan to
introduce the product into rollout markets.

o Phases of Commercialisation/Product Launch

When all the above steps in the new product development give a positive response, then launch
of new product is undertaken. Figure depicts the four phases involved in the product launch
process.

Phase 1: Pre-Launch:

1) Developing skilled salesforce as well as marketing team is the foremost step of the
product launch cycle.
2) This stage is comprised of various activities including establishing service locations or
facilities, building machinery and equipment, hiring a promotion agency, etc.
 3) Promotional methods and press releases should be used by marketers to publicise the
launch of the product.
4) Distribution related decisions are also crucial at this stage.
5) A reliable storage location should be identified for the stock and locality of distribution
centres or retailers should also be determined.

Phase 2: Announcement:

1) This is the second phase of the commercialisation stage which involves display or
public view of the new product through press conferences, trade shows or road shows.
2) Such announcement can also be seen as a part of firm's expansion plan. Hence, the firm
may determine that which particular platform it plans to use for launching its product.
3) For example, Tata Consultancy Services conducted several trade shows and road shows
to increase awareness among the public regarding the launch of its new generation
personal finance management software named as 'E.X. Personal Investment Manager'
which was primarily targeted at the retail segment.

Phase 3: Beachhead:

1) Convincing the customers to try the product in the first instance and then inducing its
re- purchase, is the prime intention of beachhead.
2) This phase focuses on repeating as well as strengthening the original announcement.
3) It is the beachhead phase in which all the refinements or alterations related to the
product's services, distribution, packaging, etc., are performed.
4) With the increase of the sale of the new product this phase ends.
Phase 4: Early Growth:

1) Early growth phase of commercialisation is characterised by repeat purchases by the

target customers.
2) Purchasing firm's product becomes a routine behaviour of the customers.
3) Due to increasing popularity of the new product of the firm, the competitors get active
and start working on their respective products.
4) They start designing new uses for their products or develop new products by imitating
the firm's product. Thus, it becomes very challenging for the marketers to maintain their
position in the market in terms of product price, quality, distribution, promotion, etc.

o Methods of Commercialisation

A new product can be introduced in the target market with the help of these to general methods
namely:

1. Immediate National Launch:

1) This method is beneficial in two ways, firstly, it helps to prevail over competition and
secondly, it saves the expenses incurred on the cost of launch.
2) However, the risk associated with this method is that it causes several problems to the
firm which could not have been recognised during the test marketing step.
 3) Production standards that function in a satisfactory manner theoretically may not
always result as the same practically.
4) During the actual launch of the product, supply of product may act as a hindrance.

2. Rolling Launch:

1) The firm can choose this method as an option against full national launch.
2) This technique includes the process of shifting towards complete national coverage by
initiating the launch process with few well-known distribution areas and then later on
slowly including new areas having experience to enhance the chances of success of the
launched product.
3) Rolling launch is also beneficial to the firm in managing logistics and production
schedules, and keeping it in tune with the market demand. For example, many well-
known brands namely; HLL, Kellogg's, Coca-Cola and several others use the strategy
of rolling launch.

3. All of the following are the famous grocery retail brands in India, EXCEPT.

i) D Mart

ii) Flipkart

iii) More

iv) Vijay Sales

4. Explain the Classification of Products. (Define ‘Shopping Goods’, with example.)

Ans –

I. Based on the Nature

There are ten types of products which can be classified on the basis of their nature:

1) Goods: Goods are physical and tangible materials which can be possessed and owned, e.g.,
wheat, bicycles, etc.
2) Services: Services are intangible in nature and their production and consumption process
occurs at the same time. It cannot be owned but can be possessed after being paid, e.g., banking
and insurance services, etc.

3) Ideas: For developing a product, every marketer has an idea on the basis of which production
process is carried-out. Like, Charles Revson of Revlon stated that although in their factory they
produce cosmetics, but in their stores they are selling hope, e.g., advertisement agency,
consultancy firm.

4) Experiences: A company can create a market experience for their customers by organising
various goods and services at one place, e.g., Science city, Water World, etc.
5) Events: Event also acts as a product for marketers. Events are strongly connected with the
experience of people attending it. The companies realise the power of events and seek to
associate their products with the event. Thus, event sponsorship is a big business as many
companies try to leverage their products in the event. These events are time-based which are
held in a gap of one or more years like Award functions, Olympics, etc.
6) Persons: Many marketers work as a publicity and endorsement agent for film stars and
sportspersons. Here, a film star or a sportsperson is a product for the marketer. This type of
marketing is commonly known as celebrity marketing.

7) Places: Different places can be marketed to promote tourism business. For example, tourism
in Kerala was promoted by campaigning it as God's Own Country.

8) Properties: Properties are personal assets which are intangible in nature. It can be in form
of real estate property (e.g., Amby Valley project) or financial property i.e., shares and bonds
(e.g., Maruti or TCS IPO Campaign)

9) Organisations: In order to create a positive and dynamic company image, the organisations
work actively. For example, Philips uses a tagline "Let's Make things Better".

10) Information: Information also acts as a product, when produced and marketed. Useful
information can be provided as a product in different forms like dictionaries, encyclopaedias,
etc.

II. Based on Social Benefits

Based on the social characteristics, products can be classified on the basis of long-term benefits
and short-term benefits, such as:

1) Pleasing Products: These products offer immediate satisfaction to the consumer but are
injurious to them in the long-run, e.g., consumption of alcohol, cigarettes, pan masala, etc.

2) Deficient Products: Deficient products neither provide any immediate satisfaction nor give
long-term benefits to the firm. These are non-profitable products; therefore companies are least
interested in producing them, e.g., pager or typewriter.
3) Salutary Products: These products have long-term benefits but do not provide immediate
satisfaction to consumers. Thus, companies are by and large impassive towards these products.
However, by applying different marketing strategies, such products can be made attractive for
the consumers in the long-run, e.g., soyabean chips (diet chips).
4) Desirable Products: Desirable products offer both long-term as well as short-term benefits
to the consumers, i.e., immediate satisfaction and consumer welfare, e.g., healthy, tasty and
ready-made food products. Ethical organisations try to make it a point to manufacture desirable
products so that they can earn their profits as well as carry out their responsibilities towards
society.
III. Based on Consumer’s Intentions

On the basis of consumer’s intentions product can be classified into two categories:

1) Consumer Products:

1) The goods and services which are purchased by customers for personal consumption
are known as ‘consumer products’.
2) These products are classified as per the consumer’s buying habits/tastes/purchasing
power, etc.
3) Consumer products consist of unsought products, speciality products, shopping
products and convenience products.
4) These products may vary from person to person and how the products are purchased
and marketed.

• Classification of Consumer Products

1. Convenience Products

1) Convenience products are those consumer products which a customer purchases very
often, wants them to be delivered quickly, and does not want to make much efforts for
acquiring them.
2) These types of products mainly include household products having low unit value such
as, match box, medicines, groceries, cosmetics, etc.
3) These products are non-durable and customer consumes these products quite fast.
4) Such products generally are of single use, hence are also known as 'one shot items'.
5) These products have following two sub-categories:
a. Staple Convenience Goods: The products, which a customer has already
decided to purchase before entering a shop, are called staple convenience goods,
e.g., soap, sugar, tea leaves, etc.
b. Impulse Convenience Goods: The products, which a customer purchases
without having any plan, are called impulse convenience goods, e.g., cold
drinks, chocolates, cakes, etc.
6) Customers do not search for convenience goods very thoroughly; this is because the
producers, with the help of wholesalers, try to increase the reach of the products in the
market as broadly as possible.
7) In order to increase the availability of these products, vending machines are used in
schools, offices, public places, and other appropriate locations.
 8) These products are also displayed in attractive way near the checkout counters of stores
and in other high footfall zones.

2. Shopping Products

1) Shopping products are those products which are purchased by customers after doing a
thorough comparison with competing products on the basis of its features, quality, price,
etc.
2) Selecting a particular product can hence be considered as an element of 'buying motive'
of a customer.
3) These types of products are more complicated than convenience products because a lot
of differentiation can be observed in these products.
4) These products have high unit value, are purchased less frequently, and are durable in
nature.
5) Buying decision for these types of goods is influenced by various factors such as, price,
functionality, features, size and shape, colour, quality, etc. Air-conditioners, laptops,
mobile phones, furniture, etc., are some of the examples of shopping products.
6) In case of shopping goods, majority of the customers go to stores for purchasing them.
7) Stores of such products are established and organised very strategically, i.e., they are
generally located nearby other similar and competitor stores and they are established
mainly in famous shopping areas of the cities.
8) The strategies prevalent for marketing of these types of products include intense
advertising campaigns in local newspapers, radio channels, and television channels.
9) Advertising for such type of products is mostly done in cooperation with their producers
or manufacturers.

3. Specialty Products
1) Specialty products are those consumer products which consumer chooses very
consciously and purchases them from specialised retailers, e.g., jewellery, expensive
clothing, medicines, etc.
2) According to American Marketing Association, specialty goods are "goods having
unique characteristics and/or brand identification for which a significant group of
buyers are habitually willing to make a special purchasing effort".
3) The customers perceive specialty products as exclusive and rare.
4) They have exact knowledge about what they are looking for and they are ready to put
lots of efforts in order to acquire these products.
5) It is not compulsory but most of the times specialty products are costly and these
products may or may not be durable in nature.
6) Unlike shopping goods, price is not the decisive factor for buying these products.
7) Personal preferences (e.g., a certain cuisine) and brand preferences (e.g., a certain brand
of bike) are the two main factors which make these products unique.
8) Suits, diamonds, and antiques are some other examples of specialty products.
 9) Selected retail outlets are favoured for the distribution of these products by producers
and distributors. These retail outlets are selected due to their capability and zeal to
invest in high advertising and personal selling activities of these products.
10) Another factor which is considered before selecting an outlet is the level of match in
the image of store and the product.

4. Unsought Products

1) Unsought products are those consumer products about which a prospective customer is
not aware or he does not have any interest in buying these products.
2) Either some kind of danger or the probability of danger is the main reason behind the
demand of these products.
3) Unsought products can be classified into two categories:
a. Regularly Unsought Products: Those products which a customer is not willing
to buy right now but he may need them in near future are known as regularly
unsought products, e.g., dentist visit, life insurance, health check-up, income tax
saving, etc.
b. New Unsought Products: New unsought products are those products which are
recently launched in the market and customers are not aware of them. The main
function of the marketer is to inform the target customers about the existence of
the product.
4) The purchase of unsought products may not be prompt and it can be postponed.
Therefore, the marketer must extensively focus on personal selling assistance, high
advertising, and intense marketing in other fields.
5) The bases on which a marketer categorises unsought products are tangibility, use
(industrial or consumer), and durability.
6) Unsought products are those products for which the customers neither think too much
nor do they have any urge to purchase them.
7) The customers may finally be purchasing the product due to any unavoidable
circumstances and almost as a compulsion instead of waiting for the latest and
innovative variant of it.
8) An unsought product can be marketed effectively by using large number of sales force
and mass advertising working in the direction of generating need of that product among
the customers.

2) Industrial Goods:

1) A product purchased for use primarily in the production of other goods is referred as
'industrial goods'.
2) These products can be intended for resale, for commencing a business or for producing
other products.
3) American Marketing Association has defined the industrial goods as "Goods which are
destined to be sold primarily for use in producing other goods or rendering services as
contrasted with goods destined to be sold primarily to the ultimate consumers".
• Classification of Industrial Products

1. Raw Materials & Parts

1) The term 'raw material' refers to those products which eventually become one of the
ingredients of a final product.
2) Firms use parts and raw materials for manufacturing its final product.
3) Natural products (land, water, wood, minerals, etc.) and agriculture products (fruits,
grains, vegetables, livestock, etc.) are two types of raw materials which are used in
production process by the business organisations.
4) These products are bought by the business organisations in their raw state in order to
use them in the manufacturing process of any consumer goods or industrial goods, e.g.,
timber, wheat, rice, leather, milk, ores, crude oil, etc.
5) Some raw materials can be processed directly to make other consumer products such
as, milk can be processed into curd, wheat can be processed into cereal, etc.
6) Whereas, some raw materials are transformed into semi-finished goods which can
further be used by the business organisations in production processes such as, iron ore
can be used to extract iron which is further sold to industrial buyers for the
manufacturing of machines and tools.
7) Most of the raw materials are classified into various categories depending upon their
quality so that consistency can be confirmed within a category.
8) But still sometimes nominal variations in terms of quality of raw material persist within
the categories. Therefore, credit terms, price, and delivery become the main concerns
for sales negotiations.
9) Personal selling is the fundamental marketing approach to sell the raw materials
because these raw materials are sold in huge quantities and lots of sales negotiations
take place.

2. Capital Items/Equipment

1) Capital items or capital equipment or installations are those huge machines and tools
which an organisation uses during its production or operations activities.
2) The cost of capital equipment is very high and they are proposed to be used for a longer
duration.
3) Cranes, machineries, generators are some of the examples of capital equipment.
 4) Such capital items are put into direct use in the process of manufacturing of goods.
Some of the special equipment like robotic equipment, conveyor belts, etc., are created
and manufactured for some specific operations.
5) On the other hand, there are some other capital equipment like, large commercial ovens,
printing machines, Computerised Axial Tomography (CAT) scan machines, etc., which
have a standard design but can be altered as per the requirement of the production or
operation processes.
6) The buyers of these capital items have to do a lot of intense research and have to take
the purchasing decision very cautiously.
7) Advertising can be used by the manufacturers of equipment to mark their presence in
the market. But, personal selling plays a very important role in the selling of these
capital items by providing in- depth knowledge to the buyer about the technicalities of
the equipment.

3. Supplies

1) Supplies are those products and items which have low price, limited life span, and are
used to support and facilitate the day-to-day operations of an organisation but these
products are not among the ingredients of the final product.
2) These are the items which are used indirectly in the production process of any product
or in the management of that process.
3) These products and items are bought frequently, e.g., stationeries, fuel, paper, paints,
cleaning material, bulbs, printer ink, fuses, etc.
4) Unless ordered in huge quantities, the buyers of these supplies do not invest lot of time
and effort for making decision regarding the purchasing of these products.
5) Because of this fact, the producers of these items focus more on advertising activities
and the information related to these items are provided to the buyers in the form of
catalogues.
6) Sales force can be used when there is a possibility of large order.

4. Industrial Services

1) Industrial services are those intangible products which are required by business
organisations for smooth functioning and operations.
2) Although these services do not participate directly in the production process or become
the part of final product but without these services, the process of production cannot
continue smoothly.
3) Business advisory services (management, advertising, and legal consulting) and
maintenance and repair services (repair of equipment, cleaning and servicing of
machines, etc.) are the examples of industrial services.
4) Maintenance and repair services are commonly provided with the help of agreements
by small manufacturers or these are also offered by the manufacturers of original
machines and equipment.
5) Reputation of service provider and its staff are the factors which are primarily
considered before selecting a provider of business advisory services.
5. Accessory Equipment

1) Accessory equipment are those products which are used in the office operations or
during the production process but they do not become the part of finished product, e.g.,
meters, calculators, motors, hand tools, etc.
2) These items which form a sub-category of accessory equipment are mainly the capital
products which have low cost and relatively shorter life span than that of installations,
e.g., calculators, laptops, printer, etc.
3) Some types of accessory equipment are used directly in the production process such as
hand tools, spray machines, etc., whereas some accessory equipment are used indirectly
in the production.
4) A wide marketing strategy is required for the marketing of these items because of low
price and the market is constituted of buyers belonging to varying business
backgrounds.
5) Sellers are required to do heavy advertising in trade publications, business journals, and
mailings to buying agents and other business customers.
6) The intermediaries such as distributors and wholesalers act as the sales force for the
marketing of these items, if in case the personal selling is needed.

6. Component Parts and Process Materials

1) Component parts are those products and items which are used in finished product
directly or require very little processing before becoming the part of physical product.
2) They become the part of large final product, yet can be identified separately in final
product. For example, CPU, keyboard, mouse are used as component parts in a
computer system.
3) Similar to a component part, a process material becomes the part of the final product or
they are used in the production process directly; nonetheless they cannot be identified
so easily in the final product. For example, a manufacturer of biscuits might be a buyer
of sugar to use it as a process material.
4) The purchasers of these material and parts have very specific requirements about the
features and specifications of the product.
5) There can be a direct and close involvement by the buyers in the design and production
of component and material; they can also look for various suppliers through bidding
process.
6) In both the cases, personal contacts play a very important role in order to win the
purchase orders from the buyers. Once again the significance of personal selling in the
marketing strategy cannot be neglected.
5. Explain the Types of Pricing Strategies. (Recall the meaning of ‘Geographical Pricing.’)

Ans –

• Types of Pricing Strategies

1) Firms generally prefer to prepare a specific pricing structure, indicating various
variables over a single price.
2) Therefore, after deciding the method of pricing, the requisite price of the specific goods
or services is finalised with the help of various pricing policies or customised pricing
approaches.
3) These include differential pricing, geographical pricing, promotional pricing, product-
mix pricing, psychological pricing, new-product pricing, and price allowances and
discounts.

The explanation of these pricing strategies is given below:

I. New Product Pricing

1) New product pricing involves critical decision making.

2) Lot of variability is involved in the pricing of new products.
3) The level of newness of the product determines the level of difficulty involved in its
pricing.
4) The pricing decision becomes complicated if the idea behind the product is
unconventional or novel.
5) Huge risk/uncertainty is associated with pricing of new products in comparison to
mature or already available products.
6) Identifying consumer anticipations about prices, with the help of suitable marketing
research (involving test market and/or surveys), is very essential for new product
pricing.
7) Test market enables the marketers to depict the level of demand generated through
different prices.
8) This technique helps to evaluate the preliminary graph of demand with changes in the
price structure, to level up marginal revenue and marginal costs.
o New Product Pricing Methods

The two different new product pricing methods suitable for different marketing objectives and
market situations are skimming and penetration pricing, which are as follows:

1. Price Skimming:

1) Price skimming can be defined as a product pricing strategy where a consumer will pay
the highest initial price demanded by a firm.
2) Once the demand of the initial consumers is fulfilled, it reduces the price of the product
to interest other customers who have a price sensitive approach while making purchase
decisions.
3) Thus, 'skimming' term is derived from skimming of the creamy layer of customer
segments because later the prices are lowered for attracting other customers.
4) Price skimming is one of the methods selected by firms who intend to launch new
product in the market.
5) Here, the launch price of the product is kept high, which is gradually decreased within
a given time period to recoup the value of the product in a faster way.
6) For example, mobile phones having new and improved attributes are launched at high
prices, which are gradually decreased by the company after a certain period. One more
example can be of newly launched 3D televisions available at high prices.

2. Penetration Pricing:

1) It is a strategy used to enter the market at the initial level by offering the products at
quite low prices. This gradually helps in expanding the market share.
2) The prices are kept so low which does not allow the manufacturer to make any profits.
This decision is not illogical or unjustifiable.
3) When price for a new product is kept low (generally lower than the proposed market
price), to grab the attention of customers, it is called 'penetration pricing'.
4) The main motive of penetration pricing is to compel customers to buy the low-priced
new product.
5) This strategy is useful to introduce a new product in the market and functions as the
most suitable option, in case of introduction of a product with minor variations in the
market.
6) It is also suitable in markets which have price elastic demands. Hence, it is learned that
a low priced product (in comparison to similar products available in the market) acts as
a competitive advantage.

II. Product-Mix Pricing

1) A relatively different pricing strategy should be utilised for pricing products, which are
a part of the product mix.
2) A combination of prices suitable for the entire mix is selected by the company to ensure
the increased revenues.
 3) Due to presence of inter-relationships between demand and cost of different products
and different levels of competition, this product-mix pricing is very challenging.

Different product-mix pricing strategies are as follows:

1. Product Line Pricing: Organizations price products within a line rather than individually.
For example, a men’s apparel store may price suits at ₹800, ₹1500, and ₹4500, signifying
different quality levels. Sales personnel justify price variations to optimize profits.

2. Optional-Product Pricing: Firms offer add-ons alongside the main product, such as car
accessories like defoggers and warranty extensions. Companies must decide which
components are standard and which are optional.
3. Captive-Product Pricing: Some products require complementary items, like razors and
blades or cameras and films. Companies often price the main product lower while charging
more for necessary add-ons, such as telecom providers offering free phones with long-term
service contracts.

4. Two-Part Pricing: Common in services, this strategy includes a fixed fee and a variable
charge based on usage. Examples include telephone services with a base charge plus usage
costs and amusement parks with an entry fee plus additional ride costs. The fixed charge is kept
low to encourage purchases.

5. By-Product Pricing: Some industries generate secondary products (e.g., chemicals,

petroleum). If these by-products have market value, their sale can subsidize primary product
prices, helping companies stay competitive.

6. Product Bundling Pricing: Firms sell products as bundles or individually. "Pure bundling"
includes only package deals, while "mixed bundling" offers both options at discounted bundle
prices, such as car option packages.
7. Premium Pricing: Companies charge more for superior versions of similar products. For
example, televisions with HD displays are priced higher than standard models due to enhanced
features.

8. Image Pricing: Prices are influenced by consumer perception and competitor pricing.
Brands in cosmetics, textiles, and toiletries adjust prices based on market positioning to signal
quality.

III. Geographical Pricing

1) Under the geographical pricing technique, a company adopts different strategies to

enter different markets at the same time, for the sake of maintaining economies of scale.
2) It may enter a market by offering the product at a cost lower than the competition or
follow a penetration strategy to enter the other market.
 3) For example, text books are made available at low prices by the publishers in Asian
nations since such nations have lower average wages. The low pricing strategy is called
as 'second market discounting'.
4) Using the additional production capacity, a company can offer its products at a very low
price under second market discounting (which is a division of differential pricing
technique).
5) Hence, a company using geographical pricing method may demand a high price in the
first market, a discounted amount in the second market and offer the same product for
a penetrative price in some other market.
6) Payment mode is a matter of concern for this pricing strategy. This becomes critical
when customers do not carry adequate amount of cash to pay-off their expenses.
7) Generally, consumers seek to exchange other items against the one purchased by them.
It is called as counter trading.

There are various types of counter trading:

1. Barter: Exchanging goods without using money and any intermediary is called 'barter
system'.

2. Compensation Deal: Here out of the total amount payable to the seller, a certain amount is
paid in cash and the remainder is paid through any item.

3. Buyback Arrangement: In this type, in exchange to the supplied plant, machinery,

technology or equipment to a foreign country, a seller receives products manufactured with the
help of those equipment or machinery as partial payment and the remainder through cash.
4. Offset: In the above case, if the seller accepts the whole due amount in cash and approves
to employ a major part of the amount in that foreign country within a specified span of time, it
is termed as 'offset'.

IV. Price Discounts, Allowances, and Rebates

1) The concept of giving discounts on products or services can be a beneficial plan of
action to counteract the competitive environment.
2) Discounting, though being a segment of the marketing plan, should be diligently
managed and formulated, to avoid any risk.
3) Discounting is a regular event in several companies which makes the usual catalogue
or price lists almost insignificant.
4) This does not mean that discounting is problematic, till the company is getting the
desired return.
5) It can be a matter of concern, when organisations get trapped in a problematic
framework of quantity, cash and other discounts, resulting in nothing other than poor
profit margin only.
6) Rebating involves the partial cash refund or reimbursement to consumers for their
expense on purchases.
 7) It is tax-free, as according to the IRS (Internal Revenue Service) rebate is not an income,
but a decrease in the total amount payable for the purchases made by the customer.
8) Offering rebates is quite beneficial for producers as it increases the sales and
prominence of the firm in the market, prompts the potential buyers to buy offered
products and helps to seek the attention of retailers, who give additional space to display
these products in the outlet and thus promote the scheme.
9) Therefore, this rebating is helpful in leveraging with retailers as well as building brand
loyalty (leading to repeat purchasing) within consumers. Such benefits are not one-time
incentive, but are generated in the long-run.
10) Seasonal industries involving manufacturers of small batteries frequently use rebating
strategies.

o Methods of Discounting and Rebating

The methods most often used for discounting and rebating are explained below:

1. Quantity Discounts:
1) A purchaser is said to get a 'quantity discount' when he/she acquires many units of an
item (or buys more than a particular amount) and the price charged is comparatively
lower.
2) Quantity discount can take place in two forms, i.e., cumulative quantity discount and
non-cumulative quantity discount.
3) The discount incurred on list price of total number of items purchased within a
particular period, is called 'cumulative quantity discount'. It is implemented to build
customer loyalty.
4) Whereas a discount incurred on list price of a single order (not the total number of
orders) placed within a particular period, is called 'non-cumulative quantity discount'.
It is implemented to encourage large-size orders.

2. Cash Discounts: When a consumer, a marketing intermediary or any organisational buyer,

is given a discount on price, for immediately paying the bill for the goods purchased, it is called
'cash discount'. The holding or inventory cost and all the billing expenses of the seller are
retrieved by the immediate payment and thus, it rescues the seller from incurring any bad debts.

3. Functional Discounts: Functional discounts are the discounts given to distribution channel
intermediaries like wholesalers or retailers which carry out certain task or activity beneficial
for the manufacturer. It is a discount provided for compensating the task or activity performed
by the intermediaries. It is given on the basic price of the product. Functional discounts, also
called as 'trade discounts', may differ to a great extent from one distribution channel to another,
and are determined by the service or function performed by the middlemen.

4. Seasonal Discounts: Seasonal discounts are the discounts provided to buyers for buying off-
season products. With this, the product storage activity is transferred to buyers. This facilitates
producers to continue a constant and sound production schedule throughout the year.
5. Promotional Allowance: When a dealer is paid for promoting or advertising the products
of a producer it is called as 'promotional or trade allowance'. This allowance aids the promotion
of the product and also acts as a pricing mechanism. Promotional allowance acts as a functional
discount in case of pricing mechanism. For example, a producer may contribute towards the
expenses for an advertising campaign run by the retailer for the producer's goods.

6. Zero-Percent Financing: Demand for new cars and automobiles decreased during the mid
and end phase of the year 2000. At that time, the sellers came up with an innovative concept of
zero per cent financing, under which the buyers, without being charged any interest, could get
their new car financed. This concept received enormous response and fast growth was observed
in the car sales figures. The only drawback of this tactic was the burden of extra cost of over
1,99,995 on every car sold during this scheme.

V. Psychological Pricing

1) Price of a product creates an opinion about the product.

2) Psychological pricing is a technique used to establish a price structure which will draw
the customer's attention.
3) Price is not the only factor to determine the quality of a product, when the customers
can analyse and determine it by previous information or by inspecting it personally.
4) But price can become a crucial indicator of quality of a product, if the customer does
not have the necessary knowledge or skill-set to determine the quality.
5) 'Reference pricing' is another facet of psychological pricing.
6) It is a perception about the price of a product, which the customers assume while
judging a product.
7) This perception may be formed by evaluating current buying circumstances, recalling
former price structure or present day prices. These perceptions can be utilised while
forming the new cost structure.
8) The various kinds of psychological pricing are odd-even pricing, reference pricing, and
prestige pricing, which are described below:
a. Odd-Even Pricing: The price of the product ending with an odd or even digit
is termed as ‘odd-even pricing'.
b. Reference Pricing: The price of a product is formulated on the basis of
comments and references of the customers.
c. Prestige Pricing: Creating an image of quality products, by offering high priced
items, is called 'prestige pricing'.

VI. Promotional Pricing

1) Various forms of promotional pricing are utilised by organisations.
2) Supermarkets and departmental stores come up with strategies, where certain products
are offered at lowest rates, which compel the customers to come and purchase not only
those products but also other products with normal price range.
 3) Companies should be very careful while implementing promotional pricing strategies
as these are regarded as a zero-sum game.
4) In case, the promotional pricing strategy becomes successful, competitors follow it, and
unknowingly diminish their own value in the market.
5) On the other hand, if this strategy fails, the money invested gets wasted. This invested
money could have been better utilised in other marketing areas like improving product
or service quality or designing effective advertising strategy to enhance the product
image.
6) Various pricing methods are practiced by organisations to make the products move
faster and increase sales.

These are described below:

1. Loss Leader Strategy: When a retailer slashes down the prices of products offered by very
popular brand to induce consumers to visit the outlet, it is called as 'loss leader strategy'.
Departmental stores and super marts practice this technique to increase the number of visitors
to the store. It is beneficial, as revenues made by the low pricing are more than the original
cost.

2. Special-Event Pricing: Sellers design attractive prices for different commodities in a

particular season, which improves their sales.

3. Cash Rebates: Cash rebates are often given by companies selling consumer goods or
automotive companies to inspire customers to buy more products within a given time period to
increase the sales of goods offered by such companies. It results in increased sales, leading to
clear inventories, without any deduction in list price.

4. Low-Interest Financing: Low-interest financing schemes are made available to induce

customers to invest and purchase more products. Automobile sector is the biggest example to
implement this strategy and even zero-interest financing has been offered by automakers.

5. Longer Payment Terms: Sellers like automobile companies and financial institutions,
extend the duration of the payment for loans taken by the customers, which ultimately reduces
the monthly instalment for customers. Generally, customers focus on the monthly instalments
to be paid, as they have to determine whether they can afford it or not.
6. Warranties and Service Contracts: Majority of companies provide warranty and service
contracts with the purchased product. Offering these benefits free or by charging low-prices, is
very helpful in promoting sales.

7. Psychological Discounting: Originally fixing the price of a product above its normal range
and eventually offering the same product at considerably reduced rates, is called as
Psychological Discounting.
VII. Differentiated Pricing

1) A firm offering the same product with different prices throughout various market
segments is said to use differential pricing strategy'.
2) The firm presumes that each market segment has a distinct search cost structure as well
as perceived value of the product or there is no communication between different
market segments.
3) It can also be said that a firm is inspired to use this strategy due to significant diversity
in the market.
4) The basic cost of a product is modified to suit variance in products, areas, consumers,
etc.
5) When a product is sold at different prices, which do not show any corresponding
difference in cost structure, it is said to create 'price discrimination'.

o Degrees of Price Discrimination

Mainly three degrees of price discrimination are found in the market, i.e., first degree, second
degree, and third degree price discrimination.

First-degree price discrimination includes charging different prices from different customers
based on their level of demand for a particular product or item.

Second-degree price discrimination includes charging comparatively less prices from

customers buying products in bulk.

In third-degree price discrimination, different classes of customers are offered products at

different prices, as per the situations given below:

1. Customer-Segment Pricing: Different classes of buyers are offered the same product or
service at different prices. For example, an entry fee charged at museums is different in case of
senior citizens and student visitors as compared to general public.

2. Product-Form Pricing: Prices of different variants or forms of a particular product are

different. However, these prices are not in accordance with the costs of such variants.

3. Image Pricing: Image differences help a firm to sell the same product in different price
categories. For example, a producer selling perfumes can sell the same perfume in two different
bottles with distinct product name and identity at separate prices of 50 and 200 each.

4. Channel Pricing: Different prices are set for selling through different distribution channels.
For example, the popular brand Coca Cola charges differently for the same product in a fast-
food outlet, vending machine located at different locations or in a fine-dine restaurant.

5. Location Pricing: A product is charged differently in various areas despite the fact that the
costs incurred at each area are identical. For example, cinema theatres located at various
locations cost differently for the same movie as per liking of the audience.
6. Time Pricing: Prices of the same product differ as per the hour, day or season. The prices
of basic necessities provided by authorities differ from the particular time of the day, weekdays
or weekends. Products which remain unsold are offered at low costs by airlines and hotel
owners before the product becomes expired. The early entrants in a restaurant are charged less
for their expenses.

VIII. Transfer Pricing

1) A transfer price is a value used to calculate the price of goods or services that a profit
center offers to other corporate responsibility centers.
2) It is impossible to evaluate managerial quality within the organization by profit centers
without deciding the transfer process in case the company trades goods and services
from separate profit centers.
3) In such cases, it is necessary to determine the monetary values, called the exchange
rate, at which the transaction will take place in order to accurately distribute costs and
revenues.
4) The transfer price means that it will be a source of revenue for the transfer
division/centre, whereas the division to which the move is made will be a cost item.
Therefore, for the successful implementation of transparency, there is a need to evaluate
proper transfer price.
5) Many businesses have the issue of selling goods and services that are distributed to the
same company's other divisions/units; such pricing is referred to as' intracompany,"
intradivisional' or' transfer pricing.
6) It is the pricing of intra-corporate purchase transactions exchanged goods and services.
7) The proper basis for intra-company transfers also depends on the nature of companies,
market conditions, and policies and regulations of state.

o Transfer Pricing Objectives

1) Profitability: To foster a business attitude in those responsible for profit center
performance. Profitability is the primary focus here.
2) Financial Resources Optimisation: Maximizing the distribution of financial resources
to businesses. This is a long-term goal. Asset distribution is based on the relative
performance of different profit centers, which in turn is affected by policy of transfer
pricing.
3) Quality Assessment: To allow the division's quality (profitability) to be measured by
compensating it for the benefits provided to other divisions and charging it for the
benefits received.
4) Motivate managers: Motivate managers to maximize their divisions' profitability in
the best interests of the organization as a whole.
5) Minimize Tax: International groups may attempt to manipulate country-to-country
transfer prices to minimize the total tax burden.
6. Explain Marketing Evaluation and Control. (Reproduce the definition of ‘Annual Plan
Control’.)

Ans –

• Marketing Evaluation and Control

1) In order to receive feedback from the customers, direct contact programmes are
formulated as soon as the company launches its marketing campaign among its target
customers.
2) Effectiveness of marketing campaigns can also be analysed by checking the various
sales records. If it is required, various modifications and adjustments can be
incorporated in order to control some activities.
3) Marketing is not any controlled activity which can be performed in an insulated lab.
Different types of mishaps, last minute modifications, political ups and downs,
fluctuating marketing environment, and various natural disasters and human nature can
affect these.
4) It is seen that some marketing efforts yielded very common results and the others
provided even adverse results. Therefore, to tackle with the kaleidoscopic environment
of present time, a firm needs to adjust and polish-up its marketing activities on a
continuous basis.
5) One of the important elements of marketing job is marketing control. These activities
are performed to make sure that all the marketing programmes are conducted in order
to attain their expected objectives.
6) For measuring the accomplishments of the marketing activities, different types of
marketing control methods are adopted.
7) The process of marketing control is based on the basic assumption that all the results
are known in advance; and in order to know these results in advance, proper planning
is inevitable. Thus, both the planning and the controlling activities are closely
connected to each other. In fact, the four inter-related functions of marketing
management are 'planning-happening-evaluating-controlling'.
8) The activity of collecting information on marketing performance and comparing it with
the desired results is known as 'marketing control'.
9) This comparison is done with the help of several predetermined standards and
parameters. Different feedback, regulations, restrains, or redirecting influences are
provided by the controlling activities; and thus, the roadmap for achieving maximum
profitability and higher productivity is provided.
10) It is very important for a marketer to have a good knowledge of customer's perception
for the firm and for the competitor firms, his satisfaction level, marketing effectiveness,
sales, market share, profits, etc.
• Functions of Marketing Evaluation and Control
1) Establishing Standards for Marketing Appraisal: Standards are developed alongside
the marketing strategy, ensuring alignment with company goals. Operational standards
must reflect these goals and be implemented at all levels of the organization.
2) Effective Performance Measurement: A key decision for firms is identifying
evaluation metrics. Measurement must be quantitative (e.g., percentage achieved) and
qualitative (e.g., performance quality and cost of achievement).
3) Determining Strengths and Weaknesses of Marketing Programs: Identifying
discrepancies between desired and actual results is crucial. Firms must analyze these
differences and their causes to refine marketing strategies. A structured control and
evaluation system, integrating knowledge management and learning activities, helps
assess strengths and weaknesses effectively.
4) Setting Up Corrective Mechanisms: Decisions must address performance gaps.
Internal issues are often easier to resolve, while external factors may require strategic
adjustments. Firms should remain flexible, rethink strategies, and adapt to changing
environments to ensure sustained success.

• Process of Marketing Evaluation and Control

1) Marketing managers must effectively control marketing initiatives to achieve both
marketing and organizational goals.
2) This involves setting performance parameters, comparing actual performance with pre-
determined standards, and addressing performance gaps.
3) Despite being a key management function, marketing control often receives little
attention.
4) The formal control process includes setting performance parameters, assessing actual
performance, and implementing corrective actions. Informal controls, such as self-
control, cultural norms, and group influence, depend on the firm’s environment.
a. Determining Performance Parameters: Since goals are outlined in marketing
plans, planning and control are closely linked. These goals serve as performance
parameters, establishing benchmarks for comparison.
b. Actual Performance Appraisal: Marketing managers must monitor both
internal activities and external support organizations. For example, firms like
Porsche evaluate performance using customer service rankings. Comparing
actual results with standards helps identify and quantify performance gaps.
c. Corrective Measures: To bridge performance gaps, marketing managers can
refine performance parameters, enhance actual performance, or do both. For
instance, Gillette identified reduced shaving frequency and durable alternatives
as reasons for declining razor sales. In response, it adjusted advertising
strategies, public relations efforts, and sales objectives. Managers can also
improve employee motivation or optimize marketing efforts to achieve desired
outcomes.
• Types Marketing Evaluation and Control Tools
Marketing evaluation and control are mainly of four types which are used in successful
marketing firms, and these types are also known as tools.

Every level in the management hierarchy exercises control and each of these control methods
have their own tools and objectives.

Kotler has given these four types of control which are as follows:

I. Annual Plan Control

Ensuring the achievement of sales, profits and other goals established in the annual plan is the
main objective of the annual plan control. Management by objectives forms the base of annual
plan control. This involves following steps:

1) Monthly or quarterly goals are set by the management.

2) Its performance in the market place is observed by the management.

3) The reasons for deviations in actual performance as compared to expected performance is
determined by the management.

4) Corrective actions are taken to minimise the difference between the targeted goals and actual
results obtained

All levels of the organisations implement this control model.

Different sales and profit objectives for the year are set by the top management which are
further divided in to certain objectives for every lower level of management.

In order to evaluate the plan performance, the managers mainly use five different tools which
are as follows:

1) Sales Analysis: This involves comparing actual sales with the expected sales. While
undertaking sales analysis one may observe difference in the actual and expected sales targets.
For example, a tyre manufacturing firm may have targeted for Rs. 100 crore sales for the
financial year but may have realised only 90 crore sales. A difference of 10 crore, i.e., 10% is
seen here. Sales analysis helps in finding out the reasons for such difference. For this, a detailed
analysis of customers and competitors needs to be conducted. Besides this, individual sales
performance should be analysed, which will help in knowing where the maximum difference
was found. Along with this, the forecasting method which is adopted by the firm can also be
reviewed. It is important for the firm to analyse the reasons for the differences so that corrective
measures can be taken to obtain greater results in future.

2) Market Share Analysis: Comparing firm's sales with that of prevailing market sales i.e.,
average sales of same industry present in market. The total share of the firm, its product line,
and its market segments are analysed under market share analysis. One of the major drawbacks
of this method is lack of availability of appropriate data. This is because there are a number of
small-scale players in many industries and no data is present for these small firms. Thus, to
determine how much sales these firms account, the marketers have to rely on the guess work.
Market analysis based on product, segment and region should also be conducted.

3) Marketing Expense to Sales Analysis: Under annual plan control, it is ensured that the
firm does not involved in unnecessary expenses and more than required amount is not spent
while achieving the sales targets. One has to monitor expense-to-sales ratio. After further
analysing the expenses, marketer gets enabled to calculate the:

i. Sales force cost to sales ratio

ii. Advertising to sales ratio
iii. Sales promotion to sales ratio
iv. Sales administration to sales ratio
v. Distribution expenses to sales ratio

It is important to know the marketing research to sales ratio in those firms where a huge fund
is invested for conducting the marketing research.

4) Financial Analysis: Efficient financial analysis serves as an answer for various critics
present in the marketing environment. The different factors which can affect the rate of return,
financial leverage, and return on assets of a firm should be analysed by the marketers. The
financial leverages of the firm should be improved by using appropriate methods.

5) Customer Attitude Tracking: All the methods described are quantitative in nature and none
of them analyse customer satisfaction. As per the research, customer satisfaction and customer
attitude should be analysed by the firm. This can be done by using following three methods:

i. Customer Surveys: The most established and oldest method of determining the
satisfaction level of a customer is by undertaking customer surveys. In order to know
the satisfaction level of a customer related to a purchase of a products, firms may either
calls them or send a questionnaire.
ii. Customer Panels: Some firms form customer panels that are ready to give their
feedback regarding their attitudes towards firm's products. The Firm may use a
questionnaire, or telephone call, or send an investigator for getting the response or
views of customer.
 iii. Feedback and Suggestion Systems: Feedback from customers is one of the important
factors for improvement. The market oriented firms go for taking feedbacks from their
customers, ask for if they have any complain and suggestions, and also give them
rewards for doing this. Feedback also helps in knowing the views of customer regarding
firm's product in comparison to competitor's product. Proactive and reactive attitude of
the firm is determined on the basis of how they react to the feedback of the customers.

II. Efficiency Control

Efficiency control is useful to a marketer in finding out better ways in which a task can be
executed. For example, it helps in determining the distribution efficiency, sales force efficiency,
advertising and sales promotion efficiency.

o Sales Force Efficiency Indicators

1) Average number of sales call/salesperson per customer group.
2) Average number of sales calls per salesperson/day.
3) Average time spent on travel and customer.
4) Average cost per sales call.
5) Increase in the number of new customers.
6) Decrease in the previous number of customers.
7) Sales force cost as a percent of total sales.
8) Volume of potential business lost to competition.

o Advertising Efficiency Indicators

1) The advertising expenses via media, incurred for reaching the target customers (cost
per thousand target customers).
2) Extent of customer awareness regarding the brand.
3) Percentage of advertising target that has been achieved till date.
4) Total enquiries that have been generated via advertisement.
5) Cost involved in each enquiry.

o Distribution Efficiency
1) By determining the number of customers served, the market reach of the channel
member is determined.
2) By analysing the total sales of the brand against total products sold by a channel
member, sales extraction from the channel member is determined.
3) Total cost per channel also indicates the distribution efficiency. It refers to the cost
involved while providing distribution services to the customers.

III. Profitability Control

1) A close monitoring of profits, sales and expenditures can be done with the help of
profitability controls.
 2) The relative profit earning ability of different products and consumer groups can be
determined by profitability control.
3) Most of the firms find this fact that that a larger share of their profit is generated by
small percentage of their products and consumer's contribution.
4) The profit margin of different firms is reducing day-by-day with the increase in market
competitions. Due to this, different marketing strategies are being formed so that the
profit margins can be determined for different products, trade channels and territories.
5) Kotler proposed three steps which can be used to develop a system for profit control:
a. Determining Operational Expenses: The main focus of this stage remains on
the determination of different types of operational expenses involved in selling
a product in a certain territory or channel. Salaries, warehousing costs, taxes,
conveyance, office rents, insurance costs, commissions, advertising and sales
promotions, travelling, entertainment, etc., are most common expenses
occurring within a territory. With this, the difference between costs of goods
sold and the total sales revenue is determined. In order to determine the profit
contribution of a region, all the regional expenses are deducted from the above
figure.
b. Assign the Functional Expenses to Marketing Entities: Assigning these
expenses to different marketing entities is the next step. When there are some
expenses on the non-marketing entities, this step becomes quite significant.
c. Prepare a Profit and Loss Statement for each Marketing Entity: For every
territory, profit and loss statement needs to be prepared.

IV. Strategic Control

1) With the help of strategic control, the management can maintain a balance between the
firm's marketing and external environment.
2) The various issues related to out-dated strategies, policies, programmes, systems, and
structure can be resolved with the help of strategic control.
3) There are the two main methods which can be used by the management under this
control:
a. Customer Relationship Barometer: In order to determine the extent by which
a customer is connected to the organisation, customer relationship barometer is
used. For this purpose, various inputs are obtained on the following parameters:
i. Firms' core value and internalisation.
ii. Organisational structure and decision making for customer primacy.
iii. Organisational policies.
iv. Organisational systems.
v. People skills, attitudes and knowledge.
vi. Technology.
vii. Customer retention strategy.
b. Marketing Audit: It is a comprehensive, periodic, independent and systematic
analysis of firms' objectives, marketing environment, strategies and activities
 for determining the various areas of problems, opportunities and suggesting
appropriate course of action for overall increase in sales and productivity.

7. State the meaning of ‘Order Processing’.

Ans –

• Order Processing
1) Order processing is the primary factor responsible for the fulfilment of orders.
2) It involves various activities which need to be done for catering to the final market.
3) The operations or facilities which help in order processing are usually known as the
'distribution centres'.
4) Usually, the term, 'order processing' defines the procedure or activities related to
carrying, packing, and supplying finished goods through different modes of
transportation for shipment.
5) Several factors help in determining particular 'order fulfilment process' or functions
associated with the distribution centres.
6) There are distinctive needs or preferences for every distribution centre, as 'same size
suits everyone' principle is practically impossible for ensuring working efficiency of
the distribution centres.
7) The order of the customer acts as a stimulus that adds motion to the distribution chain.
8) The order processing begins when an order is placed by the customer and terminates
when the goods are delivered to the end user.
9) According to Johnson and Wood, "Order processing is the phrase means how a firm
handles incoming orders. More specifically, order processing is the activities that take
place in the period between the time a firm receives an order and the time a warehouse
is notified to ship the goods to fill that order".
10) Thus, it can be said that order processing refers to a number of actions for acquiring
orders, keeping records, and collecting requisite items for fulfilling the order.
11) Order cycle in its true sense is a relative term and can have different meanings as per
the perspective of different persons.
12) From the perspective of a merchant, it refers to the time when order is placed by the
customer till its fulfilment. From the customer's perspective; it is the time when order
is sent to the time of receiving the ordered goods.
13) The order cycle is also called replenishment cycle for commodities which are regularly
needed.

• Activities Involved in Order Processing

1) The buyer places an order with the distributor through a purchase document which is a
legal document representing proof of deal between the two parties.
2) All the necessary details such as item ordered, period of delivery, terms for payments,
taxes incurred and other terms and conditions are included in this document.
 3) Order processing involves activities such as, order placement by customer, sending and
receiving of order, checking the credit status, delivery and supply of order, order receipt,
and billing.
4) The 'customer order cycle' is the time between order placement and receipt of the order
by the customer.
5) One of the crucial objectives of customer order cycle management involves decreasing
the time taken to complete the cycle, which would ensure better customer care service
and enhanced performance of logistics.

Following are the six stages of the customer order cycle:

Stage 1: Order Placed by Customer: The order cycle begins with the order placement, i.e.,
when a customer places an order. Order placement helps in finding out that who has received
the order and how and ascertaining the techniques that have to be adopted (centralised or
decentralised) for completing the order. Normally, orders are placed via salespersons, phone,
email, website, or through EDI sent by central/postal address of the buyer. Nowadays,
organisations prefer to receive order online, which gears up the process of product order cycle
and helps in maintaining the records.

Stage 2: Order Received by Supplier: This is the stage when orders are sent to the suppliers
in batches either when the order amount has attained the pre-set amount or on a daily basis.
This is done for ensuring the economies of scale. The supplier then acknowledges with the firm
and begins to prepare the orders for dispatch.
Stage 3: Order Processing: At this stage, the supplier makes arrangements of the required
stocks with the help of order details. For fulfilling the customer order, the supplier may have
to begin another order cycle by placing orders with its own distributors. The information about
the order is also sent to the accounts department for invoicing. Order processing involves the
following:

i. Checking the order, if it is complete and correct;

ii. Checking of the credit details by the accounts department;
iii. Recording of transactions by the accounts department;
 iv. Allotment of goods by inventory department and giving advices to take the
consignment; and updating the records in the main inventory system; and
v. Shipping the order from warehouse.

Moreover, the idea of product supply chain helps in stating the desired time of receipt of order
(i.e. time period within which the order must reach the customer). These types of situations
demand best efforts by the supplier to deliver the order as per the customer's preference.

For this purpose, rational understanding regarding the time of order placing in the line with
other orders is required so that it can reach the customer without any delay.

Stage 4: Order Picked and Packed: Picking and packing operations include delivery
guidelines to a particular storehouse for collecting the customer's order. These guidelines are
in written form, which convey the warehouse employees to prepare the required items
according to the customer order. Order picking and packing function involves tasks beginning
from receiving the order from warehouse to shipping it with appropriate transportation.
Ultimately, a list is prepared to indicate the items collected for delivery by specifying the picked
commodities alongwith an indication about the person(s) who prepared the order. This is
essential for the recipient to check the list on receiving and give confirmation regarding the
same. Perishable items and delicate goods should be handled with care, e.g., frozen food should
be transported and stored in refrigeration.

Stage 5: Order Shipped to Customer: On preparing the order for the delivery, it is dispatched
and shipped to consumer by the distributor, organisation or through outbound transportation
facility. Suitable care has to be taken in selecting the transportation medium in order to keep
the products intact and also for ensuring timely delivery.

Stage 6: Order Delivered to Customer: The final step of order processing is delivery of order
to the customer. The time period within which the order is picked for transportation to its
delivery is known as transit time. The transit time has a major role in customers' replenishment
cycle and sellers' order cycle. Thus, appropriate selection has to be made regarding planning
the consignment and organising the shipment, as any loophole might result in soaring
transportation expenditure. The final stage involves sending individual orders to the customer
from massive consignments. A lot of care has to be taken at this stage to deliver the right item
to the right customer, simultaneously ensuring timely delivery.

• Factors Affecting Order Processing

1) Customer Interaction: It refers to the time when interaction with the customer occurs.
It includes the way and quality of interaction taking place. Customer interaction
determines the kind of relationship an organisation establishes with the customer. It
reflects how much the firm is dedicated towards its customers and how much the
customers are satisfied with the organisations.
2) Accuracy in Order Filling: Preciseness in order filling refers to errors and mistakes
committed while recording the orders. Though, it is practically impossible to avoid all
the mistakes, yet they can be controlled to a particular limit. Such errors should be
 minimised because a lot of time is indulged in checking, cross-checking, and refilling
orders.
3) Processing Preferences: Not all firms have abundant resources, time, and manpower
for their business operations; so they have to give preference to the lucrative orders by
allotting their limited assets to them. Thus, the orders which are needed to be given
preference have to be processed first and other orders are halted for some time.
4) Processing Time: The processing time can be lowered considerably when the activities
involved in order processing are cautiously organised. Performing the entire task one-
by-one might extend the processing time; however, concurrent execution of several
tasks might reduce the entire processing time.
5) Order Batching: The orders which are received from many customers can be grouped
together for batch processing in order to decrease the processing expenses. Conversely,
the processing time for orders which entered early will substantially increase when an
order is held until the desired batch size is attained.
6) Lot Sizing: In case the customer's order is larger than the inventory size, instead of
waiting for the entire order to be completed, small groups can be produced and
dispatched. However, this approach might be expensive due to the additional
transportation expenditure on shipping numerous small orders.
7) Shipment Consolidation: For small-size orders, various orders can be grouped
together for ensuring economy in transportation. However, it might result in increasing
the processing time in an attempt to put different orders together.
8. Explain the Retailing. (Memorise the concept of ‘Non-Store Retailing’.)

Ans –

• Retailing
1) The origin of word 'retail' is related with the French word 'retaillier' which means 'to
break the bulk' or 'to cut a piece off".
2) In the process of distribution, the products move from the manufacturers to the final
customers.
3) Several intermediaries or middlemen are involved in this process and the retailers are
the last ones.
4) Retailers directly offer the firm's product to the customers, and thus, link the customers
with the manufacturers.
5) They collect feedback from the customers directly and convey it to the manufacturers.
6) The comprehensive combination of different activities or steps which are used to sell a
product or a service to the consumer for self or family consumption is termed as
retailing.
7) Individual demands of target customers and supplies of available producers are
effectively matched by the retailers.
8) According to Cundiff and Still, "Retailing consists of all those activities involved in
selling directly to ultimate consumers".
9) According to Mc. Carthy, "Retailing is selling to final consumer products to
households".
10) Therefore, if an institution (the producer, wholesaler, or retailer) offers final products
directly to the ultimate consumers, it is doing retailing.
11) Any business enterprise whose main sales volume is derived from the retailing activities
is considered as a 'retailer' or 'retail store'.
12) Personal and non-business needs of different customers are satisfied by the retailers
irrespective of the place of offering (i.e., in store, at consumers' residence or on streets)
or the methods used (i.e., by vending machines, mail, internet, telephone or in person).

• Functions of Retailing
1) Sorting: Producers generally offer large quantities of similar or different products and
expect it to be sold in lots to concerned buyers to reduce cost, whereas customers require variety
of products to choose from and buy only in small quantities. Therefore, in order to fulfil the
demand of both the parties, retailers perform the function of sorting. In this, they first buy the
products from numerous producers having different type of products in large quantities and
then offer those products to the customers to choose from for making their small purchases.

2) Breaking Bulk: Another function of retailing is breaking bulk. Big lots of the products are
transported by the producers and wholesalers in order to reduce the costs which are then divided
into smaller quantities by the retailers so that these products can match with the consumption
needs of consumers.
3) Holding Stock: In order to support the producers in inventory control and production,
retailers provide stock holding facility to them. In this, they maintain a significant level of
inventory of products to be supplied instantly to the ultimate consumers when they need it. In
this way, they help producers to regulate the level of production and price. It is also significant
for the consumers because they know they can buy desired products in desired quantity from
the retailers at any time.

4) Supplementary Services: Through variety of services, retailers make the buying process
simple and convenient and thus, ease the process of changing merchandise ownership. In order
to add value to the products, retailers are engaged in after-sales services, product guarantees
and entertaining consumer complaints. In order to improve the sales, credit and hire-purchase
services' are also offered to the customers. Filling orders, processing orders and delivering as
well as installing products also come under the function of retailers. Some retailers appoint
sales executive so as to assist the customers with the displayed products. These executives
answer the queries of the customers and provide desired information about the concerned
product.

5) Channel of Communication: Acting as a channel of communication between

producers/wholesalers and the customers is also a function of the retailing. Customers learn a
lot about the features, traits of a product or service with the help of sales force, advertisement
and displays. On the other hand, sales forecasting, consumer complaints and delivery delays
are learnt by the producers. Defective or unsatisfactory merchandise and services can be
replaced or modified by the manufacturer.

6) Transport and Advertising Services: Retailers can also provide assistance to the small
manufacturers in advertising, storing, transporting and pre-payment of goods. In case of
significantly small retailers, this activity can also be performed from the manufacturer's side.
The percentage and volume of sales which is required to be covered by the cost and profit
determine the number of functions which will be performed by the retailer.

• Importance of Retailing
1) Importance for Producers and Wholesalers: Retailers are important to the producers and
wholesalers in the following manner:

i) Selling Goods: In order to help the producers as well as the wholesalers, retailers sell
the products directly to the customers in required quantities. Thus, they divest the
responsibility of sales from the producers/wholesalers.
ii) Assessing Consumers Tastes and Preferences: The producers/wholesalers can collect
the information about the customers, their taste and preferences, with the help of
retailers as these retailers are in direct contact with the customers. Retailers also observe
the changing trends of buying behaviour of the customers.
iii) Promoting New Products: Retailers help the producers/wholesalers in promoting a
new product. As they understand the needs and preferences of the consumers, it
becomes easy for the retailers to promote a new product among the customers.
Customers rely on the retailers for understanding the features and uses of a new product.
2) Importance for Consumers: Retailers are important to the consumers in the following
manner:

i) Variety of Goods: A large variety of products is stored by the retailers which are
produced by the different manufacturers. These products are offered to the customers
at a reasonable price. The different products which are required by the customer cannot
be stored by him due to high associated costs.
ii) Demand Creation: Retailers create demand for specific products on behalf of the
consumers. They use different techniques to communicate the demand of the consumer
to the producers/wholesalers.
iii) Distribution: Retailers distribute different products of the producers directly to the
customers. They are able to deliver appropriate goods to the concerned customers. The
customers are helped in the selection of goods by the retailers on the basis of their
intimate knowledge and experiences.
iv) Credit Facility: Retailers offer credit services to the consumers so as to build relations.
By this, retailers are able to achieve large sales volumes.
v) Personal Services: Different additional services like exchange, free home delivery,
after sales-service, etc., are provided by the retailers to the consumers.
vi) Sale on Approval: Retailers provide sale on approval service to the customers. Under
this facility, the product can be returned to the retailer within the specified time if the
product is not approved by the family or if it does not match the requirement of the
customer.

• Retail Structure
The operating format or organisation of a retail institution is called retail structure.

Following types of retail structures are available to the retailers:

I. Retail Institutions by Ownership

Retail institutions can be independently owned, part of chains, franchises, leased departments,
or cooperatives:

a. Independent Retailer: A single-store retailer, ideal for individuals with limited capital.
This format constitutes 80% of retailers and 40% of total retail sales.
b. Retail Chains: Multiple stores operated by a single retailer, responsible for a small
share of sales, while large chains like Walmart and Home Depot dominate.
c. Franchising: A business agreement where the franchisor grants the franchisee the right
to use its brand, processes, and business model in exchange for fees.
d. Leased Departments (Shop in Shop): A retail store rents out sections to outside
vendors, such as jewelry or shoe departments in large stores, leveraging expertise while
providing variety.
e. Cooperatives: Retailers form an organization to benefit from economies of scale and
secure better deals from producers, owned and controlled by members.

II. Store-Based Retailing

Retail stores adopt various strategies to sell goods and services, classified as follows:

1. General Merchandise Retailing

Non-food product sales through different retail formats:

a. Departmental Stores/Variety Stores: Large stores segmented into departments
offering diverse product assortments and customer service.
b. Discount Stores: High-volume, low-cost stores with centralized checkout and self-
service models.
c. Specialty Stores: Focus on a narrow product line, catering to niche markets (e.g.,
books, apparel, electronics). Category killers like Best Buy specialize in particular
segments at discounted rates.
d. Membership Clubs: Offer wholesale-priced goods to members, comprising business
buyers and individual consumers who pay an annual fee.
e. Airport Retailing: Growing sector with fully operational shopping areas in major
airports.
f. Drugstores: Specialize in healthcare and personal grooming products, with
pharmaceuticals comprising nearly 50% of sales.
g. Cash and Carry: Simple format selling goods only for cash, with customers handling
transportation.
2. Food Merchandise Retailing

Retail formats selling food products:

a. Convenience Stores: Small, easily accessible stores offering a limited variety of goods
with quick checkout. Prices are higher than supermarkets.
b. Conventional Supermarkets: Large self-service stores specializing in food, with
impulse buying driving growth. Operate on high volume but low-profit margins.
c. Food-Based Superstores: Larger than supermarkets, offering diverse food and non-
food sections. Customers prefer them over combination stores.
d. Combination Stores: Merge food and general merchandise retailing to provide one-
stop shopping. These large stores ensure cost savings and operational efficiency.
e. Supercentres & Hypermarkets: Large-scale retail formats combining supermarkets
and discount stores, offering food and non-food items. Walmart is a prime example.
f. Limited-Line Stores: Discount food retailers with minimal product variety, selling
goods below conventional supermarket prices. Operate on a cash-and-carry model.

3. Non-Store Based Retailing

Retailers using non-store strategies to reach customers and complete transactions fall under
non-store based retailing. The main formats include:

a. Electronic Retailing/Web Retailing

Also known as online retailing, e-commerce, or e-tailing, this format facilitates transactions
through interactive electronic systems or the internet. E-tailing has grown significantly, with
many firms combining it with conventional retailing. To enhance sales and customer relations,
several e-tailers have also developed brick-and-mortar stores.

b. Catalogue and Mail Order Retailing

Mail order retailing covers various sales methods like direct marketing, catalogue marketing,
and niche marketing. Catalogue retailing involves selling through printed materials either
distributed in-store or mailed to customers. In mail order retailing, transactions occur via post,
with advertisements in TV, radio, and print media supporting sales.

c. Vending Machines
Vending machines sell products autonomously, handling transactions from payment to delivery.
Common products include snacks, beverages, and personal care items. Typically placed in
hotels for traveler convenience, vending machines lack return options, and malfunctions can
negatively impact customer perception.

d. Telemarketing

Retailers use telemarketing (or telesales) to maintain customer relations and receive orders via
phone. Call centers handle inbound (customer-initiated) and outbound (retailer-initiated) calls.
e. Television Home Shopping

Products are advertised on TV, and customers place orders via phone. Formats include:

a) Dedicated shopping channels

b) Infomercials—30-minute product demonstrations with entertainment elements

c) Direct response advertising—TV/radio ads allowing instant orders

f. Video Kiosks

Interactive electronic terminals display product details and facilitate transactions via touch
panels and credit card payments. Placed in various locations, they offer self-service shopping
with minimal staff involvement.

4. Multi-Channel Retailing

Retailers using multiple formats—stores, kiosks, catalogues, and online platforms—engage in

multi-channel retailing.

a. Store Channel

A wide variety of advantages can be offered to the customers by the stores which cannot be
provided by the internet or catalogue shopping. The main traits of store channels are described
below:

i. Browsing: Generally, customers are aware of their needs, i.e., what they want, but they
are not able to determine the type of product until they actually see it in the store.
ii. Touching and Feeling Products: The best advantage of the store retailing is that it
provides a chance to the customers to touch and feel the product and customers can
examine the quality of the product by touching, smelling, tasting, seeing and hearing.
iii. Personal Service: A lot of meaningful and personalised information regarding different
products can be provided to the customers by the sales associates in the stores; however,
customers can have a lot of criticism about them. These sales associates can express
their opinion about a certain dress matching to a customer or not. They can also advice
what a customer can wear in a marriage ceremony.
iv. Cash Payment: The only retail facility where cash is accepted is the store channel.
Because of ease of operation, problem resolution and immediate transaction, most of
the customers prefer paying in cash. Additionally, it does not incur any interest rate.
v. Immediate Gratification: The opportunity of getting the product immediately after
buying is facilitated by the stores.

b. Catalogue Channel

Catalogue retailing is a non-store format where retailers communicate product information to

customers through catalogues. In direct mail retailing, product details are shared via letters and
brochures. This format is particularly popular in rural areas. Many major retailers combine
catalogues with the internet to leverage multi-channel retailing benefits.

Key traits of catalogue channels:

i. Convenience: Customers can access product details anytime, anywhere, without

needing an internet connection. Catalogues can be browsed in various settings
(restaurants, theatres, transport, etc.) and retained for future reference.
ii. Safety: For security-conscious customers, shopping from home offers a safer
alternative to malls and crowded shopping areas. Products are conveniently delivered
to their doorstep.
iii. Quality of Visual Presentation: Product images in catalogues are superior to those on
CRT screens, though they cannot fully replace the in-store shopping experience.

c. Electronic Channel

The electronic channel provides a wider product selection, detailed product information, and
shopping flexibility.
Key traits of electronic channels:

i. Broader Selection: Offers a vast range of products compared to physical stores,

reducing the need for multiple store visits.
ii. Greater Information for Analysis: Detailed product data enhances customer decision-
making.
iii. Personalisation: Information can be tailored to customer preferences.
iv. Problem-Solving Information: Unlike traditional stores, electronic channels provide
tools and resources to help customers address various issues.

9. Define ‘Unsought goods.’

Ans – See Question No. 4

10. State the meaning of ‘test marketing.’

Ans – See Question No. 4

11. Explain the Types of Online Pricing Strategies. (Recall the meaning of ‘surge pricing.’)

Ans –

1) Companies are now using direct marketing to provide custom pricing experience via
the internet.
2) Internet marketing allows the companies to understand complex pricing strategies and
to modify these pricing strategies within a short time span according to their needs.
3) The differentiation in prices is widely practiced as digital information goods are
available in different forms.
4) Finally, auctions in the internet has been realised through the interactivity. Thus, pricing
strategies ranging from sophisticated yield management to well-known posted prices
are involved in online marketing.
5) There is no exact information regarding which pricing strategy is best suited with a
particular product or in the particular market environment.
6) Also, there are several benefits and limitations attached different each pricing strategies.
7) There are two broad categories in which the online pricing strategies have been divided:
a. Fixed Pricing Strategy
b. Dynamic Pricing Strategy

I. Fixed Pricing
1) The pricing strategy in which the price of a product has been fixed by the seller and it
is the choice of a buyer to take it or leave it.
2) This type of strategy is mostly used by the retailer and is known as the fixed pricing
strategy.
3) Fixed pricing strategy is of different types namely:
a. Free Pricing
b. Premium Pricing Strategy
c. Freemium Pricing Strategy

1. Free Pricing

1) Bargaining is loved by every customer and especially when there is something for free.
2) There is a reason behind why businesses offer free products.
3) The information that is available for free helps the marketers to create the market
awareness and can also help in the sale of the products which are in connection with
the free products.
4) There are several things offered by the marketer for free such as PCs, free internet
connections, websites, free photo storage, free music, and free data storage.
5) Moreover, network effects are also building through the extensively giving out of one's
software for free. For example, free version of WinZip is used by millions of customers
with Windows in order to compress and share the files.
 6) However, there are limitations of the free pricing strategy. There are several businesses
that have failed to convert potential website visiting customers into actual paying
customers.
7) The free pricing strategy of businesses attracts many customers who are sensitive
towards the prices and have no intention to pay.
8) As soon as the businesses mention for the charges, these customers switch from one
free service to another. There are several businesses that now charge for annual
subscription who previously offered the free services. No great success has been
witnessed by the piggyback pricing strategy.
2. Premium Pricing Strategy

1) The pricing strategy in which the marketer set the very high prices of the product in
order to gain more profit at the high end of the market is defined as the premium pricing
strategy.
2) There are very few cases in which the premium pricing strategy works effectively.
3) Premium pricing strategy will be effective for the marketer if he has a number of good
status oriented consumers.
4) Establishment of premium brand is also an essential requirement for the success of
premium pricing strategy. For example, the premium price charged by the Rolex watch
company for its watches. The customer pays these premium prices in order to show
their high status and success.
5) "Conspicuous consumption" is the name given Veblen to this type of customer
consumption. It separates the exclusive and high-end customers from the other
customers in the society.
6) Companies can successfully use premium pricing strategy for capturing the market
where the target audience related quality and price of the market offering.
7) In case when there are very few quality products in the market, then the consumer
assumes that high priced product is a high quality product. Hence, they may go for
highly priced product so as to get premium product quality.

3. Freemium Pricing
1) This strategy is made from the combination of 'free' and 'premium' pricing strategy and
hence known as freemium pricing strategy.
2) Freemium pricing is mostly used for the products that are available on digital platforms.
3) In this pricing strategy, the customer has to pay premium prices for the additional
services attached with the main product; however the marketer offers the main product
for free.
4) The product that is offered for free is self-sufficient, and the additional services are only
to enhance the functioning and experience of the main product.
5) The marketer expects the fast adoption of the product by offering the free version.
6) The business model which is a combination of both free and priced goods is possible to
anticipate. For example, the free concerts organised by the shopping malls with the
hope that some of the attendees may purchase its products also.
 7) This business model is much more popular in the digital world. Many online businesses
offer both free and premium services.
8) Since, the large numbers of consumers are attracted by the free services and some of
the customers who expect more than the limited features free services are willing to pay
the premium prices for these services. These premium prices paid by the customers are
the source of revenue for the businesses. For example, there are many companies like
Skype, Dropbox, etc., which uses freemium pricing for their services.

II. Dynamic Pricing

1) Dynamic pricing strategy can be defined as the strategy in which prices are changed
with time.
2) Here different demand/supply condition of the product is reflected by the price
variations made by the company over time For example, Airline industry has used the
dynamic prices for number of years where the prices changes wit the minute, hours,
and day due to its norm of seat availability.
3) Marketers can gain many advantages by offering the dynamic prices for their products
and services. Fo example, the online companies like [Link] use its databases to
identify the need of a particular shoppe and promptly arranges the products according
to the buyers behaviour and charge prices accordingly.
4) There a many direct marketers who monitor the costs, inventories and demand at a
given time and change their price accordingly. For example, In order to attain the real-
time balancing of demand and supply for compute product, Dell uses the dynamic
pricing strategy. Dell actually maintains the demand to match with the supply b quoting
high prices when there is shortage of product supply or by quoting low prices in case
of oversupply of the product.

The different types of dynamic pricing strategies are:

1. Surge Pricing

1) Surge pricing is the case of dynamic pricing strategy.

2) The only difference between the dynamic pricing and surge pricing is that the previous
one involves the fluctuation in prices (i.e. both high and low prices), whereas the later
one involves only the premium pricing. Uber is one of the examples of surge pricing
strategy.
3) Surge prices charged by the Uber as a base rate when the demand for cabs are high.
4) 'Equilibrium price' is the fairest price for any product where demand and supply
matches.
5) As the supply of the product increases, the prices become low and when the consumer
demand increases, there is hike in product prices.
6) Surge pricing based on the above logic of fairness has been effectively used by Uber,
which is one of the high profile rideshare corporation.
7) In order to match the supply of drivers to the demand of the rider a particular time to
adjust the prices of rides is the basic idea behind surge pricing.
 8) Uber increases its normal fare prices at the time when there are larger numbers of riders
than the drivers. The company increases its fare prices on the basis of number of
shortage of drivers.
9) When surge pricing is applied, the drivers dispatch to pick the riders when the riders
agreed to pay higher than the normal fare prices.

2. Auction Pricing

1) In its traditional form, an auction is a resource allocation process based on a competitive

bid system over a particular issue (i.e., price) of a single clearly defined item.
2) This process involves the set of rules known as auction rules through which the winner
and the price to be paid by the winner are decided.
3) Auctions may be regarded as market institutions with clear and open rules specifying
the allocation of resources and prices based on bids from market agents.
4) The bids specify the object's W2P (Web-to-print) of the bidders. It is more expensive
and time-taking to perform the classical non-electronic auctions. Therefore, traditional
auctions are generally carried out for huge quantity of similar goods (like flower
auctions, stock exchange) or valuable goods (like real estate, fine arts.)
5) The half of the reason for the success of electronic based auction is that it allows one to
significantly reduce the per-item cost.
6) The rate of repeated electronic auctions can be increased to millisecond intervals,
thereby offering low response times to changes in supply demand.
7) Based on the number of buyers and sellers, there are basically three types of classes
into which auctions can be divided:
a. Forward Auctions: Forward auction is the traditional auction where there is
only one seller and the number of buyers is multiple.
b. Reverse Auctions: This type of auction is popular in electronic markets where
the numbers of sellers are multiple but the buyer is only one.
c. Exchanges: This is an exchange format where the number of buyers and sellers
are multiple.
8) Revenue maximisation is the basic purpose for which forward auctions are conducted
whereas; reducing the purchase cost is the basic purpose of the reverse auctions.
9) The auction and mechanism design literature influence the fairness and effectiveness
of auction mechanisms.
10) In recent years, number of more sophisticated and well defined e-auction platforms,
which allow combinatorial and multi-attribute auctions other than the B2B and B2C
auction platforms, has been developed for the purposes of research. For example, i-
Bundler, The Michigan Internet AuctionBot and e-Mediator are few examples of this
type of auction platform.

3. Yield Management

1) Yield management can be referred to as the pricing strategy in which the prices of the
product are determined by the marketers in different markets, attracting the various
segments for selling the maximum amount of products.
 2) It is different from the auctions where the prices are set by the bidders. For example,
airlines use this pricing strategy in order to fill the empty seats. They adjust the prices
of empty seats every few minutes during the day in order to ensure that all the empty
airline seats are sold at some reasonable prices. Even this price can be less than the
production cost.
3) There is the limited set of conditions under which yield management works.
4) They are perishable product (at the time the plane takes off without its full capacity, an
empty airline seat perishes.); rapidly changing market conditions; competitive markets;
clearly defined market segments; and seasonal variations in demand.
5) Normally, yield management techniques are only affordable by the large companies
which have wide monitoring and database system.

4. Segmented Pricing

1) The pricing strategy which uses the online features of mass customisation, to
automatically set the prices on the basis of order size and timing, supply and demand
of the product and various other pre-set decision factors is referred to as the segmented
pricing.
2) The company uses segmented pricing on-line to set prices for groups of consumers upto
a one-person segment. For example, the advance purchaser of a flight receives a
discount whereas the customer who books the flight seven days before its departure
receives no discount. Traditional marketing is the basis of segmented pricing.
3) As businesses obtain more and more digital behavioural data, pricing based on
consumer behaviour is becoming more common.

5. Price Negotiation

1) In a traditional way, the pricing strategy which is conducted as a bilateral face-to-face

and through fax or mail process (involving one buyer and one seller) can be referred to
as negotiation-based pricing.
2) Therefore, there is more complexity in the traditional price negotiations; they are
difficult to manage and require more response time.
3) The negotiation based pricing (NBP) process becomes more costly due to its time taking
bilateral negotiation process.
4) The frequency of the (re)negotiation process has a strong influence on the demand-
supply reaction dynamics of the NBP.
5) The dynamics to the market tends to be in the mid-range as compared to the other
methods of dynamic pricing because of the high cost of traditional negotiation process.
6) Negotiating skills of the agents also affect the efficiency and fairness of the traditional
NBP.
7) Electronic negotiation tables, artificial negotiation software agents, and decision and
negotiation support system has been introduced in order to avoid such limitations of the
traditional NBP.
8) A higher level of process effectiveness and efficiency as well as high quality and faster
arrival of agreements is promised by electronic price negotiations.
 9) This will only happen when there is efficient designing of negotiation protocol and the
high frequency of the negotiation process. For example, SARDINE, Kasbah,
RETSINA, Tete-h-Tete and COALA are some of the examples of electronic negotiation
platforms.

12. Reproduce the definition of ‘Brand.’

Ans –

• Branding
1) In management context, branding is a symbolic representation of information
associated with a product or service.
2) A brand particularly consists of a name, logo, other visible features including colour
combinations, fonts, images, symbols, etc.
3) A brand raises a number of expectations in the minds of the individuals in relation with
particular goods or service. These individuals may be employees working with the
brand, suppliers, vendors and their associates, distributors and lastly consumers.
4) According to American Marketing Association, "Brand is a name, term, sign, symbol,
or design, or a combination of them which is intended to identify the goods or services
of one seller or a group of sellers and to differentiate them from those of competitors".
5) The term 'branding' is a very broad concept and it comprises of the entire effort in
creating a unique space in the mind of the consumers for the product of the company,
through consistent advertising and promotion campaigns.
6) The very first motive of branding is to attract and retain potential customers through
developing and maintaining a unique position in the market.
7) Branding includes giving name to the product, as parents name a baby.
8) Branding guides the consumers in several ways including picking out the most useful
products, and quality assurance associated with the product, etc.
9) A loyal purchaser is assured of the same attributes, quality and satisfaction from a brand
during every shopping experience. A seller also has many advantages in getting
associated with a brand.
10) According to Costantino, "Branding is to help achieve and maintain a loyal customer
base in a cost-effective way in order to achieve the highest possible returns on
investment".
• Brand Types

I. According to Ownership: Here, ownership determines the type of brand. Two types of
brands are there based on ownership, which are as follows:

1) Manufacturer's Brand: When the name of the manufacturer of the product is used for
branding the product, it is called manufacturer's brand. For example, using name of
Samsung for branding its products like smartphones, TV, AC, etc.
2) Middlemen's Brand: In this type of branding, instead of the manufacturer it is the
middlemen whose name is used as brand. The middlemen may be wholesalers, retailers,
etc.

II. According to the Market Area: Five types of brands are there based on target market area:

1) Local Brand: In this, the brands are decided keeping the local markets in mind. Thus,
there are different local brands for different markets.
2) Provincial Brand: In this, the brand name is decided for a particular State or province.
Therefore, for a single product, different brand names exist in different provinces.
3) Regional Brand: In this, the brand name is for a particular region. Different regions
will thus have different brand names. The entire country may be divided into regions
like North, South, East, West, Central, etc.
4) National Brand: When a particular product is available with the same brand name
throughout the country, it is referred as national brand.
5) International Brand: When a particular product is available with the same brand name
throughout the world, it is known as international brand.

III. According to the Number of Products: A brand can also be classified on the basis of the
number of products it covers. On this basis brands can be of following three types:

1) Family Brand: When all the products of a company are marketed with the same brand
name in different market segments, it is called family brand. For example, the Reliance
Group uses its parent name to brand various product lines like Reliance Petrochemicals,
Reliance Communications, Reliance Retail, etc.
 2) Product Line Brand: When a company decides to give different names to different
product lines then it follows product line branding. For example, Hindustan Unilever
uses this strategy to brand its various product lines like soaps, beverages, detergents,
etc.
3) Individual Brand: When the company uses different names for the products in the
same product line, it is called individual branding strategy. For example, different
individual brands of soaps are used by HUL like Lifebuoy, Rexona, Vivel, etc.

IV. According to Use: Brands can also be categorised according to use. This can be as follows:

1) Fighting Brand: These brands are launched in the market with a significant difference
from the brands that are already being offered by the competitors of the company. In
other words, these brands try to get a distinct positioning in the market vis-a-vis the
competition. For example, ITC has launched a cigarette brand named "Now".
2) Competitive Brand: Competitive brands on the other hand fight for the same
positioning in the market and do not have any significant differences. For example,
Rexona, Lux, etc., are all examples of competitive brands.

• Product versus Brand

1) The concept of brand is wider than that of product as the attributes of a brand give it a
distinguishing identity as compared to the other products meant for the same purpose.
2) Brands help the companies achieving market leadership and gaining competitive
advantage, which is why several globalised firms try to develop a brand out of their
products.
3) This helps the business firms to establish and keep their brand image in the market with
the help of their products and services.

Following are the basic difference between a product and a brand:

Basis of Product Brand

Difference

1) Definition A physical and tangible item An emotional identity that satisfies an

that satisfies a physical or emotional need and is associated with
functional need. specific people.

2) Meaning Refers to what the organization Refers to the image of the organization.
is selling with profit motive (by
utilizing its face value).

3) Purpose Stands for specific things (e.g., Represents assurance of good quality,
mobile phone, car, laptop, etc.). practicability, etc., for products under
the brand (e.g., Samsung, Toyota, etc.).

4) Symbolism Refers to things introduced in Refers to the symbolic meaning

the market to serve desires or associated with an organization,
products, services, etc. (e.g., logo,
 requirements of people or the tagline, color), creating an image in
market. consumers' minds.

5) Existence Always objective; produced Perception about the product;

and then introduced in the dimensions of products are understood
market. through brand components.

6) Differentiates goods and Refers to name, reputation, or notion

Differentiation services provided by the associated with goods and services,
organization and its rivals, shaping consumer perception.
influencing consumer
preference.

7) Selling Refers to things that can be Stands for values, emotions, and trust
Purpose offered for selling. associated with the brand, aiming to
establish consumer relationships.

8) Examples Ice cream, cold drinks, pizza, Ponds, Pepsi, Pizza Hut, etc.
etc.
13. Define ‘sales promotion’ with example.

Ans –

• Sales Promotion
1) Sales promotion is very important component of the marketing, especially the
promotion mix and in actual, it acts like an instant stimulus for prospective buyers.
2) It focuses on encouraging the potential customers/retailers to buy the products or
services of an organisation, by enhancing its value.
3) Sales promotion helps in increasing sales for short-term period; however, it is not
helpful enough to generate long-term customer loyalty.
4) It is designed for potential customers, for distribution channels and also for sales force
of the organisation.
5) According to William J. Stanton, "Sales promotion is an exercise in information,
persuasion and influence".
6) According to American Marketing Association, "These marketing activities, other than
personal selling, advertising and publicity that stimulate consumer purchasing and
dealer effectiveness such as display shows and exhibitions, demonstrations and various
non-recurrent selling efforts not in the ordinary routine".
7) According to Philip Kotler, "Promotion encompasses all the tools in the marketing mix
whose major role is persuasive communication".
8) Thus, it can be said that any action focussed towards enhancing sales as well as usage
or trial of a product or service, is called 'sales promotion'.
9) It fills in the area that is not covered by any other element of the marketing
communication or promotion mix.
10) There are different types of sales promotion and each is given importance, depending
on the circumstances or situations, like:
a. 'Consumer-based sales promotion' is used to enhance the sale of seasonal
products during off-seasons.
b. 'Middlemen or channel-based sales promotion' is used in case when the
middlemen or channel intermediaries are more close to customers than original
manufacturers.
c. 'Salesmen-based sales promotion' is used to motivate sales people when the
focus of sales is to remove old inventory.

• Difference between Advertising and Sales Promotion

Basis of Advertising Sales Promotion

Difference

1) Approach Non-personal communication using Can be both personal and

various media channels. No direct impersonal. Uses direct and
contact between sender and receiver. indirect methods to enhance
sales.
 2) Objective Focuses on informing, persuading, and Aims to increase sales by
reminding customers about products or adding value to products or
services. Indirectly influences sales. services.

3) Short-term Beneficial in both short and long run by Designed for a specific time
vs. Long-term building brand awareness and period to boost short-term sales.
preference.

4) Extra Value Does not aim to add extra value, but Adds extra value through
sometimes generates additional value. incentives like discounts, free
gifts, or coupons.

5) Target Generic in nature; does not target Targets not just consumers but
Group specific groups. also retailers and salespeople.

6) Frequency High frequency; repetitive in nature to Implemented occasionally to

reach a broad audience. boost sales during specific
periods.

7) Cost Lower cost per audience as it is mass- Higher cost due to incentives
oriented. like discounts and freebies.

8) Feedback No immediate feedback as it is non- Immediate feedback is possible,

personal. Customers cannot directly especially in personal sales
interact with the advertiser. promotions.

• Tools and Techniques for Sales Promotion

For consumer as well as middlemen promotion, different sales promotion tools are utilised.
They are as follows:

I. Consumer Promotion: Consumer-based sales promotion focuses on increasing the usage of

a product among current users or adding new customers to the product. It can also be taken-up
to respond to competitor's sales promotion campaign or other activities. The different tools
used for consumer-based sales promotion are as follows:

1) Free Distribution of Samples: Free samples are distributed to the end users. These
samples may be provided with any particular product purchased. They may also be
distributed in a retail store or even door-to-door approach may be used for the free
distribution.
2) Coupons: Generally, coupons are provided to customers for influencing their buying
activity and to promote the sales of a particular product. These coupons are the tools,
providing a certain amount of saving on the purchase of a particular product. These
coupons are generated by the manufacturers and are offered to customers with the help
of different retailers. More commonly, these coupons are packaged along with the
product.
 3) Premiums or Bonus Offers: When customers buy a definite amount of a particular
product from a shop, a certain amount is offered free of cost. It is called 'bonus or
premium offers'.
4) Money Refund Offer: This is also called 'money back offer'. The producer uses media
advertising to convey that full price of the product would be returned to consumer
within defined time-period, if the product is not upto the stated level.
5) Contests or Sweepstakes: There are times, when an organisation may arrange a contest
to attract new customers towards its products. The contest gives a chance to the
consumer to win in cash or kind. It could be a free air ticket or it can be anything. The
launch of new product may involve such sales promotion. Sweepstakes is similar to
participating in a lottery.
6) Bonus Stamps: Manufacturers or retailers, provide bonus stamps to different
consumers, based on their size and quantity of purchases. These bonus stamps are
collected by the consumers, so as to make it huge enough to exchange them with desired
merchandise.
7) Draw: In this system, every purchaser is issued a token or coupon when he buys a
specified product or a specified quantity of that product in a given time-period. After
the end of that period, a 'lucky' draw is performed and winners are given different prizes.
8) Cheap Bargain or Self Liquidating Premium: In this method, on purchasing a
particular product, the manufacturer or retailer provides another product at decreased
price rate. For example, on buying one kg pack of 'Surf', a bucket worth 100 is provided
at ₹50.

II. Middlemen Promotion: The vital elements of any distribution channel are retailers,
distributors and wholesalers. Middlemen-based sales promotion plans are designed to attain
desired coordination between these intermediaries. Manufacturers design variety of discounts,
offers and schemes in order to motivate middlemen for achieving required sales. Some of them
are as follows:

1) Buying Allowance/Discount: In order to attract the retailers or wholesalers, a

significant allowance or discount is provided by manufacturers on purchase of their
products. The manufacturer may provide discount on list price or on the amount of cash
paid.
2) Buy-back Allowance: Based on the size of purchases made by retailers or wholesalers
at the time of their first deal, the manufacturer offers a specific amount of money to
them to buy additional products.
3) Display and Advertising Allowance: Manufacturers also provide display and
promotion allowances to different retailers in order to effectively display the traditional
and new products of the manufacturers. The amount of allowance is determined by the
display space provided to the manufacturer's product in the shop.
4) Dealer-Listed Promotion: Different publicity instruments (like diaries, calendars, key
rings, etc.) and advertisement messages are designed by manufacturers containing the
name and address of their dealers, in order to promote them.
 5) Push Money or PMs: In order to promote or push the sales at a pre-determined rate,
manufacturers sometimes offer incentives (in the form of cash or something else) to the
salesmen or retailers for every unit of products sold.
6) Sales Contests: Sales contests are designed by manufacturers in order to motivate sales
people, retailers and distributors as well. The entity (distributor, retailer or salesman)
making highest sales is provided the gifts or cash prizes. Since there is chance of
winning the contest, sellers eagerly participate in such kind of motivational contests.
7) Advertising Material: Manufacturers design different advertising instruments or
materials for retailers or distributors to promote the sales of their products. These may
include signboards, new-year diaries, calendars, packing bags, posters, literature, etc.
8) Credit Facility: In order to promote bulk quantity purchases, the manufacturers offer
credit to different dealers based on the quantity of their previous purchases.

• Process of Planning Sales Promotion Programme: Sales Promotion Plan

Different types of media are used by marketers in any sales promotion plan. A typical sales
promotion plan includes following steps:

1) Establishing Objectives: The very first step of sales promotion plan is to establish sales
promotion objective(s). Product related marketing as well as promotion objectives help in
designing the sales promotion objectives. Different sales promotion objectives are established
for different target markets. For example, sales promotion objectives established for consumers
may include prompting bulk purchases (or purchasing large units), getting switchers back and
encouraging nonusers to purchase organisational products and services.

2) Select the Tools: In the second step, as per the sales promotion objective(s), promotion tools
are selected. Different promotion tools are as follows:

a. Consumer-Promotion Tools: Here, tools targeted at consumer-promotion are selected

by the promotion planner. Factors like expense,. target market, competitive conditions
and sales promotion objectives are considered for suitable tool selection.
b. Trade-Promotion Tools: According to the objective, most of the times trade promotion
tools are selected by promotion planner. In a particular sales promotion pie chart, largest
section is covered with trade-promotion tools, whereas consumer-promotion tools and
media advertising cover the rest.
c. Business and Sales Force Promotion Tools: In order to fulfil certain business and
sales force related promotion objectives like collecting leads, motivating sales force to
improve its performance and impressing and rewarding customers, organisations
generally use business and sales force promotion tools. An annual budget for different
business promotion tools is designed by the organisation. Thus, billions of rupees are
spend on designing and utilising such tools.

3) Developing the Plan: The next step is devoted to the development of sales promotion plan.
Following factors should be considered while developing the sales promotion plan:
 a. Size: Determining the size of the promotion tool is very crucial for effective sales
promotion. An appropriate size of the promotion is required for successful sales
promotion as using huge promotion tool may lead to improved sales but with fading
rate.
b. Conditions: It is also essential to draw the conditions for consumers to avail such
promotion tools. Either it may be targeted at every individual or some specific person
or group. Person or group of persons having UPC codes (or proof-of-purchase seals)
may avail premiums of the promotion.
c. Duration: The appropriate duration of the sales promotion tool(s) should also be
decided by the promotion planner. It should not be too short (so that majority of
prospects remain unserved) or too long (so that it diminishes its value).
d. Distribution Vehicle: A distribution vehicle is also necessary for serving sales
promotion tools to consumers. The promotion planner is required to select a suitable
distribution vehicle (according to cost, extent of reach and effect) for each promotion
tool. For example, simple mail, advertisement, package of the product or even the store
may be used as distribution vehicle for offering fifteen per cent off coupon. v) Timing:
The timing of offering a particular sales promotion is also considered before finalising
the sales promotion plan. For example, different calendar dates are selected by brand
managers to offer sales promotion tools and production, sales and distribution
departments of the organisation manage their operations as per these dates.
e. Sales-Promotion Budget: The last factor considered while developing the sales
promotion plan is the budget of the sales promotion. This budget may be developed by
estimating the cost individually or collectively. Sum of promotion tool cost (like cost
incurred on discounts or premiums) and administrative cost (like cost of mailing,
printing and communicating) is multiplied with possible number of units to be sold, to
determine the total cost of the promotion.

4) Pre-Testing the Programme: After developing sales promotion plan, it is essential to pre-
test it. Although a list of factors is considered while developing the plan, pre-test highlights its
merits and demerits. Several aspects of the promotion tool like its size, distribution method,
suitability, etc., are analysed with the help of pre-test.

5) Implementing and Controlling the Program: The next step includes the formulation of
implementation and control plan so as to manage every sales promotion tool. Two important
aspects, i.e., lead time and sell-in time are covered under implementation plan.

The time elapsed in developing the sales promotion plan prior to its launch is called Lead time.
It starts from initial planning and lasts up to final distribution to the dealer, involving several
important happenings (like... designing and selection of package materials, finalising
promotion and sale materials, informing and preparing salespersons, allocating distributors and
producing inventories). The time elapsed from launch of sales promotion tool to the sale of
approximately ninety five per cent of the promoted product to the consumer is known as Sell-
in time.
6) Evaluating Results: The last step of sales promotion plan includes the evaluation of the
sales promotion effectiveness. Sales data, experiments and consumer surveys are mainly used
for evaluating the sales promotion effectiveness. The findings must be share with all the
participants.

• Advantages of Sales Promotion

1) Getting New Customers for Existing Product: Every organisation strives to acquire
more customers for their existing products. The job of the organisation is to extend
incentives at the right time so that new customers are attracted to the existing product.
2) Stimulating Middlemen: It is absolutely necessary to continuously motivate the
middlemen to enhance the sales of the organisation. This is done by giving incentives,
discounts, etc.
3) Motivating Demand during Off-season: It is a proven fact that demand for seasonal
products falls after the season gets over. For example, sales of air conditioners and
ceiling fans decline after summer (except in cities like Mumbai). It is the objective of
sales promotion to try and see that the sales do not suffer too much and some uniformity
is maintained.
4) Motivating the Sales Representatives: The sales representatives of the organisation
need to be motivated always. This is because they play a very important role in
increasing sales. Sales promotions result in motivating sales people.
5) Facing the Competition: Sales promotion helps in designing new and unique ways to
enhance sales. Different competitors develop different methods to deal with
competition.
6) Extra Benefits: Different types of benefits at different timeframes are offered to the
customers. For example, free samples before the actual purchase, gifts and discounts
during the purchase and after-sales-service after the purchase, are the few benefits
which are provided to the customers through sales promotion.
7) Information of Latest Products: Sales promotion helps in informing the target
customers about the latest products and services of the organisation. This helps in
increasing the sales of such products and services. By consuming such new products
and services, the standard of living of customers increases.
8) Helps in Managing Budget: Every customer has limitations on their monthly and
yearly budget. It is for the customers to utilise fall in prices and various sales promotion
schemes in order to keep their purchases within family budget.

• Disadvantages of Sales Promotion

1) Increased Price Sensitivity: Since, sales promotion activity is an integral part of
marketing and sales, the consumers begin to wait for promotional deals. Branded goods
with brand loyalty are no exception. Hence, they wait for discounts, stock clearing sales,
monsoon sales, festive promotion deals, etc.
2) Quality Image may become Tarnished: If an organisation focuses less on promotion,
it may adversely affect its brand image. Its quality image in the public may become
poor.
3) Merchandising Support from Dealers is Doubtful: There are issues with the dealers
as well. They may not pass on the benefit of discounts to the customers. As they may
not have sufficient space to store the goods, the product may not be popular in their
shops or the benefit offered is less than the effort required, the dealer may not be
interested in organisational products.
4) Short-Term Orientation: Short-term benefits accrue because of the sales promotion
activities. But sometimes, if these methods are not properly applied and implemented,
then can have opposite effects on the future of the organisation.
5) Attracting New Customers at the Cost of Existing Ones: The organisation has to be
very careful while making promotional offers. It should not end hurting the sentiments
of existing customers. For example, if an organisation offers a discount on its products
only for new customers, then the existing customers may feel that they have been
ignored. It is therefore necessary to make such offers on personal basis so that only non-
customers know about these offers.
6) Easy Imitation: In case of being highly productive, the sales promotion techniques
used by an organisation can be easily copied by the competitors. Competitors, generally,
imitate successful sales promotions.
7) Lower Margins: In the absence of exceptional benefits (of the product) from that of
the competitors, customers can be compelled to purchase the product only in case of
lower prices during promotion. However, it results in lower profit margin as well.
14. State the definition of ‘logistics’ with example.

Ans –

• Market Logistics
1) Logistics refers to the skill and discipline engaged in the administration and control of
the way in which the flow of energy, goods, information, and related resources takes
place.
2) In the present scenario, the term logistics has a vast scope which includes the flow of
raw materials to manufacturers from suppliers and final delivery of finished products
to end users.
3) According to Council of Logistics Management (CLM), "Logistics is the process of
planning, implementing and controlling the efficient, cost-effective flow and storage of
raw material in-process inventory, finished goods and related information from point of
origin to point of consumption for the purpose of confirming customer requirements".
4) According to Robert A. Novack, "Logistics is an activity involving the creation of time,
place, form and possession of utilities within and among firms and individuals through
strategic management with the goal of creating products/services that satisfy customer
through attainment of value".
5) The process through which the procurement, movement and storage of raw materials,
semi-finished and finished products are tactically managed through organisations and
marketing channels in a way that maximises the current and future profitability by cost-
efficient order fulfilment is known as logistics. Thus, it is a process which integrates
inventory, packaging, transportation, material handling, information, and warehousing.
6) The functional responsibility of logistics lies in attaining activities such as relocation
of resources, processing of raw materials and maintaining records in the most
economical way.
7) In Indian market scenario, the costs associated with market logistics are higher as
compared to the other developed economies. It is approximately 13% of GDP which is
much higher than 9% of GDP in USA. This logistical function is also known as the
physical distribution function as it is mainly concerned with the physical flow of goods.

• Objectives of Logistics
1) Improving Customer Service: By attaining customer satisfaction, highest level of profits
can be ensured. Thus, continuous improvement in customer service acts as the core objective
of logistics.

2) Speedy Response: It refers to the organisation's ability to give prompt response to the
customers' queries. In today's era of IT, it has become completely manageable to manageable
to give immediate response to the customers' queries by acquiring related data and postponing
logistical functions to latest time for increasing the response rate.

3) Decreasing Costs of Total Distribution: Decreasing the costs associated with overall
distribution is another vital objective of logistics. The expenses on distribution of goods include
expenditure on shipment, storage and record keeping, etc. As these processes are interlinked,
reducing the cost of one function often increases the cost of the other.

4) Consistent and Reliable Delivery Performance: Ensuring consistent and reliable delivery
performance is another main objective of logistics. This will significantly help companies to
strengthen their relationships with the customers by developing trust and gaining confidence.

5) Least Product Damages: Damaged products contribute to extra expenditure on logistics.

This extravagant expenditure on damage can be avoided by using mechanical system for
handling materials, using logical and efficient system of packaging.

6) Creating Additional Sales: One of the other aims of logistics is to increase sales by creating
additional sales. This can be attained by providing better services in the most economical way.

7) Generating Place and Time Utilities: Ensuring the utility of product at right time and right
place is another main objective of logistical functions. The product is not good for the
consumers until it reaches them at the right place and right time.

8) Stability of Costs: Another purpose of logistics is to ensure the stability of costs. It can be
attained by managing the supply of goods through thoughtful use of the accessible
transportation and suitable storage facilities.

9) Upgrading Quality: In the long-run, logistics seeks to ensure continuous quality

improvement. Total Quality Management has emerged as a primary obligation in all parts of
the industry within this aspect. Its assurance is mainly responsible for logistical regeneration.
10) Lifecycle Support: A sound logistical system is mainly responsible for maintaining healthy
PLC. Sometimes goods are sold without giving guarantee regarding their lasting performance
as advertised. These situations call for reversing the direction of normal value added inventory
offered to the customers.
11) Movement Consolidation: Transportation cost is one of the most important logistical costs
as logistics aims to reduce costs through consolidation and integration of operations. It is
directly related with the product type, shipment size, distance, etc. Thus, movement
consolidation becomes desirable for ensuring the reduction in transportation costs.

12) Inventory Reduction: One of the major factors which can prove to be unfavourable for
the firm is heaps of records. Conventionally, abundant inventory was maintained for ensuring
good customer care services, which indulged a lot of expenditure. Thus, reduction in inventory
is another main objective of logistics.

• Components of Logistics
1. Order Processing:

1) Order processing refers to the process of receiving and delivering information of sales
orders.
2) An effective order processing leads to the efficient flow of goods.
 3) Order processing is mainly responsible for maintaining high standards of customer
services in an organisation.
4) Inefficient order processing system can be balanced through competent shipment or
transportation facilities or by maintaining minimum inventories.
5) Order processing consists of three major functions:
a. Order Entry: Order entry starts as early as orders are placed by
customers/salesman either telephonically, through mail or website.
b. Order Handling: As soon as order is received, it is sent to the warehouse (for
checking if the goods are available as per the order) and credit department (for
checking the terms, prices, and credit ratings of customers). In case it is
approved, the order is procured, assembled and packed.
c. Order Delivery: The order is sent for shipment through suitable transportation.
6) In case the desired product is not available in the warehouse, it is said to be 'out of
stock'. It is the duty of the organisation to immediately inform the customer if his/her
desired product is out of stock and he/she should also be suggested with some alternate
choices.
2. Stock or Inventory Management/Control:

1) The management of inventory requires the development and maintenance of a wide

range of products to fulfil the demands of customers.
2) It would be quite difficult to run a business efficiently in the absence of inventory
management.
3) Inventory related decisions include the time of delivery and quantity of order.
4) It is essential for inventory management to ascertain the level of stocks at which the
orders should be placed. The stock level is termed as the 'order (reorder) point'. The
order point with '20' recording implies that the stock falls by 20 units.
5) It is quite necessary that the risk factors involved in stocks should be compensated with
the cost of overstock. It helps in fixing the policies for stocks by giving due importance
to the factors such as investment decisions, customer care, stock levels, size and time
of order delivery, etc.
6) It is quite clear that the success of a business is impossible without proper management
and control of inventory.

3. Material Handling:

1) The physical management and handling of goods is known as material handling. It is

one of the crucial factors in transportations and warehouse operations.
2) Effective techniques and processes of handling material help in lowering the expenses
on inventory management which further brings down the need to handle the material
again and again.
3) It also helps in improving customer care services and leads to the rise in satisfied
clientele.
4) Following two methods are mainly used in material handling:
 a. Unit Loading: A box or several boxes are kept on a skid or pallet from where
it can be effectively loaded through machines.
b. Containerisation: Several individual items are packed in a big box and sealed
together. The consignment is opened at the destination.
4. Warehousing:

1) It is the decision of the organisation to opt either for its own warehouses or for shared
outbound warehouses.
2) In comparison to outbound warehouse, in-house warehouse offers more flexibility, less
expenditure, and better administration. Yet, the major advantage of outbound
warehouse is that it needs no fixed investment on part of the organisation.
3) Moreover, alternative choices for selecting the warehouse as per the required space and
desired location make it an attractive option. This approach also helps in considerably
improving the customer service. These types of warehouses are also known as
distribution centres.
4) Distribution centres are usually large-sized, centralised warehouses. They acquire
goods from suppliers and manufacturers, rearrange them as per the order and send them
to the customers in the shortest possible time.
5) The main focus is upon the distribution of the goods instead of storing them. The
location and design of these distribution centres need to ensure speedy distribution of
goods.
6) Their advantages are numerous, viz. better customer care services, lower time taken to
deliver the goods, less expenses on shipment and low expenses on holding inventories.
7) Thus, the selection of an ideal warehouse helps in lowering the expenses on shipment
and inventory, and ensures better customer care services.

5. Transportation:
1) Transportation of goods, i.e., physical movement of products from manufacturers to
end users is a pretty expensive form of physical distribution.
2) Transportation helps in utilising time and place in the best possible manner, in relation
to the goods.
3) It helps in ascertaining the level of customer care service and is also related to other
factors of physical distribution such as, warehouse, inventory control, and channel
management.
4) Moreover, transportation is one of the most significant elements of business
expenditure.
5) For availing the benefits of different means of transportation and avoiding their
disadvantages, it is usually found that several times a few means of transportation are
amalgamated and synchronised.
6) In the recent past, this approach (also known as inter-modal transportation) has become
simplified due to new innovations in the industries of transportation.
o Modes of Transportation:

Basically, there are five main modes of transportation, with each one having its own
advantages. These are as follows:

1) Railways: Railways are used to relocate heavy and lofty consignments that are required
to be sent to far places.
2) Roadways: Trucks and minivans are used as transportation medium on roadways. The
advantage of roadways is that it can render flexibility of schedule and place because
trucks can go almost anywhere and at any time, as desired.
3) Waterways: Waterways proves to be one of the least expensive ways of transportation.
It is mainly used for the heavy, inexpensive and non-perishable items.
4) Airways: Airways are the most expensive, yet, the fastest means of transportation.
5) Pipelines: Pipelines are the most automatic means of transportation. Normally, they are
a part of the shipper and carry the products of shipper.

6. Customer Services:
1) The standards of customer services set the objectives and desired performance level
expected by the organisation.
2) The physical distribution system is designed as per the acceptable standards of customer
services.
3) The elements of physical distribution are collected in a way to attain the acceptable
standards at the cheapest rates.
4) The entire expenditure incurred can be divided into the following five main parts:
i. Transportation,
ii. Customer service/order processing,
iii. Warehousing,
iv. Managerial costs, and
v. Inventory control.
5) Customer service standard refers to the different levels of services as per the varying
needs of different customers.
6) The needs of the services are different for different customers and the marketer has to
analyse these needs so as to cater to customers' demands.
7) The basic elements associated with the customer care in relation to the distributions are
economy, reliability of delivery system, timely delivery, availability, adequate range of
products, and efficiency in order processing, replacement of faulty items, guarantees
and warranties.

• Importance of Logistics
1) Form Utility: It refers to the procedure through which goods and services are produced and
put into appropriate form for usage by the customers. Form utility refers to the worth of a
product which has been created by putting together all its parts. For example, a mobile screen
has some form utility, but a complete cell phone has high level of form utility. It is indirect
application of logistics which helps in using time and place utilities, through which various
parts of final products are combined.

2) Possession Utility: It refers to the value added to the goods or services so that the customer
is actually able to possess it. It is usually arranged by providing loans, credits, etc. By offering
products and services to consumers at fixed time and place, logistics becomes indirectly
responsible for providing possession utility through place and time utility.

3) Time Utility: It refers to the value of getting the product when required. Time utility occurs
within the firm so that all the materials and parts are available at the right time and production
line remains unaffected. Logistics here influence time utility as it helps in creating value for
customers by timely delivering the product to customers or making it available in the market
for purchase when required.

4) Place Utility: It implies that all the requisite goods/services are available at the right place
when required. If a product required by a customer is on its way, or in warehouse or in some
other store, it fails to serve the purpose of place utility for the customer. The place utility is
considered to be the value acquired by providing the requisite goods/service available at the
right place.
15. Explain the Product Hierarchy. (Recall the term ‘product line’ with example.)

Ans –

• Product Hierarchy
There is a hierarchical relation between different products offered to consumers. Starting from
category of the need served it goes upto particular product item which actually satisfies that
need. The overall product hierarchy is described below:

1) Need Family: This is the top most level in the product hierarchy. It describes the type of
basic need which is to be satisfied by the firm. For example, personal care is one 'need family'
for any firm.

2) Product Family: The next level in this hierarchy is 'product family'. It includes different
product classes which can be used to satisfy the targeted basic need. For example, need for
personal care can be fulfilled by different product classes like skin care, hair care, tooth care,
etc. These are the product classes which combine to form the 'product family' for the 'need
family', i.e., beauty.

3) Product Class: The third level of product hierarchy is the 'product class'. It denotes the
group of products having a specific functional consistency within the product family. For
example, skin care is a product class for a particular firm.

4) Product Line: The next level in product hierarchy is 'product line'. In each product class
there are few product lines. Each product line is made-up of number of closely related products.
These may be closely related because of similar mode of function, similar price ranges, similar
buyer types or similar distribution channels. For example, creams, soaps and deodorants are
the product lines which come under the product class of skin care.

5) Product Type: The next level in product hierarchy is 'product type'. It denotes the total
number of variants available in a particular product line. For example, non-alcoholic, alcoholic,
strong or mild deodorants and deodorants for males and females are the product type.

6) Brand: Brand is the sixth level of product hierarchy and is referred to the name with which
one or more products can be identified or recognised. For example, Axe is a brand of male
deodorants.

7) Item: This is the seventh level of product hierarchy and is referred to a particular unit within
a product line or brand which can be differentiated on the basis of its appearance, specific
feature, shape, size, weight or price. This unit can also be termed as product variant, sub-variant
or stock-keeping unit. For example, Axe black is an item used as deodorant.
16. Reproduce the meaning of ‘franchising’ with example.

Ans –

• Franchising
1) Franchising is an agreement between two entities where the owner (franchisor) of a
company grants the right to the other party (franchisee), to use its trade name or
trademark and also specific business processes and techniques for producing and
marketing goods or services.
2) In general, the franchisor lists all the terms and conditions to the franchisee on the basis
of which the entire business is conducted.
3) The franchisor provides all these facilities to the franchisee in return of a fee.
4) For this purpose, the franchisee willing to do a business then provides the required time
and capital to the franchisor in order to utilise all the available resources.
5) Hence, it is a relationship between the franchisor and franchisee, who are individual
business entities, may be in form of sole proprietorship, partnership or corporations.
6) According to the International Franchise Association (IFA), "Franchising is a
continuing relationship in which the franchisor provides licensed privilege to do
business, plus assistance in organising, training, merchandising and management in
return for a consideration from the franchisee".
7) The franchising model considers only those business firms who are well-established
and have goodwill in the marketplace. A company having this can then permit others to
use its trade name and business system.
8) A franchise can be successfully executed with simple businesses as they can be easily
imitated, like coffee shops, fast food outlets, printing and copying outlets, etc.
9) The franchisor holds a strict control over the processes and activities of the franchisee
so as to maintain the goodwill and quality of products/services in the market.

• Characteristics of Franchising
1) Well-Established Business: A franchise is a well-established and successful business
which seeks to expand its market share with the help of a local representative.
2) Needs Limited Investment: The investment required for entering a franchise is
reasonably low as it is already established by the franchisor.
3) Easy Entry in New Markets: It is very easy for a franchisor to enter a new market as
the company has already established its reputation and goodwill in other markets.
4) Business has Large Establishments: Generally, franchise is a large-scale
establishment which operates globally through a network of local representatives in
different market segments.
5) Facilitates in Diverting Business Risks: The owner of a company can diversify his
risks by setting-up various outlets in different markets across the world.
6) Results in Large Turnover: The management of franchisor and service ability of
franchisee benefits the society and results in high sales volume. The turnover is also
influenced by the brand name and hyper publicity.
 7) Division of Labour and Specialisation: In franchising, division of labour and
specialisation is followed. Where the franchisor focuses on the production system, at
the same time, franchisee is responsible for distribution and services at unit. This work
pattern is beneficial for both, i.e., the franchisor and the franchisee.
8) Allows Use of Brand Name and Trademark: In a franchise, the franchisee is free to
use the trademark and brand name of the franchisor for managing and developing the
franchise business around the world.
9) Business is Based on Mutual Agreement: A franchising business is based on certain
terms and conditions or a mutual agreement on which the franchise business is based
upon. This agreement is held on the basis of mutual understanding between the
franchisor and the franchisee. The agreement must be drafted in detail to avoid any kind
of disputes.
10) Long-Term Relationship to Meet Success: A long-term relationship between the
franchisor and the franchisee is essential for the successful functioning of a franchise
business. It ensures the growth and profitability of business in future. Other than this,
it also enables the franchisor to sell a franchise more effectively, implement the
necessary changes into the system, and motivate the franchisee and its staff members
to maintain and improve the quality of products and services.

• Types of Franchising
1. Product Franchise:

1) Product franchise is the most elementary and simple form of franchise.

2) In this kind of set-up, a franchisor can be seen as a distributor, who distributes the goods
to the retailers with a believe that the retailer is having the authority to sell the products
and goods in a specific location.
3) In common practice, these kinds of markets are associated with a certain geographical
locations. Car dealership, gas stations and many fashion and FMCG organisations can
be seen as a typical example of this category.
4) The older examples of franchising are the product franchise in England and Germany,
the beer franchises which are running since early 1800s and are still functional.

2. Manufacturing Franchise:

1) Manufacturing or processing franchise is the second form of franchise system which is

quite often derived from first type of franchise.
2) In this type of franchise, a certain type of element or particular specification is provided
by the franchisor, which is used by the franchisee in the production of the goods.
Medicine and soft drinks are the typical examples of this type of system.
3) Other examples are companies having a retailer's label can manufacture private label
goods, and companies having license of a designer label can manufacture fashion
apparels.
3. Business-Format Franchise:

1) Business-format franchise is the third form of franchise which was developed in the
post-war scenario of mid 1950s.
2) In this type of system, an extensive, detailed, operating setup is provided to the
franchisee by the franchisor.
3) Each franchisee should follow all the rules and norms of the franchisor; else franchisor
has a right to withdraw the franchise.
4) These franchises can be food centres, restaurants, travel agencies, etc. For example,
Pizza Hut, McDonalds, Holiday Inn, 24-7 convenience store, etc.
5) Business-Format Franchise is the most common form of franchise which is very
prevalent in Australia and is considered as a mature sector. In 1999, total 708 franchises
were operating in Australia, out of which 677 were using business- format franchise.
This is the most widely used franchise format worldwide.
6) The commonly used formats of franchising are as follows:
a. Manufacturer-Retailer Franchise: In this kind of format, the retailer is given
the authority to sell the products and services of a certain franchisor, e.g., petrol
pumps, bike dealership, etc.
b. Wholesaler-Retailer Franchise: In this format, the retailer has a right to
distribute the products of the wholesaler, e.g., Health Mart, Max medical outlets,
Titan watches, etc.
c. Service Sponsor Retailer Franchise: In this format, a service organisation
provides the license to any retailer to serve its customers on the behalf of
franchisor, e.g., VLCC centres, Lakme salons, etc.

• Importance of Franchising
1) Proven Market for Product or Service: A well-known market already exists for the
franchiser's products or services. Facts and figures about the performance of existing franchises
can be easily attained from the franchisee. This helps the franchisor to make future projections
and decisions. However, it is not a similar case for newly established franchises.

2) Advantages of Purchasing: The franchisor purchases large inventories for franchisee. In

these cases, the franchisees need not have to purchase several items as they are already provided
by the franchisor, which results in cost savings.

3) Advantages of Training: New franchisees are often trained by the franchisors. These
trainings can be in the form of thorough training sessions or instruction manuals. This has a
positive impact on the growth of franchisee's business.
4) Advantages of Marketing and Management: Franchising business offers a product which
is already known and tested in the market. Customers believe the franchisees due to the
goodwill and brand name of the franchisors. Hence, it is easy for franchises to launch and
manage a product in the market. The opportunity of having accessible marketing image of the
franchise business would be one of the best benefits of selecting a franchising method. This is
the reason why most franchisors put all their efforts and abilities in promoting, advertising and
marketing of their names, logos, product and services.

5) Quality Control Standards: There are certain quality control standards which are imposed
by the franchisors on the franchisee. These standards are essential for maintaining the quality
of the products, thus, maintaining the goodwill of the business in the market. The franchisee
also identifies these standards as essential guidelines for developing and maintaining high
standards and considers these as a key reason for the success of business.

6) Less Operating Capital Requirement: Usually, franchisees require very less capital for
establishing their business. They do not have to spend much on the infrastructure of the
business as it is provided by the franchisor at a nominal cost. Having a prior knowledge about
the market also helps the franchisee to spend less on inventories, as they are already aware of
what product is in demand and what is not.
7) Growth Opportunities: Several growth opportunities are provided to new franchisees by
the franchisors in the form of setting up initial franchise unit and further purchasing additional
franchise locations. Because of this, franchisee faces no competition from other franchisees or
other outlets in a certain geographic area. This facilitates the new franchisee to start and develop
new stores within the specified locations...

17. List the sources of Idea generation.

Ans – See Question No. 2

18. A(n) _____ product exceeds customer expectations.

i) Strategy

ii) Superior

iii) Augmented

iv) Anticipated

19. Define product Vs Brand.

Ans – See Question No. 12

20. Enlist components of product Mix.

Ans –

• Product Systems and Mixes

1) A product system can be considered as a group of products which are different in
appearance but have great compatibility. For example, a smart phone has many
ancillary products like data cables, cameras, head phones, mp3 player, voice recorders,
etc.
2) The product mix is the total number of product lines that is supplied by a supplier to a
customer. It is often referred to as product assortment.
3) A product mix has several different product lines under it, not necessarily all items in
the product mix are related to each other. Thus, it is also known as "a compilation of
the various products produced or marketed by a company" as product mix contains
aggregate of all the products offered by a company. For example, a company's product
mix could comprise shaving products, soaps, detergents and beauty products.
4) A group of all product lines and commodities supplied by a seller to its customers is
called 'product mix'. It can also be termed as 'product assortment'.
5) Product mix is a mixture or combination of all the products made available by a firm to
its customers. It can also be termed as “a compilation of the various products produced
or marketed by a company". For example, a company's product mix consists of
shampoos, detergents, soaps, etc., produced by it.
6) According to American Marketing Association, “Product Mix is the composite of
products offered for sale by a firm or a business unit". For example, if an enterprise
manufactures or deals with different varieties of soap, oil, toothpaste, toothbrush, etc.,
the group of all these products is called 'Product Mix'.

• Product Mix Decisions

The product mix of an enterprise has particular length, width, depth and consistency. All these
factors are explained below with the help of an example about product mix of Hindustan
Unilever Limited:
1) Product Mix Length: The total number of products comprising the product mix is termed
as the product mix length. Several brands are part of each product line offered by Hindustan
Unilever Limited. For example, product mix consists of ten soaps, four shampoos, two
toothpastes, six laundry detergents, etc.
2) Product Mix Width: The number of product lines offered by a company denotes the span
or width of the product mix. HUL offers a considerably extensive product mix which consists
of several product lines dealing in cosmetics, food, household cleaning products, paper,
medicines and personal care products. The product mix width of HUL is represented by five
product lines in the figure 1.3. There are several other product lines which are part of the
product mix of HUL.

3) Product Mix Depth: Different forms of products available in the product line define the
depth of the product mix. It is understood that the various types of products available in the
product line form the product mix depth. For example, the famous toothpaste 'Close up' is
available in three types namely; blue, green and red and in 5 sizes, it can be concluded that the
depth of Close up is 15. In case of HUL, the average of various kinds of product groups offered
under the brand name need to be calculated for computing the average product mix depth.

4) Product Mix Consistency: The close association of the product line in terms of the final
consumption, product distribution networks, manufacturing requirements or any other possible
ways, decides the consistency of the product mix. As HUL majorly deals in consumer goods,
all product lines have maintained required consistency level because of similar distribution
networks.

21. Draw a diagram of Goods & service continuum.

Ans –

• Goods-Services Continuum
1) In general, organisational products are a composition of goods and services.
2) According to the goods-services continuum, some products may have either tangible
(e.g., salt) or intangible (e.g., teaching) characteristics.
3) However, there are some products which provide both goods and services at the same
time, like travelling via airplane.
4) The position of product on the continuum enables the marketer to spot potential
opportunities.
5) At the tangible (pure goods) end of the continuum, only those goods are positioned
which are not related to services.
6) At the intangible (pure services) end of the continuum, only those services are
positioned which have no association with physical products.
7) The middle portion of both the ends consists of the products which have combined
characteristics of both goods and services, e.g., goods like air-conditioners also require
services like installation and delivery, besides being a product in itself.
All the three positions involved in goods-services continuum, are described below:

1. Goods Dominated Products:

1) These types of products are tangible in nature and are complemented with supporting
services. For example, one month warranty or toll-free services are mainly offered by
the company to increase the value of the product.
2) The strategy of associating the supporting services with the main product is called
'embodying'.
3) The term embodying is used by IT industry, where companies use this strategy to enter
into international market which is flooded with low-cost products having inappropriate
user-guidance.

2. Equipment-Based or Facility-Based Services:

1) In this category, both goods and services combine to form a complete product. For
example, restaurants and hotels are placed in middle of the continuum, as they use
goods (e.g., expensive crockery) and services (e.g. skilled manpower).
2) Other facility-driven services such as museums, multiplexes, zoos, amusement parks,
etc., involve following three factors:
a. Operational Factors: Effective utilisation of different technologies should be
practised so that customers feel delighted while using services. A proper set of
instructions and indications must be provided to guide customers about using
the service. This may help the company to reduce their waiting time.
b. Locational Factors: These services are commonly purchased services, e.g.,
ATM or dry clean services. Here, location plays an important role as these
services are provided at particular locations.
 c. Environmental Factors: These are storefront services where customers visit
the place for services. Therefore, environment of that particular place should be
attractive enough to appeal customers. For example, banks must provide an
elegant and sophisticated appearance, advanced technology, quick services, etc.,
to their customers.

3. People-Based Services:

1) These products mainly include services and are placed towards the intangible (service)
side of the continuum.
2) People-based services are becoming popular because people are finding it difficult to
take out time for several tasks.
3) For example, people recruit professionals for their legal and tax related work. Personal
fitness trainers have a great business in mostly all cities. Even people hire professional
dog walkers for their pets.

22. Enumerate classification of Product.

Ans – See Question No. 4

23. Recall Marketing Audit.

Ans –

• Marketing Audit
1) Marketing audit can be understood as the on-going, systematic and objective study of
analysing the efficiency of marketing activities of a firm.
2) Different types of marketing activities and policies can be analysed effectively with the
help of marketing audit along with determining the amount and direction of the firm's
growth.
3) The main focus of a marketing audit is on analysing the long-term interest and
challenges of a firm rather than focusing on its short-term goals and accomplishments.
4) One of the essential constituents of marketing planning process is marketing audit.
5) These audits are implemented when the process of marketing planning starts and is also
done at different points during the implementation phase of the marketing plan.
6) Analysis of different types of internal as well as external impacts on marketing plans
along with their reviews is done under the marketing audits.
7) According to Schoell, "Marketing Audit is a comprehensive review of the organisation's
overall marketing performance and prospects".
8) According to Harwood Merrill, "Marketing audit is a systematic, critical, and impartial
review and appraisal of the total marketing operation".
9) There is no such company which is completely sure that all the marketing operations
and functions are perfectly fine.
10) It is important for the firms to analyse that the plans, programmes, marketing policies,
systems and methods designed in the past are still significant or not. Also, it needs to
check whether such plans have any role in the future or not. All these concerns can be
addressed with the help of marketing audits.

• Features of Marketing Audit

I. Comprehensive and Functional: The marketing audit can be seen as a comprehensive
(horizontal) audit and functional (vertical) audit:

1. Horizontal Audit:

1) The complete marketing performance of a firm with certain importance to

interrelationship of different variables and their relative significance is studied under
horizontal audit.
2) Tracking a process from one end to other end is the main activity performed under this
audit.
3) The firm's marketing environment, organisation, systems, strategies and objectives are
included in the horizontal audit.
4) It mainly deals with the optimisation of available resources so that the total
effectiveness of marketing efforts can be maximised.
2. Vertical Audit:

1) When a detailed analysis of a single aspect of the company's marketing strategy (such
as product planning) is done, it is regarded as vertical auditing.
2) In this type of auditing, all the dimensions of data protection system are checked within
a certain area, function or department.
3) It is important to title the vertical audit with a name according to the activity being
audited as it mainly deals with a certain function of the marketing mix at one time. For
example, advertising audit, salesforce audit, pricing audit, and so on.

II. Systematic:

1) A marketing audit is performed systematically by following certain steps.

2) The utility of any marketing audit depends upon the amount by which different orderly
sequences are followed in the diagnosis of various steps including marketing
environment, certain marketing activities and internal marketing system of a firm.
3) A corrective action plan must be implemented after the diagnosis which should include
both short-term and long-term actions by which the overall marketing effectiveness of
a firm can be significantly improved.

III. Independent:

Marketing audits are of independent nature as there are mainly six methods by which the
marketing audit can be conducted:

i) Self-audit,
ii) Audit from across,
iii) Audit from above,
iv) Firm auditing office,
v) Firm task-force audit, and
vi) Outsider audit.

IV. Periodic:
1) When audits are conducted periodically, companies gain a healthy competitive position
in the market.
2) Most commonly, whenever the sales of a firm decrease rapidly, either various marketing
problems arise or the morale of sales force gets substantially decreased. In such
situations, different types of periodic marketing audits are conducted.

• Components of Marketing Audit

There are mainly six important elements which must be analysed in marketing audit for the
company's marketing position. These are as follows:

1. Marketing Environment Audit: In this kind of audit, various macro-environment forces

(which have the capacity of influencing the company's business operations) and important
patterns in the vital component of the firm's task environment (such as customers, competitors,
distributors, dealers, facilitators, markets, etc.) are thoroughly analysed.

i) Macro-Environment Audit: Under this audit economic environment, cultural

environment, demography, technology, and political environment are analysed.
ii) Task Environment Audit: Under this audit, public, customers, competitors,
facilitators, distributors, dealers, suppliers, and other marketing firms are analysed.

2. Marketing Strategy Audit: In this type of audit, the firm's marketing objectives and
strategies are thoroughly analysed in order to understand their adaptability to the existing and
forecasted marketing environment. Following aspects are included in it:

i) Business mission,
ii) Marketing objectives & goals,
iii) Strategy.

3. Marketing Organisation Audit: Under this type of audit, the capabilities of a marketing
organisation are analysed for developing and conducting various important strategies for the
predicted marketing environment. The following aspects are covered in it:

i) Formal structure

ii) Functional efficiency

iii) Interface efficiency

4. Marketing Systems Audit: In order to determine the significance of innovations, analysis,

planning and controlling of a firm in the marketing area, this audit is conducted. With the help
of this audit, different activities of business can be analysed very closely. The different aspects
which are included:

i) Marketing Information Systems

ii) Marketing Planning Systems
iii) Marketing Control Systems
iv) New Product Development Systems

5. Marketing Productivity Audit: Under this audit, analysis of data on the profitability of
various marketing elements is done along with the cost effectiveness analysis of various
marketing expenses. The different aspects of this audit are:

i) Profitability analysis
ii) Cost-effectiveness analysis

6. Marketing Function Audits: In this audit, an in-depth analysis of important elements of

marketing mix is conducted. The different aspects of this audit are:
i) Products
ii) Place (Distribution)
iii) Price
iv) Promotion
 v) Sales Force

• Areas to be Investigated in Marketing Audit

1) Factors that have created either a positive or negative impact on the firm in recent years.
These factors also involve unexpected competitors' actions or any change in the
marketing environment, which have the capability of affecting the outcome of a
marketing programme.
2) Level of customer satisfaction of targeted group of customers.
3) Satisfaction level of vendors, distributors and intermediaries
4) Attitudes, marketing knowledge, and satisfaction level of all officials involved in
function of marketing.
5) The level by which the marketing of the marketing programme was done internally and
supported by top management and non-marketing executives.
6) The accuracy level of every decision made under marketing mix such as targeting,
positioning, pricing, advertising, etc.
7) The performance of sales force, advertising, promotion and marketing research
programmes with their main focus on return-on-investment.
8) Checking whether the stated financial and non-financial goals and objectives were
accomplished by the marketing plans.
9) Different dimensions of marketing plans which became unsuccessful in achieving the
goals along with providing suggestions to improve future results.
10) Customer equity and current value of brands in the portfolio of the products.

• Process of Marketing Audit

There are mainly three simple steps in conducting the marketing audit which are elaborated as
below:

1. Setting the Objectives and Scope:

1) Conducting a formal meeting between the potential auditor and the firm's managers will
be the first step of marketing audit.
2) The main purpose of this meeting is to find out the nature of marketing operations and
potential value of marketing audit.
3) If the potential advantages of conducting a marketing audit are quite substantial for a
manager then an arrangement has to be worked out between managers and auditor about
the objectives, depth, data source, time period, coverage, and audit's report format.
2. Gathering the Data:

1) One of the most time-consuming activities for an auditor is data collection.

2) In large projects, a team of auditors is involved rather than a single auditor;
nevertheless, the term 'auditor' is used for representing group of auditors.
3) In order to control the auditing time and costs, a detailed plan has to be formed in order
to determine who will interview whom, questions to be asked, where and when to
conduct this activity and so on.
4) All the interviews are needed to be documented in writing and properly reviewed so
that different areas of data collection can be identified during the data collection
process.
5) The basic principle of auditing is that the team should not be completely dependent on
the individuals being interviewed for collecting data.
6) The most important group which is to be interviewed is customers as the perception of
the customers about a certain firm and its competitors is not known to many marketers.

3. Preparing and Presenting the Report:

1) After different types of data are collected, a tentative report will be prepared by the
auditor.
2) Conducting a meeting twice or more between the auditor and marketer before the
completion of data collection is a common practice for determining the reaction and
suggestions of managers.
3) In order to present the findings to the managers or small group of individuals who hired
the auditor, a visual and verbal presentation is usually prepared by the auditor.
4) Restatement of objectives, presenting the main findings, and proposing vital
recommendations are the main parts of this presentation.
5) After this, the final report is prepared by the auditor which is mainly a report written in
a formal manner consisting of visual and verbal materials.
6) This report will be submitted to other groups of the company rather than submitting it
to the managers.
7) The most significant part of an audit report is the process which is going to be initiated
by managers in debating and developing their concepts regarding the required
marketing actions.

• Benefits of Marketing Audit

1) Providing a Comprehensive View: The in-depth analysis of marketing activities being
conducted in any firm can be done with the help of marketing audit. It presents a clear picture
of all the marketing operations. Various demerits and improvements in efficiency of the firm
can be identified by conducting a proper marketing audit. An improved marketing plan can also
be developed with the help of this process.

2) Reforming Business Practices: Different types of business practices of a firm can be

reformed, which can result in improved profitability and overall productivity.
3) Ensuring Correct Actions: Marketing audit assures different managers, investors, and top
management that correct functions are being performed or not. This is essential to make sure
that the firm is in aligned with the right rack of growth.

4) Developing Effective Business Planning: Different types of marketing activities and

outcomes are critically examined and analysed with the help of marketing audit. Various
guidelines are provided for measuring the business performance and ensuring effective
business planning so that more demand can be generated and positive external perception can
be improved.

5) Determines Value of Sale: The values of sales and sales lead can be determined through
marketing audits.

6) Provides Provisional Report Card: Marketing is an activity which includes no permanent

right answers. Different targets are modified on the basis of customer's needs and the testing or
re-testing of marketing plans is conducted in order to determine the most suitable and profitable
composition. In order to support the firm and their staff, a provisional report card is provided
by the marketing audit for attaining higher success.

7) Strategic Marketing Change: Strategic marketing changes are implemented when

effective marketing audits are conducted. The direction of the firm can be re-analysed by
determining the changing environment, competitors, channels and customers.

24. Define skimming Pricing.

Ans – See Question No. 5

Q.2. Answer any two. (5 marks)

1. Differentiate between Penetration Pricing vs Skimming Pricing.

Ans –

Ans – See Question No. 5

• Difference between Penetration Pricing and Skimming Pricing

Basis of Price Skimming Penetration Pricing

Comparison

1) Definition A strategy where a firm sets a A strategy where a firm sets a low
high initial price and then initial price to attract customers
gradually lowers it over time. and gain market share.

2) Objective To maximize revenue from early To gain market penetration and

adopters and recover costs attract price-sensitive customers.
quickly.

3) Pricing High price at launch, gradually Low price at launch to encourage

Approach reduced over time. quick adoption.

4) Target Early adopters, brand-conscious Price-sensitive customers looking

Customers and less price-sensitive for affordability.
customers.

5) Profitability High initial profits, but demand Lower initial profits but long-term
decreases over time. gains due to increased market
share.

6) Market Effective in markets with low Works well in competitive

Condition competition or highly markets with high price elasticity.
innovative products.

7) Example New smartphone models, high- Subscription services, basic

end televisions, luxury products. consumer goods, new grocery
items.

2. Summarise the classification of Consumer Products.

Ans – See Question No. 4

3. Differentiate between Omni Channel vs Physical Channel.

Ans –

4. Differentiate between ‘omnichannel vs multichannel.’

Ans –

• Omni Channel
1) 'Omni' refers to 'all,' hence omni-channel is one where all marketing channels are
employed by organisations having the customer at the focal point.
2) Omni channel is a customer centric strategy where any medium type can be used by the
customer, like company's website or social media and where the buying experience of
customers is consistent and seamless.
3) The emphasis of omni-channel is on seamless customer experience where every
distribution channel employed by the organisation must not only engage with the
customer but also offer a clear voice and outlook for the brand.
4) Developing an indestructible relationship between the customer and the brand is the
objective of an omni-channel marketing strategy.
5) One may also come across terms like 'hybrid channel marketing' and 'cross channel.'
This adds to the confusion of omni-channel and multi-channel marketing.
6) These terms are apparently entirely different marketing strategies, but in reality they
are just general marketing terms which imply the use of more than one marketing
channels within the company's distribution strategy.
7) Omni channel is a multichannel sales approach with an objective of offering integrated
and seamless shopping experience to the customers, regardless of the medium, which
can be online (via mobile device or desktop), through phone or a physical store, etc.

• Difference Between Multichannel and Omni Channel

1) Omni channel is entirely different from multichannel marketing; however their motive
is to reach maximum numbers of potential customers through multiple channels.
2) Multi-channel implies many whereas omni-channel implies all.
3) Unlike multi-channel, the focal point of omni- channel marketing is the customer. It
attempts to offer an entirely unified and consistent shopping experience to the
customers at all the touch points rather than just allowing that touch point.

Basis of Comparison Multichannel Marketing Omnichannel Marketing

1) Definition Uses multiple independent Integrates all channels to

channels to reach a broad provide a seamless and
audience. unified customer experience.
 2) Focus Maximizing reach and Creating a consistent and
engagement across various connected experience across
platforms. all customer touchpoints.

3) Approach Channels operate separately with Channels are interconnected

different messages. and provide a unified brand
experience.

4) Customer Customers interact with different Customers receive a seamless

Experience channels but may receive and personalized experience
inconsistent experiences. across all channels.

5) Communication Message varies by channel and is Consistent messaging across

Strategy often adapted per platform. all channels, ensuring brand
familiarity and engagement.

6) Effort for Customers may need to put in Reduces customer effort by

Customers extra effort to navigate between integrating data for an
channels. effortless shopping
experience.

7) Example A company uses social media, A brand integrates social

email, and stores separately to media, email, website, and
reach customers. stores to provide a connected
experience (e.g., an online
purchase can be picked up in-
store).

4) On the whole, employing multiple channels to reach out to customers and prospective
customers is the aim of both omni-channel and multi-channel marketing.
5) However, they are both two separate strategies. Therefore, companies can boost
customer retention and profits by focusing on omni-channel marketing efforts.

• Benefits of Omni Channel

1) Long-term Relationships with Customers Across all Channels: A strategy with
customers at the focus point makes sure that customer loyalty is earned across every channel.
Separate marketing activities for every channel are not required since omni channel strives to
offer a seamless and an integrated customer experience to the buyers. This helps in reducing
possible information loss, rewarding customers, and increasing customer service quality.

2) Integrated Communication and Analytics: Different messages are created by different

communication channels. These messages have to assessed by companies for addressing the
needs of the customers. With the help of analytics, the business owners can get an idea
regarding their interaction with the customers. Every action of the user as they navigate from
one channel to another will be recorded. This would enable the marketer to have a real time
view of the business comprising engagement levels, revenues and every transaction.

3) Reaching out to Millennials: A perfect target segment for the omni-channel strategy is the
millennials which are the new generation of consumers. They can be found online most of the
time and want to be able to move between offline and online purchasing channels seamlessly.
A lot of options are available with the millennials. As a result, any unsatisfactory experience
from one store will result in them switching to another store.

4) Increasing Brand Awareness: A better status and reputation among the consumers is gained
by those brands which reflect consistent marketing and sales efforts throughout every
distribution channel.

5) Opportunity to Review all Transactions: There will be no losing of individual transactions

when every channel is managed for every customer. Every transaction, from the demographics
of loyal buyers to the time and place of greater likelihood of purchase of particular products,
has the ability to carry the complete business in the forward direction.
6) New Sources of Income: With the help of omni-channel commerce, new sources of income
have been generated for the distributors. Adopting of payment infrastructure has been
simplified by the omni-channel commerce in a wide variety of small enterprises which conduct
business.

7) Boosted Sales and Conversion: Shopping can be made convenient through well optimised
e-commerce platforms. Customers can use any platform and can shop from anywhere they
want. This type of cross- platform flexibility and compatibility boosts the likelihood of
purchase of the products of the distributors. Additionally, the buyers gain many options and
platforms to avail product information as well as purchase the product. As a result, the
wholesalers and distributors must produce complete product content so that the viewers are
converted into buyers. In this way, they can make use of these channels.

8) Integration of Business: Different aspects of business like the customer support, marketing,
sales, ERP systems, etc., can be integrated with the help of an omni-channel strategy. Through
such integration, goods and services of highest quality can be delivered to the customers.
5. Differentiate between ‘consumer products vs industrial products.’

Ans – See Question No. 5 (Form Q.1. Answer any five.)

• Difference between Consumer Products and Industrial Products

Basis of Consumer Products Industrial Products

Difference

1) Nature of Consumer products are Industries and manufacturing units are

Customers consumed by the final the main consumers of industrial
consumers. products.

2) Number of Large number of customers use There is a limited number of customers

Customers consumer products. for industrial products.

3) Nature of Consumer products are directly The demand for industrial products is
Demand demanded. Thus, it is known as indirect. Thus, it is known as derived
autonomous demand. demand.

4) Product Most consumers are unaware The consumers of industrial products

Analysis of all the consumer products in are well aware of the products and their
the market. Therefore, they are pros and cons. They extensively analyze
unable to analyze the pros and the product before purchasing it.
cons of a product before
purchasing it.

5) Buying The factors to be considered The factors to be considered while

Considerations while purchasing consumer purchasing industrial products are
products are packing, design, availability, suitability, utility, and price
color, durability, utility, price, only. Usually, in industrial products, the
etc. factors like design, size, color, etc., are
not taken into account.

6) Quantity of Consumer products are bought Industrial products are bought in large
Purchase in small quantities. quantities.

7) Market The consumer products’ The industrial products’ market is small

Extension market is extremely large and compared to consumer products.
widespread.

8) Marketing In consumer products, In industrial products, the buyer-seller

Strategy advertising and sales relationship plays a crucial role.
promotion methods are most
significant.
6. Summarise the concept of ‘product hierarchy.’

Ans – See Question No. 15

7. Describe parameters of Annual plan control.

Ans – See Question No. 6

8. Explain the factors influencing pricing decision.

Ans –

• Price and Pricing

1) The only component of marketing mix that generates returns is called price, however,
others only generate costs.
2) Price can be easily altered, whereas, other product aspects like channel obligations and
product attributes cannot be changed so easily. Therefore, price is the most flexible
component of the marketing mix.
3) For a manufacturer, price is that amount of money (or in case of barter trade, goods or
services) which he will receive from the buyer for his product.
4) For a customer, price is something he sacrifices for owning the product or service and
therefore, it displays his perception for the product value.
5) It can conceptually be defined as:

6) As per this equation, the numerator as well as the denominator is crucial while taking
price decisions.
7) A product's price is based on the seller's decision regarding its monetary worth to the
buyer.
8) The method used to convert the worth of a product or a unit of service into quantitative
form (i.e., rupees and paisa) at a given time for customers is called 'pricing'.
9) According to Prof. K.C. Kite, "Pricing is a managerial task that involves establishing
pricing objectives, identifying the factors governing the price, ascertaining their
relevance and significance, determining the product value in monetary terms and
formulation of price policies and the strategies, implementing them and controlling
them for the best results".
10) Pricing can, therefore, be defined as the task of deciding the monetary value of an idea,
a product or a service by the marketing manager before he sells it to his target
customers.
11) In particular, pricing is the process of formulating objectives, deciding the flexibility
that is available, devising strategies, setting prices, and implementing and controlling
the above elements.
• Objectives of Pricing
1) Profit Maximisation: The basic aim of a pricing decision is to increase the profits of the
firm. The pricing policy thus must be made in a way that it can help the firm achieve to
maximum profits.

2) Price Stability: It must be ensured that prices remain as stable as possible. When a pricing
policy is stable, it gains customer confidence and enhances the reputation of the company. This
can be done by taking into account long-term and short-term elements.

3) Facing Competition: Another objective of price decision is to handle the market

competition effectively. The competitive situation must be kept in mind while finalising the
prices of products and services. At times, management prices its product very low as compared
to its competitors in order to discourage all the possibilities of competition.

4) Achieving a Target-return: The reputed and well set-up firms aim to set a specific rate of
return on investment (either for the product quality or for the company's/brand's name). They
calculate the product's price in such a manner so as to achieve the desired rate of return on
investment. Different products may have different target returns, but they must all be associated
with one final targeted rate of return.

5) Capturing the Market: Capturing the market is also an important objective of pricing.
When a big organisation introduces its product in the market, it fixes the price of its product
lower than its competitors. This is done keeping in mind the competitive structure of the market
and with the aim to capture a big market share.

6) Firm's Wellbeing in the Long-run: The prime objective of certain organisations is to set
the price of their product in a manner that best suits the organisation in the long-run. While
doing this, the economic situation and market conditions must be kept in mind.
7) Profit Margin of Middlemen: The product must be priced with the aim of providing the
middlemen a reasonable return on the sale of a product. If this does not happen, they will not
take relevant interest in facilitating the product's sales.

8) Mobilisation of Resources: Another objective relating to pricing is the mobilisation of

appropriate resources for the growth and development of the organisation. Therefore,
organisations aim to price its products in such a manner that it can acquire enough resources.

9) Survival: Survival strategy is preferred by firms dealing with it's over capacity, extreme and
fresh competition or varying consumer behaviour. It is also an important objective of pricing
in certain organisations. It helps companies sail through rough waters and is hence a short-term
objective. The company prefers this strategy until the price is more than variable costs and
some of the fixed costs are retrieved. However, the company must strive to add value in the
long-term.
• Factors Influencing Pricing Decisions

I. Internal Factors:

1. Marketing Objectives:

1) Firms devise both specific as well as general objectives.

2) Survival, market share leadership, current profit maximisation and product quality
leadership are some of the general objectives of the firm.
3) The firm may price its products lower than its competitor to prevent their entry in the
market or at times, set its price equal to its competitor so that market is stabilised. This
is an example of specific objective.
4) Products can be priced in order to sustain the reseller's support and loyalty or to
circumvent government intervention.
5) Marketers can decrease the prices to increase the customer interest towards the product
or attract traffic into the retail outlet.
6) A single product, if priced appropriately, can help to increase the sales of other products
in the product line of the company. Hence, pricing decisions are greatly influenced by
marketing objectives at various levels.

2. Marketing Mix Strategies:

1) Marketing mix strategies of an organisation are very significant in influencing the

organisational pricing.
2) One marketing mix tool that the firm uses to accomplish its objectives is 'price'.
3) While taking price decisions, the product design, promotion decisions and distribution
plans must be aligned together to create a reliable and valuable marketing program.
4) Pricing decisions are strongly influenced by decisions that are made for other marketing
mix variables.
5) Usually, organisations position their products on the basis of price and after that modify
other marketing mix decisions, according to the price they intend to charge.
6) In such a scenario, price is an important product-positioning factor that classifies the
market, design and competition of the product. This kind of price-positioning strategy
is supported by many firms. They use the target costing technique, which is a powerful
strategic tool. For example, target costing was exercised by P&G while developing and
pricing its very thriving electric toothbrush named 'Crest Spin Brush'.
 7) Hence, the entire marketing mix must be taken into consideration by marketers while
setting the prices.
8) If price is not used as a factor while positioning a product, decisions regarding quality,
distribution and promotion have a strong impact on price.
9) In case, positioning is done on the basis of price, then the decisions made regarding all
the other marketing mix elements will be impacted by price.
10) Although marketers may use price as an element for positioning, still they must keep in
mind that customers seldom base their purchase solely on price. They look for products
that provide them benefits worth the price they are paying for.
3. Costs:

1) This is the base of the price that is charged by the firm.

2) Firms intend to charge a price that can retrieve its production, distribution and sales
cost and also provide a reasonable rate of return against risks and efforts.
3) Costs incurred by a company play an important role while strategizing pricing.
4) Various companies like Wal-Mart, Southwest Airlines and Union Carbide strive to be
the industry's "low cost manufacturers".
5) When costs are low, it becomes easier for the firms to set a lower price, which ends up
in increased profits and sales.

4. Organisational Considerations:
1) Decisions regarding who would set prices of products and services in the organisation
is very important.
2) Pricing is managed in different ways. In firms that are small in size, top management,
in place of sales or marketing department, sets the prices of the products. Whereas, in
bigger firms, product line managers or divisional managers handle pricing.
3) Sales people working in industrial markets, have the authority to bargain with the
customers within a specified price range.
4) All the same, the pricing policies and objectives are finalised by the top management
who usually approves the prices that are suggested by the lower management or sales
force.
5) Certain industries like steel, aerospace, oil companies, railroads, etc., have pricing as
the main element. They have a separate pricing department (which directly reports to
the top management or the marketing department), which finalises prices for their
products or assists other departments in deciding the same.
6) Sales managers, finance managers, production managers, accountants, etc., are the
other people who can influence pricing decisions.
II. External Factors:

1. Competitor's Costs, Prices and Offers:

1) An organisation's pricing policy is strongly influenced by the costs and prices as well
as discounts and offers of the current competitors.
2) If someone is planning to purchase a Sony digital camera, he will compare the prices
and value that Sony is offering with the value and prices of similar products offered by
other brands like Nikon, Kodak, etc.
3) The pricing strategy that the company implements also impacts the type of competition
it encounters. For example, in the case of Sony, if it pursues a high-price, high-margin
strategy, competition may increase.
4) Whereas, a low-price and a low-margin strategy might reduce competition or drive the
competitors out of the market. Thus, Sony must benchmark its cost and value against
that of the competitor. This benchmark can then be used while setting its own pricing.

2. Economic Conditions:
1) A company's pricing strategies are also influenced by prevailing economic conditions.
2) Economic conditions like recession, boom, inflation, interest rates, etc., have an effect
on pricing decisions, since both the cost incurred in production and what the consumer
perceives about the value and price of the product, are influenced by them.
3) The company should also analyse the impact of its price on different members present
in its environment and the manner in which resellers respond to different prices.
4) Prices must be set in such a way that resellers earn sufficient profits, get necessary
support and can sell the product easily.

3. Government Controls and Subsidies:

1) With the intervention of the government, the freedom of the companies to adjust prices
and maintain margins is restricted.
2) As a form of control, the government can also ask the importers to deposit cash required
in advance.
3) As per this requirement, the company needs to lash out funds as non-interest bearing
deposits for the amount of time it intends to import its products.
4) These requirements motivate the company to reduce the prices of the imported products
as lower prices account for smaller deposits.
5) The subsidies that the government provides also compel companies to strategically use
sourcing in order to become price competitive.
• Methods of Pricing

I. Cost-based Pricing:

1) The most important variable as well as the basis of pricing a particular product, is the
production cost of that product.
2) Costs may be of different kinds like total cost, variable cost, fixed cost, marginal cost,
average cost, etc.
3) These costs must be critically analysed in order to set a product's price.

Methods for finding out the cost oriented price are as follows:

1. Mark-up/Cost-plus Pricing:

1) This method requires the marketer to approximately calculate the total production or
manufacturing cost of the product and after that adding a mark-up or the margin (that
the firm intends to earn) to it.
2) This is the most basic pricing method which is used to price a number of projects and
services.
3) The below mentioned formula can be used to calculate the mark-up price:

where, α = Unit cost (Fixed cost + Variable cost); r = Expected sales returns (expressed
as per cent)

2. Full Cost/Absorption Cost Pricing:

1) In absorption/full cost pricing, the unit cost is finalised with reference to regular
production and sales level.
2) With the help of standard costing approach, variable as well as fixed costs concerning
the production, sales, and administration of the product are finalised.
3) It is called full cost pricing as it aims to recover total costs incurred on the product from
its sales.

3. Incremental Cost/Marginal Cost Pricing:

1) In this method of pricing, the company strives to recover its marginal cost so as to aid
its overheads.
 2) This pricing method gives best results in the market, where large firms operate or where
there is extreme competition and the firm works with the sole aim of establishing itself
in the market.
3) The firm adopts this pricing method when it:
a) Encounters intense competition,
b) Focuses on a new market, and
c) Possesses unexploited capacity.

4. Break Even Point/B.E.P. Pricing:

1) The sales volume, where the total cost becomes equal to the product's total sales revenue
is known as 'break-even point'.
2) In other words, the sales volume of the product, which neither witnesses profit nor loss,
is break-even point. Hence, this method is also called 'No Profit No Loss Method of
Pricing'.
3) In order to calculate price using this method, total production cost is divided into fixed
and variable cost. The final price is same as the product's production cost.
4) It is believed that the firm will not earn any profits in the short-term, but in the long-
term it will begin earning profits.
5) The price of a competitive product can be easily calculated by using this method.
6) B.E.P can be calculated by the formula mentioned below:

5. Target Pricing/Rate of Return Pricing:

1) In this pricing method, the company needs to calculate the desired rate of return on the
capital it has invested in producing the product.
2) This rate of return helps in calculating the desired quantity of profit.
3) This 'quantity of profit' and 'production cost' are summed up to find the 'per unit price'
of the product.
4) A company can employ this pricing method, when it needs to get a specific return on
the capital it has invested.
5) This method can be used only in markets with no competition at all.

II. Customer Demand-based Pricing:

1) The fundamental aspect of the demand oriented costing is that the cost involved does
not have an impact on the profits but on the demand.
2) This method, contrary to cost-based pricing, begins by finding out the price that the
consumer market intends to pay for the product.
3) Then, a backward estimation of the level of cost and profit (that the organisation can
afford due to that price) is undertaken.
Following methods are used to determine the customer demand-based pricing:

1. 'What the Traffic Can Bear' Pricing:

1) Using this method, the seller charges the customer with the maximum possible price
that they will pay willingly under the present situation.
2) This method is far from being sophisticated and is followed by retail traders and few
manufacturers.
3) In the short-run, it provides the company with large profits but is an unsafe method in
the long-run.
4) Error in judgments can easily take place as it is based on trial and error. But in markets
with monopoly/oligopoly and price- inelastic demand, it can conveniently be applied.

2. Skimming-based Pricing:

1) Skimming pricing is the commonest pricing method.

2) In this method, the companies by selling at premium prices fulfil their desire of
skimming the market.
3) The results are obtained in the below mentioned situations:
a) When high price is supposed to be a testimony of high product quality,
especially in an environment, where target market relates product quality with
its price.
b) When a customer willingly purchases the product at higher price, just in order
to become the opinion leader.
c) When the customer's status is believed to be increased by product.
d) When the entry as well as exit barriers are so low that there is almost no
competition in the industry or the industry fears a threat from potential
competition.
e) When a visible technological advancement is displayed by the product, which
makes the product a 'high technology product'.
4) When the firm adopts skimming pricing technique, it aims to attain its break-even point
at an early stage and takes lesser time to maximise its profits (or find a niche to earn
profits).

3. Penetration-based Pricing:

1) Contrary to skimming pricing, penetration-based pricing focuses on keeping the prices

low as compared to current competitors.
2) Market penetration or gaining initial market share in an intensely competitive market,
is the main objective of this pricing method.
3) Below mentioned are the situations in which this method gives results:
a) When the market is large in size and is still growing,
b) When the brands are bought by the customers not because of some definite
inclinations but because of habit, i.e., customer loyalty is low,
c) When a stiff competition dominates the market,
d) When an entry strategy is employed by the firm,
 e) When the company has weak price-quality coordination.

III. Competitor/Market-based Pricing:

1) Under this method, prices are determined by observing the competitors' prices in a
particular market.
2) Generally, small organisations follow such pricing method in presence of a market
leader. For example, a small tyre manufacturer may follow the prices of Apollo Tyres.
3) Also in case of entering a new market, a low-cost supplier may follow the
market/competitor-based pricing.
4) A large number of companies carefully analyse the price structure of the competitors,
before setting their product's price.
5) Firms formulate premeditated policies and choose a competitive market for selling their
products.

When a company prices its products using this method, it has four pricing options:
1. Going Rate Pricing/Parity Pricing:

1) In this method, the competitor's product is taken as the benchmark to set the price of
the product.
2) A firm follows this approach either when it is new in market or when an already
established firm launches a new product in the existing market.
3) This type of pricing is suitable for the markets with severe competition.

2. Pricing Below the Level of Competition/Discount Pricing:

1) When a company sets the price of its product lower than the level of competition, i.e.,
below the price that the competitor is charging for a similar product, it is called 'pricing
below the level of competition' or 'discount pricing'.
2) This method is effective in markets, where customers equate to price.
3) It is implemented by firms that are new in the market.
3. Pricing Above the Level of Competition/Premium Pricing:

1) When a company sets the price of its product upper than the level of competition, i.e.,
above the price that the competitor is charging for a similar product, it is called 'pricing
above the level of competition' or 'premium pricing'.
2) This is done to depict a better quality product by the company.
3) This pricing policy can be implemented only by firms that have a good reputation in
the market (as their image is that of a quality producer in the customer's mind).
4) This makes them the market leader.
4. Tender Pricing/Sealed Bid/Competitive Bidding:

1) The sealed bid is another competitive pricing method followed by firms.

2) There are numerous projects, government purchases and industrial marketing activities
where suppliers are called to submit their quotations to get the tender.
 3) The prices that are quoted, show the cost incurred by the company and what it
understands about competition.
4) A firm that offers a price at the cost level may become the lowest bidder and bag the
contract but would not earn any profit from the deal.
5) Thus, it is crucial for the firms to take into account expected profits at various price
levels and finally quote the price that is most profitable.

IV. Other Pricing Methods:

1. Value-based Pricing:

1) Understanding the value offered to customers is essential for accurately pricing the
product or service of an organisation.
2) In this method, cost is not the determining factor for pricing. Customer's perception of
the value associated with the product or service is the key to pricing decision.
3) Here, first the product or service is designed, thereafter the marketing strategy, and
finally the price is set by analysing the other marketing mix elements.
4) It will be clearly seen in the analysis that the below mentioned conditions can be
obtained with the cost-value-price chain:
a) Value>Price>Costs: In the first condition, price of the product is kept lesser
than the value offered, to attract the potential customers. However, significant
profit is generated by maintaining the price above the cost of production.
b) Price>Value>Costs: In this condition, value offered to customers through
product is more than its cost of production. In order to maintain a significant
level of profit companies set price more than value offered.
c) Price>Costs>Value: Sometimes, cost of production is more than the value
offered through product. Profitability is maintained in this condition by setting
the price above the production cost.
d) Price=Value>Costs: A condition may also occur, where production cost is
lower than value offered. A reasonable amount of profit is generated by setting
the price equal to the value offered.
2. Affordability-based Pricing:

1) The basic commodities that are used by every section of the society are priced using
this method of pricing.
2) The prices are set in such a manner that the people from every section of the society are
able to purchase and consume the products to a required level.
3) The cost involved has no impact on the price, but many times, some aspect of state
subsidy is considered while pricing the product.

3. Prestige-based Pricing:

1) Customers do not openly admit that their purchase is prestige-oriented.

 2) At times buyers are not even able to realise that they might be driven by prestige when
they strongly intend to purchase a particular product. This is also termed as
'psychological pricing'.

4. Market and Demand-based Pricing:

1) An effective pricing understands the way, a customer's perception of value, impacts

his/her willingness to pay a particular price for a particular product.
2) Generally, the price of a product is balanced against the benefits associated with it.
Hence, the marketer must comprehend the relation between demand of a product and
its price, before setting the final price.
3) Pricing in Different Types of Markets
a) Pure Competition: Many buyers and sellers trade similar commodities (e.g.,
wheat, rice, banking). The market price remains stable, as sellers can sell as
much as they want at the prevailing rate, discouraging price fluctuations. Higher
profits attract new entrants.
b) Monopolistic Competition: No single market price exists. Sellers differentiate
products based on style, features, quality, or services, targeting different
customer segments. Branding, promotion, and personal selling make offerings
stand out, leading to varied pricing.
c) Oligopolistic Competition: A few major sellers dominate the market with
interdependent pricing strategies. Competitors react quickly to price changes—
e.g., if one reduces auto part prices, others follow suit. Market entry is difficult.
d) Pure Monopoly: A single seller supplies the market. Pricing depends on
monopoly type:
i. Government monopoly: Prices set by the government.
ii. Regulated monopoly: Company sets prices while ensuring reasonable
returns.
iii. Non-regulated monopoly: Company freely determines prices but often
moderates them to penetrate markets, deter competition, or comply with
regulations.

5. Cycle-based Pricing:

1) Pricing commodities according to the cyclical changes in the economic events over time
is called as 'cyclical pricing' or 'cycle-based pricing'.
2) According to time series data analysis, cyclical variations within the economic event
are called as business cycles/trade cycles.
9. Describe Booz Allen & Hamilton classification scheme for new product.

Ans –

• New Product Development

1) The goods and services that vary considerably in terms of their attributes or intended
usage in contrast with the goods manufactured previously by the same firm are termed
as 'new products'.
2) It is a difficult task to define a new product.
3) It involves novel ideas and offerings which are entirely different and new for the
customers.
4) Moreover, the relative view is considered highly useful in defining a new product, as
the potential consumers who will be using the product for the first time, may identify
opportunities or problems for consideration.
5) The concept of a new product is highly multi-dimensional, which has capabilities of
satisfying the wants of desirous and interested stockholders.
6) It also provides strategic competitive advantage to significant number of interested
consumers.
7) This also leads to significant opportunity for a firm to create value in the competitive
market.
8) After product planning, the next step is product development.
9) The process of identifying the probability of producing a product is called product
development.
10) Under this process, the feasibility and profitability of producing a new product is
assessed before making a final decision.
11) According to Limpson and Darling, "Product development involves the adding,
dropping, and modification of item specifications in the product line for a given period
of time, usually one year".

• Booz, Allen, and Hamilton Classification Scheme for New Products

Booz, Allen, and Hamilton classified the new products into six categories which are explained
below. According to such classification, a marketer should closely scrutinise which is the best
class for his product. The classification scheme for the new products is shown in figure –
1. New-to-the-World:

1) As the name suggests, it is that category of product which is launched in the market for
the first time. They may also be called as really-new products.
2) Since these products are new, their prospective customers are needed to be provided
with appropriate knowledge about its working and the benefits it can provide.
3) Once the product reaches the hands of customer, it starts attracting buyers. Thus, it can
be said that the firms involved in its production will get the first mover advantage as no
such product was present in market before its launch.

2. New-to-the-Firm:

1) This category involves such products which are new to the company but not for the
market, i.e., they are already present in the market under the name of some other
companies.
2) This means that if the firm wants to produce such product, it actually wants to introduce
a new product line.
3) Hence, new-to-the-firm products can also be known as new product-lines for the firms.
3. Addition to Existing Product-Lines:

1) This category can involve both new-to-the-firm and new-to-the- world products.
2) Usually, big firms keep on adding new products to the previous product-lines.
3) This is done for several reasons, the absolute one being 'earning profits'.

4. Improved and Revised:

1) Those firms which believe in delivering 'nothing but the best'; keeps on revising their
products for delivering flawless services to the consumers. These products are known
as 'improved and revised'.
 2) Generally, this category is found in organisations producing beauty products and
electronic goods.

5. Re-Positioning:

1) It has been found that the products which are already being used can serve some other
purposes as well.
2) After realising this fact, the organisation may want to offer their products to the
customers with new added features or usage value which is known as repositioning the
product in the market.

6. Reduction in Cost:
1) Manufacturing an entirely new product can prove to be an expensive affair.
2) Yet, on close scrutiny the organisations can discover that similar product can be
produced with lower expense, which would also help in bringing down the prices.
3) Briefly, the cheaper version of an expensive product can be called cost reduction or
reduction in cost.

• Need for New Product Development

1. Meeting Changes in Consumer Demand:

1) Change is a universal phenomenon in today's time of science and technology. For

example, a quick change in the food habits, comfort preferences, tastes, customs and
traditions, needs and expectations, etc. can be seen.
2) The organisations need to keep an eye on these changes taking place in their
surroundings.
3) Customers always give preference to the products which are better in terms of quality,
fashion, price, etc.
4) An organisation has to proactively respond to such vibrant demands, which in turn
results in innovations in products and services.
5) By doing this, the organisations can keep themselves updated and can strengthen their
relationship with the customers.

2. Making New Profits:

1) Manufacturing new products is important for earning profits; since existing products
have less scope for enhancing profit levels, while new products have vast scope for it.
2) On reaching the maturity stage of PLC, the gains acquired from the existing products
start decreasing and diminishes gradually till the product reaches the decline stage.
3) Hence, it becomes quite necessary for the organisations to come up with the new and
innovative products that can replace the old product which is on the verge of declining.
4) Such new products play an important role in growth of the organisation and sometimes
they are the only source for the organisation to find new prospects of profit.
3. Handling the Environmental Threats:

1) There are various environmental threats faced by a business organisation.

2) One way to handle these threats is to find out a new product which is capable enough
to combat against it.
3) These threats spring from various environmental factors, like socio-economic,
technological, political, and demand and supply, etc.
4) Moreover, the biggest threat that is always present in such environment is competition
in the market and products.
5) Hence, it becomes vital to fight these risk factors by introducing new products.
6) More prospects of growth and development are opened through it, which further
ensures endurance and feasibility for the organisation.
7) It also distributes the risk factor among the old and new products.

4. Other Necessities: The other strategic needs for new product development are as follows:

1) New products can provide the organisation a source for gaining competitive edge.
2) They can ensure long-term financial return on the investments made. They also help in
optimum utilisation of the available resources.
3) New products make best use of research and development.
4) They can provide new opportunities for making changes in the strategic plans of the
company.
5) New products can bring most out of the marketing practices and brand equity.
6) It enhances the corporate image of the organisation/brand.

• Failure of New Products

Every organisation has to significantly devote time, money, skills and energy to innovate and
develop a new product.
Irrespective of the efforts put by the organisation, the new product may experience failures.

A product failure crucially affects the organisation in terms of time, money, brand image and
motivation level of employees.

Therefore, it is very important to determine the reason behind the failure of a product. Some of
the reasons are as follows:
1) Over-estimation of Market Size: A product will not be able to perform in the market, if the
market size is over-estimated. This may lead to less revenue generation than the desired level,
even if the quality of the product is good.

2) Under-estimation of Market Competition: When a marketer fails to estimate the actual

competition level and competitors' strengths, then the product may have to deal with severe
competition in the market. This often leads to failure of new products.
3) Inadequate Market Research: If a marketer is unable to study the market and makes
erroneous predictions about the customers' needs and wants, then this may fail to satisfy the
potential customers.

4) Lack of Uniqueness: If a product is incompetent in comparison with the competitor's

product, then customers have no reason to purchase a new product.

5) Poor Product Design: A poorly designed product may cause inconvenience to customers in
using the product. This is one of the major reasons of customers' to dislike about a product.
6) Lack of Superiority: It is essential for a product to prove itself superior in contrast to other
similar products available in the market. Sale of new products cannot be made on the basis of
superfluous claims made by the marketers. Hence, leading to the failure of new products.

7) Technical Issues: While using a new product, if a customer faces any technical issues, then
he may discontinue purchasing the same product again.

8) High Production Costs: When the price of a product is high compared to the other products
in the market, then this may lead to product failure. This occurs, when the actual production
cost exceeds the expected production cost.

9) Wrong Entry Timing: If a new product enters the market at the wrong time by making
hasty decisions or by entering late in the market, then also the product may fail to establish its
position in the market.

10) Ineffective Promotion: Ineffective utilisation of promotional tools lead to new product
failure. The customers remain unaware of the product's attributes and functions, due to which
customers do not purchase the product.